FIRST DIVISION Republic Flour Mills Corporation rejected the entire cargo

and formally demanded from North Front Shipping Services, Inc.,

[G.R. No. 119197. May 16, 1997]
TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE &
ASSURANCE, INC., and NEW ZEALAND INSURANCE
CO., LTD., petitioners, vs.NORTH FRONT SHIPPING
SERVICES, INC., and COURT
APPEALS, respondents.
DECISION
BELLOSILLO, J.:
TABACALERA INSURANCE CO., Prudential Guarantee &
Assurance, Inc., and New Zealand Insurance Co., Ltd., in this
petition for review on certiorari, assail the 22 December 1994
decision of the Court of Appeals and its Resolution of 16 February
1995 which affirmed the 1 June 1993 decision of the Regional
Trial Court dismissing their complaint for damages against North
Front Shipping Services, Inc.
On 2 August 1990, 20,234 sacks of corn grains valued
at P3,500,640.00 were shipped on board North Front 777, a vessel
owned by North Front Shipping Services, Inc. The
wasconsigned to Republic Flour Mills Corporation in Manila under
Bill of Lading No. 001 [1]
and insured with the herein mentioned
insurance companies. The vessel was inspected prior to actual
loading by representatives of the shipper and was found fit to
carry the merchandise. The cargo was covered with tarpaulins
and wooden boards. The hatches were sealed and could only be
opened by representatives of Republic Flour Mills Corporation.
The vessel left Cagayan de Oro City on 2 August 1990 and
arrived Manila on 16 August 1990. Republic Flour
Corporation was advised of its arrival but it did not immediately
commence the unloading operations. There were days when
unloading had to be stopped due to variable weather conditions
and sometimes for no apparent reason at all. When the cargo was
eventually unloaded there was a shortage of 26.333 metric
tons. The remaining merchandise was already moldy, rancid and
deteriorating. The unloading operations were completed on 5
September 1990 or twenty (20) days after the arrival of the barge
at the wharf of Republic Flour Mills Corporation in Pasig City.
payment for the damages suffered by it. The demands however
were unheeded. The insurance companies were perforce obliged to
pay Republic Flour Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance companies
they were subrogated to the rights of Republic Flour Mills
OF
Corporation. Thusly, they lodged a complaint for damages against
North Front Shipping Services, Inc., claiming that the loss was
exclusively attributable to the fault and negligence of the
carrier. The Marine Cargo Adjusters hired by the insurance
companies conducted a survey and found cracks in the bodega of
the barge and heavy concentration of molds on the tarpaulins and
wooden boards. They did not notice any seals in the hatches. The
tarpaulins were not brand new as there were patches on them,
contrary to the claim of North Front Shipping Services, Inc., thus
making it possible for water to seep in. They also discovered that
the bulkhead of the barge was rusty.
North Front Shipping Services, Inc., averred in refutation
that it could not be made culpable for the loss and deterioration of
the cargo as it was never negligent. Captain Solomon Villanueva,
master of the vessel, reiterated that the barge was inspected prior
to the actual loading and was found adequate and seaworthy. In
addition, they were issued a permit to sail by the Coast Guard.The
cargo
tarpaulins were doubled and brand new and the hatches were
properly sealed. They did not encounter big waves hence it was
not possible for water to seep in. He further averred that the corn
grains were farm wet and not properly dried when loaded.
The court below dismissed the complaint and ruled that the
contract entered into between North Front Shipping Services, Inc.,
and Republic Flour Mills Corporation was a charter-party
agreement. As such, only ordinary diligence in the care of goods
was required of North Front Shipping Services, Inc. The inspection
Mills
of the barge by the shipper and the representatives of the shipping
company before actual loading, coupled with the Permit to
Sail issued by the Coast Guard, sufficed to meet the degree of
diligence required of the carrier.
On the other hand, the Court of Appeals ruled that as a
common carrier required to observe a higher degree of
diligence North Front 777 satisfactorily complied with all the
requirements hence was issued a Permit to Sail after proper
inspection. Consequently, the complaint was dismissed and the

Precision Analytical Services, Inc., was hired to examine the motion for reconsideration rejected.

corn grains and determine the cause of deterioration. A

Certificate of Analysis was issued indicating that the corn grains The charter-party agreement between North Front Shipping
had 18.56% moisture content and the wetting was due to contact Services, Inc., and Republic Flour Mills Corporation did not in any
with salt water. The mold growth was only incipient and not way convert the common carrier into a private carrier. We have
sufficient to make the corn grains toxic and unfit for already resolved this issue with finality in Planters Products, Inc. v.
consumption. In fact the mold growth could still be arrested by Court of Appeals[2] thus -
drying.
A 'charter-party' is defined as a contract by which an entire ship,
or some principal part thereof, is let by the owner to another
person for a specified time or use; a contract of affreightment by
which the owner of a ship or other vessel lets the whole or a part
of her to a merchant or other person for the conveyance of goods,
on a particular voyage, in consideration of the payment of freight x
x x x Contract of affreightment may either be time charter,
wherein the vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of the
vessel only, either for a determinate period of time or for a single
or consecutive voyage, the ship owner to supply the ship's store,
pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.
Upon the other hand, the term 'common or public carrier' is
defined in Art. 1732 of the Civil Code. The definition extends to
carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a
casual occupation x x x x
It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage-
charter (underscoring supplied).
North Front Shipping Services, Inc., is a corporation
engaged in the business of transporting cargo and offers its
services indiscriminately to the public. It is without doubt a
common carrier.As such it is required to observe extraordinary
diligence in its vigilance over the goods it transports. [3]. When
goods placed in its care are lost or damaged, the carrier is
presumed to have been at fault or to have acted negligently.
[4]
North Front Shipping Services, Inc., therefore has the burden of
proving that it observed extraordinary diligence in order to avoid
responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel
was inspected prior to actual loading by representatives of the
shipper and was found fit to take a load of corn grains. They were
also issued Permit to Sail by the Coast
Guard. The master of the vessel testified that the corn grains were
farm wet when loaded. However, this testimony was disproved by
the clean bill of lading issued by North Front Shipping Services,
Inc., which did not contain a notation that the corn grains were
wet and improperly dried. Having been in the service since 1968,
the master of the vessel would have known at the outset that corn
grains that were farm wet and not properly dried would eventually
deteriorate when stored in sealed and hot compartments as in
hatches of a ship.Equipped with this knowledge, the master of the
vessel and his crew should have undertaken precautionary
measures to avoid or lessen the cargo's possible deterioration as
they were presumed knowledgeable about the nature of such
cargo. But none of such measures was taken.
In Compania Maritima v. Court of Appeals[5] we ruled -
x x x x Mere proof of delivery of the goods in good order to a
common carrier, and of their arrival at the place of destination in
bad order, makes out prima facie case against the common carrier,
so that if no explanation is given as to how the loss, deterioration
or destruction of the goods occurred, the common carrier must be
held responsible. Otherwise stated, it is incumbent upon the
common carrier to prove that the loss, deterioration or destruction
was due to accident or some other circumstances inconsistent
with its liability x x x x
The extraordinary diligence in the vigilance over the goods
tendered for shipment requires the common carrier to know and
to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the
greatest skill and foresight and 'to use all reasonable means to
ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires' (underscoring
supplied).
In fine, we find that the carrier failed to observe the
required extraordinary diligence in the vigilance over the goods
placed in its
care. The proofs presented by North Front ShippingServices, Inc.,
were insufficient to rebut the prima facie presumption of
private respondent's negligence, more so if we consider the
evidence adduced by petitioners.
It is not denied by the insurance companies that the vessel
was indeed inspected before actual loading and that North Front
777 was issued a Permit to Sail. They proved the fact of shipment
and its consequent loss or damage while in the actual possession
of the carrier. Notably, the carrier failed to volunteer any
explanation why there was spoilage and how it occurred. On the
other hand, it was shown during the trial that the vessel had
rusty bulkheads and the wooden boards and tarpaulins bore
heavy concentration of molds. The tarpaulins used were not new,
contrary to the claim of North Front Shipping Services, Inc., as
there were already several patches on them, hence, making it
highly probable for water to enter.
Laboratory analysis revealed that the corn grains were
contaminated with salt water. North Front Shipping Services, Inc.,
failed to rebut all these arguments. It did not even endeavor to
establish that the loss, destruction or deterioration of the goods
was due to the following: (a) flood, storm, earthquake, lightning, or
other natural disaster or calamity; (b) act of the public enemy in
war, whether international or civil; (c) act or omission of the
shipper or owner of the goods; (d) the character of the goods or
defects in the packing or in the containers; (e) order or act of
competent public authority. [6] This is a closed list. If the cause of
destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is rightly liable therefor.
However, we cannot attribute the destruction, loss or
deterioration of the cargo solely to the carrier. We find the
consignee Republic Flour Mills Corporation guilty of
contributory negligence. It was seasonably notified of the arrival of
the barge but did not immediately start the unloading
operations. No explanation was proffered by the consignee as to
why there was a delay of six (6) days. Had the unloading been
commenced immediately the loss could have been completely
avoided or at least minimized. As testified to by the chemist who
analyzed the corn samples, the mold growth was only at its
incipient stage and could still be arrested by drying. The corn
grains were not yet toxic or unfit for consumption. For its
contributory negligence, Republic Flour Mills Corporation should
share at least 40% of the loss.[7]
WHEREFORE, the Decision of the Court of Appeals of 22
December 1994 and its Resolution of 16 February 1995 are
REVERSED and SET ASIDE. Respondent North Front Shipping
Services, Inc., is ordered to pay petitioners Tabacalera Insurance
Co., Prudential Guarantee & Assurance, Inc., and New Zealand
Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount
paid by the insurance companies to Republic Flour Mills
Corporation, plus interest at the rate of 12% per annum from the
time this judgment becomes final until full payment.
SO ORDERED.
Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
Padilla, J., (Chairman), on leave.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 91228. March 22, 1993.
PUROMINES, INC., petitioner, vs. COURT OF APPEAL and
PHILIPP BROTHERS OCEANIC, INC., respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING
FROM CARRIAGE AND DELIVERY. We agree with the court a
quo that the sales contract is comprehensive enough to include
claims for damages arising from carriage and delivery of the
goods. As a general rule, the seller has the obligation to transmit
the goods to the buyer, and concomitant thereto, the contracting
of a carrier to deliver the same.
2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME
COMMERCE; CHARTER PARTIES, CONSTRUED. American
jurisprudence defines charter party as a contract by which an
entire ship or some principal part thereof is let by the owner to
another person for a specified time or use. Charter or charter
parties are of two kinds. Charter of demise or bareboat and
contracts of affreightment.
3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED.
Under the demise or bareboat charter of the vessel, the
charterer will generally be considered as owner for the voyage or
service stipulated. The charterer mans the vessel with his own
people and becomes, in effect, the owner pro hac vice, subject to
liability to others for damages caused by negligence. To create a
demise the owner of a vessel must completely and exclusively
relinquish possession, anything short of such a complete transfer
is a contract of affreightment (time or voyage charter party) or not
a charter party at all.
4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT,
CONSTRUED. A contract of affreightment is in which the owner
of the vessel leases part or all of its space to haul goods for others.
It is a contract for a special service to be rendered by the owner of
the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for
his payment of the charter hire. 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, responsibilities of
ownership rest on the owner and the charterer is usually free from
liability to third persons in respect of the ship.
5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS
SHIPPED ON BOARD A VESSEL. Responsibility to third
persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to
the charterer by virtue of a demise, the charterer, and not the
owner, is liable as carrier on the contract of affreightment made
by himself or by the master with third persons, and is answerable
for loss, damage or non-delivery of goods received for
transportation. An owner who retains possession of the ship,
though the hold is the property of the charterer, remains liable as
carrier and must answer for any breach of duty as to the care,
loading or unloading of the cargo.
6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION
THEREOF, CONSIDERED AND RESPECTED. Whether the
liability of respondent should be based on the same contract or
that of the bill of lading, the parties are nevertheless obligated to
respect the arbitration provisions on the sales contract and/or the
bill of lading. Petitioner being a signatory and party to the sales
contract cannot escape from his obligation under the arbitration
clause as stated therein. Arbitration has been held valid and
constitutional. Even before the enactment of Republic Act No. 876,
this Court has countenanced the settlement of disputes through
arbitration. The rule now is that unless the agreement is such as
absolutely to close the doors of the courts against the parties,
which agreement would be void, the courts will look with favor
upon such amicable arrangements and will only interfere with
great reluctance to anticipate or nullify the action of the
arbitrator. As pointed out in the case of Mindanao Portland
Cement Corp. v. McDough Construction Company of Florida 18
wherein the plaintiff sued defendant for damages arising from a
contract, the Court said: "Since there obtains herein a written
provision for arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the parties to
proceed to their arbitration in accordance with the terms of their
agreement (Sec. 6 Republic Act 876). Respondent's arguments
touching upon the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement
to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should
proceed to arbitration or not. And although it has been ruled that
a privolous or patently baseless claim should not be ordered to
arbitration it is also recognized that the mere fact that a defense
exist against a claim does not make it frivolous or baseless."
7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS;
COMPLAINT; ANNEXES ATTACHED THEREOF, PART OF THE
RECORD. Petitioner contend that the arbitration provision in
the bills of lading should not have been discussed as an issue in
the decision of the Court of Appeals since it was not raised as a
special or affirmative defense. The three bills of lading were
attached to the complaint as Annexes "A," "B," and "C," and are
therefore parts thereof and may be considered as evidence
although not introduced as such. Hence, it was then proper for
the court a quo to discuss the contents of the bills of lading,
having been made part of the record.
DECISION
NOCON, J p:
This is a special civil action for certiorari and prohibition to annul
and set aside the Decision of the respondent Court of Appeals
dated November 16, 1989 1 reversing the order of the trial court
and dismissing petitioner's compliant in Civil Case No. 89-47403,
entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp
Brothers Oceanic, Inc.
Culled from the records of this case, the facts show that
petitioner, Puromines, Inc. (Puromines for brevity) and Makati
Agro Trading, Inc. (not a party in this case) entered into a contract
with private respondents Philipp Brothers Oceanic, Inc. for the
sale of prilled Urea in bulk. The Sales Contract No. S151.8.01018
provided, among others an arbitration clause which states, thus:
"9. Arbitration
"Any disputes arising under this contract shall be settled by
arbitration in London in accordance with the Arbitration Act 1950
and any statutory amendment or modification thereof. Each party
is to appoint an Arbitrator, and should they be unable to agree,
the decision of an Umpire appointed by them to be final. The
Arbitrators and Umpire are all to be commercial men and resident
in London. This submission may be made a rule of the High Court
of Justice in England by either party." 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova"
loaded on board at Yuzhny, USSR a shipment of 15,500 metric
tons prilled Urea in bulk complete and in good order and condition
for transport to Iloilo and Manila, to be delivered to petitioner.
Three bills of lading were issued by the ship-agent in the
Philippines, Maritime Factors Inc., namely: Bill of Lading No.
dated May 12, 1988 covering 10,000 metric tons for discharge
Manila; Bill of Lading No. 2 of even date covering 4,000 metric
tons for unloading in Iloilo City; and Bill of Lading No. 3, also
dated May 12, 1988, covering 1,500 metric tons likewise for
discharged in Manila
The shipment covered by Bill of Lading No. 2 was discharged in
Iloilo City complete and in good order and condition. However, the
shipments covered by Bill of Lading Nos. 1 and 3 were discharged
in Manila in bad order and condition, caked, hardened and lumpy,
discolored and contaminated with rust and dirt. Damages were
valued at P683, 056. 29 including additional discharging
expenses.
Consequently, petitioner filed a complaint 3 with the trial court 4
for breach of contract of carriage against Maritime Factors Inc.
(which was not included as respondent in this petition) as ship-
agent in the Philippines for the owners of the vessel MV "Liliana
Dimitrova," while private respondent, Philipp Brothers Oceanic
Inc., was impleaded as charterer of the said vessel and proper
party to accord petitioner complete relief. Maritime Factors, Inc.
filed its Answer 5 to the complaint, while private respondent filed
a motion to dismiss, dated February 9, 1989, on the grounds that
the complaint states no cause of action; that it was prematurely
filed; and that petitioner should comply with the arbitration
clause in the sales contract. 6
The motion to dismiss was opposed by petitioner contending the
inapplicability of the arbitration clause inasmuch as the cause of
action did not arise from a violation of the terms of the sales
contract but rather for claims of cargo damages where there is no
arbitration agreement. On April 26, 1989, the trial court denied
respondent's motion to dismiss in this wise:
"The sales contract in question states in part:
'Any disputes arising under this contract shall be settled by
arbitration . . .(emphasis supplied)
"A perusal of the facts alleged in the complaint upon which the
question of sufficiency of the cause of action of the complaint
arose from a breach of contract of carriage by the vessel chartered
by the defendant Philipp Brothers Oceanic, Inc. Thus, the
aforementioned arbitration clause cannot apply to the dispute in
the present action which concerns plaintiff's claim for cargo
loss/damage arising from breach of contract of carriage.
"That the defendant is not the ship owner or common carrier and
therefore plaintiff does not have legal right against it since every
action must be brought against the real party in interest has no
merit either for by the allegations in the complaint the defendant
herein has been impleaded as charterer of the vessel, hence, a
proper party." 7
Elevating the matter to the Court of Appeals, petitioner's
complaint was dismissed. The appellate court found that the
arbitration provision in the sales contract and/or the bills of
lading is applicable in the present case. Said the court:
"An examination of the sales contract No. S151.8.01018 shows
that it is broad enough to include the claim for damages arising
from the carriage and delivery of the goods subject-matter thereof.
"It is also noted that the bills of lading attached as Annexes 'A', 'B'
and 'C' to the complaint state, in part, 'any dispute arising under
this Bill of Lading shall be referred to arbitration of the Maritime
Arbitration Commission at the USSR Chamber of Commerce and
Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in accordance
with the rules of procedure of said commission.'
Considering that the private respondent was one of the
signatories to the sales contract . . . all parties are obliged o
respect the terms and conditions of the said sales contract,
including the provision thereof on 'arbitration.' "
Hence, this petition The issue raised is: Whether the phrase "any
dispute arising under this contract" in the arbitration clause of
the sales contract covers a cargo claim against the vessel (owner
and/or charterers) for breach of contract of carriage.
Petitioner states in its complainants that Philipp Brothers "was
the charterer of the vessel MV 'Liliana Dimitrova' which
transported the shipment from Yuzhny USSR to Manila."
Petitioner further alleged that the caking and hardening, wetting
and melting, and contamination by rust and dirt of the damaged
portions of the shipment were due to the improper ventilation and
inadequate storage facilities of the vessel; that the wetting of the
cargo was attributable to the failure of the crew to close the
hatches before and when it rained while the shipment was being
unloaded in the Port of Manila; and that as a direct and natural
consequence of the unseaworthiness and negligence of the vessel
(sic), petitioner suffered damages in the total amount of P683,
056.29 Philippine currency." 8 (Emphasis supplied)
Moreover, in its Opposition to the Motion to Dismiss, petitioner
said that "[t]he cause of action of the complaint arose from breach
of contract of carriage by the vessel that was chartered by
defendant Philipp Brothers." 9
In the present petition, petitioner argues that the sales contract
does not include the contract of carriage which is a different
contract entered into by the carrier with the cargo owners. That it
was an error for the respondent court to touch upon the
arbitration provision of the bills lading in its decision inasmuch as
the same was not raised as an issue by private respondent who
was not a party in the bills of lading (emphasis Ours). Petitioner
contradicts itself.
We agree with the court a quo that the sales contract is
comprehensive enough to include claims for damages arising from
carriage and delivery of the goods. As a general rule, the seller has
the obligation to transmit the goods to the buyer, and concomitant
thereto, the contracting of a carrier to deliver the same. Art. 1523
of the Civil Code provides:
"Art. 1523. Where in pursuance of a contract of sale, the seller in
authorized or required to send the goods to the buyer, delivery of
the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of
the goods to the buyer, except in the cases provided for in article
1503, first, second and third paragraphs, or unless a contrary
intent appear.
"Unless otherwise authorized by the buyer, the seller must take
such contract with the carrier on behalf of the buyer as may be
reasonable, having regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to do, and the
goods are lost or damaged in course of transit, the buyer may
decline to treat the delivery to the carrier as a delivery to himself,,
or may hold the seller responsible in damages."
xxx xxx xxx
The disputed sales contact provides for conditions relative to the
delivery of goods, such as date of shipment, demurrage, weight as
determined by the bill of lading at load port and more particularly
the following provisions:
"3. Intention is to ship in one bottom, approximately 5,000 metrics
tons to Puromines and approximately 15,000 metric tons to
Makati Agro. However, Sellers to have right to ship material as
partial shipment or co-shipment in addition to above. In the event
of co-shipment to a third party within Philippines same to be
discussed with and acceptable to both Puromines and Makati
Agro.
"4. Sellers to appoint neutral survey for Seller's account to
conduct initial draft survey at first discharge port and final survey
at last discharge port. Surveyors results to be binding and final. In
the event draft survey results show a quantity less than the
combined Bills of Lading quantity for both Puromines and Makati
Agro, Sellers to refund the difference. In the event that draft
survey results show a quantity in excess of combined Bills of
Lading of quantity of both Puromines and Makati Agro then
Buyers to refund the difference.
"5. It is expressly and mutually agreed that neither Sellers nor
vessel's Owners have any liability to separate cargo or to deliver
cargo separately or to deliver minimum/maximum quantities
stated on individual Bills of Lading. At each port vessel is to
discharge in accordance with Buyers local requirements and it is
Buyer's responsibility to separate individual quantities required by
each of them at each port during or after discharged."
As argued by respondent on its motion to dismiss, "the (petitioner)
derives his right to the cargo from the bill of lading which is the
contract of affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the provisions and
terms of said bill of lading and of the arbitration clause
incorporated in the sales contract."
Assuming arguendo that the liability of respondent is not based
on the sales contract, but rather on the contract of carriage, being
the charterer of the vessel MV "Liliana Dimitrova," it would,
therefore, be material to show what kind of charter party the
respondent had with the shipowner to determine respondent's
liability.
American jurisprudence defines charter party as a contract by
which an entire ship or some principal part thereof is let by the
owner to another person for a specified time or use. 10 Charter or
charter parties are of two kinds. Charter of demise or bareboat
and contracts of affreightment.
Under the demise or bareboat charter of the vessel, the charterer
will generally be considered as owner for the voyage or service
stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to
others for damages caused by negligence. 11 To create a demise
the owner of a vessel must completely and exclusively relinquish
possession, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a
charter party at all.
On the other hand, a contract of affreightment is in which the
owner of the vessel leases part or all of its space to haul goods for
others. It is a contract for a special service to be rendered by the
owner of the vessel 12 and under such contract the general owner
retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel
in return for his payment of the charter hire. 13 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,
responsibilities of ownership rest on the owner and the charterer
is usually free from liability to third persons in respect of the ship.
14
Responsibility to third persons for goods shipped on board a
vessel follows the vessel's possession and employment; and if
possession is transferred to the charterer by virtue of a demise,
the charterer, and not the owner, is liable as carrier on the
contract of affreightment made by himself or by the master with
third persons, and is answerable for loss, damage or non-delivery
of goods received for transportation. An owner who retains
possession of the ship, though the hold is the property of the
charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading or unloading of the cargo.
15
Assuming that in the present case, the charter party is a demise
or bareboat charter, then Philipp Brothers is liable to Puromines,
Inc., subject to the terms and conditions of the sales contract. On
the other hand, if the contract between respondent and the owner
of the vessel MV "Liliana Dimitrova" was merely that of
affreightment, then it cannot be held liable for the damages
caused by the breach of contract of carriage, the evidence of which
is the bills of lading
In any case, whether the liability of respondent should be based
on the same contract or that of the bill of lading, the parties are
nevertheless obligated to respect the arbitration provisions on the
sales contract and/or the bill of lading. Petitioner being a
signatory and party to the sales contract cannot escape from his
obligation under the arbitration clause as stated therein.
Neither can petitioner contend that the arbitration provision in the
bills of lading should not have been discussed as an issue in the
decision of the Court of Appeals since it was not raised as a
special or affirmative defense. The three bills of lading were
attached to the complaint as Annexes "A," "B," and "C," and are
therefore parts thereof and may be considered as evidence
although not introduced as such. 16 Hence, it was then proper for
the court a quo to discuss the contents of the bills of lading,
having been made part of the record.
Going back to the main subject of this case, arbitration has been
held valid and constitutional. Even before the enactment of
Republic Act No. 876, this Court has countenanced the settlement
of disputes through arbitration. The rule now is that unless the
agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts
will look with favor upon such amicable arrangements and will
only interfere with great reluctance to anticipate or nullify the
action of the arbitrator. 17
As pointed out in the case of Mindanao Portland Cement Corp. v.
McDonough Construction Company of Florida 18 wherein the
plaintiff sued defendant for damages arising from a contract, the
Court said:
"Since there obtains herein a written provision for arbitration as
well as failure on respondent's part to comply therewith, the court
a quo rightly ordered the parties to proceed to their arbitration in
accordance with the terms of their agreement (Sec. 6 Republic Act
876). Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be addressed to
the arbitrators. This proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of the court in this
case is not to resolve the merits of the parties' claims but only to
determine if they should proceed to arbitration or not. And
although it has been ruled that a frivolous or patently baseless
claim should not be ordered to arbitration it is also recognized
that the mere fact that a defense exist against a claim does not
make it frivolous or baseless." 19
In the case of Bengson v. Chan, 20 We upheld the provision of a
contract which required the parties to submit their disputes to
arbitration and We held as follows:
"The trial court sensibly said that 'all the causes of action alleged
in the plaintiffs amended complaint are based upon the supposed
violations committed by the defendants of the 'Contract of
Construction of a Building' and that 'the provisions of paragraph
15 hereof leave a very little room for doubt that the said causes of
action are embraced within the phrase 'any and all questions,
disputes or differences between the parties hereto relative to the
construction of the building,' which must be determined by
arbitration of two persons and such determination by the
arbitrators shall be 'final, conclusive and binding upon both
parties unless they to court, in which the case the determination
by arbitration is a condition precedent 'for taking any court
action."
xxx xxx xxx
"We hold that the terms of paragraph 15 clearly express the
intention of the parties that all disputes between them should first
be arbitrated before court action can be taken by the aggrieved
party." 21
Premises considered, We uphold the validity and applicability of
the arbitration clause as stated in Sales Contract No.
S151.8.01018 to the present dispute.
WHEREFORE, petition is hereby DISMISSED and decision of the
court a quo is AFFIRMED.
SO ORDERED.
Narvasa, C . J ., Padilla, Regalado and Campos, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-51910 August 10, 1989
LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P.
CANDONGO respondents.
Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.
Estratonico S. Anano for private respondent.
FELICIANO, J.:
In this Petition for Certiorari, petitioner Litonjua Shipping
Company, Inc. ("Lintonjua") seeks to annul and set aside a
decision dated, 31 May 1979 of the National Seamen Board
("NSB") in NSB Case No. 1331-77 affirming the decision dated 17
February 1977 of the NSB hearing officer which adjudged
petitioner Litonjua liable to private respondent for violation of the
latter's contract of employment and which ordered petitioner to
pay damages.
Petitioner Litonjua is the duly appointed local crewing Managing
Office of the Fairwind Shipping Corporation ('Fairwind). The
M/V Dufton Bay is an ocean-going vessel of foreign registry owned
by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11
September 1976, while the Dufton Bay was in the port of Cebu
and while under charter by Fairwind, the vessel's master
contracted the services of, among others, private respondent
Gregorio Candongo to serve as Third Engineer for a period of
twelve (12) months with a monthly wage of US$500.00. This
agreement was executed before the Cebu Area Manning Unit of
the NSB. Thereafter, private respondent boarded the vessel. On 28
December 1976, before expiration of his contract, private
respondent was required to disembark at Port Kelang, Malaysia,
and was returned to the Philippines on 5 January 1977. The
cause of the discharge was described in his Seaman's Book as 'by
owner's arrange". 1
Shortly after returning to the Philippines, private respondent filed
a complaint before public respondent NSB, which complaint was
docketed as NSB-1331-77, for violation of contract, against
Mullion as the shipping company and petitioner Litonjua as agent
of the shipowner and of the charterer of the vessel.
At the initial hearing, the NSB hearing officer held a conference
with the parties, at which conference petitioner Litonjua was
represented by one of its supercargos, Edmond Cruz. Edmond
Cruz asked, in writing, that the hearing be postponed for a month
upon the ground that the employee of Litonjua in charge of the
case was out of town. The hearing officer denied this request and
then declared petitioner Litonjua in default. At the hearing,
private respondent testified that when he was recruited by the
Captain of the Dufton Bay, the latter was accompanied to the NSB
Cebu Area Manning Unit by two (2) supercargos sent by petitioner
Litonjua to Cebu, and that the two (2) supercargos Edmond Cruz
and Renato Litonjua assisted private respondent in the
procurement of his National Investigation and Security Agency
(NISA) clearance. Messrs. Cruz and Litonjua were also present
during private respondent's interview by Captain Ho King Yiu of
the Dufton Bay.
On 17 February 1977, the hearing officer of the NSB rendered a
2
judgment by default, the dispositive portion of which read:
 Wherefore, premises considered, judgment is persons of Edmund Cruz and Renato Litonjua,
hereby rendered ordering the respondents R.D. had knowledge thereof and in fact assisted in
Mullion Shipbrokers Co., Ltd., and Litonjua the interviews conducted by the Master of the
Shipping Co., Inc., jointly and solidarily to pay crew applicants as admitted by Renato Litonjua
the complainant the sum of four thousand six including the acts of facilitating the crew's NISA
hundred fifty seven dollars and sixty three clearances as testified to by complainant.
cents ($4,657.63) or its equivalent in the Phil. Moreover, the participation of the Litonjua
currency within 10 days from receipt of the Shipping Corporation in the recruitment of
copy of this Decision the payment of which to complainant, together with the other
be coursed through the then NSB. crewmembers, in Cebu in September 1976 can
be traced to the contents of the letter of April 5,
The above conclusion was rationalized in the following terms: 1976 by the Fairwind Shipping Limited, thru its
Director David H.L. Wu addressed to the
From the evidence on record it clearly appears National Seamen Board, copy of which is on file
that there was no sufficient or valid cause for with Contracts and Licensing Division, quote:
the respondents to terminate the services of
complainant prior to 17 September 1977, which This is to certify that Messrs. Litonjua
is the expiry date of the contract. For this Shipping, Inc. is duly appointed local crewing
reason the respondents have violated the Managing Office to attend on our Crew
conditions of the contract of employment which requirements as well as attend to our ship's
is a sufficient justification for this Board to requirements when in Philippine ports.
render award in favor of the complainant of the
unpaid salaries due the latter as damages We further authorized Litonjua Shipping Co.,
corresponding to the unexpired portion of the Inc. to act as local representative who can sue
contract including the accrued leave pay and be sued, and to bind and sign contracts for
computed on the basis of five [51 days pay for our behalf. 4

every month of service based at $500.00

monthly salary. Complainant's wages account The NSB then lifted the suspension of the hearing officer's 17
further show that he has an undrawn wage February 1977 decision.
amounting to US$13.19 to be paid by the
respondents Philippine agency together with his
Petitioner Litonjua once more moved for reconsideration. On 31
3
accrued leave pay. 5
May 1979, public respondent NSB rendered a decision which
affirmed its hearing offices decision of 17 February 1977 and
Petitioner Litonjua filed a motion for reconsideration of the which read in part as follows:
hearing officer's decision; the motion was denied. Petitioner next
filed an "Appeal and/or Motion for Reconsideration of the Default
It is clear that respondent Litonjua Shipping Co.,
Judgment dated 9 August 1977" with the central office of the
Inc. is the authorized Philippine agent of
NSB. NSB then suspended its hearing officer's decision and lifted
Fairwind Shipping Corporation, charterer of the
the order of default against petitioner Litonjua, thereby allowing
vessel 'Dufton Bay, wherein complainant, served
the latter to adduce evidence in its own behalf The NSB hearing
as 3rd Engineer from 17 September until
officer, on 26 April 1978, made the following findings:
disembarkation on December 28, 1976. It is
also clear from the complainant's wages
While it appears that in the preparation of the account bearing the heading 'Fairwind Shipping
employment papers of the complainant, what Corporation', signed by the Master of the vessel
was indicated therein was R.D. Mullion Co. (HK) that the Philippine agency referred to herein
Ltd. referring to Exhibit "B" (Standard Format of directed to pay the said withdrawn wages of
a Service Agreement) and Exhibit "C" (Affidavit $13.19 is no other than Litonjua Shipping
of Undertaking), as thecompany whom Captain Company, Inc.
Ho King Yiu, the Master of the vessel Dufton
Bay, was representing to be the shipowner, the
From this observation, it can be reasonably
fact remains that at the time of the recruitment
inferred that the master of the vessel acted for
of the complainant, as duly verified by the
and in behalf of Fairwind Shipping Corporation
National Seamen Board, Cebu Area Manning
who had the obligation to pay the salary of the
Unit, the Litonjua Shipping Company was the
complainant. It necessarily follows that
authorized agent of the vessel's charterer, the
Fairwind Shipping Corporation is the employer of
Fairwind Shipping Corporation, and that in the
said complainant. Moreover, it had been
recruitment process, the Litonjua Shipping
established by complainant that Litonjua
Company through its supercargos in the
 Shipping Company, Inc., had knowledge of and
participated, through its employee, in the
recruitment of herein complainant.
xxx xxx xxx
In view of the foregoing, and pursuant to Art. 3
of the New Labor Code of the Philippines, which
provides that, 'The state shall afford protection
to labor . . .' as well as the provisions of Art. 4
thereof, that 'all doubts in the implementation
and interpretation of the provisions of the Code,
including its implementing rules and
regulations, shall be resolved in favor of labor',
it is our conclusion, that the decision dated
February 17, 1977, is based on evidence
formally offered and presented during the
hearing and that there was no grave abuse of
discretion committed by the hearing officer in
finding respondent Litonjua Shipping Company,
Inc., liable to complainant. (Emphasis supplied)
In the instant Petition for Certiorari, petitioner Litonjua assails the
decision of public respondent NSB declaring the charterer
Fairwind as employer of private respondent, and for whose liability
petitioner was made responsible, as constituting a grave abuse of
discretion amounting to lack of jurisdiction. The principal if not
the sole issue to be resolved here is whether or not the charterer
Fairwind was properly regarded as the employer of private
respondent Candongo.
Petitioner Litonjua makes two (2) principal submissions in
support of its contention, to wit:
1) As a general rule, admiralty law as embodied
in the Philippine Code of Commerce fastens
liability for payment of the crew's wages upon
the ship owner, and not the charterer; and
2) The evidence of record is grossly inadequate
to shift such liability from the shipowner to the
petitioner. 6
Petitioner Litonjua contends that the shipowner, not the charterer,
was the employer of private respondent; and that liability for
damages cannot be imposed upon petitioner which was a mere
agent of the charterer. It is insisted that private respondent's
contract of employment and affidavit of undertaking clearly
showed that the party with whom he had contracted was none
other than Mullion, the shipowner, represented by the ship's
7
master. Petitioner also argues that its supercargos merely
assisted Captain Ho King Yiu of the Dufton Bay in being private
respondent as Third Engineer. Petitioner also points to the
circumstance that the discharge and the repatriation of private
respondent was specified in his Seaman's Book as having been "by
owner's arrange." Petitioner Litonjua thus argues that being the
agent of the charterer and not of the shipowner, it accordingly
should not have been held liable on the contract of employment of
private respondent.
We are not persuaded by petitioner's argument. We believe that
there are two (2) grounds upon which petitioner Litonjua may be
held liable to the private respondent on the contract of
employment.
The first basis is the charter party which existed between Mullion,
the shipowner, and Fairwind, the charterer. In modern maritime
law and usage, there are three (3) distinguishable types of charter
parties: (a) the "bareboat" or "demise" charter; (b) the "time"
charter; and (c) the "voyage" or "trip" charter. A bareboat or demise
charter is a demise of a vessel, much as a lease of an unfurnished
house is a demise of real property. The shipowner turns over
possession of his vessel to the charterer, who then undertakes to
provide a crew and victuals and supplies and fuel for her during
the term of the charter. The shipowner is not normally required by
the terms of a demise charter to provide a crew, and so the
8
charterer gets the "bare boat", i.e., without a crew. Sometimes, of
course, the demise charter might provide that the shipowner is to
furnish a master and crew to man the vessel under the charterer's
direction, such that the master and crew provided by the
shipowner become the agents and servants or employees of the
charterer, and the charterer (and not the owner) through the
agency of the master, has possession and control of the vessel
during the charter period. A time charter, upon the other hand,
like a demise charter, is a contract for the use of a vessel for a
specified period of time or for the duration of one or more specified
voyages. In this case, however, the owner of a time-chartered
vessel (unlike the owner of a vessel under a demise or bare-boat
charter), retains possession and control through the master and
crew who remain his employees. What the time charterer acquires
is the right to utilize the carrying capacity and facilities of the
vessel and to designate her destinations during the term of the
charter. A voyage charter, or trip charter, is simply a contract of
affreightment, that is, a contract for the carriage of goods, from
one or more ports of loading to one or more ports of unloading, on
one or on a series of voyages. In a voyage charter, master and crew
9
remain in the employ of the owner of the vessel.
It is well settled that in a demise or bare boat charter, the
charterer is treated as owner pro hac vice of the vessel, the
charterer assuming in large measure the customary rights and
liabilities of the shipowner in relation to third persons who have
10
dealt with him or with the vessel. In such case, the Master of
the vessel is the agent of the charterer and not of the
shipowner. 11 The charterer or owner pro hac vice, and not the
general owner of the vessel, is held liable for the expenses of the
voyage including the wages of the seamen. 12
It is important to note that petitioner Litonjua did not place into
the record of this case a copy of the charter party covering the
M/V Dufton Bay. We must assume that petitioner Litonjua was
aware of the nature of a bareboat or demise charter and that if
petitioner did not see fit to include in the record a copy of the
charter party, which had been entered into by its principal, it was
because the charter party and the provisions thereof were not
supportive of the position adopted by petitioner Litonjua in the
present case, a position diametrically opposed to the legal
consequence of a bareboat charter. 13 Treating Fairwind as owner
pro hac vice, petitioner Litonjua having failed to show that it was
not such, we believe and so hold that petitioner Litonjua, as
Philippine agent of the charterer, may be held liable on the
contract of employment between the ship captain and the private
respondent.
There is a second and ethically more compelling basis for holding
petitioner Litonjua liable on the contract of employment of private
respondent. The charterer of the vessel, Fairwind,
benefitted from the employment of private respondent as Third
Engineer of the Dufton Bay, along with the ten (10) other Filipino
crewmembers recruited by Captain Ho in Cebu at the same
occasion. 14
If private respondent had not agreed to serve as such
Third Engineer, the ship would not have been able to proceed with
its voyage. The equitable consequence of this benefit to the
charterer is, moreover, reinforced by convergence of other
circumstances of which the Court must take account. There is the
circumstance that only the charterer, through the petitioner, was
present in the Philippines. Secondly, the scope of authority or the
responsibility of petitioner Litonjua was not clearly delimited.
Petitioner as noted, took the position that its commission was
limited to taking care of vessels owned by Fairwind. But the
documentary authorization read into the record of this case does
not make that clear at all. The words "our ships" may well be read
to refer both to vessels registered in the name of Fairwind and
vessels owned by others but chartered by Fairwind. Indeed the
commercial, operating requirements of a vessel for crew members
and for supplies and provisions have no relationship to the
technical characterization of the vessel as owned by or as merely
chartered by Fairwind. In any case, it is not clear from the
authorization given by Fairwind to petitioner Litonjua that vessels
chartered by Fairwind (and owned by some other companies)
were not to be taken care of by petitioner Litonjua should such
vessels put into a Philippine port. The statement of account which
the Dufton Bay's Master had signed and which pertained to the
salary of private respondent had referred to a Philippine agency
which would take care of disbursing or paying such account.
'there is no question that Philippine agency was the Philippine
agent of the charterer Fairwind. Moreover, there is also no
question that petitioner Litonjua did assist the Master of the
vessel in locating and recruiting private respondent as Third
Engineer of the vessel as well as ten (10) other Filipino seamen as
crew members. In so doing, petitioner Litonjua certainly in effect
represented that it was taking care of the crewing and other
requirements of a vessel chartered by its principal, Fairwind. 15
Last, but certainly not least, there is the circumstance that
extreme hardship would result for the private respondent if
petitioner Litonjua, as Philippine agent of the charterer, is not held
liable to private respondent upon the contract of employment.
Clearly, the private respondent, and the other Filipino crew
members of the vessel, would be defenseless against a breach of
their respective contracts. While wages of crew members
constitute a maritime lien upon the vessel, private respondent is
in no position to enforce that lien. If only because the vessel, being
one of foreign registry and not ordinarily doing business in the
Philippines or making regular calls on Philippine ports cannot be
effectively held to answer for such claims in a Philippine forum.
Upon the other hand, it seems quite clear that petitioner Litonjua,
should it be held liable to private respondent for the latter's
claims, would be better placed to secure reimbursement from its
principal Fairwind. In turn, Fairwind would be in an indefinitely
better position (than private respondent) to seek and obtain
recourse from Mullion, the foreign shipowner, should Fairwind feel
entitled to reimbursement of the amounts paid to private
respondent through petitioner Litonjua.
clearly
We conclude that private respondent was properly regarded as an
employee of the charterer Fairwind and that petitioner Litonjua
may be held to answer to private respondent for the latter's claims
as the agent in the Philippines of Fairwind. We think this result,
which public respondent reached, far from constituting a grave
abuse of discretion, is compelled by equitable principles and by
the demands of substantial justice. To hold otherwise would be to
leave private respondent (and others who may find themselves in
his position) without any effective recourse for the unjust
dismissal and for the breach of his contract of employment.
WHEREFORE, the Petition for certiorari is DISMISSED and the
Decision of the then National Seamen Board dated 31 May 1979 is
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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-
1
G.R. CV No. 18781, affirming in part the decision of the trial
2
court, 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
3
attorney's fees is deleted.
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 be ordered to pay freight charges from Japan to
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
Manila and the demurrages in Japan and
Manila amounting to P298,150.93.
 The lower court decided the case in favor of certification to the effect that while the Anahaw fans were
private respondents. It dismissed the complaint transferred from one vessel to another in Hong Kong, since the
on the ground that petitioner had given its two vessels belong to one and the same company then there was
consent to the contents of the bill of lading no transhipment. 8

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
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
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
and
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
12
actually took place. This fact is further bolstered by the
13
certification issued by private respondent F.E. Zuellig, Inc.

option of abandoning the goods in exchange for dated July 19, 1980, although it carefully used the term "transfer"
5 instead of transhipment. Nonetheless, no amount of semantic
the demurrages.
juggling can mask the fact that transhipment in truth occurred in
this case.
Petitioner, being dissatisfied with the decision of respondent court
and the motion for reconsideration thereof having been denied,
Petitioner insists that "(c)onsidering that there was no actual
invokes the Court's review powers for the resolution of the issues
transhipment of the Anahaw fans, then there is no occasion under
as to whether or not respondent court erred (1) in affirming the
which the petitioner can agree to the transhipment of the Anahaw
decision of the trial court which dismissed petitioner's complaint;
fans because there is nothing like that to agree to" and "(i)f there
and (2) in holding petitioner liable to private respondents in the
6 is no actual transhipment but there appears to be a transhipment
amount of P52,102.45.
in the bill of lading, then there can be no possible reason for it but
14
a mistake on the part of the private respondents.
I. Petitioner obstinately faults private respondents for the refusal
of its buyer, Choju Co., Ltd., to take delivery of the exported
Petitioner, in effect, is saying that since there was a mistake in
anahaw fans resulting in a loss of P174,150.00 representing the
documentation on the part of private respondents, such a mistake
purchase price of the said export items because of violation of the
militates against the conclusiveness of the bill of lading insofar as
terms and conditions of the letter of credit issued in favor of the
it reflects the terms of the contract between the parties, as an
former which specified the requirement for an on board bill of
exception to the parol evidence rule, and would therefore permit it
lading and the prohibition against transhipment of goods,
to explain or present evidence to vary or contradict the terms of
inasmuch as the bill of lading issued by the latter bore the
the written agreement, that is, the bill of lading involved herein.
notation "received for shipment" and contained an entry indicating
transhipment in Hongkong.
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
We find no fault on the part of private respondents. On the matter
goods shipped and a contract to transport and deliver the same as
of transhipment, petitioner maintains that "... while the goods
therein stipulated. As a contract, it names the parties, which
were transferred in Hongkong from MV Pacific Despatcher, the
includes the consignee, fixes the route, destination, and freight
feeder vessel, to MV Oriental Researcher, a mother vessel, the
rates or charges, and stipulates the rights and obligations
same cannot be considered transhipment because both vessels
15
assumed by the parties. Being a contract, it is the law between
belong to the same shipping company, the private respondent
7 the parties who are bound by its terms and conditions provided
Orient Overseas Container Lines, Inc." Petitioner emphatically
that these are not contrary to law, morals, good customs, public
goes on to say: "To be sure, there was no actual transhipment of
16
order and public policy. A bill of lading usually becomes
the Anahaw fans. The private respondents have executed a
effective upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence of A I know. It's not transport,
fraud, concealment or improper conduct, known to the shipper, they relay, not trans... yes,
and he is generally bound by his acceptance whether he reads the that is why we have an
bill or not. 17
agreement if they should not
put a transhipment in
The holding in most jurisdictions has been that a shipper who Hongkong, that's why they
receives a bill of lading without objection after an opportunity to even stated in the
inspect it, and permits the carrier to act on it by proceeding with certification.
the shipment is presumed to have accepted it as correctly stating
the contract and to have assented to its terms. In other words, the xxx xxx xxx
acceptance of the bill without dissent raises the presumption that
all the terms therein were brought to the knowledge of the shipper Q In layman's language,
and agreed to by him and, in the absence of fraud or mistake, he would you agree with me that
is estopped from thereafter denying that he assented to such transhipment is the transfer
terms. This rule applies with particular force where a shipper of a cargo from one vessel to
accepts a bill of lading with full knowledge of its contents and the other?
acceptance under such circumstances makes it a binding
18
contract. A As a layman, yes.

In the light of the series of events that transpired in the case at Q So, you know for a fact that
bar, there can be no logical conclusion other than that the your shipment is going to be
petitioner had full knowledge of, and actually consented to, the unloaded in Hongkong from
terms and conditions of the bill of lading thereby making the same M. V. Dispatcher (sic) and then
conclusive as to it, and it cannot now be heard to deny having transfer (sic) to another vessel
assented thereto. As borne out by the records, James Cu himself, which was the Oriental
in his capacity as president of MMMC, personally received and Dispatcher, (sic) you know
signed the bill of lading. On practical considerations, there is no that for a fact?
better way to signify consent than by voluntarry signing the
document which embodies the agreement. As found by the Court A Yes, sir. (Emphasis
of Appeals 20
supplied.)

Contrary to appellant's allegation that it did not 21

Under the parol evidence rule, the terms of a contract are
agree to the transhipment, it could be gleaned
rendered conclusive upon the parties, and evidence aliundeis not
from the record that the appellant actually
admissible to vary or contradict a complete and enforceable
consented to the transhipment when it received
agreement embodied in a document, subject to well defined
the bill of lading personally at appellee's (F.E.
exceptions which do not obtain in this case. The parol evidence
Zuellig's) office. There clearly appears on the
rule is based on the consideration that when the parties have
face of the bill of lading under column "PORT
reduced their agreement on a particular matter into writing, all
OF TRANSHIPMENT" an entry "HONGKONG'
their previous and contemporaneous agreements on the matter
(Exhibits'G-l'). Despite said entries he still
are merged therein. Accordingly, evidence of a prior or
delivered his voucher (Exh. F) and the
contemporaneous verbal agreement is generally not admissible to
corresponding check in payment of the freight
vary, contradict or defeat the operation of a valid
(Exhibit D), implying that he consented to the 22
19 instrument. The mistake contemplated as an exception to the
transhipment (Decision, p. 6, Rollo).
parol evidence rule is one which is a mistake of fact mutual to the
23
parties. Furthermore, the rules on evidence, as amended,
Furthermore and particularly on the matter of whether or not
require that in order that parol evidence may be admitted, said
there was transhipment, James Cu, in his testimony on
mistake must be put in issue by the pleadings, such that if not
crossexamination, categorically stated that he knew for a fact that
raised inceptively in the complaint or in the answer, as the case
the shipment was to be unloaded in Hong Kong from the MV
may be, a party can not later on be permitted to introduce parol
Pacific Despatcher to be transferred to a mother vessel, the MV 24
evidence thereon. Needless to say, the mistake adverted to by
Oriental Researcher in this wise:
herein petitioner, and by its own admission, was supposedly
committed by private respondents only and was raised by the
Q Mr. Cu, are you not aware
former rather belatedly only in this instant petition. Clearly then,
of the fact that your shipment
and for failure to comply even only with the procedural
is to be transferred or
requirements thereon, we cannot admit evidence to prove or
transhipped at the port of
explain the alleged mistake in documentation imputed to private
Hongkong?
respondents by petitioner.
Petitioner further argues that assuming that there was cross-examination, it was likewise established that petitioner,
transhipment, it cannot be deemed to have agreed thereto even if through its aforesaid president, was aware of this fact, thus:
it signed the bill of lading containing such entry because it had
made known to private respondents from the start that Q If the container van, the
transhipment was prohibited under the letter of credit and that, loaded container van, was
therefore, it had no intention to allow transhipment of the subject transported back to South
cargo. In support of its stand, petitioner relies on the second Harbor on June 27, 1980,
paragraph of Article 1370 of the Civil Code which states that "(i)f would you tell us, Mr. Cu,
the words appear to be contrary to the evident intention of the when the Bill of Lading was
parties, the latter shall prevail over the former," as wen as the received by you?
supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate
25
Court, et al. that "where the literal interpretation of a contract is A I received on June 30,
contrary to the evident intention of the parties, the latter shall 1980. I received at the same
prevail." time so then I gave the check.

As between such stilted thesis of petitioner and the contents of the xxx xxx xxx
bill of lading evidencing the intention of the parties, it is
irremissible that the latter must prevail. Petitioner conveniently Q So that in exchange of the
overlooks the first paragraph of the very article that he cites which Bill of Lading you issued your
provides that "(i)f the terms of the contract are clear and leave no check also dated June 30,
doubt upon the intention of the contracting parties, the literal 1980?
meaning of the stipulations shall control." In addition, Article
1371 of the same Code provides that "(i)n order to judge the
A Yes, sir.
intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered."
Q And June 27, 1980 was
the date of the Bill of Lading,
The terms of the contract as embodied in the bill of lading are
did you notice that the Bill of
clear and thus obviates the need for any interpretation. The
Lading states: 'Received for
intention of the parties which is the carriage of the cargo under
shipment'only? .
the terms specified thereunder and the wordings of the bill of
lading do not contradict each other. The terms of the contract
A Yes, sir.
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 Q What did you say?
freight charges, there is no doubt that petitioner must necessarily
be charged with full knowledge and unqualified acceptance of the A I requested to issue me on
terms of the bill of lading and that it intended to be bound board bill of lading.
thereby.
Q When?
Moreover, it is a well-known commercial usage that transhipment
of freight without legal excuse, however competent and safe the A In the same date of June
vessel into which the transfer is made, is a violation of the 30.
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 Q What did they say?
otherwise excepted.26 It is highly improbable to suppose that
private respondents, having been engaged in the shipping A They said, they cannot.
business for so long, would be unaware of such a custom of the
trade as to have undertaken such transhipment without xxx xxx xxx
petitioner's consent and unnecessarily expose themselves to a
possible liability. Verily, they could only have undertaken
Q Do you know the difference
transhipment with the shipper's permission, as evidenced by the
between a "received for
signature of James Cu.
shipment bill of lading" and
"on board bill of lading"?
Another ground for the refusal of acceptance of the cargo of
anahaw fans by Choju Co., Ltd. was that the bill of lading that
A Yes, sir.
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
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
shipment is received
board a vessel you
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.?
27
A Yes sir.
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
28
Act) ...." 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"
your
bill of lading into an "on board" bill of lading as required by the
on
buyer and was, therefore, by substantial compliance, not violative
can
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
29
space. An on board bill of lading is issued when the goods have
been actually placed aboard the ship with every reasonable
30
expectation that the shipment is as good as on its way. 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 hability 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.
31
Court of Appeals, et al. 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
33
and conditions as embodied therein.
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
34
by any of the parties thereto."
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
35
should properly be charged to said appellant.
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
36
contract. 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
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
38
March 1981. ...
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
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
39
too late and made in bad faith.
of
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,
40
1980.
41
However, in a letter dated March 20, 1981, 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
of 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
44
P298,150.93 and, in another letter dated Apiril 30, 1981, they
stated that they win not accept the abandonment of the goods and
demanded that the outstanding account be settled. The testimony
45
of said Edwin Mabazza definitely admits and bears this out.
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.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of
Isabela Roque Timber Enterprises and ONG
CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER
INSURANCE AND SURETY CORPORATION,respondent.
GUTIERREZ, JR., J.:
This petition for certiorari asks for the review of the decision of the
Intermediate Appellate Court which absolved the respondent
insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said
cargo was caused not by the perils of the sea but by the perils of
the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation
(Manila Bay), a common carrier, entered into a contract with the
petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from
Malampaya Sound, Palawan to North Harbor, Manila. The
petitioners insured the logs against loss for P100,000.00 with
respondent Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811
pieces of logs at Malampaya Sound, Palawan for carriage and
delivery to North Harbor, Port of Manila, but the shipment never
reached its destination because Mable 10 sank with the 811
pieces of logs somewhere off Cabuli Point in Palawan on its way to
Manila. As alleged by the petitioners in their complaint and as
found by both the trial and appellate courts, the barge where the
logs were loaded was not seaworthy such that it developed a leak.
The appellate court further found that one of the hatches was left
open causing water to enter the barge and because the barge was
not provided with the necessary cover or tarpaulin, the ordinary
splash of sea waves brought more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay
demanding payment of P150,000.00 for the loss of the shipment
plus P100,000.00 as unrealized profits but the latter ignored the
demand. Another letter was sent to respondent Pioneer claiming
the full amount of P100,000.00 under the insurance policy but
respondent refused to pay on the ground that its hability
depended upon the "Total loss by Total Loss of Vessel only". Hence,
petitioners commenced Civil Case No. 86599 against Manila Bay
and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The
dispositive portion of the decision reads:
FOR ALL THE FOREGOING, the Court hereby
rendered judgment as follows:
(a) Condemning defendants Manila Bay
Lighterage Corporation and Pioneer Insurance
and Surety Corporation to pay plaintiffs, jointly
and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage
Corporation to pay plaintiff, in addition, the
sum of P50,000.00, plus P12,500.00, that the
latter advanced to the former as down payment
for transporting the logs in question;
(c) Ordering the counterclaim of defendant
Insurance against plaintiffs, dismissed, for lack
of merit, but as to its cross-claim against its co-
defendant Manila Bay Lighterage Corporation,
the latter is ordered to reimburse the former for
whatever amount it may pay the plaintiffs as
such surety;
(d) Ordering the counterclaim of defendant
Lighterage against plaintiffs, dismissed for lack
of merit;
 (e) Plaintiffs' claim of not less than P100,000.00
and P75,000.00 as exemplary damages are
ordered dismissed, for lack of merits; plaintiffs'
claim for attorney's fees in the sum of
P10,000.00 is hereby granted, against both
defendants, who are, moreover ordered to pay
the costs; and
(f) The sum of P150,000.00 award to plaintiffs,
shall bear interest of six per cent (6%) from
March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court.
Manila Bay did not appeal. According to the petitioners, the
transportation company is no longer doing business and is
without funds.
COURT AS SALVAGE VALUE OF THE LOGS
THAT WERE RECOVERED.
In their first assignment of error, the petitioners contend that the
implied warranty of seaworthiness provided for in the Insurance
Code refers only to the responsibility of the shipowner who must
see to it that his ship is reasonably fit to make in safety the
contemplated voyage.
The petitioners state that a mere shipper of cargo, having no
control over the ship, has nothing to do with its seaworthiness.
They argue that a cargo owner has no control over the structure of
the ship, its cables, anchors, fuel and provisions, the manner of
loading his cargo and the cargo of other shippers, and the hiring
of a sufficient number of competent officers and seamen. The
petitioners' arguments have no merit.

During the initial stages of the hearing, Manila Bay informed the There is no dispute over the liability of the common carrier Manila
trial court that it had salvaged part of the logs. The court ordered Bay. In fact, it did not bother to appeal the questioned decision.
them to be sold to the highest bidder with the funds to be However, the petitioners state that Manila Bay has ceased
deposited in a bank in the name of Civil Case No. 86599. operating as a firm and nothing may be recovered from it. They
are, therefore, trying to recover their losses from the insurer.
On January 30, 1984, the appellate court modified the trial
court's decision and absolved Pioneer from liability after finding The liability of the insurance company is governed by law. Section
that there was a breach of implied warranty of seaworthiness on 113 of the Insurance Code provides:
the part of the petitioners and that the loss of the insured cargo
was caused by the "perils of the ship" and not by the "perils of the In every marine insurance upon a ship or
sea". It ruled that the loss is not covered by the marine insurance freight, or freightage, or upon any thing which
policy. is the subject of marine insurance, a warranty
is implied that the ship is seaworthy.
After the appellate court denied their motion for reconsideration,
the petitioners filed this petition with the following assignments of Section 99 of the same Code also provides in part.
errors:
Marine insurance includes:
I
(1) Insurance against loss of or damage to:
THE INTERMEDIATE APPELLATE COURT
ERRED IN HOLDING THAT IN CASES OF (a) Vessels, craft, aircraft, vehicles, goods,
MARINE CARGO INSURANCE, THERE IS A freights, cargoes, merchandise, ...
WARRANTY OF SEAWORTHINESS BY THE
CARGO OWNER.
From the above-quoted provisions, there can be no mistaking the
fact that the term "cargo" can be the subject of marine insurance
II and that once it is so made, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the
THE INTERMEDIATE APPELLATE COURT cargo whether he be the shipowner or not.
ERRED IN HOLDING THAT THE LOSS OF THE
CARGO IN THIS CASE WAS CAUSED BY As we have ruled in the case of Go Tiaoco y Hermanos v. Union
"PERILS OF THE SHIP" AND NOT BY "PERILS Insurance Society of Canton (40 Phil. 40):
OF THE SEA."

The same conclusion must be reached if the

III question be discussed with reference to the
seaworthiness of the ship. It is universally
THE INTERMEDIATE APPELLATE COURT accepted that in every contract of insurance
ERRED IN NOT ORDERING THE RETURN TO upon anything which is the subject of marine
PETITIONER OF THE AMOUNT OF P8,000.00 insurance, a warranty is implied that the ship
WHICH WAS DEPOSITED IN THE TRIAL shall be seaworthy at the time of the inception
 of the voyage. This rule is accepted in our own
Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in order to
recover on the marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine,
Inc., Co. (136 U.S. 406):
There was no look-out, and both that and the
rate of speed were contrary to the Canadian
Statute. The exception of losses occasioned by
unseaworthiness was in effect a warranty that a
loss should not be so occasioned, and whether
the fact of unseaworthiness were known or
unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in
every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier
which keeps its vessels in seaworthy condition. The shipper of
cargo may have no control over the vessel but he has full control
in the choice of the common carrier that will transport his goods.
Or the cargo owner may enter into a contract of insurance which
specifically provides that the insurer answers not only for the
perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to
the facts of this case. As stated by the private respondents:
In marine cases, the risks insured against are
"perils of the sea" (Chute v. North River Ins. Co.,
Minn214 NW 472, 55 ALR 933). The purpose
of such insurance is protection against
contingencies and against possible damages
and such a policy does not cover a loss or injury
which must inevitably take place in the
ordinary course of things. There is no doubt
that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence
of the elements, and does not embrace all losses
happening at sea. They insure against losses
from extraordinary occurrences only, such as
stress of weather, winds and waves, lightning,
tempests, rocks and the like. These are
understood to be the "perils of the sea" referred
in the policy, and not those ordinary perils
which every vessel must encounter. "Perils of
the sea" has been said to include only such
losses as are of extraordinarynature, or arise
from some overwhelming power, which cannot
be guarded against by the ordinary exertion of
human skill and prudence. Damage done to a
vessel by perils of the sea includes every species
of damages done to a vessel at sea, as
distinguished from the ordinary wear and tear
of the voyage, and distinct from injuries suffered
by the vessel in consequence of her not being
seaworthy at the outset of her voyage (as in this
case). It is also the general rule that everything
which happens thru the inherent vice of the
thing, or by the act of the owners, master or
shipper, shall not be reputed a peril, if not
otherwise borne in the policy. (14 RCL on
Insurance, Sec. 384, pp. 1203- 1204; Cia. de
Navegacion v. Firemen's Fund Ins. Co., 277 US
66, 72 L. ed. 787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners
maintain, that the loss of the cargo was caused by the perils of
the sea, not by the perils of the ship because as found by the trial
court, the barge was turned loose from the tugboat east of Cabuli
Point "where it was buffeted by storm and waves." Moreover,
petitioners also maintain that barratry, against which the cargo
was also insured, existed when the personnel of the tugboat and
the barge committed a mistake by turning loose the barge from
the tugboat east of Cabuli Point. The trial court also found that
the stranding and foundering of Mable 10 was due to improper
loading of the logs as well as to a leak in the barge which
constituted negligence.
On the contention of the petitioners that the trial court found that
the loss was occasioned by the perils of the sea characterized by
the "storm and waves" which buffeted the vessel, the records show
that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant
Lighterage, 'That the supposed loss of the logs
was occasioned by force majeure... "was not
supported by the evidence. At the time Mable
10 sank, there was no typhoon but ordinary
strong wind and waves, a condition which is
natural and normal in the open sea. The
evidence shows that the sinking of Mable 10
was due to improper loading of the logs on one
side so that the barge was tilting on one side
and for that it did not navigate on even keel;
that it was no longer seaworthy that was why it
developed leak; that the personnel of the
tugboat and the barge committed a mistake
when it turned loose the barge from the tugboat
east of Cabuli point where it was buffeted by
storm and waves, while the tugboat proceeded
to west of Cabuli point where it was protected
by the mountain side from the storm and waves
coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge
Mable 10 of defendant carrier developed a leak which allowed
water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more
water to come in and that "the loss of said plaintiffs' cargo was
due to the fault, negligence, and/or lack of skill of defendant
carrier and/or defendant carrier's representatives on barge Mable
10."
It is quite unmistakable that the loss of the cargo was due to the
perils of the ship rather than the perils of the sea. The facts
clearly negate the petitioners' claim under the insurance policy. In
the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton,
supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:
It must be considered to be settled,
furthermore, that a loss which, in the ordinary
course of events, results from the natural and
inevitable action of the sea, from the ordinary
wear and tear of the ship, or from the negligent
failure of the ship's owner to provide the vessel
with proper equipment to convey the cargo
under ordinary conditions, is not a peril of the
sea. Such a loss is rather due to what has been
aptly called the "peril of the ship." The insurer
undertakes to insure against perils of the sea
and similar perils, not against perils of the ship.
As was well said by Lord Herschell in Wilson,
Sons & Co. v. Owners of Cargo per the
Xantho ([1887], 12 A. C., 503, 509), there must,
in order to make the insurer liable, be some
casualty, something which could not
foreseen as one of the necessary incidents of
the adventure. The purpose of the policy is to
secure an indemnity against accidents which
may happen, not against events which must
happen.
In the present case the entrance of the sea
water into the ship's hold through the defective
pipe already described was not due to any
accident which happened during the voyage,
but to the failure of the ship's owner properly to
repair a defect of the existence of which he was
apprised. The loss was therefore more
analogous to that which directly results from
simple unseaworthiness than to that which
result from the perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of
those cases there is no room to doubt the
liability of the shipowner for such a loss as
occurred in this case. By parity of reasoning the
insurer is not liable; for generally speaking, the
shipowner excepts the perils of the sea from his
engagement under the bill of lading, while this
is the very perils against which the insurer
intends to give protection. As applied to the
present case it results that the owners of the
damaged rice must look to the shipowner for
redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings
showing negligence on the part of the vessel's crew.
Barratry as defined in American Insurance Law is "any willful
misconduct on the part of master or crew in pursuance of some
unlawful or fraudulent purpose without the consent of the
owners, and to the prejudice of the owner's interest." (Sec. 171,
U.S. Insurance Law, quoted in Vance, Handbook on Law of
Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its
commission. No honest error of judgment or mere negligence,
unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned
by the willful or fraudulent acts of the vessel's crew. There was
only simple negligence or lack of skill. Hence, the second
assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners
that the amount of P8,000.00 representing the amount of the
salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been
be
adjudicated against Manila Bay Lighterage Corporation by the trial
court.
WHEREFORE, the decision appealed from is AFFIRMED with the
modification that the amount of P8,000.00 representing the value
of the salvaged logs which was ordered to be deposited in the
Manila Banking Corporation in the name of Civil Case No. 86599
is hereby awarded and ordered paid to the petitioners. The liability
adjudged against Manila Bay Lighterage Corporation in the
decision of the trial court is accordingly reduced by the same
amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and
Patajo, JJ., concur.
Relova, J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6393 January 31, 1955
A. MAGSAYSAY INC., plaintiff-appellee,
vs.
ANASTACIO AGAN, defendant-appellant.
Custodio A. Villava for appellant.
Quijano, Alidio and Azores for appellee.
REYES, A. J.:
The S S "San Antonio", vessel owned and operated by plaintiff, left
Manila on October 6, 1949, bound for Basco, Batanes, vis Aparri,
Cagayan, with general cargo belonging to different shippers,
among them the defendant. The vessel reached Aparri on the 10th
of that month, and after a day's stopover in that port, weighed
anchor to proceed to Basco. But while still in port, it ran aground
at the mouth of the Cagayan river, and, attempts to refloat it
under its own power having failed, plaintiff have it refloated by the
Luzon Stevedoring Co. at an agreed compensation. Once afloat the
vessel returned to Manila to refuel and then proceeded to Basco,
the port of destination. There the cargoes were delivered to their
respective owners or consignees, who, with the exception of
defendant, made a deposit or signed a bond to answer for their
contribution to the average.
On the theory that the expenses incurred in floating the vessel
constitute general average to which both ship and cargo should
contribute, plaintiff brought the present action in the Court of
First Instance of Manila to make defendant pay his contribution,
which, as determined by the average adjuster, amounts to
P841.40. Defendant, in his answer, denies liability to his amount,
alleging, among other things, that the stranding of the vessel was
due to the fault, negligence and lack of skill of its master, that the
expenses incurred in putting it afloat did not constitute general
average, and that the liquidation of the average was not made in
accordance with law. After trial, the lower court found for plaintiff
and rendered judgment against the defendant for the amount of
the claim, with legal interests. From this judgment defendant had
appealed directly to this Court.
Although appellant assigns various errors, under our view of the
case only the following need be considered:
The trial court erred in allowing the general average for
floating a vessel unintentionally stranded inside a port
and at the mouth of a river during a fine weather.
For the purposes of this assignment of error we may well accept
the finding below that the stranding of plaintiff's vessel was due to
the sudden shifting of the sandbars at the mouth of the river
which the port pilot did not anticipate. The standing may,
therefore, be regarded as accidental, and the question is whether
the expenses incurred in floating a vessel so stranded should be
considered general average and shared by the cargo owners.
The law on averages is contained in the Code of Commerce. Under
that law, averages are classified into simple or particular and
general or gross. Generally speaking, simple or particular averages
include all expenses and damages caused to the vessel or cargo
which have not inured to the common benefit (Art. 809), and are,
therefore, to be borne only by the owner of the property gave rise
to same (Art. 810); while general or gross averages include "all the
damages and expenses which are deliberately caused in order to
save the vessel, its cargo, or both at the same time, from a real
and known risk" (Art. 811). Being for the common benefit, gross
averages are to be borne by the owners of the articles saved (Art.
812).
In classifying averages into simple o particular and general or
gross and defining each class, the Code (Art. 809 and 811) at the
same time enumerates certain specific cases as coming specially
under one or the other denomination. Going over the specific
cases enumerated we find that, while the expenses incurred in
putting plaintiff's vessel afloat may well come under number 2 of
article 809-which refers to expenses suffered by the vessel "by
reason of an accident of the sea of the force majuere" and
should therefore be classified as particular average, the said
expenses do not fit into any of the specific cases of general average
enumerated in article 811. No. 6 of this article does mention
"expenses caused in order to float a vessel," but it specifically
refers to "a vessel intentionally stranded for the purpose of saving
it" and would have no application where, as in the present case,
the stranding was not intentional.
Let us now see whether the expenses here in question could come
within the legal concept of the general average. Tolentino, in his
commentaries on the Code of Commerce, gives the following
requisites for general average:
First, there must be a common danger. This means, that
both the ship and the cargo, after has been loaded, are
subject to the same danger, whether during the voyage,
or in the port of loading or unloading; that the danger
arises from the accidents of the sea, dispositions of the
authority, or faults of men, provided that the
circumstances producing the peril should be ascertained
and imminent or may rationally be said to be certain and
imminent. This last requirement exclude measures
undertaken against a distant peril.
Second, that for the common safety part of the vessel or
of the cargo or both is sacrificed deliberately.
Third, that from the expenses or damages caused follows
the successful saving of the vessel and cargo.
Fourth, that the expenses or damages should have been
incurred or inflicted after taking proper legal steps and
authority. (Vol. 1, 7th ed., p. 155.)
With respect to the first requisite, the evidence does not disclose
that the expenses sought to be recovered from defendant were
incurred to save vessel and cargo from a common danger. The
vessel ran aground in fine weather inside the port at the mouth of
a river, a place described as "very shallow". It would thus appear
that vessel and cargo were at the time in no imminent danger or a
danger which might "rationally be sought to be certain and
imminent." It is, of course, conceivable that, if left indefinitely at
the mercy of the elements, they would run the risk of being
destroyed. But as stated at the above quotation, "this last
requirement excludes measures undertaken against a distant
peril." It is the deliverance from an immediate, impending peril, by
a common sacrifice, that constitutes the essence of general
average. (The Columbian Insurance Company of Alexandria vs.
Ashby & Stribling et al., 13 Peters 331; 10 L. Ed., 186). In the
present case there is no proof that the vessel had to be put afloat
to save it from imminent danger. What does appear from the
testimony of plaintiff's manager is that the vessel had to be
salvaged in order to enable it "to proceed to its port of
destination." But as was said in the case just cited it is the safety
of the property, and not of the voyage, which constitutes the true
foundation of the general average.
As to the second requisite, we need only repeat that the expenses
in question were not incurred for the common safety of vessel and
cargo, since they, or at least the cargo, were not in imminent peril.
The cargo could, without need of expensive salvage operation,
have been unloaded by the owners if they had been required to do
so.
With respect to the third requisite, the salvage operation, it is
true, was a success. But as the sacrifice was for the benefit of the
vessel to enable it to proceed to destination and not for the
purpose of saving the cargo, the cargo owners are not in law
bound to contribute to the expenses.
The final requisite has not been proved, for it does not appear that
the expenses here in question were incurred after following the
procedure laid down in article 813 et seq.
In conclusion we found that plaintiff not made out a case for
general average, with the result that its claim for contribution
against the defendant cannot be granted.
Wherefore, the decision appealed from is reversed and plaintiff's
complaint ordered dismissed with costs.
Paras, C.J., Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo,
and Reyes, J.B.L., JJ., concur.
The Lawphil Project - Arellano Law Foundation
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13695 October 18, 1921
STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellee,
vs.
MANUEL LOPEZ CASTELO, defendant-appellant.
Gabriel La O for appellant.
Lawrence and Ross for appellee.
STREET, J.:
By contract of character dated February 8, 1915, Manuel Lopez
Castelo, as owner, let the small interisland
steamer Batangueo for the term of one year to Jose Lim
Chumbuque for use in the conveying of cargo between certain
ports of the Philippine Islands. In this contract it was stipulated
that the officers and crew of the Batangueoshould be supplied by
the owner, and that the charterer should have no other control
over the captain, pilot, and engineers than to specify the voyages
that they should make and to require the owner to discipline or
relieve them as soon as possible in case they should fail to
perform the duties respectively assigned to them.
While the boat was being thus used by the charterer in the
interisland trade, the standard Oil Company delivered to the agent
of the boat in Manila a quantity of petroleum to be conveyed to the
port of Casiguran, in the Province of Sorsogon. For this
consignment a bill of lading of the usual form was delivered, with
the stipulation that freight should be paid at the destination. Said
bill of lading contained no provision with respect to the storage of
the petroleum, but it was in fact placed upon the deck of the ship
and not in the hold.
While the boat was on her way to the port mentioned, and off the
western coast of Sorsogon, a violent typhoon passed over that
region, and while the storm was at its height the captain was
compelled for the safety of all to jettison the entire consignment of
petroleum consisting of two hundred cases. When the storm
abated the ship made port, and thirteen cases of the petroleum
were recovered, but the remainder was wholly lost.
To recover the value of the petroleum thus jettisoned but not
recovered, the present action was instituted by the Standard Oil
Company against the owner of the ship in the Court of First
Instance of Manila, where judgment was rendered in favor of the
plaintiff. From this judgment the defendant appealed.
No question is made upon the point that the captain exercised
proper discretion in casting this petroleum overboard, as a step
necessary to the salvation of the ship; and in fact it appears that
even after the vessel was thus eased, she was with difficulty
prevented from capsizing, so great was the intensity of the storm.
The first question for discussion is whether the loss of this
petroleum was a general average loss or a particular less to be
borne solely by the owner of the cargo. Upon this point it will be
observed that the cargo was carried upon deck; and it is a general
rule, both under the Spanish Commercial Code and under the
doctrines prevailing in the courts of admiralty of England
America, as well as in other countries, that ordinarily the loss of
cargo carried on deck shall not be considered a general average
loss. This is clearly expressed in Rule I of the York-Antwerp Rules,
as follows: "No jettison of deck cargo shall be made good as
general average." The reason for this rule is found in the fact that
deck cargo is in an extra-hazardous position and, if on a sailing
vessel, its presence is likely to obstruct the free action of the crew
in managing the ship. Moreover, especially in the case of small
vessels, it renders the boat top-heavy and thus may have to be
cast overboard sooner than would be necessary if it were in the
hold; and naturally it is always the first cargo to go over in case of
emergency. Indeed, in subsection 1 of article 815 of the Code of
Commerce, it is expressly declared that deck cargo shall be cast
overboard before cargo stowed in the hold.
But this rule, denying deck cargo the right to contribution by way
of general average in case of jettison, was first mad in the days of
sailing vessels; and with the advent of the steamship as the
principal conveyer of cargo by sea, it has been felt that the reason
for the rule has become less weighty, especially with reference to
coastwise trade; and it is now generally held that jettisoned goods
carried on deck, according to the custom of trade, by steam
vessels navigating coastwise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L., 1419).
Recognition is given to this idea in two different articles in the
Spanish Code of Commerce. In the first it is in effect declared
that, if the marine ordinances allow cargo to the laden on deck in
coastwise navigation, the damages suffered by such merchandise
shall not be dealt with as particular average (art. 809 [3], Comm.
Code); and in the other it is stated that merchandise laden on the
upper deck of the vessel shall contribute in the general average if
it should be saved; but that there shall be no right to indemnity if
it should be lost by reason of being jettisoned for the general
safety, except when the marine ordinances allow its shipment in
this manner in coastwise navigation (art. 855, Comm. Code).
The Marine Regulations now in force in these Islands contain
provisions recognizing the right of vessels engaged in the
interisland trade to carry deck cargo; and express provision is
made as to the manner in which it shall be bestowed and
protected from the elements (Phil. Mar. Reg. [1913], par 23).
Indeed, there is one commodity, namely, gasoline, which from its
inflammable nature is not permitted to be carried in the hold of
any passenger vessel, though it may be carried on the deck if
certain precautions are taken. There is no express provision
declaring that petroleum shall be carried on deck in any case; but
having regard to its inflammable nature and the known practices
of the interisland boats, it cannot be denied that this commodity
also, as well as gasoline, may be lawfully carried on deck in our
coatwise trade.
The reason for adopting a more liberal rule with respect to deck
cargo on vessels used in the coastwise trade than upon those
used for ordinary ocean borne traffic is to be found of course in
the circumstance that in the coastwise trade the boats are small
and voyages are short, with the result that the coasting vessel can
use more circumspection about the condition of the weather at
the time of departure; and if threatening weather arises, she can
often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of
public policy be encouraged, and domestic traffic must be
permitted under such conditions as are practically possible, even
if not altogether ideal.
From what has been said it is evident that the loss of this
petroleum is a general and not a special average, with the result
that the plaintiff is entitled to recover in some way and from
somebody an amount bearing such proportion to its total loss as
the value of both the ship and the saved cargo bears to the value
of the ship and entire cargo before the jettison was effected. Who
is the person, or persons, who are liable to make good this loss,
and what are the conditions under which the action can be
maintained?
That the owner of the ship is a person to whom the plaintiff in
this case may immediately look for reimbursement to the extent
above stated is deducible not only from the general doctrines of
admiralty jurisprudence but from the provisions of the Code of
Commerce applicable to the case. It is universally recognized that
the captain is primarily the representative of the owner; and
article 586 of the Code of Commerce expressly declares that both
the owner of the vessel and the naviero, or charterer, shall be civil
liable for the acts of the master. In this connection, it may be
noted that there is a discrepancy between the meaning of naviero,
in articles 586 of the Code of Commerce, where the word is used
in contradistinction to the term "owner of the vessel" ( propietario),
and in article 587 where it is used alone, and apparently in a
sense broad enough to include the owner. Fundamentally the
word "naviero" must be understood to refer to the person
undertaking the voyage, who in one case may be the owner and in
another the charterer. But this is not vital to the present
discussion. The real point to which we direct attention is that, by
the express provision of the Code, the owner of the vessel is civilly
liable for the acts of the captain; and he can only escape from this
civil liability by abandoning his property in the ship and any
freight that he may have earned on the voyage (arts. 587, 588,
Code of Comm.).
Now, by article 852 of the Code of Commerce the captain is
required to initiate the proceedings for the adjustment,
liquidation, and distribution of any gross average to which the
circumstances of the voyage may have given origin; and it is
therefore his duty to take the proper steps to protect any shipper
whose goods may have been jettisoned for the general safety. In
ordinary practice this, we supposed, would be primarily
accomplished by requiring the consignees of other cargo, as a
condition precedent to the delivery of their goods to them, to give
a sufficient bond to respond for their proportion of the general
average. But it is not necessary here to inquire into details. It is
sufficient to say that the captain is required to take the necessary
steps to effect the adjustment, liquidation, and distribution of the
general average. In the case before us the captain of the vessel did
not take those steps; and we are of the opinion that the failure of
the captain to take those steps gave rise to a liability for which the
owner of the ship must answer.
But it is said and the entire defense seems to be planted upon
this proposition that the liquidation of the general average is,
under article 852 and related provisions, a condition precedent to
the liability of the defendant, and that at any rate the defendant,
as owner of the ship, should only be held liable for his proportion
of the general average. It is also suggested that if the plaintiff has
any right of action at all upon the state of facts here presented, it
is against the captain, who has been delinquent in performing the
duty which the law imposes on him.
This argument involves, we think, a misconception of the true
import of the provisions relating to the adjustment and liquidation
of general average. Clearly, for one thing, those provisions are
intended to supply the shipowner, acting of cause in the person of
the captain, with a means whereby he may escape bearing the
entire burden of the loss and may distribute it among all the
persons who ought to participate in sharing it; but the making of
the liquidation is not a condition precedent to the liability of the
shipowner of the shipper whose property has been jettisoned.
It is true that if the captain does not comply with the article
relating to the adjustment, liquidation, and distribution of the
general average, the next article (852) gives to those concerned
whether shipowner (naviero) or shipper the right to maintain an
action against the captain for indemnification for the loss; but the
recognition of this right of action does not by any means involve
the suppression of the right of action which is elsewhere
recognized in the shipper against the ship's owner. The shipper
may in our opinion go at once upon the owner and the latter, if so
minded, may have his recourse for indemnization against his
captain.
In considering the question now before us it is important to
remember that the owner of the ship ordinarily has vastly more
capital embarked upon a voyage than has any individual shipper
of cargo. Moreover, the owner of the ship, in the person of the
captain, has complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of the cargo at
the end of the voyage. It is therefore proper that any person whose
property may have been cast overboard by order of the captain
should have a right of action directly against the ship's owner for
the breach of any duty which the law may have imposed on the
captain with respect to such cargo. To adopt the interpretation of
the law for which the appellant contends would place the
shipowner in a position to escape all responsibility for a general
average of this character by means of the delinquency of his own
captain. This cannot be permitted. The evident intention of the
Code, taken in all of its provisions, is to place the primary liability
upon the person who has actual control over the conduct of the
voyage and who has most capital embarked in the venture,
namely, the owner of the ship, leaving him to obtain recourse, as
it is very easy to do, from other individuals who have been drawn
into the venture as shippers.
It results that the plaintiff is entitled to recover in this action; and
the only additional point to be inquired into is the amount that
should be awarded. In this connection it appears that the total
value of the jettisoned cargo, belonging partly to the plaintiff to
another shipper, was P880.35, of which P719.95 represented the
value of the plaintiff's petroleum. Upon the apportionment of this
total loss among the different interests involved, to wit, value of
ship, value of cargo, and the earned but lost freight, it appears
that the amount of the loss apportionable to the plaintiff is
P11.28. Deducting this from the value of the petroleum, we have
as a result, the amount of P708.67, which is the amount for which
judgment should be given.
Accordingly, modifying the judgment appealed from to this extent,
we affirm the same, with costs. So ordered.
Johnson and Villamor, JJ., concur.
Mapa, C.J., concurs in the result.
Separate Opinions
ARAULLO, J., dissenting:
As the loss of the petroleum shipped by the plaintiff company on
board the vessel Batangueo, which belongs to the defendant,
constitutes gross average and, as the latter, being, according to
the law, an agent, all of which is admitted in the foregoing
decision, the provisions applicable to the case and which should
be taken into consideration in deciding the appeal before this
court are those of various articles in sections 1 of title 4 and
sections 1, 2, and 3, of title 5, of Book 3 of the Code of Commerce.
Article 811 defines gross or general averages as damages and
expenses which are deliberately caused in order to save the vessel,
her cargo, or both at the same time, from a real and known risk,
and particularly, such as goods jettisoned to lighten the vessel,
whether they belong to the vessel, to the cargo, or to the crew, and
the damage suffered through said act by the goods or board; the
damage caused to the vessel by scuttling or entering her hold in
order to save the cargo; and the expenses of the liquidation of the
average. Article 812 provides that in order to satisfy the amount of
the gross or general average, all persons having an interests in the
vessel and cargo at the time of the occurrence of the average shall
contribute. Article 846 provides that the persons interested in the
proof and liquidation of averages may mutually agree and bind
themselves at any time with regard to the liability, liquidation and
payment thereof, and that, in the absence of agreements, the
proof of the average shall take place in the port where the repairs
are made, should any be necessary, or in the port of unloading;
that the liquidation shall take place in the port of unloading
should it be a Spanish port (now Filipino); that should the average
have occurred outside of the jurisdictional waters of the
Philippines or should the cargo have been sold in a foreign port by
reason of the arrival of the vessel under stress in said port,
liquidation shall be made in the port of arrival; and, finally, if the
average should have occurred near the port of destination, and
that port is made, the proceedings for the proof and liquidation
above-mentioned shall he had there.
Article 847 provides that when the liquidation of the averages is
made privately by virtue of agreement, as well as when a judicial
authority takes part therein at the request of any of the parties
interested who do not agree thereto, all of them shall be cited and
heard, should they not have renounced this right; that should
they not be present or not have a legitimate representative, the
liquidation shall be made by the consul in said port, and where
there is none, by the judge or court of competent jurisdiction,
accordance to the laws of the country, and for the account of the
proper person; and, finally, desiring to furnish all possible means
to effect the liquidation, legislator provides in the last part of said
article that, when the representative is a person well-known in the
place where the liquidation takes place, his intervention shall be
admitted and will produce legal effect, even though he be
authorized only by a letter of the shipowner, freighter, or
underwriter; and as to general or gross averages, he lays down
concrete and conclusive rules in articles 853, 854, and 858, with
respect to the form and mode in which the experts appointed by
the interested parties or by the court shall fulfill their duties, as to
the examination of the vessel, the repairs and the appraisement of
their cost, as well as to the appraisement of the goods which are
to contribute to the gross average and those which constitute the
average, likewise providing in article 857 that, after the
appraisement by the experts of the goods saved, lost, and those
which constitute the gross average, and after the repairs have
been made to the vessel, should any be necessary, and in such
case, after the approval of the accounts by the persons interested
or by the court, the entire record shall be turned over to the
liquidator appointed, in order that he may proceed with the pro
rata distribution of the average among the contributing values,
after fixing the amount mentioned in said article of the
contributing capital: (1) By the value of the cargo, according to the
rules established in article 854; (2) by the value of the vessel in
her actual condition, according to a statement of experts; (3) by 50
per cent of the amount of the freight, deducting the remaining 50
per cent for wages and maintenance of the crew. 1awph!l.net
Lastly, in relation to said provisions, article 851 authorizes the
captain to proceed privately, upon the agreement of the parties
interested, in the adjustment, liquidation, and distribution of the
gross average, and for this purpose, it is his duty to call, within
forty hours following the arrival of the vessel at the port, the
persons interested in order that they may decide whether the
adjustment or liquidation of the gross average is to be made by
experts and liquidators appointed by themselves, in which case
this shall be done should the persons interested agree, and said
article also provides that should an agreement not be possible, the
captain shall apply to the judge or court of competent jurisdiction,
who shall be the one of the port where the proceedings are to be
held in accordance with the provisions of the Code of Commerce,
to the consul of Spain (now of the United States), should there be
one, or otherwise to the local authority when the proceedings are
to be held in a foreign port. And finally, the next article, 852, says:
"If the captain should not comply with the provisions contained in
the foregoing article, the shipowner or agent or the freighters shall
demand the liquidation, without prejudice to the action they may
bring to demand indemnity from him."
It is therefore beyond question that the action of the plaintiff to
recover indemnity for the damage which it claims to have suffered
by reason of the failure of the captain of the vessel Batangueo to
proceed with the liquidation and distribution of the gross average
in which it was a contributor, and by reason of his act in
delivering to the other shippers their respective goods, without
first requiring them to give bond, should have been brought not
against the shipowner or agent, who is the defendant in this case,
but against the captain himself of the vesselBatangueo.
Although in the preceding decision it is clearly recognized that the
captain should have begun the proceedings for the adjustment,
liquidation, and distribution of the gross average in question, and
that it was his duty to take the proper steps to protect any ship
whose goods may have been jettisoned for the common security, it
is also stated that in ordinary practice this is supposed to be
complied with by requiring the consignees of the other cargoes, as
a condition precedent to the delivery thereof, to give a sufficient
bond to answer proportionally for the gross average, and, lastly,
that the failure of the captain to take the necessary steps to effect
the adjustment, liquidation, and distribution of said average gave
rise to the responsibility which should be enforced against the
defendant shipowner, against whom the shipper may immediately
institute his action, the former having in turn, if he so desires, the
right to bring suit against the captain. The majority opinion
attempts to support the last proposition and invokes articles 586,
587, and 588.
First of all, according to articles 866, 867, and 888 of the same
Code, a bond should be required of the shippers by the captain
after the liquidation is already approved, if the contributors
should fail to pay the amount of the quota by the third day after
having been required to do so, and before delivering to them the
goods saved. the captain having the right, upon failure to give
the bond, to delay the delivery of the goods until the shippers pay
their part of the gross average corresponding to each of them
and not before proceeding with the liquidation, for the simple
reason that the amount of the bond may only be fixed after the
determination of the amount which each of the shippers may be
obliged to contribute to the payment of the average, and this is so
clear and evident that in article 867 the captain is authorized to
attach the goods saved until the shippers should pay the amount,
if they should fail to do so by the third day after demand upon
them. And since the captain may require bond, he may delay the
delivery of the goods saved to the shippers until they make the
payment. In the case at bar, no step having as yet been taken for
the adjustment and liquidation of the gross average in question,
the fact that the captain of the Batangueo delivered the
respective cargoes of the other shippers without previously
requiring a bond, can not constitute the basis for making the
captain responsible, much less the owner of the vessel, as the trial
court has erroneously held in the judgment appealed from and as
this court is given to understand in referring to said filing of the
bond as a prerequisite to the delivery of the cargo. This is because
the time was not opportune when the captain should and could
exact the bond and the law neither requires such bond to be filed
before proceeding with the liquidation, inasmuch as the
shipowner or agent, as well as the shippers, being interested in
proceeding with the liquidation, the Code authorizes them, first,
to demand it from the captain and later to institute the action
corresponding to them against him to recover indemnity if he
should not comply with the provisions upon the subject, that is, if
he should fail to effect the liquidation, or if, in lieu thereof, he
should deliver the respective cargoes to the shippers or permit
them to dispose of the same, in which case the responsibility may
be fixed upon the captain and not upon the agent upon this
ground, and for not requiring the shippers to give said bond.
In the second place, although it is true that the captain is, as
stated in the decision, primarily the representative of the
shipowner or agent, it cannot in all cases, as the decision gives us
to understand, be deduced that the shipowner must be civilly
responsible for all the acts of the captain.
The Code of Commerce clearly and positively specifies the cases in
which such responsibility in demandable from the agent or
shipowner, and the cases in which he is not responsible, the
responsible attaching only to the captain. These cases can not be
confused in view of the clear and positive provisions of said Code,
in relation to the method adopted in the exposition thereof and
following the order of the subjects contained in this law.
Articles 586, 587, and 588, invoked in the decision in question in
order to maintain that theory, are found in title 2 of Book 3 of said
Code which treats of the persons who intervene in maritime
commerce, that is, as may be seen in sections 1, 2, and 3 thereof,
the shipowners and agents, the captains and masters of vessels
and the officers and crew thereof, respectively. Articles 806 to 818
and 846 to 849, and consequently, article 852, invoked in said
decision and which refer to the gross or general average and to the
simple or particular average, are found in titles 4 and 5 of the
same Book 3 which, respectively, deal with the risks, damages,
and accidents of maritime commerce and with the proof and
liquidation of the averages; and they contain all the provisions of
the law relative to said subjects and to the rights and obligations
which arise from the averages.
There is no relation whatever between said articles 586, 587, and
588, invoked in the decision, and those which treat of averages.
The first of said articles establishes the civil responsibility of the
shipowner and agent for the acts of the captain and the
obligations incurred by the latter for the repair, equipment, and
provisioning of the vessel. The second, that is, article 587,
establishes the same responsibility of the agent for indemnities, in
favor of third persons, which may arise from the conduct of the
captain in the care of the goods which the vessel may carry, from
which he may exempt himself by abandoning the vessel with all
her equipment and the freight he may have earned during the
voyage. In the present case it is not the conduct of the captain in
the care of the goods which has given rise to the right to exact the
corresponding civil responsibility, but, according to article 862,
the failure of the captain to comply with the provisions of article
851, with respect to the adjustment, liquidation, and distribution
of the gross average and the failure to attend to the claims which
the agent or the shippers may or should have made, inasmuch as
said article 852 clearly so declares, in referring to the agent or the
shippers in the following words: "Without prejudice to the action
they may bring to demand indemnity from him." The care of the
goods to which article 857 refers consists in the placing of the
goods in the proper and adequate place for their transportation
and due preservation during the voyage, in such manner that they
may not suffer damages or deterioration nor be taken away, for,
according to article 618, which bears some relation to said article
587, the captain is civilly responsible to the agent and the latter to
third persons, who may have occurred to the vessel and the
cargoes due to lack of skill or to negligence on his part and for the
subtraction of theft committed by the crew, reserving this right to
proceed against the guilty parties; and, according to article 619,
he shall be liable for the cargo from the time it is turned over to
him at the deck or afloat alongside the vessel at the port of
loading until he delivers it on the shore or on the discharging
wharp of the port of unloading, unless the contrary has been
expressly agreed upon; and, finally, according to No. 5 of the same
article 618, he shall be liable for those damages arising from an
undue use of the powers and nonfulfillment of the obligations
which are his in accordance with the articles 610 and 612, one of
which, the fifth mentioned in the last article, is to remain
constantly on board the vessel during the time the freight is taken
on board and carefully watch the stowage thereof, which acts, as
is well-known, constitute the means for the effective custody of
the goods which may be shipped on board.
In the present case, if the consignees or owners of the cargo on
board the vessel Batangueo took away with them their respective
cargoes or disposed of them upon arriving at port, after part
thereof, which included the petroleum boxes belonging to the
plaintiff, had been jettisoned, it was not because the captain of
said vessel had not fulfilled his duty with respect to the care of the
cargo, but because he did not proceed in accordance with the
provision of article 851 already cited, in the adjustment,
liquidation, and distribution of the gross average caused by that
accident. and did not, as he should have done, according to article
852, require the liquidation either of the agent or the shippers.
Therefore to them alone, including the plaintiff, and not to the
conduct of the captain in the custody of the cargo, is the fact
attributable that the shippers were able to carry away the dispose
of the cargo saved upon the arrival of the vessel at port.
The third or said articles, that is, 588, cited also in the same
decision, far from making the shipowner or the agent responsible
for the obligations incurred by the captain, exempts them from all
responsibility, if the captain should have exceeded the powers and
privileges which are his by reason of his position or have been
conferred upon him by the former, excepting the case, which bears
no relation whatever to that in question, in which the amounts
claimed were made use of for the benefit of the vessel.
Lastly, although this point has not been touched at all in the
decision now under discussion, according to article 618. No. 5,
the captain shall be civilly liable to the agent, and the latter to
third persons with whom he may have contracted, for the damages
arising from an undue use of his powers and the nonfulfillment of
his obligations, but it adds that such liability shall be "in
accordance with articles 610 and 612." These articles, as may be
seen, refer to the powers and obligations inherent in the position
of captain with respect to the appointment, contract, and
command of the crew, direction of the vessel to the port of
destination, the imposition of punishments for crimes committed
on board, contracts for the charter of the vessel, its preservation
and repair, the supplying of books of navigation, and others,
which are mentioned in said last article, the equipping of the
vessel and the receiving of the cargo, etc., among which
obligations there is none which bears the slightest relation to
those which the same Code imposes upon the captain with
respect to the adjustment, liquidation, and distribution of the
gross average.
On the other hand, in the various sections of title 4 of Book 3, and
in section 1 of title 5, the Code, in treating of the risks, damages,
and accidents of maritime commerce, specifically indicates the
cases in which the responsibility of the captain is enforcible, those
in which that of the agent or shipowner is demandable and those
in which that responsibility is joint among them, as well as those
cases in which no responsibility may be demanded of the agent or
shipowner but only of the captain.
In effect, article 841 of section 3 of said title 4 provides that if the
wreck or stranding should arise through the malice, or lack or
skill of the captain, or because the vessel put to sea insufficiently
repaired and prepared, the captain shall be responsible for the
indemnification of damages caused to the vessel or the cargo by
the accident, which liability may be demanded by the agent or the
shippers; but there is in said section no provision whatever by
which the agent or shipowner is made responsible.
In article 826 of section 3 of the same title, which deals with
collisions, it is provided that the agent of the vessel at fault shall
indemnify the losses and damages suffered, after an expert
appraisal, if a vessel should collide with another through the fault,
negligence, or lack of skill of the captain, sailing mate, or any
other member of the complement, and, according to article 831, if
a vessel should be forced to collide with another by a third vessel,
the agent of the third vessel shall indemnify for the losses and
damages caused, the captain being civilly liable to said agent, this
liability being understood to be limited to the value of the vessel
with all equipment and freight earned.
In treating of arrivals under stress, section 2 of the same title, in
article 821, declares that when such arrival is not legitimate, the
agent and the captain shall be jointly liable for the expense
incurred.
In treating averages, article 809, No. 8, in section 1 of the same
title, which includes, in simple averages, the damage suffered by
the vessel or cargo by reason of an impact or collision with
another, declares that if the accident occurred through the fault
or negligence of the captain, he shall be responsible for all the
damages caused, and in No. 9 of the same article, that the owner
of the cargo who is injured as a result of the fault, negligence, or
barratry of the captain or the crew may demand indemnity from
the captain or the crew may demand indemnity from the captain,
the vessel and freight, a rule which is based upon No. 1 of article
618 , already mentioned, according to which the captain shall be
civilly responsible to the agent and the latter to the third persons,
for all damages suffered by the vessel and its cargo by reason of
the want of skill or negligence on his part, a provision which, as is
well known, cannot refer to the case in which the owners of the
cargo, having the right to demand the adjustment, liquidation,
and distribution of the gross average, upon the arrival of the
vessel at port, should dispose of the cargo saved. Such case, as
already stated, is the subject of the express and positive
provisions of articles 851 and 852, in relation to articles 866, 867,
and 868, included in section 2 of the same title, as is shown by
the fact that the first of said articles declares that the captain is
responsible to the owners of the goods averaged for the losses they
may have suffered through his delay or negligence in collecting the
amount of the contribution after the liquidation is approved, and
by the fact that the last of said articles, that is, 868, declares that
the captain may exact from the shippers a bond sufficient to
answer for the amount of corresponding to the gross average for
the purpose of delaying the delivery to them of the goods saved
until they pay said amount.
It is by these special provisions and not by the general provisions
contained in sections 1, 2, and 3, of title 2, of Book 3 of said Code,
that we must be governed when dealing with the risks, damages,
and accidents the maritime commerce; and gross average being
among them, then, for the failure of the captain of the
vessel Batangueo to comply with the provisions relating to the
adjustment, liquidation, and distribution, the defendant owner of
the vessel can not and should not be made liable, but only the
captain, for article 852, already cited, is clear and positive to the
effect that in said case the agent or the shippers shall demand of
the captain the liquidation and may exercise against him the
action to recover the proper indemnity, a provision which excludes
in such case all responsibility of the agent or owner of the vessel,
for the reason that, the latter being, according to the same article,
one of those who, jointly with the shippers, may ask the captain
for the liquidation and institute against him the corresponding
action for indemnification, it would be absurb to pretend and
maintain that the shippers may also institute the same action
against the agent or owner of the vessel, in this manner converting
him from plaintiff into defendant.
But, as if it is still possible to put under discussion and interpret
so clear and positive a provision as that of said article 852, and
those related to it which, as has already been mentioned, are also
of the same character, it is argued in the decision of this court
that as "the owner of the ship ordinarily has vastly more capital
embarked upon a voyage than has any individual shipper of cargo,
and moreover, as the owner of the ship, in the person of the
captain, has complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of the cargo at
the end of the voyage, the evident intention of the Code, taken in
all of its provisions, is to place the primary liability upon . . . the
owner of the ship, leaving him to obtain recourse, as it is very
easy to do, from other individuals who have been drawn into the
venture as shippers, for, to adopt another interpretation of the law
would place the shipowner in a position to escape all
responsibility for a general average of this character by means of
the delinquency of his own captain. And it is therefore proper that
any person whose property may have been cast overboard by order
of the captain should have a right of action directly against the
ship's owner for the breach of any duty which the law may have
imposed on the captain with respect to such cargo."
Such reasoning, however, is not convincing. In the first place, it is
not true that the average in question was occasioned by the fault
of the captain of the vessel Batangueo, for on this point there is
no evidence in the record, but because of the necessity of
throwing overboard part of the cargo of said vessel to save it from
the danger then threatening it; secondly, the purpose of the
adjustment and liquidation of the gross average is to secure
contribution from the parties interested in the vessel and cargo
existing at the time of the occurrence thereof in order to pay the
amount of such average (art. 812, Code of Commerce), for which
purpose article 858 defines the procedure for the distribution of
the value of the average, stating that there must be taken into
consideration, as already stated by us, when we were discussing
this article, the contributing capital determined by the value of
the cargo, that of the vessel in her actual condition and the
percentage of the amount of the freight reduced by 50 per cent for
wages and maintenance of the crew, and further declaring that
after the determination of the amount of the average, it shall be
distributed pro rata among the contributing values and then paid
to the proper parties, after the persons interested therein, that is,
the agent or owner of the vessel and the shippers have consented
thereto, or in default thereof, after the liquidation is duly
approved; and, lastly, as repeatedly stated by us, accordingly to
the same articles, the owner of the vessel, or the agent, is also one
of the interested parties and coparticipants in the adjudication of
the average and its pro rata distribution among the contributing
values. From what has just been said it results that no purpose is
served by considering whether or not he has put in the voyage or
undertaking a capital greater than that of any individual shipper
for the purpose of making him principally liable, that is
compelling him to pay to the shippers what each of the latter as
well as he himself has the right to be paid for in proportion to the
amount of the respective capital fixed according to the rules
already stated in the distribution of the average. This is because,
however great the value of the vessel may be, there cannot be
conceded to the shippers in the adjudication a greater value than
that corresponding to them in the adjudication and distribution of
the average, according to the capital determined by the value of
the cargo at each, in conformity with the rules established in
article 854 for the assessment of the same cargo and of the goods
which have to contribute to said average, nor can there be
conceded to the owner of the vessel a value greater than that
which may correspond to him in said adjudication and
distribution, based upon the value of the vessel in its actual
condition, according to a statement of experts and the rules for
assessment thereof found in Nos. 6 and 7 of said article 854, from
which it is necessarily inferred that it is notoriously unjust,
because the law does not authorize it and it would be a violation
of its positive provisions to compel the owner of the vessel, by
the mere fact of having put a greater capital in the undertaking, to
pay to the shippers the quota which corresponds to each of them
which, in this case, according to the majority opinion, is that
which should correspond, without a previous liquidation, to the
plaintiff, Standard Oil Company, saving to him, however, the right
afterwards to bring action or proceed against the other shippers,
as expressed in the same decision. In short, it would amount to
absolutely ignoring the provisions of the law, which are so clear,
express, and positive with respect not only to the adjustment,
liquidation, and distribution of the gross average, but also to the
procedure for effecting the same and the rights and obligations of
those who should contribute to the average. And it is very clear
that error has been committed, because in the same decision, two
paragraphs before that in which the theory already discussed is
made, it is stated that there has been "a misconception of the true
import of the provisions relating to the adjustment and liquidation
of general average," in arguing that the right of action should be
"against the captain, who has been delinquent in performing the
duty which the law imposes on him," for "clearly," says the same
decision, "those provisions are intended to supply the shipowner,
acting to court in the person of the captain, with a means whereby
he may escape bearing the entire burden of the loss and may
distribute it among all the persons who ought to participate in
sharing it; but the making of the liquidation is not a condition
precedent to the liability of the shipowner to the shipper whose
property has been jettisoned."
As is clearly seen, what has just been stated gives us to
understand that the owner of the vessel must suffer all the loss in
case of gross average, and that the provisions relating to the
adjustment, liquidation, and distribution thereof are for the
purpose of furnishing him the means for evading and enabling
himself to distribute it between the persons who should
participate in the average. This is erroneous, because these
provisions, which intentionally are extensively mentioned in this
opinion, do not have that object, for the reason that the shipowner
is not the person who should suffer all the loss in case of gross
average, but it should be partitioned and distributed between the
shipowner or agent and the shippers, in proportion to their
interests and the respective value of the cargo and vessel, which
should be fixed according to article 850 and the rules for their
assessment, stated in article 854 previously cited, after the
liquidation and approval thereof, and after hearing the interested
parties or their representatives; and all of these proceedings would
surely be useless and unnecessary if the shipowner or the agent
should have to suffer all loss but may afterwards distribute it
among those participants therein, or, what is the same thing, if he
should be compelled by law to pay the total value of the average
and then partition it among the shippers or owners of the cargo,
as is maintained in said decision. And there is no doubt that this
is what is maintained in the decision, as the basis of the
pronouncements made therein, because, as already stated, in the
paragraph now under discussion, it is clearly stated that the
liquidation is not a condition precedent to the enforcement of the
liability of the shipowner to the shipper, whose goods may have
been jettisoned. And this is not what the law says just as it does
not say that the shipowner shall be liable to the shipper or owner
of the goods, but that, on the contrary, it says that the shipowner
or agent as well as the shippers may demand liquidation from the
captain and institute against him the corresponding action to
recover indemnity, that is, that he has the same right as the
shippers to demand liquidation from the captain and, in default
thereof, to recover indemnification, from which it is clearly inferred
that the liquidation is a condition precedent, not to the liability of
the shipowner to the shipper whose goods may have been
jettisoned, as stated in the decision in question, but to the
partition which must be made between the agent or shipowner
and the shippers of the respective amount of the average. This
partition, and not that the shipowner should suffer all loss but
may afterwards evade and distribute it among all persons who
should share in the average, is the real interpretation of the
provisions to which reference is made in the same decision.
Neither is it true that, as stated in said decision, the shipowner
has, through the captain, the complete and exclusive control of
the crew and the sailing of the vessels, as well as of the
destination of the cargo at the end of the voyage, and that, for this
reason, the principal liability for the payment of the gross average
must fall upon the shipowner.
That he does not have the complete and exclusive control of the
crew is shown, among other provisions of the same Code of
Commerce, by the following articles: First, article 610, according
to which, among others, it is an inherent power in the captain to
appoint or make contracts with the crew in the absence of the
agent and to propose said crew if said agent be present, but
without any right on the part of the latter to employ any individual
against the captain's express refusal. This provision necessarily
implies the absolute power of the captain to take on the contract
the crew, and article 634 confirms it, according to which the
captain may make up his crew with the number he may consider
advisable, taking on resident foreigners, in the absence of
nationals, their number not to exceed one-fifth of the total crew,
and may even, with the consent of the consul or marine
authorities, complete his crew with foreigners in foreign ports if he
should not find sufficient number of nationals, the captain being
obliged to execute the contract with said members of the crew and
others who compose the complement of the vessel; and finally,
article 637 which empowers the captain, for sufficient cause, to
discharge a sailor during the time of his contract and to refuse,
before setting out on a voyage without giving any reason whatever,
to permit a sailor he may have engaged from going on board, in
which case he will be obliged to pay him his wages as if he had
rendered services, this indemnity to be paid from the funds of the
vessel only if the captain had acted for reasons of prudence and in
the interests of safety and good service of the vessel; but, should
this not be the case, says said article, it shall be paid by the
captain personally. And, if in all that has just been stated the
captain may act independently, it is obvious that the owner of the
vessel or the agent does not have, through the captain, complete
and exclusive control of the crew. In short, the captain directly
exercises exclusively personal powers with respect to the crew
and, for this reason, he is personally and particularly responsible
for his acts, except in the only case already mentioned, in which
he may have acted for the benefit of the vessel.
Another power inherent in the position of captain, according to
article 610, is that of directing the vessel to the port of its
destination, according to the instructions he may have received
from the agent, but from this is cannot be inferred that the
shipowner or agent has, through the captain, complete and
exclusive control of the navigation of the vessel, for the simple
reason that the captain may not obey said instructions and may
act freely adjusting his decisions according to the circumstances
of each case, as would occur in the case of risks, damages, and
accidents which we have previously discussed, cases in which the
law imposes upon the captain the obligations to which titles 4 and
5 of Book 3 refers and indicates those cases which we have
heretofore minutely discussed, in some of which he is personally
responsible, in orders the agent or shipowner, or the latter jointly
with the captain, and still in others, in which the agent is not
responsible but only the captain.
Nor is it true that the shipowner, through the captain, has the
complete and exclusive control of the destination of the cargo at
the end of the voyage, for article 619 says textually that the
captain shall be liable for the cargo from the time it is turned over
to him at the dock, or afloat alongside the ship, at the port of
loading, until he delivers it on the shore or on the discharging
wharf, of the port of unloading, unless the contrary has been
expressly agreed upon, and that, according to article 620, he is
not liable for the damages caused to the vessel or to the cargo by
reason of force majeure, and article 625 adds that the captain,
under his personal liability, as soon as he arrives at the port of
destination, upon obtaining the necessary permission from the
health and customs officers and fulfilling the other formalities
required by the regulations of the administration, shall turn over
the cargo, without any defalcation, to the consignees and, in a
proper case, the vessel, rigging, and freights to the agent. And if
the captain is personally responsible, according to the clear and
positive text of said article, for the delivery of the cargo to the
consignees and, of the vessel, rigging, and freight, to the agent or
shipowner, it is clear that the latter does not have complete and
exclusive control of the destination of the cargo at the end of the
voyage, because the obligation to deliver is a personal obligation of
the captain, and the agent or shipowner, just as any of the
consignees, may demand said liability with respect to the vessel,
rigging, and freight from the captain. And that responsibility of
the captain cannot be confused with the provision contained in
article 618 of the same Code in favor of the agent, and that of the
latter in favor of third persons who may have contracted with him,
because in said article 618 are specifically mentioned the cases of
responsibility to which the same article refers, and the
responsibility of the captain from the moment the cargo is
delivered to him until its unloading is specially declared in article
619 and even more particularly in article 625 which says that said
responsibility is a personal responsibility of the captain.
It cannot, therefore, be inferred from all the provisions of the
Code, that the evident intention thereof is to impose the principal
responsibility upon the shipowner, as stated in the decision of the
majority; and, if the law is to be complied with, it is useless effort
to show its truth, by invoking the general provisions of the Code of
Commerce, which govern the relations between the captain and
the shipowner or the agent and those of one or the other or both
with third persons who may have contracted with either of them,
or by invoking those which deal with gross averages, as one of the
damages and accidents and maritime commerce, because, in the
first, there is no declaration expressly made upon the subject,
and, in the second, what is established and declared is precisely
the contrary, for the shipowner or agent has, just as the shippers,
the right of action against the captain to enforce his responsibility
and to be indemnified by him for the damages occasioned to them
by reason of the failure of the captain to comply with the
obligations imposed upon him by law with respect to the
adjustment, liquidation, and distribution of the average, and with
respect to the disposition and delivery of the goods saved to the
shippers, before the payment by the latter of their aliquot part in
the partition of the average, or without their having filed a
sufficient bond to answer for the cargo, for the reason that,
according to article 619, he is responsible for the cargo from the
moment he takes charge thereof at the port of loading until its
delivery at the port of unloading and, according to article 625, he
is, under his personal liability, obliged to deliver the cargo,
without defalcation, to the consignees or shippers and, in the
proper case, the vessel, rigging, and freight to the agent upon the
arrival at the port of destination. This shows, in relation to the
provisions of articles 866 and 868, already cited, that the captain
of the vessel should be personally liable to the owners of the goods
averaged for the damages which were incurred by them, by reason
of his delay or negligence in requiring a goods of the shippers
before delivery to them of the goods saved, this supposing that
they are obliged to do so, instead of proceeding to the
adjustment, liquidation, and distribution of the gross average,
inasmuch as the purpose of the law is to exact said personal
responsibility for the due delivery to the consignees or shippers of
the cargo.
The plaintiff, therefore, should have brought said action, if he had
any, for the recovery of the amount claimed in the complaint, not
against the defendant, owner of the vessel Batangueo, but
against the captain thereof, and said defendant cannot and should
not be sentenced to pay to the plaintiff the sum stated in the
decision of this court which, with some modification as to the
amount thereof, affirms the judgment of the trial court; and there
is more reason for this assertion because that sum is, according
to said decision, what the plaintiff should receive in the partition
and distribution of the gross average in question and, yet, it does
not appear that the corresponding liquidation, and, consequently,
the division and distribution of said average, has already been
made, as required by the provisions of the Code of Commerce in
the articles mentioned at the beginning.
Regretting that I have to dissent from the respectable opinion of
the majority, I am of the opinion, for the reasons above stated,
that the judgment appealed from should be reversed and the
defendant should be absolved from the complaint.
Avancea, J., concurs.
This action was brought by the owners of the steamship against
the owner of the sail vessel, to recover the value of the destroyed
steamer and the damages caused by reason of its destruction,
alleging as a basis therefor the negligence of the said vessel. The
defendant denied the material allegations of the complaint and set
up a counterclaim for damages, alleging as grounds therefor that
the injuries sustained by the said vessel were due to the gross
negligence of those handling plaintiff's steamer.
Before the action was tried, M. Garza made an application to
intervene under the provisions of section 121 of the Code of Civil
Procedure, he alleging in support of his application that the
steamer was carrying for him at the time several thousand pesos'
worth of merchandise as freight, which was lost as a result of the
collision. He was permitted to intervene and accordingly filed a
complaint setting up the loss of this merchandise and the value
thereof and alleging, as the basis for his right to recover, the
negligence of one or the other of the vessels, without specifying
which, and praying that the court award him damages against the
vessel the negligence of which, upon the trial, was shown to have
caused his loss.

The case turns upon the question which of the vessels was
Republic of the Philippines
negligent in failing to conform to the International Rules for the
SUPREME COURT
Prevention of Collissions at Sea. The learned trials court found
Manila
that those managing the steamer were guilty of gross negligence
and that for that reason the plaintiff could recover nothing.
EN BANC

An examination of the record leave no doubt that the finding of

G.R. No. L-7675 March 25, 1913
the trial court that the steamer was handled in a grossly negligent
manner is clearly and fully supported by the evidence. No other
G. URRUTIA & CO., plaintiff-appellee, finding could be sustained.
vs.
BACO RIVER PLANTATION CO., defendant-appellee. Relative to the alleged negligence of the sail vessel the learned trial
M. GARZA, intervener-appellant. court said:

Antonio Sanz, for plaintiff. I am satisfied beyond any reasonable doubt that the
Hartford Beaumont, for defendant. steamer Ntra. Sra. del Pilar was sailing erratically, that it
Recaredo M.a Calvo, for intervener. did not have a proper watch on board, and that it
therefore contributed neglect to the collision.
MORELAND, J.:
I am thoroughly satisfied that the sailing
This action spring from a collision between the steamship Nuestra vessel Mangyan had its lights properly on it long before
Seora del Pilar, owned by the plaintiff, and the the time the collision occurred, and that the lights were
schooner Mangyan owned by the defendant, which occurred in the so arranged upon the rigging of the vessel as to comply
early morning of the 8th of April, 1910, in Verde Island North with the rules, and that they were visible and were seen
Passage. The sail vessel was sailing with a fresh breeze dead by the crew of the steamer Elcano and could have been
astern, her sails wing and wing. The steamer was seen by those on seen by the wathcman or the chief officer of the
board the sailing vessel some time before the actual collision, steamer Ntra. Sra. del Pilar, if they had been on the
sailing erratically. The sail vessel kept her course steadily until lookout for them;
just before the actual contact when her helmsman threw her hard
to port in an effort to avoid the collision. The movement, however, That the steamer Ntra. Sra. del Pilar, being bound to keep
was unsuccessful and the sail vessel rammed the steamer on the out of the course of the sailing vessel and suddenly
starboard quarter well aft. The steamer sank and eight lives were seeing the sailing vessel very close, went over hard to
lost. The sail vessel was considerably injured. port and crossed the course of the sailing vessel.
 I also find that the sailing vessel, notwithstanding the
erratic movements of the steamer, proceeded directly on
its course regardless of consequences when with all the
searoom there was it could easily have maneuvered so as
to very well avoid the collision, and thereby having
contributed neglect to the collision, neither is entitled to
recover from the other any damages which may have
occurred.
These facts and circumstances clearly appear in the record and
fully sustain the conclusions reached.
We are of the opinion that under the facts stated in the decision of
the trial court the defendant was entitled to recover upon its
counterclaim.
It being clear from, the evidence that the gross negligence of those
managing the steamer brought it into such close proximity to the
sail vessel that a collision was apparently inevitable, the question
is whether or not the sail vessel was negligent in continuing its
course without variation up to the moment that it found itself in
extremis.
Article 20 of the International Rules for the Prevention of
Collission at Sea is as follows: "If two ships, one of which is a
sailing ship and the other a steam ship, are proceeding in such
directions as to involve risk of collision, the steam ship shall keep
out of the way, of the sailing ship."
Article 21 is as follows: "where by any of these rules one of two
vessels is to keep out of the way, the other shall keep her course
and speed."
Generally speaking, in collisions between vessels there exist three
divisions of time, or zones; The first division covers all the time up
to the moment when the risk of collision may be said to have
begun. Within this zone no rule is applicable because none is
necessary. Each vessel is free to direct its course as it deems best
without reference to the movements of the other vessel. The
second division covers the time between the moment when the
risk of collision begins and the moment when it has become a
practical certainty. The third division covers the time between the
moment when collision has become a practical certainty and the
moment of actual contact.
It was during the time when the sail vessel was passing through
the third zone that it changed its course to port in order to avoid,
if possible, the collision. This act may be said to have been done in
extremis, and, even if wrong, the sailing vessel is not responsible
for the result.
The question before us, as presented by the finding of the trial
court, arises wholly over the action of the schooner in keeping her
course through the second zone, that is, during the period when
there was a risk of collision. In resolving this question we have to
note the well-established presumption which favors the sail vessel
in cases of this character. The rule relative to this presumption is
conservatively stated in volume 25 of the American and English
Encyclopedia of Law, page 926:
Subject to the general rules of evidence in collision cases
as to the burden of proof, in the case of a collision
between a steam vessel and a sail vessel, the
presumption is against the steam vessel, and she must
show that she took the proper measures to avoid a
collision.
Hughes on Admiralty, page 242, declares the law thus:
A steamer must keep out of the way of a sail vessel. In
doing so she must allow the said vessel a wide berth. . . .
A steamer may take her own method of passing a sail
vessel. The mere approach of the two vessels does not
bring about risk of collision. The steamer may assume
that the sail vessel will do her duty and do nothing to
embarrass her. Hence the steamer may shape her course
so as to avoid the sail vessel. . . .
This rule that vessels may each assume that the other
will obey the law is one of the most important in the law
of collision. Were it otherwise and were vessels required
to take all sorts of measures to keep out the way, when
they are not in each other's way, navigation would be
impossible. . . . There is, however, one important
qualification which must be borne in mind. It is that a
steamer must not approach so near a sailing vessel, and
on such a course as to alarm a man of ordinary skill and
prudence. If the man on the sailing vessel makes an
improper manuever, he is not responsible. It is what is
called an "error in extremis." . . . The leading case on the
subject is The Lucille (15 Wallace, 676). In that case a
steamer and schooner were approaching on converging
course only half a point apart, so that they would have
come within thirty yards of each other, and that in
Chesapeake Bay. The court held that this was too close
and condemned the steamer."
On page 245 the same author says:
Article 21 . . . renders it obligatory on the vessel which
has the right of way to pursue her course. . . . She must
rely on the other vessel to avoid the collision and not
embarrass her by any maneuver. All she need do is to do
nothing. Then the other vessel knows to expect and
navigates accordingly. . . .
In collisions between steam and sail vessels the steamer's
defense is almost invariably that the sail vessel changed
her course.
On page 255 of the same work appears the following:
 In The Clara Davidson (24 Fed. 763), the court said: "But
I do not find my self at liberty to ignore the inquiry
whether a statutory rule of navigation was violated by
the schooner. These rules are the law of laws in cases of
collision. They admit of no option or choice. No navigator
is at liberty to set up his discretion against them. If these
rules were subject to the caprice or election of masters
and pilots, they would be not only useless, but worse
than useless. These rules are imperative. They yield to
necessity, indeed, but only to actual and obvious
necessity. It is not stating the principles too strongly to
say that nothing but imperious necessity or some
overpowering his major will excuse a sail vessel in
changing her course when in the presence of a steamer
in motion."
Spencer on Marine Collisions, page 154, says:
The duties imposed upon vessels are of a mutual
character; and where the statute directs one to give way
to the other, it imposes an equal duty upon the latter to
continue on its course, and a change of course on its
part is as unlawful as it would be for the other refuse to
yield the right of way. . . .
It is one of the conditions of the duty to keep out of the
way," that the other vessel shall act intelligently, and
afford reasonable evidence of her intention; while it is
doubtful what the other will do, the former should hold
her course. Like all other rules for the prevention of
collisions at sea, there may be special circumstance
which would warrant a ship in departing from her
course, where collision appears inevitable by pursuing it;
indeed, it is her duty to do so; but until it plainly appears
that there is no other alternative, a vessel should hold
her course when in a position required to do so by the
statute."
On page 181 the same author says:
The duty of one vessel to keep her course is not intended
by the rules as a privilege conferred, but as an obligation
imposed, in order to enable the other vessel with
certainty to keep out of the way. In order to warrant a
vessel to either change her course or speed, there must
be reasonable certainty that the other is not doing her
duty, and that the situation imperatively demands a
departure from the rules. It is the duty of the vessel
required to keep out of the way to give an early and
intelligible expression of her intentions to do so; and
while there is any doubt as to what her actions will be,
the vessel required to hold her course may presume that
the other will act intelligently and lawfully, and she
should hold her course until the contrary appears. it is
no excuse for a vessel taking a course forbidden by law
that the unlawful course was the best one.
In the American and English Encyclopedia of law (vol. 25. p. 925)
the rules is stated as follows:
But it must be a strong case which puts the sail vessels
in the wrong for obeying the rule to hold her course, for
the court must clearly see, not only that a deviation from
the rule for would have prevented the collision, but that
the officer in charge of the sail vessel was guilty of
negligence or a culpable want of seamanship in not
perceiving the necessity for a departure from the rule
and acting accordingly. The sail vessel is justified in
holding her course to the last minute possible for the
steamship to avoid her by making the necessary
maneuver.
In the case of St. John vs. Paine (10 How., 557), the collision was
between a schooner and a steamer. The schooner had no lights
visible; the night was starlight and clear. The court reviewed the
rules governing the management of sail vessel at some length,
explained the rules applicable to the management of steam
vessels, and gave the reasons why the rules which govern travelers
on the highways of the sea should be strictly enforced. After
showing the greater facility of manuevering which a steamer has
over a sail vessel and, therefore, the greater ability to avoid
collisions, the court said:
As a general rule, therefore, when meeting a sailing
vessel, whether close hauled or with the wind free, the
latter has a right to keep her course, and it is the duty of
the steamer to adopt precautions as will avoid her. (Cites
cases.)
By an adherence to this rule on the part of the sailing
vessel the steamer with a proper lookout will be enabled,
when approaching in an opposite direction, to adopt the
necessary measures to avoid the danger, and she will
have a right to assume that the sailing vessel will keep
her course. If the latter fails to do this, the fault will be
attributable to her, and the master of the steamer will be
responsible only for a fair exertion of the power of his
vessel to avoid the collision under the unexpected change
of the course of the other vessel, and the circumstances
of the case.
A similar case is that of The Genesee Chief vs. Fitzhugh (12 How.,
443). This pertains also to a collision between a steamer, The
Genesee Chief , and a sail vessel. The two watched each other for
some time before the collision. The sailing vessel kept her course
until in extremis when she made a wrong maneuver. The court
said:
The collision took place in the open lake. It was a
starlight night, and although there was a haze near the
surface of the lake, it was not sufficient to conceal the
Cuba from those on board of the propeller. . . .
 The lake was smooth. The steamboat had the entire
command of her course and a wide water, by which she
might have passed the Cuba on either side, and at a safe
distance. She was going at the rate of eight miles an
hour. And if proper care had been taken on board the
Genesee Chief , after the schooner was first seen, it
would seem to be almost impossible that a collision could
have happened with a vessel moving so slowly and
sluggishly through the water even if she was carelessly or
injudiciously managed. There was no necessity for
passing so near her as to create the hazard. The
steamboat could choose it own distance. . . .
And the captain and crew of the Cuba appear to have
been watchful and attentive from the time the propeller
was discovered. Nor do we deem it material to inquire
whether the order of the captain at the moment of
collision was judicious or not. He saw the steamboat
coming directly upon him; her speed not diminished; nor
any measures taken to avoid a collision., And if, in the
excitement and alarm of the moment, a different order
might have been more fortunate, it was the fault of the
propeller to have placed him in a situation where there
was no time for thought; and she is responsible for the
consequences. She had the power to have passed at a
safer distance, and had no right to place the schooner in
such jeopardy, that the error of a moment might cause
her destruction, and endanger the lives of those on
board. And if an error was committed under such
circumstances it was not a fault.
In the case of The Ottawa (3 Wall., 269), the court said:
Rules of navigation are obligatory from the time the
necessity for precaution begins, and continue to be
applicable as the vessels advance, so long as the means
and opportunity to avoid the danger remain; but they do
not apply to a vessel required to keep her course after the
approach is so near that the collision is inevitable, and
are equally inapplicable to vessels of every description
while they are yet so distant from each other that
measures of precaution have not become necessary.
This case exemplifies the three zone theory already referred to. In
the first zone no rules apply. In the second the burden is on the
vessel required to keep away and avoid the danger. The third zone
covers the period in which errors in extremis occur; and the rule is
that the vessel which has forced the privileged vessel into danger
is responsible even if the privileged vessel has committed an error
within that zone.
The duty of the sailing vessel to keep her course is well exemplified
in the leading case of The Lucille vs. Respass (15 Wall., 676),
which was a collision between a schooner and a steamer. Both
vessels saw each other in time to have avoided the collision. The
court said:
The principles of law applicable to the case are well
settled. They are not disputed by either party. In the case
of The Carrol (8 Wall., 302), it is thus laid down, "Nautical
rules require that where a steamship and sailing vessel
are approaching each other from opposite directions, or
on intersecting lines, the steamship from the moment
the sailing vessel is seen, shall watch with the highest
diligence her course and movements so as to be able to
adopt such timely means of precaution as will
necessarily prevent the two boats from coming in
contact. Fault on the part of the sailing vessel at the
moment preceeding a collision does not absolve a
steamer which has suffered herself and a sailing vessel
to get in such dangerous proximity as to cause inevitable
alarm and confusion and collusion as a consequence.
The steamer, as having committed a far greater fault in
allowing such proximity to be brought about, is
chargeable with all the damages resulting from a
collision."
The rule laid down in the case of The Fannie (11 Wal.,
238( is still more applicable to the case before us. It was
held that a schooner meeting a steamer approaching her
on a parallel line, with the difference of half a point in
the course of the two, ought to have kept in her course;
that a steamer approaching a sailing vessel is bound to
keep out of her way, and allow her a free and
unobsructed passage. Whatever is necessary for this it is
her duty to do, and to avoid whatever obstructs or
endangers the sailing vessel in her course. It, therefore,
the sailing vessel does not change her course so as to
embarrass the steamer, and render it difficult for her to
avoid a collision, the steamer alone is answerable for the
damage of a collision, if there is one.
In the case of The Sea Gull (23 Wall., 165) the court said:
Steamers approaching a sail ship in such a direction as
to involve risk of collision are required to keep out of the
way of the sail ship; but the sail ship is required to keep
her course unless the circumstances are such as to
render a departure from the rule necessary in order to
avoid immediate danger.
Vessels with sails being required to keep their course, the
duty of adopting the necessary measures of precaution to
keep out the way is devolved upon the steamer subject
only to the condition that the sail ship shall keep her
course and do not act to embarrass the steamer in her
efforts to perform her duty. Doubtless the steamer may
go to the right or left if she can keep out of the way, but if
not and the approach is such as to involve risk of
collision she is required to slacken her speed, or, if
necessary, stop and reverse, and if she fails to perform
her duty as required by the rules of navigation she is
responsible for the consequences if the sail vessel is
without fault. . . .
 Attempts is made in argument to show that the schooner
also was in fault and that the case falls within the rule
which requires that the damages shall be divided.
Support to that charge is attempted to be drawn from the
assumed fact that the schooner changed her course in
violation of the rule of navigation which requires the sail
ship to keep her course, as a correlative duty to that of
the steamer whenever the latter is required to keep out of
the way. . . .
Two answers are made by the libelants to that defense,
either of which, if found to be true, is sufficient to
exonerate the schooner: . . . (2) That the schooner made
no change in her course until the collision was
inevitable, nor until it became indispensably necessary
in order to avoid immediate danger caused by the fault of
the steamer. . . .
Rules of navigation continue to be applicable as long as
the means and opportunity remain to avoid the danger,
but they do not apply to a vessel required to keep her
course after the wrongful approach of the opposite vessel
is so near that a collision is inevitable. . . .
Nor will an error committed by the sail vessel under such
circumstances of peril, if she otherwise without fault,
impair the right of the sail vessel to recover for the
injuries occasioned by the collision, for the plain reason
that those who produced the peril and put the sail vessel
in that situation are chargeable with the error and must
answer for the consequences. (Steamship
Co. vs. Rumball, 21 How., 383.)
Subject to that exceptions the sail vessel must keep her
course.
In the case of The Benefactor (102 U. S. 214), the court laid down
the following conclusions.:
1. Upon the steamship and schooner discovering each
other proceeding in such directions as to involve risk of
collision, as stated in the foregoing findings of fact, it was
the right and duty of the schooner to keep her course,
and the duty of the steamship to keep out of the way of
the schooner, and the steamship was in fault in failing to
perform that duty.
2. It was also the duty of the steamship under the
circumstances stated, to pursue a course which should
not needlessly put the schooner in imminent peril; and
the steamship was in fault in failing to perform that duty.
3. It was the duty of the steamship before the time when
she did so, to slacken her speed or stop, and the
steamship was in fault in failing to perform that duty.
4. If, when a collision had become imminent by reason of
the fault of the steamship, any error was committedin
extremis by those in charge of the schooner, the schooner
is not responsible therefor.
5. The steamship had no right, under the circumstances
stated, needlessly to place herself in such close proximity
to the schooner that the error or a moment would bring
destruction.
6. The collision was occasioned by the fault of the
steamship, and the steamship should be condemned
therefor.
In the case of The Badger State (8 Fed. Rep., 526), the court said:
Where a sailing level and one propelled by steam are
approaching each other bow, on the steamer must give
away, In case of a collision between such vessels, the
steamer is prima facie in fault.
In the case of The Gate City (90 Fed. Rep., 314), the court held,
according to the syllabus:
The rule requiring a sailing vessel meeting a steamer to
hold her course is a broad and general one intended to
put the burden of avoiding a collision upon the steamer;
and, if the sailing vessel departs from the injunction the
burden is on her to show some reasonable excuse
therefor.
A disregard of the rule not demanded by a clearly
existing exigency should not be excused.
Therefore, she will not be held in fault for adhering to her
course, although the steamer seems to be manuevering
in an uncertain and dangerous way.
We are satisfied from the authorities that, under the facts stated
in the opinion of the trial court, the defendant is entitled to
recover such damages as reasonably and naturally flowed from
the collision. There is sufficient evidence in the record to fix such
damages with reasonable accuracy. It was proved upon the trial
that it would require an expenditure of P3,525 to put the sail
vessel in the condition in which it was before the injury; that it
cost 245 to get the vessel to Manila after the injury; that the value
of the supplies lost was P240.99. The evidence relative to the loss
of earnings is not sufficient to permit the court to formulate any
conclusion in relation thereto, even if it be considered a proper
item of damage.
We think the judgment of the trial court was correct in dismissing
the complaint of intervention. The intervener had no "legal interest
in the matter in litigation, or in the success of either of the
parties, or an interest against both." Their action was personal,
involved no rights in property which extended beyond their
immediate selves, and touched no third party in any of the EN BANC
ramifications of those rights.

The judgment of the court below, in so far as it finds against the

plaintiff and the intervener, is hereby affirmed. As to that portion G.R. No. 130068 October 1, 1998
which dismisses the counterclaim of the defendant, the Baco River
Plantation Company, the judgment is reversed and the cause
FAR EASTERN SHIPPING COMPANY, petitioner,
remanded, with instructions to the trial court to enter judgment
vs.
in favor of the defendant, The Baco River Plantation Company, and
COURT OF APPEALS and PHILIPPINE PORTS
against the plaintiff, G. Urrutia & Company, for the sum of
AUTHORITY, respondents.
P4,010.99 and costs. No costs on this appeal.

While it was held in the case of Philippine Shipping G.R. No. 130150 October, 1998
Co. vs. Vergara (6 Phil. Rep., 281), that, in accordance with
articles 837 and 826 of the Code of Commerce, the defendant in MANILA PILOTS ASSOCIATION, petitioner,
an action such as the one at bar cannot be held responsible in vs.
damages when the ship causing the injury was wholly lost by PHILIPPINE PORTS AUTHORITY and FAR EASTERN SHIPPING
reason of the accident, we do not apply it in this case for the COMPANY, respondents.
reason that the vessel lost was insured and that the defendant
collected the insurance. That being the case, the insurance money
substitutes the vessel and must be used, so far as necessary, to
pay the judgment rendered in this case.
REGALADO, J.:

In coming to this conclusion we have not lost sight of the case of

Place vs. Norwich and N. Y. Trans. Co. (118 U. S., 468), in which it
was held that, under the provision of the Act of Congress relative
thereto, insurance money obtained by reason of the loss of a
These consolidated petitions for review on certiorari seek in unison
to annul and set aside the decision 1 of respondent Court of
2
Appeals of November 15, 1996 and its resolution dated July 31,

vessel causing damages, as in the case at bar, was not subject to
the payment of the damages sustained by the negligence of the
vessel lost by reason of the accident in which the damages
occurred. We do not follow that case because we are met in this
jurisdiction with article 1186 of the Civil Code, which provides
that "after the obligation is extinguished by the loss of the thing,
all the actions which the debtor may have against third persons,
by reason thereof, shall pertain to the creditor," and with article 2
of the Code of Commerce, which provides that where the Code of
Commerce is silent to the law relating to the matters of which it
treats, those matters shall be governed by the provisions of the
Civil Code.
That said article 1186 is, under the Spanish jurisprudence,
applicable to money obtained from the insurance of the thing lost
or destroyed, there can be no doubt. (Manresa, vol. 8, 353.)
The judgment in this case is, therefore, collectible, but the
amount collected cannot exceed the amount of insurance money
actually received.
The writer of this opinion had doubts of the applicability of article
1186, referred to; but has yielded to the learning of the majority
relative to the Roman and Spanish jurisprudence on this point.
Arellano, C.J., Torres and Trent, JJ., concur.
1997 in CA-G.R. CV No. 24072, entitled "Philippine Ports
Authority, Plaintiff-Appellee vs. Far Eastern Shipping Company,
Senen C. Gavino and Manila Pilots' Association, Defendants-
Appellants," which affirmed with modification the judgment of the
trial court holding the defendants-appellants therein solidarily
liable for damages in favor of herein private respondent.
There is no dispute about the facts as found by the appellate
court,
thus
. . . On June 20, 1980, the M/V PAVLODAR,
flying under the flagship of the USSR, owned
and operated by the Far Eastern Shipping
Company (FESC for brevity's sake), arrived at
the Port of Manila from Vancouver, British
Columbia at about 7:00 o'clock in the morning.
The vessel was assigned Berth 4 of the Manila
International Port, as its berthing space.
Captain Roberto Abellana was tasked by the
Philippine Port Authority to supervise the
berthing of the vessel. Appellant Senen Gavino
was assigned by the Appellant Manila Pilots'
Association (MPA for brevity's sake) to conduct
docking maneuvers for the safe berthing of the
vessel to Berth No. 4.

Gavino boarded the vessel at the quarantine

Republic of the Philippines anchorage and stationed himself in the bridge,
SUPREME COURT with the master of the vessel, Victor Kavankov,
Manila beside him. After a briefing of Gavino by
 Kavankov of the particulars of the vessel and its
cargo, the vessel lifted anchor from
quarantine anchorage and proceeded to the
Manila International Port. The sea was calm
and the wind was ideal for docking maneuvers.
When the vessel reached the landmark (the big
church by the Tondo North Harbor) one-half
mile from the pier, Gavino ordered the engine
stopped. When the vessel was already about
2,000 feet from the pier, Gavino ordered the
anchor dropped. Kavankov relayed the orders to
the crew of the vessel on the bow. The left
anchor, with two (2) shackles, were dropped.
However, the anchor did not take hold as
expected. The speed of the vessel did not
slacken. A commotion ensued between the crew
members. A brief conference ensued between
Kavankov and the crew members. When Gavino
inquired what was all the commotion about,
Kavankov assured Gavino that there
nothing to it.
After Gavino noticed that the anchor did not
take hold, he ordered the engines half-astern.
Abellana, who was then on the pier apron,
noticed that the vessel was approaching the
pier fast. Kavankov likewise noticed that the
anchor did not take hold. Gavino thereafter gave
the "full-astern" code. Before the right anchor
and additional shackles could be dropped, the
bow of the vessel rammed into the apron of the
pier causing considerable damage to the pier.
The vessel sustained damage too, (Exhibit "7-Far
Eastern Shipping). Kavankov filed his
protest (Exhibit "1-Vessel"). Gavino submitted
his report to the Chief Pilot (Exhibit "1-Pilot")
who referred the report to the Philippine Ports
Authority (Exhibit 2-Pilot"). Abellana likewise
submitted his report of the incident (Exhibit
"B").
Per contract and supplemental contract of the
Philippine Ports Authority and the contractor
for the rehabilitation of the damaged pier, the
same cost the Philippine Ports Authority the
amount of P1,126,132.25 (Exhibits "D" and
3
"E").
On January 10, 1983, the Philippine Ports Authority (PPA, for
brevity), through the Solicitor General, filed before the Regional
Trial Court of Manila, Branch 39, a complaint for a sum of money
against Far Eastern Shipping Co., Capt. Senen C. Gavino and the
Manila Pilots' Association, docketed as Civil Case No. 83-
14958, 4 praying that the defendants therein be held jointly and
severally liable to pay the plaintiff actual and exemplary damages
plus costs of suit. In a decision dated August 1, 1985, the trial
court ordered the defendants therein jointly and severally to pay
the the PPA the amount of P1,053,300.00 representing actual
damages and the costs of suit. 5
The defendants appealed to the Court of Appeals and raised the
following issues: (1) Is the pilot of a commercial vessel, under
compulsory pilotage, solely liable for the damage caused by the
vessel to the pier, at the port of destination, for his negligence?
and (2) Would the owner of the vessel be liable likewise if the
damage is caused by the concurrent negligence of the master of
the vessel and the pilot under a compulsory pilotage?
As stated at the outset, respondent appellate court affirmed the
findings of the court a quo except that if found no employer-
employee relationship existing between herein private respondents
Manila Pilots' Association (MPA, for short) and Capt. Gavino. 6 This
being so, it ruled instead that the liability of MPA is anchored, not
on Article 2180 of the Civil Code, but on the provisions of
7
Customs Administrative Order No. 15-65, and accordingly
modified said decision of the trial court by holding MPA, along
was
with its co-defendants therein, still solidarily liable to PPA but
entitled MPA to reimbursement from Capt. Gavino for such
amount of the adjudged pecuniary liability in excess of the
amount equivalent to seventy-five percent (75%) of its prescribed
reserve
8
fund.
Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was
happy with the decision of the Court of Appeals and both of them
elevated their respective plaints to us via separate petitions for
review on certiorari.
In G. R. No. 130068, which was assigned to the Second Division of
sea this Court, FESC imputed that the Court of Appeals seriously
erred:
1. in not holding Senen C. Gavino and the
Manila Pilots' Association as the parties solely
responsible for the resulting damages sustained
by the pier deliberately ignoring the established
jurisprudence on the matter;
2. in holding that the master had not exercised
the required diligence demanded from him by
the circumstances at the time the incident
happened;
3. in affirming the amount of damages
sustained by the respondent Philippine Ports
Authority despite a strong and convincing
evidence that the amount is clearly exorbitant
and unreasonable;
4. in not awarding any amount of counterclaim
prayed for by the petitioner in its answer; and
 5. in not granting herein petitioner's claim
against pilot Senen C. Gavino and Manila Pilots'
Association in the event that it be held
9
liable.
Petitioner asserts that since the MV PAVLODAR was under
compulsory pilotage at the time of the incident, it was the
compulsory pilot, Capt. Gavino, who was in command and had
complete control in the navigation and docking of the vessel. It is
the pilot who supersedes the master for the time being in the
command and navigation of a ship and his orders must be obeyed
in all respects connected with her navigation. Consequently, he
was solely responsible for the damage caused upon the pier apron,
and not the owners of the vessel. It claims that the master of the
boat did not commit any act of negligence when he failed to
countermand or overrule the orders of the pilot because he did
not see any justifiable reason to do so. In other words, the master
cannot be faulted for relying absolutely on the competence of the
compulsory pilot. If the master does not observe that a
compulsory pilot is incompetent or physically incapacitated, the
10
master is justified in relying on the pilot.
Respondent PPA, in its comment, predictably in full agreement
with the ruling of respondent court on the solidary liability of
FESC, MPA and Capt. Gavino, stresses the concurrent negligence
of Capt. Gavino, the harbor pilot, and Capt. Viktor
Kabankov, * shipmaster of MV Pavlodar, as the basis of their
solidary liability for damages sustained by PPA. It posits that the
vessel was being piloted by Capt. Gavino with Capt. Kabankov
beside him all the while on the bridge of the vessel, as the former
took over the helm of MV Pavlodar when it rammed and damaged
the apron of the pier of Berth No. 4 of the Manila International
Port. Their concurrent negligence was the immediate and
proximate cause of the collision between the vessel and the pier
Capt. Gavino, for his negligence in the conduct of docking
maneuvers for the safe berthing of the vessel; and Capt.
Kabankov, for failing to countermand the orders of the harbor
pilot and to take over and steer the vessel himself in the face of
imminent danger, as well as for merely relying on Capt. Gavino
11
during the berthing procedure.
On the other hand, in G.R. No. 130150, originally assigned to the
Court's First Division and later transferred to the Third Division.
MPA, now as petitioner in this case, avers that respondent court's
errors consisted in disregarding and misinterpreting Customs
Administrative Order No. 15-65 which limits the liability of MPA.
Said pilots' association asseverates that it should not be held
solidarily liable with Capt. Gavino who, as held by respondent
court is only a member, not an employee, thereof. There being no
employer-employee relationship, neither can MPA be held liable for
any vicarious liability for the respective exercise of profession by
its members nor be considered a joint tortfeasor as to be held
12
jointly and severally liable. It further argues that there was
erroneous reliance on Customs Administrative Order No. 15-65
and the constitution and by-laws of MPA, instead of the provisions
of the Civil Code on damages which, being a substantive law, is
higher in category than the aforesaid constitution and by-laws of a
professional organization or an administrative order which bears
no provision classifying the nature of the liability of MPA for the
negligence its member pilots. 13
As for Capt. Gavino, counsel for MPA states that the former had
retired from active pilotage services since July 28, 1994 and has
ceased to be a member of petitioner pilots' association. He is not
joined as a petitioner in this case since his whereabouts are
unknown. 14
FESC's comment thereto relied on the competence of the Court of
Appeals in construing provisions of law or administrative orders
as bases for ascertaining the liability of MPA, and expressed full
accord with the appellate court's holding of solidary liability
among itself, MPA and Capt. Gavino. It further avers that the
disputed provisions of Customs Administrative Order No. 15-65
clearly established MPA's solidary liability. 15
On the other hand, public respondent PPA, likewise through
representations by the Solicitor General, assumes the same
supportive stance it took in G.R. No. 130068 in declaring its total
accord with the ruling of the Court of Appeals that MPA is
solidarily liable with Capt. Gavino and FESC for damages, and in
its application to the fullest extent of the provisions of Customs
Administrative Order No. 15-65 in relation to MPA's constitution
and by-laws which spell out the conditions of and govern their
respective liabilities. These provisions are clear and unambiguous
as regards MPA's liability without need for interpretation or
construction. Although Customs Administrative Order No. 15-65
is a mere regulation issued by an administrative agency pursuant
to delegated legislative authority to fix details to implement the
law, it is legally binding and has the same statutory force as any
valid statute. 16
17
Upon motion by FESC dated April 24, 1998 in G.R. No. 130150,
18
said case was consolidated with G.R. No. 130068.
Prefatorily, on matters of compliance with procedural
requirements, it must be mentioned that the conduct of the
respective counsel for FESC and PPA leaves much to be desired, to
the displeasure and disappointment of this Court.
Sec. 2, Rule 42 of the 1997 Rules of Civil
19
Procedure incorporates the former Circular No. 28-91 which
provided for what has come to be known as the certification
against forum shopping as an additional requisite for petitions
filed with the Supreme Court and the Court of Appeals, aside from
the other requirements contained in pertinent provisions of the
Rules of Court therefor, with the end in view of preventing the
filing of multiple complaints involving the same issues in the
Supreme Court, Court of Appeals or different divisions thereof or
any other tribunal or agency.
More particularly, the second paragraph of Section 2, Rule 42
provides:
 xxx xxx xxx This motion having been granted, FESC subsequently
filed its petition on September 26, 1997, this time
The petitioner shall also submit together with bearing a "verification and certification against forum-
the petition a certification under oath that he shopping" executed by one Teodoro P. Lopez on
22
has not theretofore commenced any other September 24, 1997, to wit:
action involving the same issues in the
Supreme Court, the Court of Appeals or VERIFICATION AND CERTIFICATION
different divisions thereof, or any other tribunal
or agency; if there is such other action or AGAINST FORUM SHOPPING
proceeding, he must state the status of the same;
and if he should thereafter learn that a similar
in compliance with Section 4(e), Rule 45 in
action or proceeding has been filed or is pending
relation
before the Supreme Court, the Court of Appeals
or different divisions thereof, or any other
to Section 2, Rule 42 of the Revised Rules of Civil
tribunal or agency, he undertakes to promptly
Procedure
inform the aforesaid courts and other tribunal or
agency thereof within five (5) days therefrom.
I, Teodoro P. Lopez, of legal age, after being duly
(Emphasis ours.)
sworn, depose and state:

For petitions for review filed before the Supreme Court,

1. That I am the Manager, Claims Department
Section 4(e), Rule 45 specifically requires that such
of Filsov Shipping Company, the local agent of
petition shall contain a sworn certification against forum
petitioner in this case.
shopping as provided in the last paragraph of Section 2,
Rule 42.
2. That I have caused the preparation of this
Petition for Review on Certiorari.
The records show that the law firm of Del Rosario and Del Rosario
through its associate, Atty. Herbert A. Tria, is the counsel of
record for FESC in both G.R. No. 130068 and G.R. No. 130150. 3. That I have read the same and the allegations
therein contained are true and correct based on
the records of this case.
G.R. No. 130068, which is assigned to the Court's Second
Division, commenced with the filing by FESC through counsel on
August 22, 1997 of a verified motion for extension of time to file its 4. That I certify that petitioner has not
petition for thirty (30) days from August 28, 1997 or until commenced any other action or proceeding

September 27, 1997. 20

Said motion contained the following
21
certification against forum shopping signed by Atty. Herbert A.
Tria as affiant:
CERTIFICATION
AGAINST FORUM SHOPPING
I/we hereby certify that I/we have
commenced any other action or proceeding
involving the same issues in the Supreme
Court, the Court of Appeals, or any other
tribunal or agency; that to the best of my own
knowledge, no such action or proceeding is
pending in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; that if
I/we should thereafter learn that a similar
action or proceeding has been filed or is
pending before the Supreme Court, the Court of
Appeals, or any other tribunal or agency, I/we
undertake to report that fact within five (5) days
therefrom to this Honorable Court.
involving the same issues in the Supreme Court
or Court of Appeals, or any other tribunal or
agency, that to the best of my own knowledge, no
such action or proceeding is pending in the
Supreme Court, the Court of Appeals or any
other tribunal or agency, that if I should
thereafter learn that a similar action or
proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or any
not other tribunal or agency, I undertake to report
the fact within five (5) days therefrom to this
Honorable Court. (Italics supplied for emphasis.)
Reviewing the records, we find that the petition filed by MPA in
G.R. No. 130150 then pending with the Third Division was duly
filed on August 29, 1997 with a copy thereof furnished on the
23
same date by registered mail to counsel for FESC. Counsel of
record for MPA. Atty. Jesus P. Amparo, in his verification
accompanying said petition dutifully revealed to the Court that
xxx xxx xxx
3. Petitioner has not commenced any other
action or proceeding involving the same issues
 in this Honorable Court, the Court of Appeals entitled to expect only complete honesty from lawyers appearing
or different Divisions thereof, or any other and pleading before them. 28
Candor in all dealings is the very
tribunal or agency,but to the best of his essence of honorable membership in the legal profession. 29
More
knowledge, there is an action or proceeding specifically, a lawyer is obliged to observe the rules of procedure
pending in this Honorable Court, entitled Far and not to misuse them to defeat the ends of justice. 30
It behooves
Eastern Shipping Co., Petitioner, vs. Philippine a lawyer, therefore, to exert every effort and consider it his duty to
Ports Authority and Court of Appeals with a assist in the speedy and efficient administration of
Motion for Extension of time to file Petition For justice. 31
Being an officer of the court, a lawyer has a
Review by Certiorari filed sometime on August responsibility in the proper administration of justice. Like the
18, 1987. If undersigned counsel will come to court itself, he is an instrument to advance its ends the speedy,
know of any other pending action or claim filed efficient, impartial, correct and inexpensive adjudication of cases
or pending he undertakes to report such fact and the prompt satisfaction of final judgments. A lawyer should
within five (5) days to this Honorable not only help attain these objectives but should likewise avoid any
Court. 24 (Emphasis supplied.) unethical or improper practices that impede, obstruct or prevent
their realization, charged as he is with the primary task of
Inasmuch as MPA's petition in G.R. No. 130150 was posted by assisting in the speedy and efficient administration of justice. 32
registered mail on August 29, 1997 and taking judicial notice of
the average period of time it takes local mail to reach its Sad to say, the members of said law firm sorely failed to observe
destination, by reasonable estimation it would be fair to conclude their duties as responsible members of the Bar. Their actuations
that when FESC filed its petition in G.R. No. 130068 on are indicative of their predisposition to take lightly the avowed
September 26, 1997, it would already have received a copy of the duties of officers of the Court to promote respect for law and for
former and would then have knowledge of the pendency of the 33
legal processes. We cannot allow this state of things to pass
other petition initially filed with the First Division. It was therefore
judicial muster.
incumbent upon FESC to inform the Court of that fact through its
certification against forum shopping. For failure to make such
In view of the fact that at around the time these petitions were
disclosure, it would appear that the aforequoted certification
commenced, the 1997 Rules of Civil Procedure had just taken
accompanying the petition in G.R. No. 130068 is defective and
effect, the Court treated infractions of the new Rules then with
could have been a ground for dismissal thereof.
relative liberality in evaluating full compliance therewith.
Nevertheless, it would do well to remind all concerned that the
Even assuming that FESC had not yet received its copy of MPA's
penal provisions of Circular No. 28-91 which remain operative
petition at the time it filed its own petition and executed said
provides, inter alia:
certification, its signatory did state "that if I should thereafter
learn that a similar action or proceeding has been filed or is
3. Penalties.
pending before the Supreme Court, the Court of Appeals or any
other tribunal or agency, I undertake to report the fact within five
25 xxx xxx xxx
(5) days therefrom to this Honorable Court." Scouring the
records page by page in this case, we find that no manifestation
concordant with such undertaking was then or at any other time (c) The submission of a false certification under
thereafter ever filed by FESC nor was there any attempt to bring Par. 2 of the Circular shall likewise constitute
such matter to the attention of the Court. Moreover, it cannot contempt of court, without prejudice to the
feign non-knowledge of the existence of such other petition filing of criminal action against the guilty party.
because FESC itself filed the motion for consolidation in G.R. No. The lawyer may also be subjected to disciplinary
130150 of these two cases on April 24, 1998. proceedings.

It is disturbing to note that counsel for FESC, the law firm of Del
Rosario and Del Rosario, displays an unprofessional tendency of
taking the Rules for granted, in this instance exemplified by
its pro forma compliance therewith but apparently without full
comprehension of and with less than faithful commitment to its
undertakings to this Court in the interest of just, speedy and
orderly administration of court proceedings.
As between the lawyer and the courts, a lawyer owes candor,
26
fairness and good faith to the court. He is an officer of the court
exercising a privilege which is indispensable in the administration
27
of justice. Candidness, especially towards the
essential for the expeditious administration of justice. Courts are
It must be stressed that the certification against forum shopping
ordained under the Rules is to be executed by thepetitioner, and
not by counsel. Obviously it is the petitioner, and not always the
counsel whose professional services have been retained for a
particular case, who is in the best position to know whether he or
it actually filed or caused the filing of a petition in that case.
Hence, a certification against forum shopping by counsel is a
defective certification. It is clearly equivalent to non-compliance
with the requirement under Section 2, Rule 42 in relation to
Section 4, Rule 45, and constitutes a valid cause for dismissal of
the petition.
courts, is
Hence, the initial certification appended to the motion for
extension of time to file petition in G.R. No. 130068 executed in
behalf of FESC by Atty. Tria is procedurally deficient. But
considering that it was a superfluity at that stage of the
proceeding, it being unnecessary to file such a certification with a
mere motion for extension, we shall disregard such error. Besides,
the certification subsequently executed by Teodoro P. Lopez in
behalf of FESC cures that defect to a certain extent, despite the
inaccuracies earlier pointed out. In the same vein, we shall
consider the verification signed in behalf of MPA by its counsel,
Atty. Amparo, in G.R. No. 130150 as substantial compliance
inasmuch as it served the purpose of the Rules of informing the
Court of the pendency of another action or proceeding involving
the same issues.
It bears stressing that procedural rules are instruments in the
speedy and efficient administration of justice. They should be
34
used to achieve such end and not to derail it.
Counsel for PPA did not make matters any better. Despite the fact
that, save for the Solicitor General at the time, the same legal
team of the Office of the Solicitor General (OSG, for short)
composed of Assistant Solicitor General Roman G. Del Rosario
and Solicitor Luis F. Simon, with the addition of Assistant
Solicitor General Pio C. Guerrero very much later in the
proceedings, represented PPA throughout the
proceedings in both G.R. No. 130068 and G.R. No. 130150 and
was presumably fully acquainted with the facts and issues of the
case, it took the OSG an inordinately and almost unreasonably
long period of time to file its comment, thus unduly delaying the
resolution of these cases. It took several changes of leadership in
the OSG from Silvestre H. Bello III to Romeo C. dela Cruz and,
finally, Ricardo P. Galvez before the comment in behalf of PPA
was finally filed.
In G.R. No. 130068, it took eight (8) motions for extension of time
totaling 210 days, a warning that no further extensions shall be
granted, and personal service on the Solicitor General himself of
the resolution requiring the filing of such comment before the
OSG indulged the Court with the long required comment on July
35
10, 1998. This, despite the fact that said office was required to
36
file its comment way back on November 12, 1997.
scrutiny of the records likewise indicates that petitoner FESC was
not even furnished a copy of said comment as required by Section
5, Rule 42. Instead, a copy thereof was inadvertently furnished to
MPA which, from the point of view of G.R. No. 130068, was a non-
37
party. The OSG fared slightly better in G.R. No. 130150 in that
it took only six (6) extensions, or a total of 180 days, before the
38
comment was finally filed. And while it properly furnished
petitioner MPA with a copy of its comment, it would have been
more desirable and expedient in this case to have furnished its
therein co-respondent FESC with a copy thereof, if only as a
39
matter of professional courtesy.
This undeniably dilatory disinclination of the OSG to seasonably
file required pleadings constitutes deplorable disservice to the tax-
paying public and can only be categorized as censurable
inefficiency on the part of the government law office. This is most
certainly professionally unbecoming of the OSG.
Another thing that baffles the Court is why the OSG did not take
the inititive of filing a motion for consolidation in either G.R. No.
130068 or G.R. No. 130150, considering its familiarity with the
background of the case and if only to make its job easier by having
to prepare and file only one comment. It could not have been
unaware of the pendency of one or the other petition because,
being counsel for respondent in both cases, petitioner is required
to furnish it with a copy of the petition under pain of dismissal of
the petition for failure otherwise. 40
Besides, in G.R. 130068, it prefaces its discussions thus
Incidentally, the Manila Pilots' Association
(MPA), one of the defendants-appellants in the
case before the respondent Court of Appeals,
has taken a separate appeal from the said
decision to this Honorable Court, which was
docketed as G.R. No. 130150 and entitled
"Manila Pilots' Association, Petitioner, versus
Philippine Ports Authority and Far Eastern
Shipping Co., Respondents." 41
Similarly, in G.R. No. 130150, it states
appellate
Incidentally, respondent Far Eastern Shipping
Co. (FESC) had also taken an appeal from the
said decision to this Honorable Court, docketed
as G.R. No. 130068, entitled "Far Eastern
Shipping Co. vs. Court of Appeals and
42
Philippine Ports Authority."
We find here a lackadaisical attitude and complacency on the part
of the OSG in the handling of its cases and an almost reflexive
propensity to move for countless extensions, as if to test the
patience of the Court, before favoring it with the timely
submission of required pleadings.
It must be emphasized that the Court can resolve cases only as
fast as the respective parties in a case file the necessary
A closer
pleadings. The OSG, by needlessly extending the pendency of
these cases through its numerous motions for extension, came
very close to exhausting this Court's forbearance and has
regrettably fallen short of its duties as the People's Tribune.
The OSG is reminded that just like other members of the Bar, the
canons under the Code of Professional Responsibility apply with
equal force on lawyers in government service in the discharge of
43
their official tasks. These ethical duties are rendered even more
exacting as to them because, as government counsel, they have
the added duty to abide by the policy of the State to promote a
44
high standard of ethics in public service. Furthermore, it is
incumbent upon the OSG, as part of the government bureaucracy,
to perform and discharge its duties with the highest degree of
45
professionalism, intelligence and skill and to extend prompt,
46
courteous and adequate service to the public.
Now, on the merits of the case. After a judicious examination of Sec. 32. Duties and responsibilities of the Pilot
the records of this case, the pleadings filed, and the evidence or Pilots' Association. The duties and
presented by the parties in the two petitions, we find no cogent responsibilities of the Harbor Pilot shall be as
reason to reverse and set aside the questioned decision. While not follows:
entirely a case of first impression, we shall discuss the
issues seriatim and, correlatively by way of a judicial once-over, xxx xxx xxx
inasmuch as the matters raised in both petitions beg for validation
and updating of well-worn maritime jurisprudence. Thereby, we f) a pilot shall be held responsible for the
shall write finis to the endless finger-pointing in this shipping direction of a vessel from the time he assumes
mishap which has been stretched beyond the limits of judicial his work as a pilot thereof until he leaves it
tolerance. anchored or berthed safely; Provided, however,
that his responsibility shall cease at the
The Port of Manila is within the Manila Pilotage District which is moment the Master neglects or refuses to carry
under compulsory pilotage pursuant to Section 8, Article III of out hisorder.
Philippine Ports Authority Administrative Order No. 03-
47
85, which provides that: Customs Administrative Order No. 15-65 issued twenty years
earlier likewise provided in Chapter I thereof for the
Sec. 8. Compulsor Pilotage Service. For responsibilities of pilots:
entering a harbor and anchoring thereat, or
passing through rivers or straits within a Par. XXXIX. A Pilot shall be held responsible
pilotage district, as well as docking and for the direction of a vessel from the time he
undocking at any pier/wharf, or shifting from assumes control thereof until he leaves it
one berth or another, every vessel engaged in anchored free from shoal: Provided, That his
coastwise and foreign trade shall be under responsibility shall cease at the moment the
compulsory pilotage. . . . master neglects or refuses to carry out his
instructions.
In case of compulsory pilotage, the respective duties and
responsibilities of the compulsory pilot and the master have been xxx xxx xxx
specified by the same regulation in this wise:

Par. XLIV. Pilots shall properly and safely

Sec. 11. Control of vessels and liability for secure or anchor vessels under their control
damage. On compulsory pilotage grounds, when requested to do so by the master of such
the Harbor Pilot providing the service to a vessel vessels.
shall be responsible for the damage caused to a
vessel or to life and property at ports due to his I. G.R. No. 130068
negligence or fault. He can only be absolved
from liability if the accident is caused by
Petitioner FESC faults the respondent court with serious error in
force majeure or natural calamities provided he
not holding MPA and Capt. Gavino solely responsible for the
has exercised prudence and extra diligence to
damages cause to the pier. It avers that since the vessel was under
prevent or minimize damage.
compulsory pilotage at the time with Capt. Gavino in command
and having exclusive control of the vessel during the docking
The Master shall retain overall command of the maneuvers, then the latter should be responsible for damages
vessel even on pilotage grounds whereby he can 48
caused to the pier. It likewise holds the appellate court in error
countermand or overrule the order or command
for holding that the master of the ship, Capt. Kabankov, did not
of the Harbor Pilot on beard. In such event, any
exercise the required diligence demanded by the circumstances. 49
damage caused to a vessel or to life and
property at ports by reason of the fault or
We start our discussion of the successive issues bearing in mind
negligence of the Master shall be the
the evidentiary rule in American jurisprudence that there is a
responsibility and liability of the registered
presumption of fault against a moving vessel that strikes a
owner of the vessel concerned without prejudice
stationary object such as a dock or navigational aid. In admiralty,
to recourse against said Master.
this presumption does more than merely require the ship to go
forward and produce some evidence on the presumptive matter.
Such liability of the owner or Master of the
The moving vessel must show that it was without fault or that the
vessel or its pilots shall be determined by
collision was occasioned by the fault of the stationary object or
competent authority in appropriate proceedings
was the result of inevitable accident. It has been held that such
in the light of the facts and circumstances of
vessel must exhaust every reasonable possibility which the
each particular case.
circumstances admit and show that in each, they did all that
reasonable care required. 50
In the absence of sufficient proof in
rebuttal, the presumption of fault attaches to a moving vessel
which collides with a fixed object and makes a prima facie case of
fault against the vessel. 51
Logic and experience support this
presumption:
The common sense behind the rule makes the
burden a heavy one. Such accidents simply do
not occur in the ordinary course of things
unless the vessel has been mismanaged in
some way. It is nor sufficient for the respondent
to produce witnesses who testify that as soon as
the danger became apparent everything
possible was done to avoid an accident. The
question remains, How then did the collision
occur? The answer must be either that, in spite
of the testimony of the witnesses, what was
done was too little or too late or, if not, then the
vessel was at fault for being in a position in
52
which an unavoidable collision would occur.
The task, therefore, in these cases is to pinpoint who was
negligent the master of the ship, the harbor pilot or
both.
A pilot, in maritime law, is a person duly qualified, and licensed,
to conduct a vessel into or out of ports, or in certain waters. In a
broad sense, the term "pilot" includes both (1) those whose duty it
is to guide vessels into or out of ports, or in particular waters and
(2) those entrusted with the navigation of vessels on the high
53
seas. However, the term "pilot" is more generally understood as a
person taken on board at a particular place for the purpose of
conducting a ship through a river, road or channel, or from a
54
port.
Under English and American authorities, generally speaking, the
pilot supersedes the master for the time being in the command
and navigation of the ship, and his orders must be obeyed in all
matters connected with her navigation. He becomes
master pro hac vice and should give all directions as to speed,
course, stopping and reversing anchoring, towing and the like.
And when a licensed pilot is employed in a place where pilotage is
compulsory, it is his duty to insist on having effective control of
the vessel, or to decline to act as pilot. Under certain systems of
foreign law, the pilot does not take entire charge of the vessel, but
is deemed merely the adviser of the master, who retains command
and control of the navigation even in localities where pilotage is
compulsory. 55
It is quite common for states and localities to provide for
compulsory pilotage, and safety laws have been enacted requiring
vessels approaching their ports, with certain exceptions, to take
on board pilots duly licensed under local law. The purpose of
these laws is to create a body of seamen thoroughly acquainted
with the harbor, to pilot vessels seeking to enter or depart, and
56
thus protect life and property from the dangers of navigation.
In line with such established doctrines, Chapter II of Customs
Administrative Order No. 15-65 prescribes the rules for
compulsory pilotage in the covered pilotage districts, among which
is the Manila Pilotage District,
viz.
PARAGRAPH I. Pilotage for entering a harbor
and anchoring thereat, as well as docking and
undocking in any pier or shifting from one
berth to another shall be compulsory, except
Government vessels and vessels of foreign
governments entitled to courtesy, and other
vessels engaged solely in river or harbor work,
or in a daily ferry service between ports which
shall be exempt from compulsory pilotage
provisions of these regulations: provided,
however, that compulsory pilotage shall not
apply in pilotage districts whose optional
pilotage is allowed under these regulations.
Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar
into Berth 4 of the Manila International Port. Upon assuming
such office as compulsory pilot, Capt. Gavino is held to the
universally accepted high standards of care and diligence required
of a pilot, whereby he assumes to have skill and knowledge in
respect to navigation in the particular waters over which his
license extends superior to and more to be trusted than that of
57
the master. A pilot 57 should have a thorough knowledge of
general and local regulations and physical conditions affecting the
vessel in his charge and the waters for which he is licensed, such
as a particular harbor or river.
He is not held to the highest possible degree of skill and care, but
must have and exercise the ordinary skill and care demanded by
the circumstances, and usually shown by an expert in his
profession. Under extraordinary circumstancesm, a pilot must
58
exercise extraordinary care.
59
the In Atlee vs. The Northwesrern Union Packet Company. Mr. Justice
Miller spelled out in great detail the duties of a pilot:
. . . (T)he pilot of a river steamer, like the harbor
pilot, is selected for his personal knowledge of
the topography through which he steers his
vessel. In the long course of a thousand miles
in one of these rivers, he must be familiar with
the appearance of the shore on each side of the
river as he goes along. Its banks, towns, its
landings, its houses and trees, are all
landmarks by which he steers his vessel. The
compass is of little use to him. He must know
where the navigable channel is, in its relation to
all these external objects, especially in the
night. He must also be familiar with all dangers
that are permanently located in the course of
the river, as sand-bars, snags, sunken rocks or
trees or abandoned vessels orbarges. All this he
 must know and remember and avoid. To do
this, he must be constantly informed of the
changes in the current of the river, of the sand-
bars newly made,of logs or snags, or other
objects newly presented, against which his
vessel might be injured.
xxx xxx xxx
It may be said that this is exacting a very high
order of ability in a pilot. But when we consider
the value of the lives and property committed to
their control, for in this they are absolute
masters, the high compensation they receive,
the care which Congress has taken to secure by
rigid and frequent examinations and renewal of
licenses, this very class of skill, we do not think
we fix the standard too high.
Tested thereby, we affirm respondent court's finding that Capt.
Gavino failed to measure up to such strict standard of care and
diligence required of pilots in the performance of their duties.
Witness this testimony of Capt. Gavino:
Court: You have testified
before that the reason why
the vessel bumped the pier
was because the anchor was
not released immediately or
as soon as you have given the
order. Do you remember
having srated that?
A Yes, your Honor.
Q And you gave this order to
the captain of the vessel?
A Yes, your Honor.
Q By that testimony, you are
leading the Court to
understand that if that
anchor was released
immediately at the time you
gave the order, the incident
would not have happened. Is
that correct?
A Yes, sir, but actually it was
only a presumption on my
part because there was a
commotion between the
officers who are in charge of
the dropping of the anchor
and the captain. I could not
understand their language, it
was in Russian, so I
presumed the anchor was not
dropped on time.
Q So, you are not sure
whether it was really dropped
on time or not?
A I am not sure, your Honor.
xxx xxx xxx
Q You are not even sure what
could have caused the
incident. What factor could
have caused the incident?
A Well, in this case now,
because either the anchor
was not dropped on time or
the anchor did not hold, that
was the cause of the incident,
60
your Honor.
It is disconcertingly riddled with too much incertitude and
manifests a seeming indifference for the possibly injurious
consequences his commands as pilot may have. Prudence
required that he, as pilot, should have made sure that his
directions were promptly and strictly followed. As correctly noted
by the trial court
Moreover, assuming that he did indeed give the
command to drop the anchor on time, as pilot
he should have seen to it that the order was
carried out, and he could have done this in a
number of ways, one of which was to inspect
the bow of the vessel where the anchor
mechanism was installed. Of course, Captain
Gavino makes reference to a commotion among
the crew members which supposedly caused
the delay in the execution of the command. This
account was reflected in the pilot's report
prepared four hours later, but Capt. Kavankov,
while not admitting whether or not such a
commotion occurred, maintained that the
command to drop anchor was followed
"immediately and precisely." Hence, the Court
cannot give much weight or consideration to
61
this portion of Gavino's testimony."
An act may be negligent if it is done without the competence that
a reasonable person in the position of the actor would recognize
as necessary to prevent it from creating an unreasonable risk of
harm to another. 62
Those who undertake any work calling for
special skills are required not only to exercise reasonable care in
what they do but also possess a standard minimum of special
knowledge and ability. 63
Every man who offers his services to another, and is employed, measures to arrest fully the momentum of the
assumes to exercise in the employment such skills he possesses, vessel after the anchor failed to claw to the
with a reasonable degree of diligence. In all these employments seabed. When he reacted, the same was even
where peculiar skill is requisite, if one offers his services he is (haphazard). Gavino failed to reckon the bulk of
understood as holding himself out to the public as possessing the the vessel, its size and its cargo. He erroneously
degree of skill commonly possessed by others in the same believed that only one (1) anchor would suffice
employment, and if his pretensions are unfounded he commits a and even when the anchor failed to claw into
species of fraud on every man who employs him in reliance on his the seabed or against a hard object in the
public profession. 64
seabed, Gavino failed to order the other anchor
dropped immediately. His claim that the anchor
Furthermore, there is an obligation on all persons to take the care was dropped when the vessel was only 1,000
which, under ordinary circumstances of the case, a reasonable feet from the pier is but a belated attempt to
and prudent man would take, and the omission of that care extricate himself from the quagmire of his own

constitutes negligence. 65
Generally, the degree of care required is insouciance and negligence. In sum, then,
Appellants' claim that the incident was caused
graduated according to the danger a person or property attendant
by "force majeure" is barren of factual basis.
upon the activity which the actor pursues or the instrumentality
which he uses. The greater the danger the greater the degree of
care required. What is ordinary under extraordinary of conditions xxx xxx xxx
is dictated by those conditions; extraordinary risk demands
extraordinary care. Similarly, the more imminent the danger, the The harbor pilots are especially trained for this
higher the degree of care. 66
job. In the Philippines, one may not be a harbor
pilot unless he passed the required examination

We give our imprimatur to the bases for the conclusion of the and training conducted then by the Bureau of

Court of Appeals that Capt. Gavino was indeed negligent in the Custom, under Customs Administrative Order

performance of his duties: No. 15-65, now under the Philippine Ports
Authority under PPA Administrative Order 63-
85, Paragraph XXXIX of the Customs
xxx xxx xxx
Administrative Order No. 15-65 provides that
"the pilot shall be held responsible for the
. . . As can be gleaned from the logbook, Gavino
direction of the vessel from the time he assumes
ordered the left anchor and two (2) shackles
control thereof, until he leaves it anchored free
dropped at 8:30 o'clock in the morning. He
from shoal: Provided, that his responsibility
ordered the engines of the vessel stopped at
shall cease at the.moment the master neglects
8:31 o'clock. By then,Gavino must have realized
or refuse(s) to carry out his instructions." The
that the anchor did not hit a hard object and
overall direction regarding the procedure for
was not clawed so as to reduce the momentum
docking and undocking the vessel emanates
of the vessel. In point of fact, the vessel
from the harbor pilot. In the present recourse,
continued travelling towards the pier at the
Gavino failed to live up to his responsibilities
same speed. Gavino failed to react, At 8:32
and exercise reasonable care or that degree of
o'clock, the two (2) tugboats began to push the
care required by the exigencies of the occasion.
stern part of the vessel from the port side bur
Failure on his part to exercise the degree of care
the momentum of the vessel was not contained.
demanded by the circumstances is negligence
Still, Gavino did not react. He did not even order
(Reese versus Philadelphia & RR Co. 239 US
the other anchor and two (2) more shackles 67
363, 60 L ed. 384, 57 Am Jur, 2d page 418).
dropped to arrest the momentum of the vessel.
Neither did he order full-astern. It was only at
This affirms the findings of the trial court regarding Capt.
8:34 o'clock, or four (4) minutes, after the anchor
Gavino's negligence:
was dropped that Gavino reacted. But his
reaction was even (haphazard) because instead
of arresting fully the momentum of the vessel This discussion should not however, divert the
with the help of the tugboats, Gavino ordered court from the fact that negligence in
merely "half-astern". It took Gavino another manuevering the vessel must be attributed to
minute to order a "full-astern". By then, it was Capt. Senen Gavino. He was an experienced
too late. The vessel's momentum could no pilot and by this time should have long
longer be arrested and, barely a minute familiarized himself with the depth of the port
thereafter, the bow of the vessel hit the apron of and the distance he could keep between the
68
the pier. Patently, Gavino miscalculated. He vessel and port in order to berth safely.
failed to react and undertake adequate
The negligence on the part of Capt. Gavino is evident; but Capt. Q Up to the time it was
Kabancov is no less responsible for the allision. His unconcerned actually docked at the pier, is
lethargy as master of the ship in the face of troublous exigence that correct?
constitutes negligence.
A No sir, I did not intervene
While it is indubitable that in exercising his functions a pilot is in up to the very moment when
sole command of the ship 69
and supersedes the master for the the vessel was docked.
time being in the command and navigation of a ship and that he
70
becomes master pro hac vice of a vessel piloted by him, there is xxx xxx xxx
overwhelming authority to the effect that the master does not
surrender his vessel to the pilot and the pilot is not the master. Atty. Del Rosario (to the
The master is still in command of the vessel notwithstanding the witness)
presence of a pilot. There are occasions when the master may and
should interfere and even displace the pilot, as when the pilot is Q Mr. Witness, what
obviously incompetent or intoxicated and the circumstances may happened, if any, or was
require the master to displace a compulsory pilot because of there anything unusual that
incompetency or physical incapacity. If, however, the master does happened during the
nor observe that a compulsory pilot is incompetent or physically docking?
incapacitated, the master is justified in relying on the pilot, but
71
not blindly. A Yes sir, our ship touched
ihe pier and the pier was
The master is not wholly absolved from his duties while a pilot is damaged.
on board his vessel, and may advise with or offer suggestions to
him. He is still in command of the vessel, except so far as her Court (to the witness)
navigation is concerned, and must cause the ordinary work of the
vessel to be properly carried on and the usual precaution taken.
Q When you said touched the
Thus, in particular, he is bound to see that there is sufficient
pier, are you leading the
watch on deck, and that the men are attentive to their duties, also
court to understand that
that engines are stopped, towlines cast off, and the anchors clear
your ship bumped the pier?
72
and ready to go at the pilot's order.

A I believe that my vessel

A perusal of Capt. Kabankov's testimony makes it apparent that only touched the pier but the
he was remiss in the discharge of his duties as master of the ship, impact was very weak.
leaving the entire docking procedure up to the pilot, instead of
maintaining watchful vigilance over this risky maneuver:
Q Do you know whether the
pier was damaged as a result
Q Will you please tell us of that slight or weak impact?
whether you have the right to
intervene in docking of your
A Yes sir, after the pier was
ship in the harbor?
damaged.

A No sir, I have no right to

xxx xxx xxx
intervene in time of docking,
only in case there is
Q Being most concerned with
imminent danger to the
the safety of your vessel, in
vessel and to the pier.
the maneuvering of your
vessel to the port, did you
Q Did you ever intervene
observe anything irregular in
during the time that your
the maneuvering by Capt.
ship was being docked by
Gavino at the time he was
Capt. Gavino?
trying to cause the vessel to
be docked at the pier?
A No sir, I did not intervene
at the time when the pilot
A You mean the action of
was docking my ship.
Capt. Gavino or his
condition?
 Court: Q Alright, Capt. Kavankov,
did you come to know later
Q Not the actuation that whether the anchor held its
conform to the safety ground so much so that the
maneuver of the ship to the vessel could not travel?
harbor?
A It is difficult for me to say
A No sir, it was a usual definitely. I believe that the
docking. anchor did not hold the ship.

Q By that statement of yours, Q You mean you don't know

you are leading the court to whether the anchor blades
understand that there was stuck to the ground to stop
nothing irregular in the the ship from further
docking of the ship? moving?

A Yes sir, during the initial A Yes sir, it is possible.

period of the docking, there
was nothing unusual that Q What is possible?
happened.
A I think, the 2 shackles were
Q What about in the last not enough to hold the
portion of the docking of the vessel.
ship, was there anything
unusual or abnormal that Q Did you know that the 2
happened? shackles were dropped?

A None Your Honor, I believe A Yes sir, I knew that.

that Capt. Gavino thought
that the anchor could keep or Q If you knew that the
hold the vessel. shackles were not enough to
hold the ship, did you not
Q You want us to make any protest to the pilot?
understand, Mr. Witness,
that the dropping of the A No sir, after the incident,
anchor of the vessel was nor that was my assumption.
timely?

Q Did you come to know later

A I don't know the depth of whether that presumption is
this port but I think, if the correct?
anchor was dropped earlier
and with more shackles,
A I still don't know the
there could not have been an
ground in the harbor or the
incident.
depths.

Q So you could not precisely

Q So from the beginning, you
tell the court that the
were not competent whether
dropping of the anchor was
the 2 shackles were also
timery because you are not
dropped to hold the ship?
well aware of the seabed, is
that correct?
A No sir, at the beginning, I
did not doubt it because I
A Yes sir, that is right.
believe Capt. Gavino to be an
experienced pilot and he
xxx xxx xxx should be more aware as to
the depths of the harbor and
 the ground and I was you did not intervene with
confident in his actions. the duties of the pilot and
that, in your opinion, you can
xxx xxx xxx only intervene if the ship is
placed in imminent danger, is
Solicitor Abad (to the witness) that correct?

Q Now, you were standing A That is right, I did say that.

with the pilot on the bridge of
the vessel before the inicident Q In your observation before
happened, were you not? the incident actually
happened, did you observe
A Yes sir, all the time, I was whether or not the ship,
standing with the pilot. before the actual incident,
the ship was placed in
imminent danger?
Q And so whatever the pilot
saw, you could also see from
that point of view? A No sir, I did not observe.

A That is right. Q By that answer, are you

leading the court to
understand that because you
Q Whatever the piler can
did not intervene and
read from the panel of the
because you believed that it
bridge, you also could read,
was your duty to intervene
is that correct?
when the vessel is placed in
imminent danger to which
A What is the meaning of
you did not observe any
panel?
imminent danger thereof, you
have not intervened in any
Q All indications necessary manner to the command of
for men on the bridge to be the pilot?
informed of the movements of
the ship?
A That is right, sir.

A That is right.
xxx xxx xxx

Q And whatever sound the

Q Assuminp that you
captain . . . Capt. Gavino
disagreed with the pilot
would hear from the bridge,
regarding the step being
you could also hear?
taken by the pilot in
maneuvering the vessel,
A That is right. whose command will prevail,
in case of imminent danger to
Q Now, you said that when the vessel?
the command to lower the
anchor was given, it was A I did nor consider the
obeyed, is that right? situation as having an
imminent danger. I believed
A This command was that the vessel will dock
executed by the third mate alongside the pier.
and boatswain.

Q You want us to understand

Court (to the witness) that you did not see an
imminent danger to your
Q Mr. Witness, earlier in ship, is that what you mean?
today's hearing, you said that
A Yes sir, up to the very last A Yes sir.
moment, I believed that there
was no imminent danger. Q Because, otherwise, you
would have issued order that
Q Because of that, did you would supersede his own
ever intervene in the order?
command of the pilot?
A In that case, I should t,ke
A Yes sir, I did not intervene him away from his command
because I believed that the or remove the command from
command of the pilot to be him.
correct.
Court (to the witness)
Solicitor Abad (to the witness)
Q You were in full accord
Q As a captain of M/V with the steps being taken by
Pavlodar, you consider Capt. Gavino because you
docking maneuvers a serious relied on his knowledge, on
matter, is it not? his familiarity of the seabed
and shoals and other
A Yes sir, that is right. surroundings or conditions
under the sea, is that
Q Since it affects not only the correct?
safety of the port or pier, but
also the safety of the vessel A Yes sir, that is right.
and the cargo, is it not?
xxx xxx xxx
A That is right.
Solicitor Abad (to the witness)
Q So that, I assume that you
were watching Capt. Gavino Q And so after the anchors
very closely at the time he were ordered dropped and
was making his commands? they did not take hold of the
seabed, you were alerted that
A I was close to him, I was there was danger already on
hearing his command and hand?
being executed.
A No sir, there was no
Q And that you were also imminent danger to the
alert for any possible vessel.
mistakes he might commit in
the maneuvering of the Q Do you mean to tell us that
vessel? even if the anchor was
supposed to take hold of the
A Yes sir, that is right. bottom and it did not, there
was no danger to the ship?
Q But at no time during the
maneuver did you issue order A Yes sir, because the anchor
contrary to the orders Capt. dragged on the ground later.
Gavino made?
Q And after a few moments
A No sir. when the anchor should have
taken hold the seabed bur
Q So that you were in full not done (sic), as you
accord with all of Capt. expected, you already were
Gavino's orders?
 alerted that there was danger A That is right, it bumped the
to the ship, is that correct? pier.

A Yes sir, I was alerted but Q For the main reason that
there was no danger. the anchor of the vessel did
not hold the ground as
Q And you were alerted that expected?
somebody was wrong?
A Yes sir, that is my
73
A Yes sir, I was alerted. opinion.

Q And this alert vou Further, on redirect examination, Capt. Kabankov fortified his
assumed was the ordinary apathetic assessment of the situation:
alertness that you have for
normal docking? Q Now, after the anchor was
dropped, was there any point
A Yes sir, I mean that it was in time that you felt that the
usual condition of any man vessel was in imminent
in time of docking to be alert. danger.

Q And that is the same A No, at that time, the vessel

alertness when the anchor was not in imminent, danger,
74
did not hold onto the ground, sir.
is that correct?
This cavalier appraisal of the event by Capt. Kabankov is
A Yes sir, me and Capt. disturbingly antipodal to Capt. Gavino's anxious assessment of
Gavino (thought) that the the situation:
anchor will hold the ground.
Q When a pilot is on board a
Q Since, as you said that you vessel, it is the piler's
agreed all the while with the command which should be
orders of Capt. Gavino, you followed at that moment until
also therefore agreed with the vessel is, or goes to port
him in his failure to take or reaches port?
necessary precaution against
the eventuality that the A Yes, your Honor, but it does
anchor will not hold as not take away from the
expected? Captain his prerogative to
countermand the pilot.
Atty. Del Rosario:
Q In what way?
May I ask that the
question . . . A In any case, which he
thinks the pilot is not
Solicitor Abad: maneuvering correctly, the
Captain always has the
Never mind, I will reform the prerogative to countermand
question. the pilot's order.

xxx xxx xxx Q But insofar as competence,

efficiency and functional
Solicitor Abad (to the witness) knowledee of the seabed
which are vital or decisive in
the safety (sic) bringing of a
Q Is it not a fact that the
vessel to the port, he is not
vessel bumped the pier?
competent?
A Yes, your Honor. That is was in imminent danger of
why they hire a pilot in an bumping the pier?
advisory capacity, but still,
the safety of the vessel rest(s) A When we were about more
upon the Captain, the Master than one thousand meters
of the vessel. from the pier, I think, the
anchor was not holding, so I
Q In this case, there was not immediately ordered to push
a disagreement between you the bow at a fourth quarter,
and the Captain of the vessel at the back of the vessel in
in the bringing of the vessel order to swing the bow away
to port? from the pier and at the same
time, I ordered for a full
A No, your Honor. astern of the engine.75

Court: These conflicting reactions can only imply, at the very

least, unmindful disregard or, worse, neglectful
May proceed. relinquishment of duty by the shipmaster, tantamount to
negligence.

Atty. Catris:
The findings of the trial court on this aspect is noteworthy:

In fact, the Master of the

vessel testified here that he For, while the pilot Gavino may indeed have
was all along in conformity been charged with the task of docking the
with the orders you, gave to vessel in the berthing space, it is undisputed
him, and, as matter of fact, that the master of the vessel had the
as he said, he obeyed all your corresponding duty to countermand any of the
orders. Can you tell, if in the orders made by the pilot, and even maneuver
course of giving such normal the vessel himself, in case of imminent danger
orders for the saf(e) docking to the vessel and the port.
of the MV Pavlodar, do you
remember of any instance In fact, in his testimony, Capt. Kavankov
that the Master of the vessel admitted that all throughour the man(eu)vering
did not obey your command procedures he did not notice anything was
for the safety docking of the going wrong, and even observed that the order
MV Pavlodar? given to drop the anchor was done at the proper
time. He even ventured the opinion that the
Atty. del Rosario: accident occurred because the anchor failed to
take hold but that this did not alarm him

Already answered, he already because.there was still time to drop a second

said yes sir. anchor.

Court: Under normal circumstances, the

abovementioned facts would have caused the
master of a vessel to take charge of the situation
Yes, he has just answered yes
and see to the man(eu)vering of the vessel
sir to the Court that there
himself. Instead, Capt. Kavankov chose to rely
was no disagreement insofar
blindly upon his pilot, who by this time was
as the bringing of the vessel
proven ill-equipped to cope with the situation.
safely to the port.

xxx xxx xxx

Atty. Catris:

It is apparent that Gavino was negligent but Far

But in this instance of
Eastern's employee Capt. Kavankov was no
docking of the MV Pavlodar,
lesss responsible for as master of the vessel he
do you remember of a time
stood by the pilot during the man(eu)vering
during the course of the
procedures and was privy to every move the
docking that the MV Pavlodar
 latter made, as well as the vessel's response to
each of the commands. His choice to rely
blindly upon the pilot's skills, to the point that
despite being appraised of a notice of alert he
continued to relinquish control of the vessel to
Gavino, shows indubitably that he was not
performing his duties with the diligence
required of him and therefore may be charged
with negligence along with defend;int Gavino.
As correctly affirmed by the Court of Appeals
We are in full accord with the findings and
disquisitions of the Court a quo.
In the present recourse, Captain
Kavankov had been a mariner for thirty-two
years before the incident. When Gavino was (in)
the command of the vessel, Kavankov was
beside Gavino, relaying the commands or orders
of Gavino to the crewmembers-officers of the
vessel concerned. He was thus fully aware of
the docking maneuvers and procedure Gavino
undertook to dock the vessel. Irrefragably,
Kavankov was fully aware of the bulk and size
of the vessel and its cargo as well as the weight
of the vessel. Kavankov categorically admitted
that, when the anchor and two (2) shackles
were dropped to the sea floor, the claws of the
anchor did not hitch on to any hard object in
the seabed. The momentum of the vessel was
not arrested. The use of the two (2) tugboats
was insufficient. The momentum of the vessel,
although a little bit arrested, continued (sic) the
vessel going straightforward with its
towards the port (Exhibit "A-1 ). There was thus
a need for the vessel to move "full-astern" and to
drop the other anchor with another shackle or
two (2), for the vessel to avoid hitting the pier.
Kavankov refused to act even as Gavino failed to
act. Even as Gavino gave mere "half-astern"
order, Kavankov supinely stood by. The vessel
was already about twenty (20) meters away from
the pier when Gavino gave the "full-astern"
order. Even then, Kavankov did nothing to
prevent the vessel from hitting the pier simply
because he relied on the competence and plan
of Gavino. While the "full-astern'' maneuver
momentarily arrested the momentum of the
vessel, it was, by then, too late. All along,
Kavankov stood supinely beside Gavino, doing
nothing but relay the commands of Gavino.
Inscrutably, then, Kavankov was negligent.
xxx xxx xxx
The stark incompetence of Kavankov is
competent evidence to prove the
unseaworthiness of the vessel. It has been held
that the incompetence of the navigator, the
master of the vessel or its crew makes the vessel
unseaworthy (Tug Ocean Prince versus United
States of America, 584 F. 2nd, page 1151).
Hence, the Appellant FESC is likewise liable for
76 77
the damage sustained by the Appellee.
We find strong and well-reasoned support in time-tested American
maritime jurisprudence, on which much of our laws and
jurisprudence on the matter are based, for the conclusions of the
Court of Appeals adjudging both Capt. Gavino and Capt.
Kabankov negligent.
Viktor
As early as 1869, the U.S. Supreme Court declared, through Mr.
78
Justice Swayne, in The Steamship China vs. Walsh, that it is the
duty of the master to interfere in cases of the pilot's intoxication or
manifest incapacity, in cases of danger which he does not foresee,
and in all cases of great necessity. The master has the same power
to displace the pilot that he has to remove any subordinate officer
of the vessel, at his discretion.
In 1895, the U.S. Supreme Court, this time through Mr. Justice
Brown, emphatically ruled that:
Nor are rye satisfied with the conduct of the
master in leaving the pilot in sole charge of the
vessel. While the pilot doubtless supersedes the
master for the time being in the command and
navigation of the ship, and his orders must be
obeyed in all matters connected with her
navigation, the master is not wholly absolved
bow from his duties while the pilot is on board, and
may advise with him, and even displace him in
case he is intoxicated or manifestly
incompetent. He is still in command of the
vessel, except so far as her navigation is
concerned, and bound to see that there is a
sufficient watch on deck, and that the men are
attentive to their duties.
. . . (N)orwithstanding the pilot has charge, it is
the duty of the master to prevent accident, and
not to abandon the vessel entirely to the pilot;
but that there are certain duties he has to
discharge (notwithstanding there is a pilot on
board) for the benefit of the owners. . . . that in
well conducted ships the master does not regard
the presence of a duly licensed pilot in
compulsory pilot waters as freeing him from
every, obligation to attend to the safety of the
vessel; but that, while the master sees that his
officers and crew duly attend to the pilot's
orders, he himself is bound to keep a vigilant eye
on the navigation of the vessel, and, when
 exceptional circumstances exist, not only to urge
upon the pilot to use every precaution, but to
79
insist upon such being taken. (Italics
emphasis.)
80
In Jure vs. United Fruit Co., which, like the present petitions,
involved compulsory pilotage, with a similar scenario where at and
prior to the time of injury, the vessel was in the charge of a pilot
with the master on the bridge of the vessel beside said pilot, the
court therein ruled:
The authority of the master of a vessel is not in
complete abeyance while a pilot, who is required
by law to be accepted, is in discharge of his
functions. . . . It is the duty of the master to
interfere in cases of the pilot's intoxication or
manifest incapacity, in cases of danger which he
does not foresee, and in all cases of great
necessity. The master has the same power to
displace the pilot that he has to remove any
subordinate officer of the vessel. He may
exercise it, or not, according to his discretion.
There was evidence to support findings that
piaintiff's injury was due to the negligent
operation of the Atenas, and that the master of
that vessel was negligent in failing to take
action to avoid endangering a vessel situated as
the City of Canton was and persons or property
thereon.
A phase of the evidence furnished support for
the inferences . . . that he negligently failed to
suggest to the pilot the danger which was
disclosed, and means of avoiding such danger;
and that the master's negligence in failing to
give timelt admonition to the pilot proximately
contributed to the injury complained of. We are
of opinion that the evidence mentioned tended
to prove conduct of the pilot, known to the
master, giving rise to a case of danger or great
necessity, calling for the intervention of the
master. A master of a vessel is not without fault
in acquiescing in canduct of a pilot which
involves apparent and avoidable danger,
whether such danger is to the vessel upon
which the pilot is, or to another vessel, or
persons or property thereon or on shore.
(Emphasis ours.)
Still in another case involving a nearly identical setting, the
captain of a vessel alongside the compulsory pilot was deemed to
be negligent, since, in the words of the court, "he was in a position
to exercise his superior authority if he had deemed the speed
excessive on the occasion in question. I think it was clearly
negligent of him not to have recognized the danger to any craft
moored at Gravell Dock and that he should have directed the pilot
to reduce his speed as required by the local governmental
regulations. His failure amounted to negligence and renders the
respondent liable." 81
(Emphasis supplied.) Though a compulsory
for pilot might be regarded as an independent contractor, he is at all
times subject to the ultimate control of the ship's master. 82
In sum, where a compulsory pilot is in charge of a ship, the
master being required to permit him to navigate it, if the master
observes that the pilot is incompetent or physically incapable,
then it is the dury of the master to refuse to permit the pilot to
act. But if no such reasons are present, then the master is
justified in relying upon the pilot, but not blindly. Under the
circumstances of this case, if a situation arose where the master,
exercising that reasonable vigilance which the master of a ship
should exercise, observed, or should have observed, that the pilot
was so navigating the vessel that she was going, or was likely to
go, into danger, and there was in the exercise of reasonable care
and vigilance an opportunity for the master to intervene so as to
save the ship from danger, the master should have acted
83
accordingly. The master of a vessel must exercise a degree of
vigilance commensurate with the circumstances. 84
Inasmuch as the matter of negligence is a question of fact, 85
we
defer to the findings of the trial court, especially as this is
86
affirmed by the Court of Appeals. But even beyond that, our
own evaluation is that Capt. Kabankov's shared liability is due
mainly to the fact that he failed to act when the perilous situation
should have spurred him into quick and decisive action as master
of the ship. In the face of imminent or actual danger, he did not
have to wait for the happenstance to occur before countermanding
or overruling the pilot. By his own admission, Capt. Kabankov
concurred with Capt. Gavino's decisions, and this is precisely the
reason why he decided not to countermand any of the latter's
orders. Inasmuch as both lower courts found Capt. Gavino
negligent, by expressing full agreement therewith Capt. Kabankov
was just as negligent as Capt. Gavino.
In general, a pilot is personally liable for damages caused by his
own negligence or default to the owners of the vessel, and to third
parties for damages sustained in a collision. Such negligence of
the pilot in the performance of duty constitutes a maritime
87
tort. At common law, a shipowner is not liable for injuries
inflicted exclusively by the negligence of a pilot accepted by a
88
vessel compulsorily. The exemption from liability for such
negligence shall apply if the pilot is actually in charge and solely
in fault. Since, a pilot is responsible only for his own personal
negligence, he cannot be held accountable for damages
89
proximately caused by the default of others, or, if there be
anything which concurred with the fault of the pilot in producing
the accident, the vessel master and owners are liable.
Since the colliding vessel is prima facie responsible, the burden of
proof is upon the party claiming benefit of the exemption from
liability. It must be shown affirmatively that the pilot was at fault,
and that there was no fault on the part of the officers or crew,
which might have been conducive to the damage. The fact that the
law compelled the master to take the pilot does not exonerate the
vessel from liability. The parties who suffer are entitled to have
their remedy against the vessel that occasioned the damage, and
are not under necessity to look to the pilot from whom redress is
not always had for compensation. The owners of the vessel are
responsible to the injured party for the acts of the pilot, and they
must be left to recover the amount as well as they can against
him. It cannot be maintained that the circumstance of having a
pilot on board, and acting in conformity to his directions operate
90
as a discharge of responsibility of the owners. Except insofar as
their liability is limited or exempted by statute, the vessel or her
owner are liable for all damages caused by the negligence or other
wrongs of the owners or those in charge of the vessel. Where the
pilot of a vessel is not a compulsory one in the sense that the
owner or master of the vessel are bound to accept him, but is
employed voluntarily, the owners of the vessel are, all the more,
91
liable for his negligent act.
In the United States, the owners of a vessel are not personally
liable for the negligent acts of a compulsory pilot, but by admiralty
law, the fault or negligence of a compulsory pilot is imputable to
the vessel and it may be held liable therefor in rem. Where,
however, by the provisions of the statute the pilot is compulsory
only in the sense that his fee must be paid, and is not in
compulsory charge of the vessel, there is no exemption from
liability. Even though the pilot is compulsory, if his negligence was
not the sole cause of the injury, but the negligence of the master or
92
crew contributed thereto, the owners are liable. But the liability
of the ship in rem does not release the pilot from the consequences
93
of his own negligence. The rationale for this rule is that the
master is not entirely absolved of responsibility with respect to
navigation when a compulsory pilot is in charge. 94
By way of validation and in light of the aforecited guidepost
rulings in American maritime cases, we declare that our rulings
during the early years of this century in City of Manila vs.
95 96
Gambe, China Navigation Co., Ltd. vs. Vidal, and Yap Tica &
97
Co. vs. Anderson, et al. have withstood the proverbial test of time
and remain good and relevant case law to this day.
City of Manila stands for the doctrine that the pilot who was in
command and complete control of a vessel, and not the owners,
must be held responsible for an accident which was solely the
result of the mistake of the pilot in not giving proper orders, and
which did not result from the failure of the owners to equip the
vessel with the most modern and improved machinery. In China
Navigation Co., the pilot deviated from the ordinary and safe
course, without heeding the warnings of the ship captain. It was
this careless deviation that caused the vessel to collide with a
pinnacle rock which, though uncharted, was known to pilots and
local navigators. Obviously, the captain was blameless. It was the
negligence of the pilot alone which was the proximate cause of the
collision. The Court could not but then rule that
The pilot in the case at bar having deviated
from the usual and ordinary course followed by
navigators in passing through the strait in
question, without a substantial reason, was
guilty of negligence, and that negligence having
been the proximate cause of the damages, he is
liable for such damages as usually and
naturally flow therefrom. . . .
. . . (T)he defendant should have known of the
existence and location of the rock upon which
the vessel struck while under his control and
management. . . . .
Consistent with the pronouncements in these two earlier cases,
but on a slightly different tack, the Court in Yap Tico & Co.
exonerated the pilot from liability for the accident where the
orders of the pilot in the handling of the ship were disregarded by
the officers and crew of the ship. According to the Court, a pilot is
". . . responsible for a full knowledge of the channel and the
navigation only so far as he can accomplish it through the officers
and crew of the ship, and I don't see chat he can be held
responsible for damage when the evidence shows, as it does in
this case, that the officers and crew of the ship failed to obey his
orders." Nonetheless, it is possible for a compulsory pilot and the
master of the vessel to be concurrently negligent and thus share
98
the blame for the resulting damage as joint tortfeasors, but only
under the circumstances obtaining in and demonstrated by the
instant petitions.
It may be said, as a general rule, that negligence in order to
render a person liable need not be the sole cause of an injury. It is
sufficient that his negligence, concurring with one or more
efficient causes other than piaintiff's, is the proximate cause of
the injury. Accordingly, where several causes combine to produce
injuries, a person is not relieved from liability because he is
responsible for only one of them, it being sufficient that the
negligence of the person charged with injury is an efficient cause
without which the injury would not have resulted to as great an
extent, and that such cause is not attributable to the person
injured. It is no defense to one of the concurrent tortfeasors that
the injury would not have resulted from his negligence alone,
without the negligence or wrongful acts of the other concurrent
99
rortfeasor. Where several causes producing an injury are
concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be attributed to
all or any of the causes and recovery may be had against any or
all of the responsible persons although under the circumstances
of the case, it may appear that one of them was more culpable,
and that the duty owed by them to the injured person was not the
same. No actor's negligence ceases to be a proximate cause merely
because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as
100
though his acts were the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is
solidary since both of them are liable for the total damage. Where
the concurrent or successive negligent acts or omissions of two or
more persons, although acting independently, are in combination
the direct and proximate cause of a single injury to a third person,
it is impossible to determine in what proportion each contributed
to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or Q Now, the damage was
damage to a third party, they become joint tortfeasors and are somewhere in 1980. It took
solidarily liable for the resulting damage under Article 2194 101
of place in 1980 and you
the Civil Code. 102 started the repair and
reconstruction in 1982, that
took almost two years?
As for the amount of damages awarded by the trial court, we find
the same to be reasonable. The testimony of Mr. Pascual Barral,
witness for PPA, on cross and redirect examination, appears to be A Yes sir.
grounded on practical considerations:
Q May it not happen that by
Q So that the cost of the two natural factors, the existing
additional piles as well as the damage in 1980 was
(two) square meters is already aggravated for the 2 year
included in this period that the damage
P1,300,999.77. portion was not repaired?

A Yes sir, everything. It is A I don't think so because

(the) final cost already. that area was at once marked
and no vehicles can park, it
was closed.
Q For the eight piles.

Q Even if or even natural

A Including the reduced
elements cannot affect the
areas and other reductions.
damage?

Q (A)nd the two square

A Cannot, sir.
meters.

xxx xxx xxx

A Yes sir.

Q You said in the cross-

Q In other words, this
examination that there were
P1,300,999.77 does not
six piles damaged by the
represent only for the six
accident, but that in the
piles that was damaged as
reconstruction of the pier,
well as the corresponding two
PPA drove and constructed 8
piles.
piles. Will you explain to us
why there was change in the
A The area was
number of piles from the
corresponding, was increased
original number?
by almost two in the actual
payment. That was why the
A In piers where the piles are
contract was decreased, the
withdrawn or pulled out, you
real amount was
cannot re-drive or drive piles
P1,124,627.40 and the final
at the same point. You have
one is P1,300,999.77.
to redesign the driving of the
piles. We cannot drive the
Q Yes, but that
piles at the same point where
P1,300,999.77 included the
the piles are broken or
additional two new posts.
damaged or pulled out. We
have to redesign, and you will
A It was increased.
note that in the
reconstruction, we
Q Why was it increased? redesigned such that it
necessitated 8 plies.
A The original was 48 and
the actual was 46.
 Q Why not, why could you proximate damages caused to persons or property by reason of her
not drive the same number of negligent management or navigation. 106

piles and on the same spot?

FESC's imputation of PPA's failure to provide a safe and reliable
A The original location was berthing place is obtuse, not only because it appears to be a mere
already disturbed. We cannot afterthought, being tardily raised only in this petition, but also
get required bearing capacity. because there is no allegation or evidence on record about Berth
The area is already disturbed. No. 4 being unsafe and unreliable, although perhaps it is a
modest pier by international standards. There was, therefore, no
Q Nonetheless, if you drove error on the part of the Court of Appeals in dismissing FESC's
the original number of piles, counterclaim.
six, on different places,
would not that have II. G.R. No. 130150
sustained the same load?
This consolidated case treats on whether the Court of Appeals
103
A It will not suffice, sir. erred in holding MPA jointly and solidarily liable with its member
pilot. Capt. Gavino, in the absence of employer-employee
We quote the findings of the lower court with approval. relationship and in applying Customs Administrative Order No.
15-65, as basis for the adjudged solidary liability of MPA and
With regards to the amount of damages that is Capt. Gavino.
to be awarded to plaintiff, the Court finds that
the amount of P1,053,300.00 is justified. The pertinent provisions in Chapter I of Customs Administrative
Firstly, the doctrine of res ipsa loquitur best Order No. 15-65 are:
expounded upon in the landmark case
of Republic vs. Luzon Stevedoring Corp. (21 PAR. XXVII. In all pilotage districts where
SCRA 279) establishes the presumption that in pilotage is compulsory, there shall be created
the ordinary course of events the ramming of and maintained by the pilots or pilots'
the dock would not have occurred if proper care association, in the manner hereinafter
was used. prescribed, a reserve fund equal to P1,000.00
for each pilot thereof for the purpose of paying
Secondly, the various estimates and plans claims for damages to vessels or property
justify the cost of the port construction price. caused through acts or omissions of its
The new structure constructed not only members while rendered in compulsory pilotage
replaced the damaged one but was built of service. In Manila, the reserve fund shall be
stronger materials to forestall the possibility of P2,000.00 for each pilot.
any similar accidents in the future.
PAR. XXVIII. A pilots' association shall not be
The Court inevitably finds that the plaintiff is liable under these regulations for damage to any
entitled to an award of P1,053,300.00 which vessel, or other property, resulting from acts of
represents actual damages caused by the a member of an association in the actual
damage to Berth 4 of the Manila International performance of his duty for a greater amount
Port. Co-defendants Far Eastern Shipping, than seventy-five per centum (75%) of its
Capt. Senen Gavino and Manila Pilots prescribed reserve fund; it being understood
Association are solidariiy liable to pay this that if the association is held liable for an
amount to plaintiff. 104 amount greater than the amount above-stated,
the excess shall be paid by the personal funds
of the member concerned.
The Solicitor General rightly commented that the
adjudicated amount of damages represents the
proportional cost of repair and rehabilitation of the PAR. XXXI. If a payment is made from the

damaged section of the pier. 105 reserve fund of an association on account of

damages caused by a member thereof, and he
shall have been found at fault, such member
Except insofar as their liability is limited or exempted by statute,
shall reimburse the association in the amount
the vessel or her owners are liable for all damages caused by the
so paid as soon as practicable; and for this
negligence or other wrongs of the owners or those in charge of the
purpose, not less than twenty-five per centum
vessel. As a general rule, the owners or those in possession and
of his dividends shall be retained each month
control of a vessel and the vessel are liable for all natural and
 until the full amount has been returned to the and/or
reserve fund. injury to
persons or
PAR. XXXIV. Nothing in these regulations death
shall relieve any pilots' association or members which any
thereof, individually or collectively, from civil member
responsibility for damages to life or property may have
resulting from the acts of members in the caused in
performance of their duties. the course
of his
Correlatively, the relevant provisions of PPA Administrative Order performan
No. 03-85, which timery amended this applicable maritime ce of
regulation, state: pilotage
duties. . . .
.
Art. IV

b) The
Sec. 17. Pilots' Association The Pilots in a
Pilotage
Pilotage District shall organize themselves into
Association
a Pilots' Association or firm, the members of
shall
which shall promulgate their own By-Laws not
likewise set
in conflict with the rules and regulations
up and
promulgated by the Authority. These By-Laws
maintain a
shall be submitted not later than one (1) month
reserve
after the organization of the Pilots' Association
fund which
for approval by the General Manager of the
shall
Authority. Subsequent amendments thereto
answer for
shall likewise be submitted for approval.
any part of
the liability
Sec. 25. Indemnity Insurance and Reserve
referred to
Fund
in the
immediatel
a) Each y preceding
Pilots' paragraph
Association which is
shall left
collectively unsatisfied
insure its by the
membershi insurance
p at the proceeds,
rate of in the
P50,000.00 following
each manner:
member to
cover in
1)
whole or in
Each
part any
pilot in
liability
the
arising
Associ
from any
ation
accident
shall
resulting in
contrib
damage to
ute
vessel(s),
from
port
his
facilities
own
and other
accoun
properties
t an
amoun perfor
t of mance
P4,000 of
.00 pilots'
(P6,00 duties
0.00 in and
the the
Manila excess
Pilotag shall
e be paid
District from
) to the the
reserve person
fund. al
This funds
fund of the
shall membe
not be r
consid concer
ered ned.
part of
the xxx xxx xxx
capital
of the 5) If
Associ payme
ation nt is
nor made
charge from
d as an the
expens reserve
e fund of
thereof an
. Associ
ation
2) on
Sevent accoun
y-five t of
percent damag
(75 %) e
of the caused
reserve by a
fund membe
shall r
be set thereof
aside who is
for use found
in the at
payme fault,
nt of he
damag shall
es reimbu
referre rse the
d to Associ
above ation
incurre in the
d in amoun
the t so
actual paid as
soon ng
as paragr
practic aph,
able; the ten
and for percent
this um
purpos (10%)
e, not and
less the
than interes
twenty- t
five withhel
percent d from
um (25 the
%) of shares
his of the
dividen other
d shall pilots
be in
retaine accord
d each ance
month with
until paragr
the full aph (4)
amoun hereof
t has shall
been be
returne returne
d to d to
the them.
reserve
fund. c) Liability
Therea of Pilots'
fter, Association
the Nothing
pilot in these
involve regulations
d shall shall
be relieve any
entitle Pilots'
d to Association
his full or
dividen members
d. thereof,
individuall
6) y or
When collectively,
the from any
reimbu civil,
rsemen administra
t has tive and/or
been criminal
comple responsibil
ted as ity for
prescri damages to
bed in life or
the property
precedi resulting
 from the employer of their members and exercise no
individual control over them once they take the helm of
acts of its the vessel. They are also not partnerships
members because the members do not function as agents
as well as for the association or for each other. Pilots'
those of associations are also not liable for negligently
the assuring the competence of their members
Association because as professional associations they made
's no guarantee of the professional conduct of
employees their members to the general public. 109

and
in
performan
ce of their
duties.
The Court of Appeals, while affirming the trial court's finding of
solidary liability on the part of FESC, MPA and Capt. Gavino,
correctly based MPA' s liability not on the concept of employer-
employee relationship between Capt. Gavino and itself, but on the
provisions of Customs Administrative Order No. 15-65:
The Appellant MPA avers that, contrary to the
findings and disquisitions of the Court a quo,
crew
the Where under local statutes and regulations, pilot associations lack
the necessary legal incidents of responsibility, they have been held
not liable for damages caused by the default of a member
pilot. 110
Whether or not the members of a pilots' association are in
legal effect a copartnership depends wholly on the powers and
duties of the members in relation to one another under the
provisions of the governing statutes and regulations. The relation
of a pilot to his association is not that of a servant to the master,
but of an associate assisting and participating in a common
purpose. Ultimately, the rights and liabilities between a pilots'
association and an individual member depend largely upon the
constitution, articles or by-laws of the association, subject to
appropriate government regulations. 111

the Appellant Gavino was not and has never

been an employee of the MPA but was only a
member thereof. The Court a quo,
noteworthy, did not state the factual basis on
which it anchored its finding that Gavino was
the employee of MPA. We are in accord with
MPA's pose. Case law teaches Us that, for an
employer-employee relationship to exist, the
confluence of the following elements must be
established: (1) selection and engagement of
employees; (2) the payment of wages; (3) the
power of dismissal; (4) the employer's power to
control the employees with respect to the means
and method by which the work is to be
performed (Ruga versus NLRC, 181 SCRA 266).
xxx xxx xxx
No reliance can be placed by MPA on the cited American rulings
it is as to immunity from liability of a pilots' association in ljght of
existing positive regulation under Philippine law. The Court of
Appeals properly applied the clear and unequivocal provisions of
Customs Administrative Order No. 15-65. In doing so, it was just
being consistent with its finding of the non-existence of employer-
employee relationship between MPA and Capt. Gavino which
precludes the application of Article 2180 of the Civil Code.
True. Customs Administrative Order No. 15-65 does not
categorically characterize or label MPA's liability as solidary in
nature. Nevertheless, a careful reading and proper analysis of the
correlated provisions lead to the conclusion that MPA is solidarily
liable for the negligence of its member pilots, without prejudice to
subsequent reimbursement from the pilot at fault.

Art. 1207 of the Civil Code provides that there is solidary liability
The liability of MPA for damages is not anchored only when the obligation expressly so states, or when the law or
on Article 2180 of the New Civil Code as the nature of the obligation requires solidarity. Plainly, Customs
erroneously found and declared by the Court a Administrative Order No. 15-65, which as an implementing rule
quo but under the provisions of Customs has the force and effect of law, can validly provide for solidary
Administrative Order No. 15-65, supra, in liability.We note the Solicitor General's comment hereon, to wit:
107
tandem with the by-laws of the MPA.

. . . Customs Administrative Order No. 15-65

There being no employer-employee relationship, clearly Article may be a mere rule and regulation issued by an
108
2180 of the Civil Code is inapplicable since there is no administrative agency pursuant to a delegated
vicarious liability of an employer to speak of. It is so stated in authority to fix "the details" in the execution or
American law, as follows: enforcement of a policy set out in the law itself.
Nonetheless, said administrative order, which
The well established rule is that pilot adds to the procedural or enforcing provisions
associations are immune to vicarious liability of substantive law, is legally binding and
for the tort of their members. They are not the receives the same statutory force upon going
 into effect. In that sense, it has equal, not lower, Let copies of this decision be spread upon the personal records of
statutory force and effect as a regular statute the lawyers named herein in the Office of the Bar Confidant.
112
passed by the legislature.
SO ORDERED.
MPA's prayer for modification of the appellate court's decision
under review by exculpating petitioner MPA "from liability beyond Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,
seventy-five percent (75 %) of Reserve Fund" is unnecessary Panganiban, Martinez, Quisumbing and Purisima, JJ., concur.
because the liability of MPA under Par. XXVIII of Customs
Administrative Order No. 15-65 is in fact limited to seventy-five
percent (75 %) of its prescribed reserve fund, any amount of
liability beyond that being for the personal account of the erring
Republic of the Philippines
pilot and subject to reimbursement in case of a finding of fault by
SUPREME COURT
the member concerned. This is clarified by the Solicitor General:
Manila

Moreover, contrary to petitioner's pretensions,

EN BANC
the provisions of Customs Administrative Order
No. 15-65 do not limit the liability of petitioner
as a pilots' association to an absurdly small G.R. No. L-21749 September 29, 1967

amount of seventy-five per centum (75 %) of the

member pilots' contribution of P2,000.00 to the REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
reserve fund. The law speaks of the entire vs.
reserve fund required to be maintained by the LUZON STEVEDORING CORPORATION, defendant-appellant.
pilots' association to answer (for) whatever
liability arising from the tortious act of its Office of the Solicitor General for plaintiff-appellee.
members. And even if the association is held H. San Luis and L.V. Simbulan for defendant-appellant.
liable for an amount greater than the reserve
fund, the association may not resist the liability
by claiming to be liable only up to seventy-five
per centum (75 %) of the reserve fund because
in such instance it has the right to be
reimbursed by the offending member pilot for
113 REYES, J.B.L., J.:
the excess.

The present case comes by direct appeal from a decision of the

WHEREFORE, in view of all of the foregoing, the consolidated
Court of First Instance of Manila (Case No. 44572) adjudging the
petitions for review are DENIED and the assailed decision of the
defendant-appellant, Luzon Stevedoring Corporation, liable in
Court of Appeals is AFFIRMED in toto.
damages to the plaintiff-appellee Republic of the Philippines.

Counsel for FESC, the law firm of Del Rosario and Del Rosario,
In the early afternoon of August 17, 1960, barge L-1892, owned
specifically its associate, Atty. Herbert A. Tria, is REPRIMANDED
by the Luzon Stevedoring Corporation was being towed down the
and WARNED that a repetition of the same or similar acts of
Pasig river by tugboats "Bangus" and "Barbero" 1 also belonging to
heedless disregard of its undertakings under the Rules shall be
the same corporation, when the barge rammed against one of the
dealt with more severely.
wooden piles of the Nagtahan bailey bridge, smashing the posts
and causing the bridge to list. The river, at the time, was swollen
The original members of the legal team of the Office of the
and the current swift, on account of the heavy downpour of
Solicitor General assigned to this case, namely, Assistant Solicitor
Manila and the surrounding provinces on August 15 and 16,
General Roman G. Del Rosario and Solicitor Luis F. Simon, are
1960.
ADMONISHED and WARNED that a repetition of the same or
similar acts of unduly delaying proceedings due to delayed filing of
Sued by the Republic of the Philippines for actual and
required pleadings shall also be dealt with more stringently.
consequential damage caused by its employees, amounting to
P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
The Solicitor Genral is DIRECTED to look into the circumstances
Stevedoring Corporation disclaimed liability therefor, on the
of this case and to adopt provident measures to avoid a repetition
grounds that it had exercised due diligence in the selection and
of this incident and which would ensure prompt compliance with
supervision of its employees; that the damages to the bridge were
orders of this Court regarding the timely filing of requisite
caused by force majeure; that plaintiff has no capacity to sue; and
pleadings, in the interest of just, speedy and orderly
that the Nagtahan bailey bridge is an obstruction to navigation.
administration of justice.
After due trial, the court rendered judgment on June 11, 1963,
holding the defendant liable for the damage caused by its
employees and ordering it to pay to plaintiff the actual cost of the
repair of the Nagtahan bailey bridge which amounted to
P192,561.72, with legal interest thereon from the date of the filing
of the complaint.
Defendant appealed directly to this Court assigning the following
errors allegedly committed by the court a quo, to wit:
I The lower court erred in not holding that the herein
defendant-appellant had exercised the diligence required
of it in the selection and supervision of its personnel to
prevent damage or injury to others.1awphl.nt
II The lower court erred in not holding that the
ramming of the Nagtahan bailey bridge by barge L-1892
was caused by force majeure.
III The lower court erred in not holding that the
Nagtahan bailey bridge is an obstruction, if not a
menace, to navigation in the Pasig river.
IV The lower court erred in not blaming the damage
sustained by the Nagtahan bailey bridge to the improper
placement of the dolphins.
V The lower court erred in granting plaintiff's motion
to adduce further evidence in chief after it has rested its
case.
VI The lower court erred in finding the plaintiff
entitled to the amount of P192,561.72 for damages
which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this
jurisdiction is that when a party appeals directly to the Supreme
Court, and submits his case there for decision, he is deemed to
have waived the right to dispute any finding of fact made by the
trial Court. The only questions that may be raised are those of law
(Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago,
L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22,
1965). A converso, a party who resorts to the Court of Appeals,
and submits his case for decision there, is barred from contending
later that his claim was beyond the jurisdiction of the aforesaid
Court. The reason is that a contrary rule would encourage the
undesirable practice of appellants' submitting their cases for
decision to either court in expectation of favorable judgment, but
with intent of attacking its jurisdiction should the decision be
unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de Seguros)
et al., L-10096, Res. on Motion to Reconsider, March 23, 1966).
Consequently, we are limited in this appeal to the issues of law
raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the
only reviewable issues in this appeal are reduced to two:
1) Whether or not the collision of appellant's barge with
the supports or piers of the Nagtahan bridge was in law
caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have
permitted the plaintiff-appellee to introduce additional
evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was
an immovable and stationary object and uncontrovertedly
provided with adequate openings for the passage of water craft,
including barges like of appellant's, it is undeniable that the
unusual event that the barge, exclusively controlled by appellant,
rammed the bridge supports raises a presumption of negligence
on the part of appellant or its employees manning the barge or the
tugs that towed it. For in the ordinary course of events, such a
thing does not happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known as the "res
ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San
Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed.,
680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs.
Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540;
Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the
day in question: that it assigned two of its most powerful tugboats
to tow down river its barge L-1892; that it assigned to the task the
more competent and experienced among its patrons, had the
towlines, engines and equipment double-checked and inspected;
that it instructed its patrons to take extra precautions; and
concludes that it had done all it was called to do, and that the
accident, therefore, should be held due to force majeure or
fortuitous event.
These very precautions, however, completely destroy the
appellant's defense. For caso fortuito or force majeure(which in law
are identical in so far as they exempt an obligor from liability) 2 by
definition, are extraordinary events not foreseeable or avoidable,
"events that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore,
not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same: "un hecho no
constituye caso fortuito por la sola circunstancia de que su
existencia haga mas dificil o mas onerosa la accion diligente del
presento ofensor" (Peirano Facio, Responsibilidad Extra-
contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2,
sec. 1569). The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually
foreseen, and was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation,
knowing and appreciating the perils posed by the swollen stream
and its swift current, voluntarily entered into a situation involving
obvious danger; it therefore assured the risk, and can not shed
responsibility merely because the precautions it adopted turned
out to be insufficient. Hence, the lower Court committed no error
in holding it negligent in not suspending operations and in
holding it liable for the damages caused.
It avails the appellant naught to argue that the dolphins, like the
bridge, were improperly located. Even if true, these circumstances
would merely emphasize the need of even higher degree of care on
appellant's part in the situation involved in the present case. The
appellant, whose barges and tugs travel up and down the river
everyday, could not safely ignore the danger posed by these
allegedly improper constructions that had been erected, and in
place, for years.
On the second point: appellant charges the lower court with
having abused its discretion in the admission of plaintiff's
additional evidence after the latter had rested its case. There is an
insinuation that the delay was deliberate to enable
manipulation of evidence to prejudice defendant-appellant.
We find no merit in the contention. Whether or not further
evidence will be allowed after a party offering the evidence has
rested his case, lies within the sound discretion of the trial Judge,
and this discretion will not be reviewed except in clear case of
abuse.3
In the present case, no abuse of that discretion is shown. What
was allowed to be introduced, after plaintiff had rested its
evidence in chief, were vouchers and papers to support an item of
P1,558.00 allegedly spent for the reinforcement of the panel of the
bailey bridge, and which item already appeared in Exhibit GG.
Appellant, in fact, has no reason to charge the trial court of being
unfair, because it was also able to secure, upon written motion, a
similar order dated November 24, 1962, allowing reception of
additional evidence for the said defendant-appellant. 4
WHEREFORE, finding no error in the decision of the lower Court
appealed from, the same is hereby affirmed. Costs against the
defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.
EN BANC
[G.R. No. L-9534. September 29, 1956.]
MANILA STEAMSHIP CO., INC., Petitioner, vs.
ABDULHAMAN (MORO) and LIM HONG TO,Respondents.
DECISION
REYES, J. B. L., J.:
This case was begun in the Court of First Instance of Zamboanga
(Civil Case No. 170) by Insa Abdulhaman against the Manila
Steamship Co., owner of the M/S Bowline Knot, and Lim Hong
To, owner of the M/L Consuelo V, to recover damages for the
death of his (Plaintiffs) five children and loss of personal
properties on board the M/L Consuelo V as a result of a
maritime collision between said vessel and the M/S Bowline
Knot on May 4, 1948, a few kilometers distant from San Ramon
Beach, Zamboanga City.
On appeal, the Court of Appeals found the following facts to have
been established:chanroblesvirtuallawlibrary
From 7:chanroblesvirtuallawlibrary00 to
8:chanroblesvirtuallawlibrary00 oclock in the evening of May 4,
1948, the M/L Consuelo V, laden with cargoes and passengers
left the port of Zamboanga City bound for Siokon under the
command of Faustino Macrohon. She was then towing a kumpit,
named Sta. Maria Bay. The weather was good and fair. Among
her passengers were the Plaintiff Insa Abdulhaman, his wife
Carimla Mora and their five children already mentioned.
The Plaintiff and his wife paid their fare before the voyage started.
On that same night the M/S Bowline Knot was navigating from
Maribojoc towards Zamboanga.
Between 9:chanroblesvirtuallawlibrary30 to
10:chanroblesvirtuallawlibrary00 in the evening the dark clouds
bloated with rain began to fall and the gushing strong wind began
the to blow steadily harder, lashing the waves into a choppy and
roaring sea. Such weather lasted for about an hour and then it
became fair although it was showering and the visibility was good
enough.
When some of the passengers of the M/L Consuelo V were then
sleeping and some were lying down awake, all of a sudden they felt
the shocking collision of the M/L Consuelo V and a big
motorship, which later on was identified as the M/V Bowline
Knot.
Because the M/L Consuelo V capsized, her crew and
passengers, before realizing what had happened, found
themselves swimming and floating on the crest of the waves and
as a result of which nine (9) passengers were dead and missing
and all the cargoes carried on said boat, including those of
the Plaintiff as appear in the list, Exhibit A, were also lost.
Among the dead passengers found were Maria, Amlasa, Bidoaya
and Bidalla, all surnamed Inasa, while the body of the child
Abdula Inasa of 6 years of age was never recovered. Before the
collision, none of the passengers were warned or informed of the
impending danger as the collision was so sudden and unexpected.
All those rescued at sea were brought by the M/V Bowline Knot
to Zamboanga City. (Decision of C. A., pp. 5-6).
As the cause of the collision, the Court of Appeals affirmed the
findings of the Board of Marine Inquiry, that the commanding
officer of the colliding vessels had both been negligent in operating
their respective vessels. Wherefore, the Court held the owners of
both vessels solidarily liable to Plaintiff for the damages caused to
him by the collision, under Article 827 of the Code of
Commerce; chan roblesvirtualawlibrarybut
exempted Defendant Lim Hong To from liability by reason of the
sinking and total loss of his vessel, the M/L Consuelo V, while
the other Defendant, the Manila Steamship Co., owner of the M/S
Bowline Knot, was ordered to pay all of Plaintiffs damages in the
amount of P20,784.00 plus one-half of the costs. It is from this
INSA judgment thatDefendant Manila Steamship Co. had appealed to
this Court.
Petitioner Manila Steamship Co. pleads that it is exempt from any
liability to Plaintiff under Article 1903 of the Civil Code because it
had exercised the diligence of a good father of a family in the
selection of its employees, particularly Third Mate Simplicio
Ilagan, the officer in command of its vessels, the M/S Bowline
Knot, at the time of the collision. This defense is untenable. While
it is true that Plaintiffs action against Petitioner is based on a tort
or quasi-delict, the tort in question is not a civil tort under the
Civil Code but a maritime tort resulting in a collision at sea,
governed by Articles 826-939 of the Code of Commerce. Under
Article 827 of the Code of Commerce, in case of collision between
two vessels imputable to both of them, each vessel shall suffer her
own damage and both shall be solidarily liable for the damages
occasioned to their cargoes. The characteristic language of the law
in making the vessels solidarily liable for the damages due to the
maritime collision emphasizes the direct nature of the
responsibilities on account of the collision incurred by the
shipowner under maritime law, as distinguished from the civil law
and mercantile law in general. This direct responsibility is
recognized in Article 618 of the Code of Commerce under which
the captain shall be civilly liable to the ship agent, and the latter
is the one liable to third persons, as pointed out in the collision
case of Yueng Sheng Exchange & Trading Co. vs. Urrutia & Co.,
12 Phil. 747, 753:chanroblesvirtuallawlibrary
The responsibility involved in the present action is that derived
from the management of the vessel, which was defective on
account of lack of skill, negligence, or fault, either of the captain
or of the crew, for which the captain is responsible to the agent,
who in his turn is responsible to the third party prejudiced or
damaged. (Article 618, Code of Commerce).
In fact, it is a general principle, well established maritime law and
custom, that shipowners and ship agents are civilly liable for the
acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587); chan
roblesvirtualawlibraryso that injured parties may immediately
look for reimbursement to the owner of the ship, it being
universally recognized that the ship master or captain is primarily
the representative of the owner (Standard Oil Co. vs. Lopez
Castelo, 42 Phil. 256, 260). This direct liability, moderated and
limited by the owners right of abandonment of the vessel and
earned freight (Article 587), has been declared to exist, not only in
case of breached contracts, but also in cases of tortious negligence
(Yu Biao Sontua vs. Osorio, 43 Phil. 511,
515):chanroblesvirtuallawlibrary
In the second assignment of error, the Appellant contends that
the Defendant ought not to be held liable for the negligence of his
agents and employees.
It is proven that the agents and employees, through whose
negligence the explosion and fire in question occurred, were
agents, employees and mandatories of the Defendant. Where the
vessel is one of freight, a public concern or public utility, its owner
or agents is liable for the tortious acts of his agents (Articles 587,
613, and 618 Code of Commerce; chan roblesvirtualawlibraryand
Article 1902, 1903, 1908, Civil Code). This principle has been
repeatedly upheld in various decisions of this court.
The doctrines cited by the Appellant in support of his theory have
reference to the relations between principal and agent in general,
but not to the relations between ship agent and his agents and
employees; chan roblesvirtualawlibraryfor this reason they cannot
be applied in the present case.
It is easy to see that to admit the defense of due diligence of a
bonus paterfamilias (in the selection and vigilance of the officers
and crew) as exempting the shipowner from any liability for their
faults, would render nugatory the solidary liability established by
Article 827 of the Code of Commerce for the greater protection of
injured parties. Shipowners would be able to escape liability in
practically every case, considering that the qualifications and
licensing of ship masters and officers are determined by the State,
and that vigilance is practically impossible to exercise over officers
and crew of vessels at sea. To compel the parties prejudiced to
look to the crew for indemnity and redress would be an illusory
remedy for almost always its members are, from captains down,
mere wage earners.
We, therefore, find no reversible error in the refusal of the Court of
Appeals to consider the defense of the Manila Steamship Co., that
it is exempt from liability for the collision with the M/L Consuelo
V due to absence of negligence on its parts in the selection and
supervision of the officers and crew of the M/S Bowline Knot.
The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber
Co., 55 Phil. 517, invoked byPetitioner, is not the point. Said case
treated of a civil tort, in that the vessel of the Defendant, allegedly
negligently managed by its captain in the course of its maneuvers
to moor atPlaintiffs wharf, struck the same and partially
demolished it, causing damage to Plaintiff. Because the tort
allegedly committed was civil, the provisions of Article 1903 of the
Civil Code were correctly applied. The present case, on the other
hand, involves tortious conduct resulting in a maritime
collision; chan roblesvirtualawlibrarywherefore, the liability of the
shipowner is, as already stated, governed by the provisions of the
Code of Commerce and not by the Civil Code.
We agree, however, with Petitioner-Appellant, that the Court of
Appeals was in error in declaring the Respondent Lim Hong To,
owner of the M/L Consuelo V, exempt from liability to the
original Plaintiff, Abdulhaman, in view of the total loss of his own
vessel, that sank as a result of the collision. It is to be noted that
both the master and the engineer of the motor launch Consuelo
V were not duly licensed as such (Exh. 2). In applying for
permission to operate, despite the lack of properly trained and
experienced, crew, Respondent Lim Hong To gave as a reason
that the income derived from the vessel is insufficient to pay
licensed officers who demand high salaries,
and expressly declared:chanroblesvirtuallawlibrary
That in case of any accident, damage or loss, I shall assume full
risk and responsibility for all the consequences thereof. (Exhibit
2).
His permit to operate, in fact, stipulated
that in case of any accident, damage or loss, the registered owner
thereof shall assume full risk and responsibility for all the
consequences thereof, and that said vessel shall be held
answerable for any negligence, disregard or violation of any of the
conditions herein imposed and for any consequence arising from
such negligence, disregard or violations. (Exhibit 3.)
The Court of Appeals held that neither the letter (Exhibit 2) nor
the permit (Exhibit 3) contained any waiver of the right
of Respondent Lim Hong To to limit his liability to the value of his
motor launch and that he did not lose the statutory right to limit
his liability by abandonment of the vessel, as conferred by Article
587 of the Code of Commerce.
We find the ruling untenable. Disregarding the question whether
mere inability to meet the salary demands of duly licensed
masters and engineers constitutes non-availability thereof that
would excuse noncompliance with the law and authorize
operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong
To deliberately increased the risk to which the passengers and
shippers of cargo aboard the Consuelo V would be subjected. In
his desire to reap greater benefits in the maritime trade, Lim Hong
To willfully augmented the dangers and hazards to his vessels
unwarry passengers, who would normally assume that the launch
officers possessed the necessary skill and experience to evade the
perils of the sea. Hence, the liability of said Respondent cannot be
the identical to that of a shipowner who bears in mind the safety
of the passengers and cargo by employing duly licensed officers.
To hold, as the Court of Appeals has done, that Lim Hong To may
limit his liability to the value of his vessels, is to erase all
difference between compliance with law and the deliberate
disregard thereof. To such proposition we cannot assent.
The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowners
liability, does not apply to cases where the injury or the average is
due to shipowners own fault. Faria (Derecho Comercial
Maritimo, Vol. I, pp. 122-123), on the authority of judicial MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant,
precedents from various nations, sets the rule to be as vs.
follows:chanroblesvirtuallawlibrary
CUSTOMS ARRASTRE SERVICE and BUREAU of
Esta generalmente admitido que el propietario del buque no tiene
CUSTOMS, defendants-appellees.
derecho a la limitacion legal de responsibilidad si los daos o
averias que dan origen a la limitacion provienen de sus propias
culpas. El Convenio de Bruselas de 25 de agosto de 1924 tambien Alejandro Basin, Jr. and Associates for plaintiff-appellant.
invalida la limitacion en el caso de culpa personal en los Felipe T. Cuison for defendants-appellees.
accidentes o averas sobrevenidos (Art. 2).
To the same effect, a noted French author
BENGZON, J.P., J.:
states:chanroblesvirtuallawlibrary
La limitacion de la responsabilidad maritima ha sido admitida
para proteger a los armadores contra los actos abusivos de sus Four cases of rotary drill parts were shipped from abroad on S.S.
encargados y no dejar su patrimonio entero a la discrecion del "Leoville" sometime in November of 1962, consigned to Mobil
personal de sus buques, porque este personal cumple sus Philippines Exploration, Inc., Manila. The shipment arrived at the
obligaciones en condiciones especiales; chan Port of Manila on April 10, 1963, and was discharged to the
roblesvirtualawlibrarypero los armadores no tienen por sobre los
custody of the Customs Arrastre Service, the unit of the Bureau of
demas derecho a ser amparados contra ellos mismos ni a ser
Customs then handling arrastre operations therein. The Customs
protegidos contra sus propios actos.
Arrastre Service later delivered to the broker of the consignee
(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)
three cases only of the shipment.
That Lim Hong To understood that he would incur greater liability
than that normally borne by shipowners, is clear from his
assumption of full risk and responsibility for all the On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in
consequences of the operation of the M/L Consuelo V; chan the Court of First Instance of Manila against the Customs Arrastre
roblesvirtualawlibrarya responsibility expressly assumed in his Service and the Bureau of Customs to recover the value of the
letter Exhibit 2, and imposed in his special permit, in addition to
undelivered case in the amount of P18,493.37 plus other
the vessel itself being held answerable. This express assumption of
damages.
full risk and responsibility would be meaningless unless
intended to broaden the liability of Respondent Lim Hong To
beyond the value of his vessel. On April 20, 1964 the defendants filed a motion to dismiss the
In resume, we hold:chanroblesvirtuallawlibrary complaint on the ground that not being persons under the law,
(1) That the Manila Steamship Co., owner of the M/S Bowline defendants cannot be sued.
Knot, is directly and primarily responsible in tort for the injuries
caused to the Plaintiff by the collision of said vessel with the
After plaintiff opposed the motion, the court, on April 25, 1964,
launch Consuelo V, through the negligence of the crews of both
dismissed the complaint on the ground that neither the Customs
vessels, and it may not escape liability on the ground that it
exercised due diligence in the selection and supervision of the Arrastre Service nor the Bureau of Customs is suable. Plaintiff
officers and crew of the Bowline Knot; appealed to Us from the order of dismissal.
(2) That Lim Hong To, as owner of the motor launch Consuelo V,
having caused the same to sail without licensed officers, is liable Raised, therefore, in this appeal is the purely legal question of the
for the injuries caused by the collision over and beyond the value defendants' suability under the facts stated.
of said launch;
(3) That both vessels being at fault, the liability of Lim Hong To
Appellant contends that not all government entities are immune
and Manila Steamship Co. to the Plaintiff herein is in solidum, as
prescribed by Article 827 of the Code of Commerce. from suit; that defendant Bureau of Customs as operator of the
In view of the foregoing, the decision of the Court of Appeals is arrastre service at the Port of Manila, is discharging proprietary
modified, and that of the Court of First Instance affirmed, in the functions and as such, can be sued by private individuals.
sense of declaring both original Defendants solidarily liable
to Plaintiff Insa Abdulhaman in the sum of P20,784.00 and the The Rules of Court, in Section 1, Rule 3, provide:
cost of the litigation, without prejudice to the right of the one who
should pay the judgment in full to demand contribution from his
co-Defendant. SECTION 1. Who may be parties.Only natural or
juridical persons or entities authorized by law may be
Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador,
Concepcion, Endencia and Felix,JJ., concur. parties in a civil action.

Accordingly, a defendant in a civil suit must be (1) a natural

Republic of the Philippines
person; (2) a juridical person or (3) an entity authorized by law to
SUPREME COURT
be sued. Neither the Bureau of Customs nor (a fortiori) its function
Manila
unit, the Customs Arrastre Service, is a person. They are merely
parts of the machinery of Government. The Bureau of Customs is
EN BANC
a bureau under the Department of Finance (Sec. 81, Revised
Administrative Code); and as stated, the Customs Arrastre Service
G.R. No. L-23139 December 17, 1966 is a unit of the Bureau of Custom, set up under Customs
Administrative Order No. 8-62 of November 9, 1962 (Annex "A" to
Motion to Dismiss, pp. 13-15, Record an Appeal). It follows that
the defendants herein cannot he sued under the first two
abovementioned categories of natural or juridical persons.
Nonetheless it is urged that by authorizing the Bureau of Customs
to engage in arrastre service, the law therebyimpliedly authorizes
it to be sued as arrastre operator, for the reason that the nature of
this function (arrastre service) is proprietary, not governmental.
Thus, insofar as arrastre operation is concerned, appellant would
put defendants under the third category of "entities authorized by
law" to be sued. Stated differently, it is argued that while there is
no law expressly authorizing the Bureau of Customs to sue or be
sued, still its capacity to be sued is implied from its very power to
render arrastre service at the Port of Manila, which it is alleged,
amounts to the transaction of a private business.
The statutory provision on arrastre service is found in Section
1213 of Republic Act 1937 (Tariff and Customs Code, effective
June 1, 1957), and it states:
SEC. 1213. Receiving, Handling, Custody and Delivery of
Articles.The Bureau of Customs shall have exclusive
supervision and control over the receiving, handling,
custody and delivery of articles on the wharves and piers
at all ports of entry and in the exercise of its functions it
is hereby authorized to acquire, take over, operate and
superintend such plants and facilities as may be
necessary for the receiving, handling, custody and
delivery of articles, and the convenience and comfort of
passengers and the handling of baggage; as well as to
acquire fire protection equipment for use in the
piers: Provided, That whenever in his judgment the
receiving, handling, custody and delivery of articles can
be carried on by private parties with greater efficiency,
the Commissioner may, after public bidding and subject
to the approval of the department head, contract with
any private party for the service of receiving, handling,
custody and delivery of articles, and in such event, the
contract may include the sale or lease of government-
owned equipment and facilities used in such service.
In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-
21397, resolution of August 6, 1963, this Court indeed held "that
the foregoing statutory provisions authorizing the grant by
contract to any private party of the right to render said arrastre
services necessarily imply that the same is deemed by Congress to
be proprietary or non-governmental function." The issue in said
case, however, was whether laborers engaged in arrastre service
fall under the concept of employees in the Government employed
in governmental functions for purposes of the prohibition in
Section 11, Republic Act 875 to the effect that "employees in the
Government . . . shall not strike," but "may belong to any labor
organization which does not impose the obligation to strike or to
join in strike," which prohibition "shall apply only to employees
employed in governmental functions of the Government . . . .
Thus, the ruling therein was that the Court of Industrial Relations
had jurisdiction over the subject matter of the case, but not that
the Bureau of Customs can be sued. Said issue of suability was
not resolved, the resolution stating only that "the issue on the
personality or lack of personality of the Bureau of Customs to be
sued does not affect the jurisdiction of the lower court over the
subject matter of the case, aside from the fact that amendment
may be made in the pleadings by the inclusion as respondents of
the public officers deemed responsible, for the unfair labor
practice acts charged by petitioning Unions".
Now, the fact that a non-corporate government entity performs a
function proprietary in nature does not necessarily result in its
being suable. If said non-governmental function is undertaken as
an incident to its governmental function, there is no waiver
thereby of the sovereign immunity from suit extended to such
government entity. This is the doctrine recognized in Bureau of
Printing, et al. vs. Bureau of Printing Employees Association, et
al., L-15751, January 28, 1961:
The Bureau of Printing is an office of the Government
created by the Administrative Code of 1916 (Act No.
2657). As such instrumentality of the Government, it
operates under the direct supervision of the Executive
Secretary, Office of the President, and is "charged with
the execution of all printing and binding, including work
incidental to those processes, required by the National
Government and such other work of the same character
as said Bureau may, by law or by order of the (Secretary
of Finance) Executive Secretary, be authorized to
undertake . . . ." (Sec. 1644, Rev. Adm. Code.) It has no
corporate existence, and its appropriations are provided
for in the General Appropriations Act. Designed to meet
the printing needs of the Government, it is primarily a
service bureau and, obviously, not engaged in business
or occupation for pecuniary profit.
xxx xxx xxx
. . . Clearly, while the Bureau of Printing is allowed to
undertake private printing jobs, it cannot be pretended
that it is thereby an industrial or business concern. The
additional work it executes for private parties is merely
incidental to its function, and although such work may
be deemed proprietary in character, there is no showing
that the employees performing said proprietary function
are separate and distinct from those emoloyed in its
general governmental functions.
xxx xxx xxx
Indeed, as an office of the Government, without any
corporate or juridical personality, the Bureau of Printing
cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit,
action or proceeding against it, if it were to produce any
effect, would actually be a suit, action or proceeding
against the Government itself, and the rule is settled that
 the Government cannot be sued without its consent,
much less over its objection. (See Metran vs. Paredes, 45
Off. Gaz. 2835; Angat River Irrigation System, et al. vs.
Angat River Workers Union, et al., G.R. Nos. L-10943-44,
December 28, 1957.)
The situation here is not materially different. The Bureau of
Customs, to repeat, is part of the Department of Finance (Sec. 81,
Rev. Adm. Code), with no personality of its own apart from that of
the national government. Its primary function is governmental,
that of assessing and collecting lawful revenues from imported
articles and all other tariff and customs duties, fees, charges,
fines and penalties (Sec. 602, R.A. 1937). To this function,
arrastre service is a necessary incident. For practical reasons said
revenues and customs duties can not be assessed and collected by
simply receiving the importer's or ship agent's or consignee's
declaration of merchandise being imported and imposing the duty
provided in the Tariff law. Customs authorities and officers must
see to it that the declaration tallies with the merchandise actually
landed. And this checking up requires that the landed
merchandise be hauled from the ship's side to a suitable place in
the customs premises to enable said customs officers to make it,
that is, it requires arrastre operations.1
Clearly, therefore, although said arrastre function may be deemed
proprietary, it is a necessary incident of the primary and
governmental function of the Bureau of Customs, so that engaging
in the same does not necessarily render said Bureau liable to suit.
For otherwise, it could not perform its governmental function
without necessarily exposing itself to suit. Sovereign immunity,
granted as to the end, should not be denied as to the necessary
means to that end.
And herein lies the distinction between the present case and that
of National Airports Corporation vs. Teodoro, 91 Phil. 203, on which
appellant would rely. For there, the Civil Aeronautics
Administration was found have for its prime reason for existence
not a governmental but a proprietary function, so that to it the
latter was not a mere incidental function:
Among the general powers of the Civil Aeronautics
Administration are, under Section 3, to execute contracts
of any kind, to purchase property, and to grant
concessions rights, and under Section 4, to charge
landing fees, royalties on sales to aircraft of aviation
gasoline, accessories and supplies, and rentals for the
use of any property under its management.
These provisions confer upon the Civil Aeronautics
Administration, in our opinion, the power to sue and be
sued. The power to sue and be sued is implied from the
power to transact private business. . . .
xxx xxx xxx
The Civil Aeronautics Administration comes under the
category of a private entity. Although not a body
corporate it was created, like the National Airports
Corporation, not to maintain a necessary function of
government, but to run what is essentially a business,
even if revenues be not its prime objective but rather the
promotion of travel and the convenience of the travelling
public. . . .
Regardless of the merits of the claim against it, the State, for
obvious reasons of public policy, cannot be sued without its
consent. Plaintiff should have filed its present claim to the
General Auditing Office, it being for money under the provisions of
Commonwealth Act 327, which state the conditions under which
money claims against the Government may be filed.
It must be remembered that statutory provisions waiving State
immunity from suit are strictly construed and that waiver of
immunity, being in derogation of sovereignty, will not be lightly
inferred. (49 Am. Jur., States, Territories and Dependencies, Sec.
96, p. 314; Petty vs. Tennessee-Missouri Bridge Com., 359 U.S.
275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing
the Bureau of Customs to lease arrastre operations to private
parties, We see no authority to sue the said Bureau in the
instances where it undertakes to conduct said operation itself.
The Bureau of Customs, acting as part of the machinery of the
national government in the operation of the arrastre service,
pursuant to express legislative mandate and as a necessary
incident of its prime governmental function, is immune from suit,
there being no statute to the contrary.
WHEREFORE, the order of dismissal appealed from is hereby
affirmed, with costs against appellant. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Zaldivar
and Sanchez, JJ., concur.
Makalintal, J., concurs in the result.
Castro, J., reserves his vote.
THIRD DIVISION
[G.R. No. 84680. February 5, 1996]
SUMMA INSURANCE CORPORATION, petitioner, vs. COURT OF
APPEALS and METRO PORT SERVICE,
INC., respondents.
DECISION
PANGANIBAN, J.:
Is an arrastre operator legally liable for the loss of a
shipment in its custody? If so, what is the extent of its
liability? These are the two questions that this Court faced in this
petition for review on certiorari of the Decision [1] of the Court of
Appeals[2] in CA-G.R. No. CV 04964 promulgated on April 27,
1988, which affirmed with modification the decision of the Court
of First Instance of Manila in Civil Case No. 82-13988, ordering
petitioner to pay private respondent a sum of money, with legal
interest, attorneys fees and the costs of the suit.
The Facts
On November 22, 1981, the S/S Galleon Sapphire, a vessel
owned by the National Galleon Shipping Corporation (NGSC),
arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara
Coal Corporation (Semirara) as notify party. The shipment,
including a bundle of PC 8 U blades, was covered by marine
insurance under Certificate No. 82/012-FEZ issued by petitioner
and Bill of Lading No. SF/MLA 1014. The shipment
was discharged from the vessel to the custody of private
respondent, formerly known as E. Razon, Inc., the exclusive
arrastre operator at the South Harbor. Accordingly, three good-
order cargo receipts were issued by NGSC, duly signed by the
ships checker and a representative of private respondent.
On February 24, 1982, the forwarder, Sterling International
Brokerage Corporation, withdrew the shipment from the pier and
loaded it on the barge Semirara 8104. The barge arrived at its port
of destination, Semirara Island, on March 9, 1982. When
Semirara inspected the shipment at its warehouse, it discovered
that the bundle of PC8U blades was missing.
On March 15, 1982, private respondent issued
shortlanded certificate stating that the bundle of PC8U blades was
already missing when it received the shipment from the NGSC
vessel. Semirara then filed with petitioner, private respondent and
NGSC its claim for P280,969.68, the alleged value of the lost
bundle.
On September 29, 1982, petitioner paid Semirara the invoice
value of the lost shipment. Semirara thereafter executed a release
of claim and subrogation receipt. Consequently, petitioner filed its
claims with NGSC and private respondent but it
unsuccessful.
Petitioner then filed a complaint (Civil Case No. 82-13988)
with the Regional Trial Court, Branch XXIV, Manila, against NGSC
and private respondent for collection of a sum of money, damages
and attorneys fees.
On August 2, 1984, the trial court rendered a decision
absolving NGSC from any liability but finding private respondent
liable to petitioner. The dispositive portion of the decision reads as
follows:
PREMISES CONSIDERED, judgment is hereby rendered ordering
defendant Metro Port Service, Inc. to pay plaintiff Summa
Insurance Corporation the sum of P280,969.68 with legal interest
from November 22, 1982, the date of the filing of the complaint,
until full payment, and attorneys fees in the sum of P20,000.00,
with costs of suit.
The complaint as against defendant National Galleon Shipping
Corporation and the counterclaim interposed by said defendant
are hereby dismissed. (Rollo, p. 32).
In resolving the issue as to who had custody of the shipment
when it was lost, the trial court relied more on the good-order
cargo receipts issued by NGSC than on the short-landed
certificate issued by private respondent. The trial court held:
As between the aforementioned two documentary exhibits, the
Court is more inclined to give credence to the cargo receipts. Said
cargo receipts were signed by a checker of defendant NGSC and a
representative of Metro Port. It is safe to presume that the cargo
receipts accurately describe the quantity and condition of the
shipment when it was discharged from the vessel. Metro Ports
representative would not have signed the cargo receipts if only
four (4) packages were discharged from the vessel and given to the
possession and custody of the arrastre operator. Having been
signed by its representative, the Metro Port is bound by the
contents of the cargo receipts.
On the other hand, the Metro Ports shortlanded certificate could
not be given much weight considering that, as correctly argued by
counsel for defendant NGSC, it was issued by Metro Port alone
and was not countersigned by the representatives of the shipping
company and the consignee. Besides, the certificate was prepared
by Atty. Servillano V. Dolina, Second Deputy General Manager of
Metro Port, and there is no proof on record that he was present at
a the time the subject shipment was unloaded from the vessel and
received by the arrastre operator. Moreover, the shortlanded
certificate bears the date of March 15, 1982, more than three
months after the discharge of the cargo from the carrying vessel.
Neither could the Court give probative value to the marine report
(Exhibit J, also Exhibit 1-Razon). The attending surveyor who
attended the unloading of the shipment did not take the witness
stand to testify on said report.Although Transnational Adjustment
Co.s general manager, Mariano C. Remorin, was presented as a
was witness, his testimony is not competent because he was not
present at the time of the discharge of the cargo.
Under the foregoing considerations, the Court finds that the one
(1) bundle of PC8U blade in question was not lost while the cargo
was in the custody of the carrying vessel. Considering that the
missing bundle was discharged from the vessel unto the custody
of defendant arrastre operator and considering further that the
consignee did not receive this cargo from the arrastre operator, it
is safe to conclude from these facts that said missing cargo was
lost while same was in the possession and control of defendant
Metro Port. Defendant Metro Port has not introduced competent
evidence to prove that the loss was not due to its fault or
negligence.Consequently, only the Metro Port must answer for the
value of the missing cargo. Defendant NGSC is absolved of any
liability for such loss.
 On appeal, the Court of Appeals modified the decision of the
trial court and reduced private respondents liability to P3,500.00
as follows[3]:
WHEREFORE, the judgment appealed from is MODIFIED in that
defendant Metro Port Service, Inc., is ordered to pay plaintiff
Summa Insurance Corporation:
(1) the sum of P3,500.00, with legal interest from November 22,
1982, until fully paid; and
(2) the sum of P7,000.00, as and for attorneys fees.
Costs against defendant Metro Port Service, Inc.
Petitioner moved for reconsideration of the said decision but
the Court of Appeals denied the same. Hence, the instant petition.
The Issues
The issues brought by the parties could be stated as follows:
(1) Is the private respondent legally liable for the loss of the
shipment in question?
(2) If so, what is the extent of its liability?
The First Issue: Liability for Loss of Shipment
Petitioner was subrogated to the rights of the consignee. The
relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that
existing between the consignee or owner of shipped goods and the
common carrier, or that between a depositor and
warehouseman. [4]
In the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman as enunciated
under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the
goods discharged from a vessel, an arrastre operators duty is to
take good care of the goods and to turn them over to the party
entitled to their possession.
In this case, it has been established that the shipment was
lost while in the custody of private respondent. We find private
respondent liable for the loss. This is an issue of fact determined
by the trial court and respondent Court, which is not reviewable
in a petition under Rule 45 of the Rules of Court.
The Second Issue: Extent of Liability
In the performance of its job, an arrastre operator is bound
by the management contract it had executed with the Bureau of
Customs. However, a management contract, which is a sort of a
stipulation pour autrui within the meaning of Article 1311 of the
Civil Code, is also binding on a consignee because it is
incorporated in the gate pass and delivery receipt which must be
presented by the consignee before delivery can be effected to it.
[5]
The insurer, as successor-in-interest of the consignee, is
likewise bound by the management contract. [6] Indeed, upon
taking delivery of the cargo, a consignee (and necessarily its
successor-in- interest) tacitly accepts the provisions of the
management contract, including those which are intended to limit
the liability of one of the contracting parties, the arrastre operator.
[7]
However, a consignee who does not avail of the services of
the arrastre operator is not bound by the management contract.
[8]
Such an exception to the rule does not obtain here as the
consignee did in fact accept delivery of the cargo from the arrastre
operator.
Section 1, Article VI of the Management Contract between
private respondent and the Bureau of Customs[9] provides:
1. Responsibility and Liability for Losses and Damages - The
CONTRACTOR shall, at its own expense handle all merchandise in
the piers and other designated places and at its own expense
perform all work undertaken by it hereunder diligently and in a
skillful workmanlike and efficient manner; that the CONTRACTOR
shall be solely responsible as an independent CONTRACTOR, and
hereby agrees to accept liability and to promptly pay to the
steamship company, consignee, consignor or other interested
party or parties for the loss, damage, or non-delivery of cargoes to
the extent of the actual invoice value of each package which in no
case shall be more than Three Thousand Five Hundred Pesos
(P3,500.00) for each package unless the value of the importation is
otherwise specified or manifested or communicated in writing
together with the invoice value and supported by a certified packing
list to the CONTRACTOR by the interested party or parties before
a the discharge of the goods, as well as all damage that may be
suffered on account of loss, damage, or destruction of
any merchandise while in custody or under the control of the
CONTRACTOR in any pier, shed, warehouse, facility or other
designated place under the supervision of the BUREAU, x x x
(Italics supplied).
Interpreting a similar provision in the management contract
between private respondents predecessor, E. Razon, Inc. and the
Bureau of Customs, the Court said in E. Razon Inc. vs. Court of
Appeals:[10]
Indeed, the provision in the management contract regarding the
declaration of the actual invoice value before the arrival of the
goods must be understood to mean a declaration before the arrival
of the goods in the custody of the arrastre operator, whether it be
done long before the landing of the shipment at port, or
immediately before turn-over thereof to the arrastre operators
custody. What is essential is knowledge beforehand of the extent
of the risk to be undertaken by the arrastre operator, as
determined by the value of the property committed to its care that
it may define its responsibility for loss or damage to such cargo
and to ascertain compensation commensurate to such risk
assumed x x x.
In the same case, the Court added that the advance notice of
the actual invoice of the goods entrusted to the arrastre operator
is for the purpose of determining its liability, that it may obtain
compensation commensurable to the risk it assumes, (and) not for
the purpose of determining the degree of care or diligence it must
exercise as a depository or warehouseman [11] since the arrastre
operator should not discriminate between cargoes of substantial
and small values, nor exercise care and caution only for the
handling of goods announced to it beforehand to be of sizeable
value, for that would be spurning the public service nature of its
business.
On the same provision limiting the arrastre operators
liability, the Court held in Northern Motors, Inc. v. Prince Line
In civil cases, the burden of proof is on the party who would
be defeated if no evidence is given on either side. Said party must
establish his case by a preponderance of evidence, which means
that the evidence as a whole adduced by one side is superior to
that of the other.[14] Petitioner having asserted the affirmative of
the issue in this case, it should have presented evidence required
to obtain a favorable judgment.
On the other hand, on top of its denial that it had received
the invoice value and the packing list before the discharge of the
shipment, private respondent was able to prove that it was
apprised of the value of the cargo only after its discharge from the
vessel, ironically through petitioners claim for the lost package to
which were attached the invoice and packing list. All told,
petitioner failed to convince the Court that the requirement of the
management contract had been complied with to entitle it to
[12]
: recover the actual invoice value of the lost shipment.

Appellant claims that the above quoted provision is null and void, Anent the attorneys fees, we find the award to be proper
as it limits the liability of appellee for the loss, destruction or considering that the acts and omissions of private respondent
damage of any merchandise, to P500.00 per package, contending have compelled petitioner to litigate or incur expenses to protect
that to sustain the validity of the limitation would be to encourage its rights.[15] However, as to the amount of the award, we find no
acts of conversion and unjust enrichment on the part of the reason to re-examine the appellate courts determination thereon
arrastre operator. Appellant, however, overlooks the fact that the in view of the amount of the principal obligation. Otherwise, we
limitation of appellees liability under said provision, is not would be disregarding the doctrine that discretion, when well
absolute or unqualified, for if the value of the merchandise is exercised, should not be disturbed.
specified or manifested by the consignee, and the corresponding
arrastre charges are paid on the basis of the declared value, the WHEREFORE, the petition for review on certiorari is
limitation does not apply.Consequently, the questioned provision DENIED and the decision of the Court of Appeals is
is neither unfair nor abitrary, as contended, because the AFFIRMED. Costs against petitioner.
consignee has it in his hands to hold, if he so wishes, the arrastre
operator responsible for the full value of his merchandise by SO ORDERED.
merely specifying it in any of the various documents required of
him, in clearing the merchandise from the customs. For then, the
Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Francisco,
appellee arrastre operator, by reasons of the payment to it of a
JJ., concur.
commensurate charge based on the higher declared value of the
merchandise, could and should take extraordinary care of the
special or valuable cargo. In this manner, there would be Republic of the Philippines
mutuality. What would, indeed, be unfair and arbitrary is to hold SUPREME COURT
the arrastre operator liable for the full value of the merchandise Manila
after the consignee has paid the arrastre charges only (on) a basis
much lower than the true value of the goods. THIRD DIVISION

In this case, no evidence was offered by petitioner proving G.R. No. 83613 February 21, 1990
the amount of arrastre fees paid to private respondent so as to put
the latter on notice of the value of the cargo. While petitioner FIREMAN'S FUND INSURANCE CO., petitioner,
alleged that prior to the loss of the package, its value had been
vs.
relayed to private respondent through the documents the latter
METRO PORT SERVICE, INC., (Formerly E. Razon,
had processed, petitioner does not categorically state that among
Inc.), respondent.
the submitted documents were the pro forma invoice value and the
certified packing list. Neither does petitioner pretend that these
Dollete, Blanco, Ejercito & Associates for petitioner.
two documents were prerequisites to the issuance of a permit to
deliver or were attachments thereto. Even the permit to deliver,
upon which petitioner anchors its arguments, may not be Cruz, Durian, Agabin, Atienza, Alday & Tuason for respondent.
considered by the Court because it was not identified and formally
offered in evidence.[13]
GUTIERREZ, JR., J.:
This is a petition for review of the decision and resolution denying
reconsideration of the Court of Appeals in CA-G.R. CV No. 00673
entitled "Fireman's Fund Insurance Co. v. Maersk Line, Compaia
General de Tabacos de Filipinas and E. Razon, Inc."
E. Razon, Inc., for the recovery of the amount it paid the assured
under the covering insurance policy. On October 26, 1980, the
trial court rendered judgment, the decretal portion of which reads
as follows:
xxx xxx xxx

The facts are as follows: WHEREFORE, judgment is hereby rendered in

Vulcan Industrial and Mining Corporation imported from the
United States several machineries and equipment which were
loaded on board the SIS Albert Maersk at the port of Philadelphia,
U.S.A., and transhipped for Manila through the vessel S/S Maersk
Tempo.
The cargo which was covered by a clean bill of lading issued by
Maersk Line and Compania General de Tabacos de Filipinas
(referred to as the CARRIER) consisted of the following:
xxx xxx xxx
1 piece truck mounted core drill
favor of the plaintiff and against the defendants
by ordering the latter to pay, jointly and
severally, the plaintiff the sum of P187,500.00,
with legal interest thereon from August 29,
1980 until full payment thereof.
Defendants are also ordered to pay, in solidum,
the sum of P10,000.00 as attorney's fees to the
plaintiff, and to pay the costs of this suit.
There shall be no award for exemplary damages
in favor of the plaintiff, for the reason that
defendants are probably acting in good faith in
resisting the complaint. (Rollo, pp. 45-46)

All the defendants appealed to the Court of Appeals. Eventually,

1 piece trailer mounted core drill
Maersk Line and Compania General de Tabacos negotiated with
the petitioner for the settlement of the latter's claim and no longer
1 (40') container of 321 pieces steel tubings
pursued their appeal.

1 (40') container of 170 pieces steel tubings

On the appeal of the ARRASTRE, the Court of Appeals rendered a
decision with the following dispositive portion:
1 (40') container of 13 cases, 3 crates, 2 pallets
and 26 mining machinery parts. (Rollo, p. 4)
WHEREFORE, foregoing premises considered,
the decision of the court a quo insofar as herein
The shipment arrived at the port of Manila on June 3, 1979 and
defendant-appellant is concerned is REVERSED
was turned over complete and in good order condition to the
It is hereby ordered that the complaint against
arrastre operator E. Razon Inc. (now Metro Port Service Inc. and
herein defendant-appellant be dismissed. No
referred to as the ARRASTRE).
costs. (Rollo, p. 50)

At about 10:20 in the morning of June 8, 1979, a tractor operator,

Reconsideration of the decision was denied in a resolution dated
named Danilo Librando and employed by the ARRASTRE, was
May 23, 1988.
ordered to transfer the shipment to the Equipment Yard at Pier 3.
While Librando was maneuvering the tractor (owned and provided
Hence, the present recourse.
by Maersk Line) to the left, the cargo fell from the chassis and hit
one of the container vans of American President Lines. It was
The petitioner raises this lone assignment of error:
discovered that there were no twist lock at the rear end of the
chassis where the cargo was loaded.
THE HONORABLE COURT OF APPEALS
ERRED IN LIMITING LIABILITY SOLELY ON
There was heavy damage to the cargo as the parts of the
CO-DEFENDANT MAERSK LINES, CONTRARY
machineries were broken, denied, cracked and no longer useful for
TO THE FINDINGS OF FACTS OF THE TRIAL
their purposes.
COURT A QUO AND OTHER FACTORS
SHOWING CLEAR JOINT LIABILITY OF
The value of the damage was estimated at P187,500.00 which
DEFENDANTS IN SOLIDUM.
amount was paid by the petitioner insurance company to the
consignee, Vulcan Industrial and Mining Corporation.
There is merit in this petition.

The petitioner, under its subrogation rights, then filed a suit

against Maersk Line, Compania General de Tabacos (as agent) and
This Court has held in a number of cases that findings of fact of
the Court of Appeals are, in general, conclusive on the Supreme
Court when supported by the evidence on record. The rule is not
absolute, however, and allows exceptions, which we find present in
the case at bar. The respondent court's findings of facts are
contrary to those of the trial court and appear to be contradicted
by the evidence on record thus calling for our review. (Metro Port
Service, Inc. v. Court of Appeals, 131 SCRA 365 [1984]).
In absolving the ARRASTRE, the respondent Court ruled that
although Librando was an employee of the ARRASTRE, since he
was included in its payroll, he was technically and strictly an
employee of Maersk Line in this particular instance when he drove
the tractor admittedly owned by the foreign shipping line. The
Court ruled that he received instructions not from Metro Port but
from Maersk Line relative to this job. He was performing a duty
that properly pertained to Maersk Line which, for lack of a tractor
operator, had to get or hire from the ARRASTRE as per their
management contract. Nevertheless, Librando was not remiss in
his duty as tractor-driver considering that the proximate and
direct cause of the damage was the absence of twist locks in the
rear end of the chassis which Maersk Line failed to provide. The
respondent court thereby placed the entire burden of liability on
the owner of the Chassis which in this case was the foreign
shipping company, Maersk Line.
The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua
Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The relationship
between the consignee and the common carrier is similar to that
of the consignee and the arrastre operator (Northern Motors, Inc.
v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the consignee.
In general, the nature of the work of an arrastre operator covers
the handling of cargoes at piers and wharves (Visayan Cebu
Terminal Co., Inc. v. Commissioner of Internal Revenue, 13 SCRA
357 [1965]). This is embodied in the Management Contract drawn
between the Bureau of Customs and E. Razon Inc., as the
Arrastre Operator. The latter agreed to bind itself, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND
DAMAGES
1. Responsibility and Liability
for Losses and Damages;

Claims. The CONTRACTOR shall, at its own

The foregoing conclusion disregarded the pertinent findings of expense handle all merchandise in the piers
facts made by the lower court which are supported by the and other designated places and at its own
evidence on record, to wit: expense perform all work undertaken by it
hereunder diligently and in skillful workmanlike
1. The accident occurred while the cargoes were and efficient manner; That the CONTRACTOR
in the custody of the arrastre operator. shall be solely responsible as an independent
CONTRACTOR, and hereby agrees to accept
2. The tractor operator was an employee of the liability and to promptly pay to the s hip
arrastre operator. company, consignee, consignor or other
interested party or parties for the loss, damage,
xxx xxx xxx or non-delivery of cargoes to the extent of the
actual invoice value of each package which in
4. By the management contract inasmuch as no case shall be more than Three Thousand
the foreign shipping company has no tractor Five Hundred Pesos (P3,500.00) for each
operator in its employ, the arrastre provided the package unless the value of the importation is
operator. otherwise specified or manifested or
communicated in writing together with the
invoice value and supported by a certified
xxx xxx xxx
packing list to the CONTRACTOR by the
interested party or parties before the discharge
8. It was likewise the responsibility of the
of the goods, as well as all damage that may be
tractor operator, an employee of the arrastre
suffered on account of loss, damage, or
operator to inspect the chassis and tractor
destruction of any merchandise while in
before driving the same, but which obligation
custody or under the control of the
the operator failed to do.
CONTRACTOR in any pier, shed, warehouse,
facility; or other designated place under the
9. It was also the responsibility of the supervision of the BUREAU, but said
supervisor in the employ of the arrastre CONTRACTOR shall not be responsible for the
operator to see that their men complied with condition of the contents of any package
their respective tasks, which included the received nor for the weight, nor for any loss,
examination if the chassis has twist lock. (Rollo, injury or damage to the said cargo before or
pp. 44-45) while the goods are being received or remained
 on the piers, sheds, warehouse or facility if the Q My question is in your
loss, injury or damage is caused by force investigation report including
majeure, or other cause beyond the enclosures, the principal
CONTRACTORS control or capacity to prevent reason was that the chassis
or remedy; ... has no rear twist lock?

xxx xxx xxx A Yes, sir.

The CONTRACTOR shall be solely responsible Q Did you investigate

for any and all injury or damage that may arise whether the driver Librando
on account of the negligence or carelessness of inspected the the truck
the CONTRACTOR, its agent or employees in before he operated the same
the performance of the undertaking by it to be whether there was rear twist
performed under the terms of the contract, and lock or not?
the CONTRACTOR hereby agree to and hold the
BUREAU at all times harmless therefrom and A I have asked him about
whole or any part thereof. (Original Records, pp. that question whether he had
110-112; Emphasis supplied) inspected the has any rear
twist lock and the answer he
To carry out its duties, the ARRASTRE is required to provide cargo did not inspect, sir.
handling equipment which includes among others trailers, chassis
for containers. In some cases, however, the shipping line has its Q As a operator, do you agree
own cargo handling equipment. with me that it is the duty
also of Librando to see to it
In this particular instance, the records reveal that Maersk Line that the truck is in good
provided the chassis and the tractor which carried the carried the condition and fit to travel, is
subject shipment. It merely requested the ARRASTRE to dispatch that correct?
a tractor operator to drive the tractor inasmuch as the foreign
shipping line did not have any truck operator in its employ. Such A Yes, sir.
arrangement is allowed between the ARRASTRE and the CARRIER
pursuant to the Management Contract. It was clearly one of the Q And as a tractor operator it
services offered by the ARRASTRE. We agree with the petitioner is his duty to see to it that
that it is the ARRASTRE which had the sole discretion and the van mounted on top of
prerogative to hire and assign Librando to operate the tractor. It the tractor was properly is
was also the ARRASTRE's sole decision to detail and deploy that correct?
Librando for the particular task from among its pool of tractor
operators or drivers. It is, therefore, inacurrate to state that
A Yes, sir. (At pp. 18-20,
Librando should be considered an employee of Maersk Line on
T.S.N., February 17, 1982)
that specific occasion.

Again Danilo Librando also admitted that it was usually his

Handling cargo is mainly the s principal work so its
practice to inspect not only the tractor but the chassis as well but
driver/operators, "cargadors", or employees should observe the
failed to do so in this particular instance.
stand" and indispensable measures necessary to prevent losses
and damage to shipments under its custody. Since the ARRASTRE
xxx xxx xxx
offered its drivers for the operation of tractors in the handling of
cargo and equipment, then the ARRASTRE should see to it that
the drivers under its employ must exercise due diligence in the Q You mentioned of the

performance of their work. From the testimonies of witnesses absence of a twist lock. Will

presented, we gather that driver/operator Librando was remiss in you tell us where is this twist

his duty. Benildez Cepeda, an arrastre-investigator of Metro Port lock supposed to be located?

admitted that Librando as tractor-operator should first have

inspected the chassis and made sure that the cargo was securely A At the rear end of the
loaded on the chassis. He testified: chassis.

xxx xxx xxx Q Before you operated the

tractor which carried the
mounted cord drill truck and
 trailer did you examine if the Q But if you closely examine
chasiss had any twist locks? this chassis which has a load
of container van. You can see
A No, sir, because I presumed whether a twist lock is
that it had twist locks and I present or not?
was confident that it had
twist locks. A Yes, sir. A twist lock is
present.
Q As a matter of procedure
and according to you, you Q In other words, if the driver
examined the tractor, do you of this tractor closely
not make it a practice to examined this van, he could
examine whether the chassis have detected whether or not
had any twist locks? a twist lock is present?

A I used to do that but in A Yes, sir. (pp. 33-35, T.S.N.,

that particular instance I March 23, 1982; Emphasis
thought it had already its supplied)
twist locks. (p. 8, T.S.N.,
October 5, 1981) Whether or not the twist lock can be seen by the naked eye when
the cargo has been loaded on the chassis, an efficient and diligent
It is true that Maersk Line is also at fault for not providing twist tractor operator must nevertheless check if the cargo is securely
locks on the chassis. However, we find the testimony of Manuel loaded on the chassis.
Heraldez who is the Motor Pool General Superintendent of Metro
Port rather significant. On cross-examination, he stated that: We, therefore, find Metro Port Service Inc., solidarily liable in the
instant case for the negligence of its employee. With respect to the
Q In your experience, Mr. limited liability of the ARRASTRE, the records disclose that the
witness, do you know which value of the importation was relayed to the arrastre operator and
is ahead of the placing of the in fact processed by its chief claims examiner based on the
container van or the placing documents submitted.
of the twist lock on the
chassis? WHEREFORE, the appealed judgment of respondent Court of
Appeals is hereby REVERSED and SET ASIDE and that of the
A The twist lock is already Court of First Instance of Manila, 6th Judicial District, Branch II
permanently attached on the is REINSTATED. No costs.
chassis, sir.
SO ORDERED.
Q Earlier, you mentioned that
you cannot see the twist lock Fernan, C.J. (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
if the chassis is loaded,
correct?
Republic of the Philippines
SUPREME COURT
A Yes, sir.
Manila

Q Do you what to impress

EN BANC
upon the Honorable Court
that, by mere looking at a
loaded chassis, the twist lock G.R. No. L-23033 January 5, 1967
cannot be seen by the naked
eye? Because the van LUA KIAN, plaintiff and appellee,
contained a hole in which the vs.
twist lock thus entered inside MANILA RAILROAD COMPANY and MANILA PORT
the hold and locked itself. It SERVICE, defendants and appellants.
is already loaded. So. you
cannot no longer see it.
D. F. Macaranas and S. V. Pampolina Jr. for defendants and
appellants.
San Juan, Laig and Associates for plaintiff and appellee.
BENGZON, J. P., J.:
The present suit was filed by Lua Kian against the Manila Railroad
Co. and Manila Port Service for the recovery of the invoice value of
imported evaporated "Carnation" milk alleged to have been
undelivered. The following stipulation of facts was made:
1. They admit each other's legal personality, and that
during the time material to this action, defendant Manila
Port Service as a subsidiary of defendant Manila
Railroad Company operated the arrastre service at the
Port of Manila under and pursuant to the Management
Contract entered into by and between the Bureau of
Customs and defendant Manila Port Service on February
29, 1956;
2. On December 31, 1959, plaintiff Lua Kian imported
2,000 cases of Carnation Milk from the Carnation
Company of San Francisco, California, and shipped on
Board SS "GOLDEN BEAR" per Bill of Lading No. 17;
3. Out of the aforesaid shipment of 2,000 cases of
Carnation Milk per Bill of Lading No. 17, only 1,829
cases marked `LUA KIAN 1458' were discharged from the
vessel SS `GOLDEN BEAR' and received by defendant
Manila Port Service per pertinent tally sheets issued by
the said carrying vessel, on January 24, 1960;
4. Discharged from the same vessel on the same date
unto the custody of defendant Manila Port Service were
3,171 cases of Carnation Milk marked "CEBU UNITED
4860-PH-MANILA" consigned to Cebu United
Enterprises, per Bill of Lading No. 18, and on this
shipment, Cebu United Enterprises has a pending claim
for short-delivery against defendant Manila Port Service;
5. Defendant Manila Port Service delivered to the plaintiff
thru its broker, Ildefonso Tionloc, Inc. 1,913 cases of
Carnation Milk marked "LUA KIAN 1458" per pertinent
gate passes and broker's delivery receipts;
6. A provisional claim was filed by the consignee's broker
for and in behalf of the plaintiff on January 19, 1960,
with defendant Manila Port Service;
7. The invoice value of the 87 cases of Carnation Milk
claimed by the plaintiff to have been short-delivered by
defendant Manila Port Service is P1,183.11 while the
invoice value of the 87 cases of Carnation Milk claimed
by the defendant Manila Port Service to have been over-
delivered by it to plaintiff is P1,130.65;
8. The 1,913 cases of Carnation mentioned in paragraph
5 hereof were taken by the broker at Pier 13, Shed 3,
sometime in February, 1960, where at the time, there
were stored therein, aside from the shipment involved
herein, 1000 cases of Carnation Milk bearing the same
marks and also consigned to plaintiff Lua Kian but had
been discharged from SS `STEEL ADVOCATE' and
covered by Bill of Lading No. 11;
9. Of the shipment of 1000 cases of Carnation Milk
which also came from the Carnation Company, San
Francisco, California, U.S.A. and bearing the same
marks as the shipment herein but had been discharged
from S/S "STEEL ADVOCATE" and covered by Bill of
Lading No. 11, Lua Kian as consignee thereof filed a
claim for short-delivery against defendant Manila Port
Service, and said defendant Manila Port Service paid Lua
Kian plaintiff herein, P750.00 in settlement of its claim;
10. They reserve the right to submit documentary
evidence;
11. They submit the matter of attorney's fees and costs
to the sound discretion of the Court.
On these facts and documentary evidence subsequently
presented, the Court of First Instance of Manila ruled that 1,829
cases marked Lua Kian (171 cases less than the 2,000 cases
indicated in the bill of lading and 3,171 cases marked "Cebu
United" (171 cases over the 3,000 cases in the bill of lading were
discharged to the Manila Port Service. Considering that Lua Kian
and Cebu United Enterprises were the only consignees of the
shipment of 5,000 cases of "Carnation" milk, it found that of the
3,171 cases marked "Cebu United", 171 should have been
delivered to Lua Kian. Inasmuch as the defendant Manila Port
Service actually delivered 1,913 cases to plaintiff, 1which is only 87
cases short of 2,000 cases as per bill of lading the former was
ordered to pay Lua Kian the sum of P1,183.11 representing such
shortage of 87 cases, with legal interest from the date of the suit,
plus P500 as attorney's fees.
Defendants appealed to Us and contend that they should not be
made to answer for the undelivered cases of milk, insisting that
Manila Port Service was bound to deliver only 1,829 cases to Lua
Kian and that it had there before in fact over-delivered to the
latter.
The bill of lading in favor of Cebu United Enterprises indicated
that only 3,000 cases were due to said consignee, although 3,171
cases were marked in its favor. Accordingly, the excess 171 cases
marked "Cebu United" placed the defendant arrastre operator in a
dilemma, for should it deliver them to Lua Kian the goods could
be claimed by the consignee Cebu United Enterprises whose
markings they bore, and should it deliver according to markings,
to Cebu United Enterprises, it might be sued by the consignee,
Lua Kian whose bill of lading indicated that it should receive 171
cases more. The dilemma itself, however, offered the solution. The
legal relationship between an arrastre operator and the consignee
is akin to that of a depositor and warehouseman.2 As custodian of
the goods discharged from the vessel, it was defendant arrastre
operator's duty, like that of any ordinary depositary, to take good
care of the goods and to turn them over to the party entitled to
their possession.3 Under this particular set of circumstances, said
defendant should have withheld delivery because of the
discrepancy between the bill of lading and the markings and
conducted its own investigation, not unlike that under Section 18
of the Warehouse Receipts Law, or called upon the parties, to
interplead, such as in a case under Section 17 of the same law, in
order to determine the rightful owner of the goods.
It is true that Section 12 of the Management Contract exempts the
arrastre operator from responsibility for misdelivery or non-
delivery due to improper or insufficient marking. We cannot
however excuse the aforestated defendant from liability in this
case before Us now because the bill of lading showed that only
3,000 cases were consigned to Cebu United Enterprises. The fact
that the excess of 171 cases were marked for Cebu United
Enterprises and that the consignment to Lua Kian was 171 cases
less than the 2,000 in the bill of lading, should have been
sufficient reason for the defendant Manila Port Service to withhold
the goods pending determination of their rightful ownership.
We therefore find the defendants liable, without prejudice to their
taking whatever proper legal steps they may consider worthwhile
to recover the excess delivered to Cebu United Enterprises.
With respect to the attorney's fees awarded below, this Court
notices that the same is about 50 per cent of the litigated amount
of P1,183.11. We therefore deem it reasonable to decrease the
attorney's fees to P300.00.
Wherefore, with the aforesaid reservation, and with the
modification that the attorney's fee is reduced to P300.00, the
judgment appealed from is affirmed, with costs against appellants.
So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar,
Sanchez and Castro, JJ., concur.
SECOND DIVISION
[G.R. No. L-13884. February 29, 1960.]
NORTHERN MOTORS, INC., plaintiff and appellant, v. PRINCE
LINE, ROOSEVELT STEAMSHIP AGENCY INC., COLUMBIAN
ROPE COMPANY OF THE PHILIPPINES, INC., and/or
DELGADO BROTHERS, INC., defendants and appellees.
Ozaeta, Gibbs & Ozaeta for Appellant.
Ross, Selph, Carrascoso & Janda for Appellees.
SYLLABUS
1. ARRASTRE SERVICE; LIMITATION OF ARRASTRE
OPERATORS LIABILITY; VALIDITY OF PARAGRAPH 15 OF
MANAGEMENT CONTRACT BETWEEN ARRASTRE OPERATOR
AND BUREAU OF CUSTOMS. The limitation of the arrastre
operators liability under Paragraph 15 of the Management
Contract entered into between it and the Bureau of Customs is not
absolute or unqualified, for under the said contract, if the value of
the merchandise is specified or manifested by the consignee, and
the corresponding arrastre charges are paid on the basis of the
declared value, the limitation does not apply. Consequently, the
provision is neither unfair nor arbitrary, because the consignee
has it in his hands to hold the arrastre operator responsible for
the full value of his merchandise by merely specifying it in any of
the various documents required of him in claiming the
merchandise from the customs.
2. ID.; ID.; ID.; RELATIONSHIP BETWEEN CONSIGNEE AND
COMMON CARRIER SIMILAR TO THAT OF CONSIGNEE AND
ARRASTRE OPERATOR. The legal relationship created between
the consignee or owner of the imported goods who withdraws
them from the customhouse and the arrastre operator whose
services are utilized for the purpose, is akin to that existing
between the consignee or owner of shipped goods and the
common carrier or that between a depositor and the
warehouseman, and it has been held that a provision in the bill of
lading limiting the carriers liability to a specific amount, unless
the shipper expressly declares a higher valuation and pays the
corresponding rate thereon, is valid and binding. (H.E. Heacock
Company v. Macondray & Company, Inc. 42 Phil., 205; Freixas
and Company v. Pacific Mail Steamship Co., 42 Phil., 199;
McCarthy v. Barber Steamship Lines, Inc. 45 Phil., 488)
3. ID.; ID.; ID.; CONSIGNEE CONSIDERED PARTY TO
MANAGEMENT CONTRACT THROUGH NOT SIGNATORY
THERETO. Paragraph 15 of the Management Contract entered
into between the arrastre operator and the Bureau of Customs
contains provision which are in the nature of stipulations pour
autrui, that is, for the benefit or in favor of a third party, the
consignee or importer. By virtue thereof, the arrastre operator is
expected to render service, not to the Bureau of Customs, but to
the importer or consignee of the cargoes. Upon compliance with
certain conditions, the importer or consignee is entitled to certain
conditions, the importer or consignee is entitled to receive< and
the arrastre contractor is obliged to discharge and deliver< the
cargoes or merchandise described in the delivery permit. In case
at bar, the consignee obtained the delivery permit and gate pass
subject to the terms and conditions of the Management Contract
and took delivery of its cargo from the arrastre operator. Although
it was not a signatory to the said contract, it therefore legally
became a party thereto.
4. APPEALS; CHANGE OF THEORY ON APPEAL NOT ALLOWED.
No question will be considered by the appellate court which has
not been raised in the court below. (Toribio v. Decasa, 55 Phil.,
461; San Agustin v. Barrios, 68 Phil., 475.) When a party
deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be
permitted to change his theory on appeal because, to permit him
to do so, would be unfair to the adverse party. (Molina v. Somes 24
Phil., 49; Agoncillo v. Javier, 38 Phil., 424.)
DECISION

BARRERA, J.:
This is an appeal interposed directly with this Court by plaintiff
Northern Motors Inc., as owner of certain imported articles, from
the decision of the Court of First Instance of Manila (in Civil Case
No. 29098) ordering defendant Delgado Brothers, Inc., as the
Arrastre Contractor in the Port of Manila, to pay said plaintiff the
amount of P500.00 and costs, instead of P3,117.53 as demanded
by it in its complaint. The facts as found and considered by the
trial court must, therefore, control the resolution of this appeal.
Plaintiff-appellant is the owner, by transfer from Liddel & Co.,
Inc., of a consignment of merchandise, consisting of 33 cases of
auto spare parts and accessories, covered by Bill of Lading No. 19,
discharged in Manila into the custody of defendant Delgado
Brothers, Inc., and later cleared and taken delivery of by Luzon
Brokerage Co., Inc., as agents of the consignee, upon presentation
of the corresponding release papers from the Bureau of Customs.
However, instead of 33 cases, only 32 were delivered to plaintiffs
broker. Plaintiff, thereupon, demanded payment of the reasonable
value (P3,117.53) of the missing case from defendant Delgado
Brothers, Inc., but later offered to refund only P500.00, claiming
that under paragraph 15 of its Management Contract, its liability
is limited only to P500.00 unless the value of the merchandise is
otherwise specified or manifested. Such was the issue presented
by the pleadings, after the case was taken to court. After a short
trial consisting in admissions and stipulations, the court rendered
a decision which, in part, reads:jgc:chanrobles.com.ph
"It appearing that defendant Delgado Brothers, Inc. admitted
having received the 33 cases in good order condition from the
shipper and that it delivered only 32 cases to the consignee, the
other defendants are now exempt from any liability. The only
question for us to resolve is, as to whether or not paragraph 15 of
the management contract limiting the liability of the arrastre
contractor to P500.00 may be invoked by the Delgado Brothers,
Inc. Plaintiff contends that the management contract in question
is not binding upon it for the reason that it was not a party
thereto.
"We have had occasion to resolve a similar question in the case of
Jose Bernabe and co. v. Delgado Brothers, Inc., Civil Case No.
306150, Court of First Instance, Manila. We advanced the opinion
in that case, that paragraph 15 of the management contract is
binding upon the importer or consignee. In that case we
said:chanrob1es virtual 1aw library
The Court is of the opinion that the plaintiff is bound by the
provisions of the management contract. As a matter of fact, it
complied with such provisions as were necessary for it to take
delivery of the cargo. Plaintiff should not take advantage of the
management contract when it suits him to do so, and reject its
provisions when it thinks otherwise.
"We have no reason to change our opinion. We believe that in the
instant case, as in the case we have mentioned above, plaintiff is
bound by the provisions of the management contract. The general
rule that only parties to the contract are bound to its provisions is
not absolute. (Mendoza v. PAL, Inc., G.R. No. L-3673 promulgated
on February 29, 1952 and Krauffman v. PNB, 42 Phil.,
182)."cralaw virtua1aw library
Plaintiffs motion for reconsideration having been denied, the
present appeal was interposed.
The two legal issues to be determined in this appeal are (1)
whether the provisions of Paragraph 15 of the Management
Contract between appellee Delgado Brothers, Inc. and the Bureau
of Customs are valid, and (2) in the affirmative, whether plaintiff-
appellant is bound by said provisions.
Anent the first issue, Paragraph 15 of the Management Contract,
where pertinent, provides:jgc:chanrobles.com.ph
"15. It is further understood and strictly agreed that the
CONTRACTOR (appellee) shall at its own expenses handle all
merchandise upon or over said piers, wharves and other
designated places, and at its own expense perform all work
undertaken by it hereunder diligently and in a skillful
workmanlike and efficient manner; and the CONTRACTOR
(appellee) shall be solely responsible as an independent contractor
for, and promptly pay to the steamship company, consignee,
consignor, or other interested party or parties the invoice value of
each package but which in no case shall be more than five
hundred pesos (P500.00) for each package, unless the value is
otherwise specified or manifested, and the corresponding arrastre
charges had been paid, including all damages that may be
suffered on account of loss, destruction, or damage of any
merchandise while in the custody or under the control of the
CONTRACTOR (appellee) upon any pier, wharf or other designated
place under the supervision of the BUREAU , . . ." (Italics supplied)
Appellant claims that the above quoted provision is null and void,
as it limits the liability of appellee for the loss, destruction or
damage of any merchandise, to P500.00 per package, contending
that to sustain the validity of the limitation would be to encourage
acts of conversion and unjust enrichment on the part of the
arrastre operator. Appellant, however, overlooks the fact that the
limitation of appellees liability under said provision, is not
absolutely or unqualified, for if the value of the merchandise is
specified or manifested by the consignee, and the corresponding
arrastre charges are paid on the basis of the declared value, the
limitation does not apply. Consequently, the questioned provision
is neither unfair nor arbitrary, as contended, because the
consignee has it in his hands to hold, if he so wishes, the arrastre
operator responsible for the full value of his merchandise by
merely specifying it in any of the various documents required by
him, 1 in clearing the merchandise form the customs. For then,
the appellee arrastre operator, by reason of the payment to it of a
commensurate charge based on the higher declared value of the
merchandise, could and should take extraordinary care of the
special or valuable cargo. In this manner, there would be
mutuality. What would, indeed, be unfair and arbitrary is to hold
the arrastre operator liable for the full value of the merchandise
after the consignee has paid the arrastre charges only a basis
much lower than the true value of the goods.
This Court has held as valid and binding a similar provision in a
bill of lading limiting the carriers liability to a specific amount,
unless the shipper expressly declares a higher valuation and pays
the corresponding rate thereon. (H.E. Heacock Company v.
Macondray & Company, Inc., 42 Phil., 205; Freixas and Company
v. Pacific Mail Steamship Co., 42 Phil., 199. )2 In the H.E.
Heacock Company case, we stated that -
"Three kinds of stipulation have often been made in the bill of
lading. The first is one exempting the carrier from any and all
liability for loss or damage occasioned by its own negligence. The
second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the
liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to
public policy, but the third is valid and enforceable." (Italics
supplied.)
The principle above enunciated was finally incorporated as law in
Article 1749 of the new Civil Code, which
reads:jgc:chanrobles.com.ph
"ART. 1749. A stipulation that the common carriers liability is
limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is
binding."cralaw virtua1aw library
The same is true in the warehousing business where limitation on
the warehousemans liability is universally recognized and upheld.
Thus - or merchandise corresponding to those described in the delivery
"However, in the absence of prohibitory statute, the validity of a
limitation of the amount of liability is generally upheld, where
with a view to obtaining a compensation commensurate to the risk
assumed, the warehouseman stipulates that unless the valuation
of the property committed to his care is disclosed, his
responsibility for loss or damage shall not exceed a certain
amount or that in case of loss or damages the valuation fixed in
the receipt shall be controlling." (Am. Jur., Vol. 56, p. 419, citing
Taussig v. Bode, 134 Cal. 260, 66 P. 159, 54 LRA 772, 86 Am. St.
Rep. 250; Central Storage Whse. Co. v. Pickering, 114 Ohio St. 76,
151 NE 29, 141 ALR 768).
The legal relationship created between the consignee or owner of
the imported goods who withdraws them from the customshouse
and the arrastre operator whose services are utilized for the
purpose, is sufficiently akin to that existing between the
consignee or owner of shipped goods and the common carrier or
that between a depositor and the warehouseman, to warrant, in
our opinion, the application of the same or similar principle.
Consequently, we hold that the provisions of Paragraph 15 of the
Management Contract in question are valid and legal.
In the case of Caltex (Philippines), Inc., Et. Al. v. Delgado
Brothers, Inc., Et Al., (96 Phil. 368), this Court, speaking through
the Chief Justice, characterized this same Management Contract
between appellee and the Bureau of Customs as "Not an ordinary
agreement involving merely the parties therein as the same affect
the public in general, particularly as to the rates of an exemptions
from the arrastre charges." In fact, the contract is awarded only
after a public bidding in which the conditions thereof are made
public for consideration by prospective bidders.
We come now to the determination of the second issue of whether
appellant was bound by the provisions of said Paragraph 15 of the
Management Contract. Appellant contends that since it was not a
party to the said contract, it was not bound by its provisions. The
facts of this case and the law applicable thereto do not support
this view.
Article 1311 of the new Civil Code, states:jgc:chanrobles.com.ph
"ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
"If a contact should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person."cralaw virtua1aw library
Tested in the light of the above legal provision, Paragraph 15 of the
Management Contract in question, it is believed, contains
provisions which are in the nature of stipulations pour autrui,
that is, for the benefit or in favor of a third party, the appellant in
the case at bar. By virtue thereof, appellee is expected to render
service, not to the Bureau of Customs, but specifically and
principally to the importers or consignees of the cargoes. Upon the
importers or consignees compliance with certain conditions,
namely, presentation of approved delivery permits, payment of
arrastre fees, etc., he is entitled to receive, and the appellee
arrastre contractor is obliged to discharge and deliver, the cargoes
permit of said importer or consignee. There can scarcely be any
doubt that by said provision in the contract, appellee and the
Bureau of Customs deliberately and purposely conferred benefit
upon appellant, because it is to the latter the merchandise was to
be delivered in good order and payment made, in the event of
damage, destruction, or loss thereof while in appellees control or
custody.
Having arrived at the conclusion that said contract contains
provisions which clearly and deliberately confer a favor upon a
third person (using the language of the article aforecited), the next
inquiry is whether the beneficiary, herein appellant, has accepted
said favor and communicated his acceptance to the obligor, herein
appellee.
In the pleadings filed by the parties, as well as in the decision of
the court a quo, we find ample evidence of appellants acceptance
of said favor in its communication thereof to appellee.
Paragraph III of appellants complaint 3 contains the following
allegation:jgc:chanrobles.com.ph
"Delgado Brothers had been the operator of the arrastre service at
the Port of Manila up to February 29, 1956 and was authorized as
such to deliver cargoes discharged by carrying vessels into its
custody on presentation of release papers from the Bureau of
Customs and the steamship carrier and/or its agents."cralaw
virtua1aw library
Stipulation Nos. 1 and 2 4 read:jgc:chanrobles.com.ph
"1. That the Delgado Brothers received 33 cases from the carrier.
"2. That Delgado Brothers only delivered 32 cases to Luzon
Brokerage Company, Inc." (Appellants agent)."cralaw virtua1aw
library
We quote from the decision. 5
". . . The parties agreed.
"(1) That defendant Delgado Brothers, Inc. received from the
carrier, goods covered by bill of lading NO. 19;" (2) That in the said
bill of lading, 33 cases of auto space parts and accessories were
included;" (3) That Delgado Brothers, Inc. in its capacity as
arrastre contractor received the 33 cases in apparent good order
and condition as per corresponding tally sheets;" (4) That Delgado
Brothers, Inc. only delivered to the consignee 32 cases out of the
33 cases;" (5) That paragraph 15 of the management contract
entered into by the Delgado Brothers, Inc. and the Bureau of
Customs limits to only P500.00 the liability of the arrastre
contractor for undeclared value of goods received.." . . As a matter
of fact it (appellant) complied with such provisions (of the
Management Contract) as were necessary for it to take delivery of
the cargo. . . ."cralaw virtua1aw library
It is undisputed, therefore, that appellant took delivery of its cargo
from appellee, as arrastre operator under the Management
Contract, and after the presentation and signing by it, through its
duly authorized broker, of the pertinent documents covering the
release of said cargoes.
According to the law, 6 before delivery of the cargo could be made,
the consignee or owner, or his representative must first clear them
from the Bureau of Customs and obtain therefrom a Delivery
Permit and a Gate Pass. Among the conditions imposed by law for
this purpose is for the owner or consignee to submit to the
Collector of Customs a written declaration containing, inter alia, a
"just and faithful account of the actual cost of said merchandise,
including and specifying the value of all containers or coverings,
and that nothing has been omitted therefrom or concealed
whereby the Government of the Republic of the Philippines might
be defrauded of any part of the duties lawfully due on the
merchandise." In the delivery permit thus obtained, the following
"Important Notice" is stamped or printed:jgc:chanrobles.com.ph
"IMPORTANT NOTICE
"All cargo covered by this permit are delivered to and received by
Consignees and importers representative subject to all the terms
and conditions of the Management Contract between the Bureau
of Customs and Delgado Brothers, Inc. (appellee), (or whoever may
be the arrastre contractor) dated October 21, 1950, and all
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 or manifested and the corresponding arrastre charges
have been paid . . . (Italics supplied.)
In the Gate pass which covers the receipt and release of the cargo
duly signed by the importers or consignees representative, the
following annotation also appears:jgc:chanrobles.com.ph
"The undersigned, duly authorized to respectively represent the
Bureau of Customs, the above named consignee, and the arrastre
service operator, hereby certify to the correctness of the above
description of the goods covered by this Gate Pass. Issuance of
this Gate Pass constitutes delivery to, and receipt by CONSIGNEE
of the goods as described herein, subject to all the terms and
conditions contained in the Management Contract between the
Bureau of Customs and Delgado Brothers, Inc. (appellee) (or
whoever may be the arrastre contractor) dated October 21, 1950,
and all amendments thereto or alterations thereon, 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 or manifested . . ." (Italics supplied.)
Even, therefore, if appellant was not a signatory to said
Management Contract, it legally became a party thereto when it
(through its broker, the Luzon Brokerage Co. Inc.) obtained the
delivery permit and gate pass in the above manner prescribed by
law and, making use of them, demanded from appellee the
delivery of the 33 cases, pursuant to appellees undertaking in
virtue of the very same Management Contract. Again, it became
bound when it brought court action against appellee, also by
virtue of the latters obligations as the arrastre contractor under
the same Management Contract, for the purpose of recovering the
reasonable value of the missing case of auto spare parts and
accessories. Under the circumstances, as the trial court aptly
observed: "Plaintiff should not take advantage of the Management
Contract when it suits him to do so and reject its provisions when
it thinks otherwise." The principle is the same or similar to that
involved in the case of Mendoza v. Philippine Air Lines, Inc. (90
Phil., 836), wherein it was held that -
". . . even if the LVN Pictures, Inc. as a consignor of its own
initiative, and acting independently of Mendoza for the time being,
made Mendoza as consignee, a stranger to the contract, if that is
possible, nevertheless, when he, Mendoza, appeared at the Pili Air
Port armed with the copy of the Air way Bill (Exh. 1) demanding
the delivery of the shipment to him, he thereby made himself a
party to the contract of . transportation. . . . His demand for the
delivery of the can of film to him at the Pili Air Port may be
regarded as a notice of his acceptance of the stipulation of the
delivery in his favor contained in the contract of carriage and
delivery. In this case, he also made himself a party to the contract,
or at least has come to court to enforce it. His cause of action
must necessarily be founded on its breach." (Italics supplied.)
We do not find it necessary to pass, in detail, upon appellants
claim (which we find without merit) that the limited liability
provision in Paragraph 15 of the Management Contract in
question has not statutory basis under Act No. 3002, as amended,
inasmuch as the question was never raised by appellant in the
court a quo. The rule is well-settled that no question will be
considered by the appellate court which has not been raised in the
court below. (Toribio v. Decasa, 55 Phil., 461; Sanagustin v.
Barrios, 68 Phil. 475.) When a party deliberately adopts a certain
theory, and the case is tried and decided upon the theory in the
court below, he will not be permitted to change his theory on
appeal because, to permit him to do so, would be unfair to the
adverse party. (Molina v. Somes, 24 Phil., 49; Agoncillo v. Javier,
38 Phil., 424.)
Wherefore, finding no reversible error in the decision appealed
from, the same is hereby affirmed, with costs against the plaintiff-
appellant. So ordered.
Bengzon, Montemayor, Bautista Angelo, Labrador, Reyes, J.B.L.,
and Endencia, JJ., concur.
THIRD DIVISION
ASIAN TERMINALS, INC., G.R. N
Petitioner,
Presen
CARPIO
CORON
- versus - Chairp
VELAS
NACHU
PERAL
DAEHAN FIRE AND MARINE INSURANCE CO., LTD., Promu
Respondent.
Februa

x------------------------------------------------------------------------------------x the grounds that Daehan lacked legal capacity to sue and that the
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, assailing the Court of Appeals (CA) September 14,
2005 Decision[1] and December 20, 2005 Resolution [2] in CA-G.R.
CV No. 83647. The assailed Decision reversed and set aside the
Regional Trial Court (RTC)[3] August 4, 2004 Decision[4] in Civil
Case No. 01-101309, while the assailed resolution denied
petitioner Asian Terminals, Inc.s motion for reconsideration.
The case stemmed from the following facts:
On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six
(26) boxes of printed aluminum sheets on board the vessel Heung-
A Dragon owned by Dongnama Shipping Co., Ltd. (Dongnama).
[5]
The shipment was covered by Bill of Lading No.
DNALHMBUMN010010[6] and consigned to Access International,
with address at No. 9 Parada St., San Juan, Metro Manila. Doosan
insured the subject shipment with respondent Daehan Fire and
Marine Insurance Co., Ltd. under an all-risk marine cargo
insurance policy,[7]payable to its settling agent in the Philippines,
the Smith Bell & Co., Inc. (Smith Bell).
On July 12, 2000, the vessel arrived in Manila and the
containerized van was discharged and unloaded in apparent good
condition, as no survey and exceptions were noted in the
Equipment Interchange Receipt (EIR) issued by petitioner. [8] The
container van was stored in the Container Yard of the Port. On
July 18, 2000, Access International requested [9]from petitioner and
the licensed Customs Broker, Victoria Reyes Lazo (V. Reyes Lazo),
a joint survey of the shipment at the place of storage in the
Container Yard, but no such inspection was conducted.
On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released,
the shipment and delivered it to Access Internationals warehouse
in Binondo, Manila.[10] While the shipment was at Access
Internationals warehouse, the latter, together with its surveyor,
Lloyds Agency, conducted an inspection and noted that only
twelve (12) boxes were accounted for, while fourteen (14) boxes
were missing.[11] Access International thus filed a claim against
petitioner and V. Reyes Lazo for the missing shipment amounting
to $34,993.28.[12]For failure to collect its claim, Access
International sought indemnification from respondent in the
amount of $45,742.81.[13] On November 8, 2000, respondent paid
the amount of the claim and Access International accordingly
executed a Subrogation Receipt in favor of the former. [14]
On July 10, 2001, respondent, represented by Smith Bell,
instituted the present case against Dongnama, Uni-ship, Inc. (Uni-
ship), petitioner, and V. Reyes Lazo before the RTC. [15] Respondent
alleged that the losses, shortages and short deliveries sustained
by the shipment were caused by the joint fault and negligence of
Dongnama, petitioner and V. Reyes Lazo.
Dongnama and Uni-ship filed a Motion to Dismiss [16] on
complaint stated no cause of action. The trial court, however,
denied the motion in an Order dated August 31, 2001.[17]
Thereafter, Dongnama and Uni-ship filed their Answer
with Counterclaim and Cross-Claim Ad Cautelam denying any
liability for the damages/losses sustained by the shipment,
pointing out that it was on a Full Container Load, Said to
Contain, and Shippers Load and Count bases, under which they
had no means of verifying the contents of the containers. They
also alleged that the container van was properly discharged from
the vessel with seals intact and no exceptions noted. Moreover,
they claimed that the losses occurred while the subject shipment
was in the custody, possession or control of the shipper, its
trucker, the arrastre operator, or their representatives, or due to
the consignees own negligence. They further questioned the
absence of notice of loss within the three (3)-day period provided
under the Carriage of Goods by Sea Act. Finally, they averred that
their liability, if there be any, should only be limited to US$500.00
per package or customary freight unit. [18]
For its part, petitioner denied liability, claiming that it
exercised due diligence in handling and storing the subject
container van. It, likewise, assailed the timeliness of the
complaint, having been filed beyond the fifteen (15)-day period
under its Contract for Cargo Handling Services with the Philippine
Ports Authority (PPA). If at all, petitioner added, its liability should
only be limited to P5,000.00.[19]
In her Answer, V. Reyes Lazo questioned respondents
capacity to sue in Philippine courts. She accused respondent of
engaging in a fishing expedition since the latter could not
determine with clarity the party at fault.[20]
On December 2, 2002, in their Joint Motion to Dismiss,
respondent, on one hand, and Dongnama and Uni-ship, on the
[21]
other, prayed that the complaint be dismissed against the latter,
alleging that they could not be held liable based on the EIR. The
motion was granted on December 9, 2002. [22] Consequently, the
case proceeded as against petitioner and V. Reyes Lazo.
As no amicable settlement was reached during the
pretrial, trial on the merits ensued.
On August 4, 2004, the RTC dismissed the complaint for
insufficiency of evidence.[23] It found the complaint fatally flawed,
having been signed by a person who had no authority from
complainant (respondent herein) corporation to act for and on
behalf of the latter.[24] The RTC, likewise, held that respondent
failed to prove that the loss/damage of the subject cargoes was
due to the fault or negligence of petitioner or V. Reyes Lazo. It
added that the cargoes were damaged when they were already in
Access Internationals possession, considering that an inspection
was conducted in the latters warehouse.[25]
On appeal, the CA reversed and set aside the RTC
decision. The dispositive portion of the CA decision reads:
WHEREFORE, premises considered,
the present appeal is hereby GRANTED. The
appealed Decision dated August 4, 2004 of the
Regional Trial Court of Manila, Branch 21 in
Civil Case No. 01-101309 is hereby REVERSED
 and SET ASIDE. A new judgment is hereby
entered ordering the defendants-appellees Asian
Terminals, Inc. and V. Reyes Lazo to pay, jointly
and severally, the plaintiff-appellant Daehan
Fire & Marine Insurance Co., Ltd. the sums
of P2,295,374.20 with interest at the legal rate
(6% per annum) from the date of the filing of
the complaint and P229,537.42 by way of
attorneys fees.
No pronouncement as to costs.
SO ORDERED.[26]
Applying the principle of substantial compliance, the CA
recognized the validity of respondents complaint after the
submission, albeit late, of the board resolution, indicating the
authority of the signatory to represent the corporation.
[27]
Pursuant to the Management Contract between petitioner and
the PPA, the former may not disclaim responsibility for the
shortage of the subject cargoes while the container van remained
in its custody for seven (7) days, despite the withdrawal of the
subject shipment by the brokers representative without any
complaint. Applying E. Razon, Inc. v. Court of Appeals, [28] the CA
refused to impose the P5,000.00 limitation, considering that
petitioner was aware of the value of the subject goods shown in
the pertinent shipping documents.[29] The CA added that petitioner
could not disclaim any liability, having refused or ignored Access
Internationals request for a joint survey at the time when the
goods were still in the possession and custody of the former.
[30]
Lastly, V. Reyes Lazo was also made liable jointly and severally
with petitioner in negligently withdrawing the container van from
the premises of the pier, notwithstanding Access Internationals
request for a joint survey.[31]
Aggrieved, petitioner comes before us in this petition for review
on certiorari, raising the following issues:
1. WHETHER OR NOT PETITIONER ATI IS
LIABLE FOR THE LOSS TO THE SUBJECT
SHIPMENT NOTWITHSTANDING THE
ACKNOWLEDGMENT BY THE CONSIGNEES
BROKER/REPRESENTATIVE IN THE
EQUIPMENT INTERCHANGE RECEIPT THAT
THE SHIPMENT WAS RECEIVED IN GOOD
ORDER AND WITHOUT EXCEPTION.
2. WHAT IS THE EXTENT OF PETITIONER ATIS
LIABILITY, IF ANY?[32]
Simply put, we are tasked to determine the propriety of
making petitioner, as arrastre operator, liable for the loss of the
subject shipment, and if so, the extent of its liability.
Petitioner denies liability for the loss of the subject
shipment, considering that the consignees representative signified
receipt of the goods in good order without exception. This being
the case, respondent, as subrogee, is bound by such
acknowledgment. As to the extent of its liability, if there be any,
petitioner insists that it be limited to P5,000.00 per package, as
provided for in its Management Contract with the PPA. [33]
We do not agree with petitioner.
Respondent, as insurer, was subrogated to the rights of
the consignee, pursuant to the subrogation receipt executed by
the latter in favor of the former. The relationship, therefore,
between the consignee and the arrastre operator must be
examined. This relationship is akin to that existing between the
consignee and/or the owner of the shipped goods and the
common carrier, or that between a depositor and a
warehouseman.[34] In the performance of its obligations, an
arrastre operator should observe the same degree of diligence as
that required of a common carrier and a warehouseman. Being
the custodian of the goods discharged from a vessel, an arrastre
operators duty is to take good care of the goods and to turn them
over to the party entitled to their possession. [35]
The loss of 14 out of 26 boxes of printed aluminum
sheets is undisputed. It is, likewise, settled that Dongnama (the
shipping company) and Uni-ship were absolved from liability
because respondent realized that they had no liability based on
the EIR issued by Dongnama. This resulted in the withdrawal of
the complaint against them. What remained was the complaint
against petitioner as the arrastre operator and V. Reyes Lazo as
the customs broker. Records show that the subject shipment was
discharged from the vessel and placed under the custody of
petitioner for a period of seven (7) days. Thereafter, the same was
withdrawn from the container yard by the customs broker, then
delivered to the consignee. It was after such delivery that the loss
of 14 boxes was discovered. Hence, the complaint against both the
arrastre operator and the customs broker.
In a claim for loss filed by the consignee (or the insurer),
the burden of proof to show compliance with the obligation to
deliver the goods to the appropriate party devolves upon the
arrastre operator. Since the safekeeping of the goods is its
responsibility, it must prove that the losses were not due to its
negligence or to that of its employees. [36] To prove the exercise of
diligence in handling the subject cargoes, petitioner must do more
than merely show the possibility that some other party could be
responsible for the loss or the damage. It must prove that it
exercised due care in the handling thereof. [37] Petitioner failed to do
this. Instead, it insists that it be exonerated from liability, because
the customs brokers representative received the subject shipment
in good order and condition without exception. The appellate
courts conclusion on this matter is instructive:
ATI may not disclaim responsibility for the
shortage/pilferage of fourteen (14) boxes of
printed aluminum sheet while the container
van remained in its custody for seven (7) days
(at the Container Yard) simply because the
alleged representative of the customs broker
had withdrawn the shipment from its premises
and signed the EIR without any complaint. The
signature of the person/broker representative
merely signifies that said person thereby frees
the ATI from any liability for loss or damage to
the cargo so withdrawn while the same was in
the custody of such representative to whom the
cargo was released. It does not foreclose any
remedy or right of the consignee to prove that
any loss or damage to the subject shipment
occurred while the same was under the
 custody, control and possession of the arrastre
operator.[38]
Clearly, petitioner cannot be excused from culpability simply
because another person could be responsible for the loss. This is
especially true in the instant case because, while the subject
shipment was in petitioners custody, Access International
requested[39] that a joint survey be conducted at the place of
storage. And as correctly observed by the CA:
There is no dispute that it was the customs
broker who in behalf of the consignee took
delivery of the subject shipment from the
arrastre operator. However, the trial court
apparently disregarded documentary evidence
showing that the consignee made a written
request on both the appellees ATI and V. Reyes
Lazo for a joint survey of the container van
on July 18, 2000 while the same was still in the
possession, control and custody of the arrastre
operator at the Container Yard of the pier. Both
ATI and Lazo merely denied being aware of the
letters (Exhibits M and N). The fact remains
that the consignee complained of short-delivery
and while inspection of the cargo was made
only at its warehouse after delivery by the
customs broker, the arrastre ATI together with
said broker both refused or ignored the written
request for a joint survey at the premises of the
arrastre. Instead of complying with the
consignees demand, the broker withdrew and
the arrastre released the shipment the very
next day,July 19, 2000 without even acting
upon the consignees request for a joint survey.
[40]
Moreover, it was shown in the Survey Report prepared by
Access Internationals surveyor that petitioner was remiss in its
obligations to handle the goods with due care and to ensure that
they reach the proper party in good order as to quality and
quantity. Specifically, the Survey Report states:
DELIVERY
On July 19, 2000, V. Reyes-Lazo (Licensed
Customs Broker) effected delivery of the 1 x 20
Van Container from the Container Yard of said
port to the Consignees designated warehouse at
No. 622 Asuncion Street, Binondo, Manila.
Prior to withdrawal from the said port, the
Brokers representative noticed that the padlock
secured to the doors of the Van Container was
forcibly pulled-out resulting to its breakage. He
then immediately informed the Arrastre
Contractors (ATI) and requested that Van
Container be opened and inventory of its
contents be made as he suspected the contents
might have been pilfered.
However, his request was denied averring that
stripping of FCL Van Containers are not allowed
inside the Customs Zone. As all efforts exerted
proved futile, he instead bought new padlock
and secured same to the Van. He then informed
the Consignee about the incident upon delivery
of the Container at the Consignees designated
warehouse, who immediately requested for
survey.[41]
Considering that both petitioner and V. Reyes Lazo were
negligent in the performance of their duties in the handling,
storage and delivery of the subject shipment to the consignee,
resulting in the loss of 14 boxes of printed aluminum sheets, both
shall be solidarily liable for such loss.
As to the extent of petitioners liability, we cannot sustain
its contention that it be limited to P5,000.00 per
package. Petitioners responsibility and liability for losses and
damages are set forth in Section 7.01 of the Management Contract
drawn between the PPA and the Marina Port Services, Inc.,
petitioners predecessor-in-interest, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND
DAMAGES
Section 7.01. Responsibility and Liability for
Losses and Damages; Exceptions. The
CONTRACTOR shall, at its own expense, handle
all merchandise in all work undertaken by it,
hereunder, diligently and in a skillful,
workman-like and efficient manner. The
CONTRACTOR shall be solely responsible as an
independent contractor, and hereby agrees to
accept liability and to pay to the shipping
company, consignees, consignors or other
interested party or parties for the loss, damage
or non-delivery of cargoes in its custody and
control to the extent of the actual invoice value
of each package which in no case shall be more
than FIVE THOUSAND PESOS (P5,000.00)
each, unless the value of the cargo shipment is
otherwise specified or manifested or
communicated in writing together with the
declared Bill of Lading value and supported by
a certified packing list to the CONTRACTOR by
the interested party or parties before the
discharge or loading unto vessel of the
goods. This amount of Five Thousand Pesos
(P5,000.00) per package may be reviewed and
adjusted by the AUTHORITY from time to
time. The CONTRACTOR shall not be
responsible for the condition or the contents of
any package received, nor for the weight nor for
any loss, injury or damage to the said cargo
before or while the goods are being received or
remains in the piers, sheds, warehouses or
facility, if the loss, injury or damage is caused
by force majeure or other causes beyond the
CONTRACTORS control or capacity to prevent
or remedy; PROVIDED that a formal claim
together with the necessary copies of Bill of
Lading, Invoice, Certified Packing List and
Computation arrived at covering the loss, injury
or damage or non-delivery of such goods shall
 have been filed with the CONTRACTOR within The stipulation requiring the consignee to inform the arrastre
fifteen (15) days from day of issuance by the operator and to give advance notice of the actual invoice value of
CONTRACTOR of a certificate of non-delivery; the goods to be put in its custody is adopted for the purpose of
PROVIDED, however, that if said CONTRACTOR determining its liability, that it may obtain compensation
fails to issue such certification within fifteen commensurate to the risk it assumes, not for the purpose of
(15) days from receipt of a written request by determining the degree of care or diligence it must exercise as a
the shipper/consignee or his duly authorized depositary or warehouseman.[47]
representative or any interested party, said
certification shall be deemed to have been
WHEREFORE, premises considered, the petition is
issued, and thereafter, the fifteen (15) day
hereby DENIED for lack of merit. The Court of Appeals September
period within which to file the claim
14, 2005 Decision and December 20, 2005 Resolution in CA-G.R.
commences; PROVIDED, finally, that the
CV No. 83647 are AFFIRMED.
request for certification of loss shall be made
within thirty (30) days from the date of delivery SO ORDERED.
of the package to the consignee.
Republic of the Philippines
xxxx SUPREME COURT
Manila
The CONTRACTOR shall be solely
responsible for any and all injury or damage
THIRD DIVISION
that may arise on account of the negligence or
carelessness of the CONTRACTOR, its agent or
employees in the performance of the G.R. No. L-48686 October 4, 1989
undertaking under the Contract. Further, the
CONTRACTOR hereby agrees to hold free the
AUTHORITY, at all times, from any claim that NEW ZEALAND INSURANCE COMPANY, LTD., petitioner,
may be instituted by its employee by reason of vs.
the provisions of the Labor Code, as amended. HONORABLE MIGUEL R. NAVARRO and E. RAZON,
[42]
INC., respondents.

As clearly stated above, such limitation does not apply if the value
of the cargo shipment is communicated to the arrastre operator
before the discharge of the cargoes. FELICIANO, J.:

1
The instant Petition seeks review of the Decision dated 14
It is undisputed that Access International, upon arrival January 1978 rendered by Branch 31 of the then Court of First
of the shipment, declared the same for taxation purposes, as well Instance of Manila, Sixth Judicial District, in Civil Case No. 97581
as for the assessment of arrastre charges and other fees. For the (entitled "New Zealand Insurance Co. Ltd., plaintiff, versus
purpose, the invoice, packing list and other shipping documents
Maritime Company of the Philippines, E. Razon Inc., E.B. Marcha
were presented to the Bureau of Customs as well as to petitioner
Transport Co., Inc. and Executive Brokerage Corp., defendants").
for the proper assessment of the arrastre charges and other
fees. Such manifestation satisfies the condition of declaration of
the actual invoices of the value of the goods before their arrival, to The background facts are stated in the decision of the trial court:
overcome the limitation on the liability of the arrastre operator.
[43]
Then, the arrastre operator, by reason of the payment to it of a
The New Zealand Insurance Co., Ltd. ["New
commensurate charge based on the higher declared value of the
merchandise, could and should take extraordinary care of the Zealand," petitioner herein] instituted this
special or valuable cargo. [44] What would, indeed, be unfair and action to recover from defendants Maritime
arbitrary is to hold the arrastre operator liable for the full value of Company of the Philippines and E. Razon Inc.
the merchandise after the consignee has paid the arrastre charges ["Razon," respondent herein], the sum of
only on a basis much lower than the true value of the goods. [45] P19,644.05 it paid to the consignee for the loss
by spillage and contamination of imported
What is essential is knowledge beforehand of the extent of the risk soybean meal, and from either E. Razon, Inc. or
to be undertaken by the arrastre operator, as determined by the Executive Brokerage Corporation and E.B
value of the property committed to its care. This defines its
Marcha Transport Co., Inc. the value of the
responsibility for loss of or damage to such cargo and ascertains
undelivered 30 bags of soybean meal, with
the compensation commensurate to such risk assumed. Having
been duly informed of the actual invoice value of the merchandise interest, plus costs of suit.
under its custody and having received payment of arrastre charges
based thereon, petitioner cannot therefore insist on a limitation of Upon plaintiff's motions and on the ground of
its liability under the contract to less than the value of each lost
payments in settlement of its claims against
cargo.[46]
defendants E.B. Marcha Transport Co., Inc.,
 Executive Brokerage Corporation and Maritime
Co., the case was dismissed as respect them.
The facts, as gathered from the documented
evidence, are not disputed. Defendant Maritime
Company of the Philippines [on May 1, 1974]
loaded 5,974 bags of soybean meal, with a
gross weight of 100 lbs. per bag and a total
invoice value (C & F/Manila) of $83,374.30 on
board its M/S "Zamboanga" in New Orleans,
U.S.A., for shipment to Monterey
Corporation at Manila (Exhs. A, B, 32-B & 32-
A). 2 Upon discharge [on June 28,1974] of the
cargo from the vessel into the custody of
defendant arrastre operator, E. Razon Inc., 173
bags of soybean meal were found to be in bad
order condition from spillage. The spillage
amounted to 3,895 lbs. (Exhs. C, H & 2-
Razon). 3 goods shall
When the shipment was delivered by defendant
E. Razon, Inc. to the consignee, a total of 284
bags of soybean meal, weighing 9,953 lbs. was
in bad condition (Exhs. D-1, D-2, 30-Razon &
4 within fifteen (15) days from the receipt of
31 -Razon).
Under date of August 9, 1974, the consignee
wrote defendant E. Razon Inc., laying its formal
claim for spillage/damage sustained by the
5
shipment (Exhs. D and 32).
Having paid the consignee the sum of P
19,644.05 under the insurance coverage of the
6
shipment, the New Zealand Insurance Co.,
7
Ltd., subrogee, instituted this action,
as aforestated, is now directed against E.
Razon, Inc., the arrastre operator,
spillage/loss, weighing 6,058 lbs., sustained by
the additional 111 damaged bags of soybean
meal, in the amount of US$ 845.091 or
P5,746.61 (its equivalent in Philippine pesos at
the then exchange rate of P6.80 to US $1.00).
In its Answer 8
to the complaint, respondent Razon (defendant
below) denied responsibility and liability for the additional loss of
111 bags of soybean meal, alleging that "the questioned shipment
was delivered to the consignee in exactly the same order, condition
and quantity it was received from the carrying vessel." Respondent
Razon alleged further that the claim for indemnity filed with it by
the consignee, Monterey Farms Corporation, "did not comply with
the prescribed period within which to file a claim as provided
9
under the Management Contract."
Article VI, Section 1 of the Management Contract then in force
between respondent Razon and the Bureau of Customs was thus
specifically put in issue. That provision read, in pertinent part:
Responsibility and Liability for Losses and
Damages, Claims. The CONTRACTOR
[respondent Razon] shall... be solely responsible
as an independent CONTRACTOR, and hereby
agrees to accept liability, and to promptly pay to
the steamship company, consignee, consignor
or other interested party or parties for the loss,
damage or non-delivery of cargoes... as well as
all damage that may be suffered on account of
loss, damage or destruction of any merchandise
Farms while in custody or under control of the
CONTRACTOR... ; PROVIDED, that a formal
claim together with the necessary copies of the
Bill of Lading, invoice, certified packing list,
bank certificate showing the rate of exchange at
the time of the purchase or opening of letter of
credit, and computation arrived at covering the
loss, injury or. damage or non-delivery of such
have been filed with the
CONTRACTOR within fifteen (15) days from the
date of issuance by the CONTRACTOR of a
certificate of loss, damage or injury or certificate
of non-delivery, provided further, that if said
CONTRACTOR fails to issue such certification
written request by the importer or his
authorized representative or any interested
party said certificate shall be deemed to have
been issued, and thereafter, the fifteen day
period within which to file the claim shall
commence. Provided, finally, that the request
for certificate of loss shall be made within thirty
(30) days from the date of delivery of last
package to the consignee, broker or importer.
(Emphasis supplied)
which,
Judgment was rendered in this case on 14 January 1978. In its
for disputed Decision, the trial court, although it found that
respondent Razon "admits, spillage/loss while the cargo was in its
custody," nevertheless, ordered the dismissal of the complaint
with costs against petitioner New Zealand (plaintiff below), upon
the ground that "the claim for spillage/loss was filed with
defendant arrastre operator, E. Razon, Inc., beyond fifteen (15)
days from the issuance of the certificate of loss, damage, injury or
delivery."
The trial court explained its ruling in the following terms:
The examination report of the Bad Order
Inspector of arrastre operator E. Razon, Inc.,
which attests to the spillage/loss from the
additional damaged bags of soybeans, bears the
date of July 9,1974. It was rendered upon
request of consignee's broker. And the
examination was conducted in the presence of
the consignee's representative. Obviously, this
examination report is the certificate of loss,
damage, or injury referred to in Article VI, No.
 1, of the Management Contract.
appearing that the formal claim
spillage/damage was filed with defendant E.
Razon, Inc. on August 9,1974 (not August 21,
1974 as asserted by defendant E. Razon, Inc. in
its Memorandum), the same was filed beyond
the 15-day period prescribed by the contract.
In the Petition for Review now before this Court, petitioner New
Zealand assigned three (3) errors, to wit:
I examination of the shipment, which was later certified by
The respondent judge erred in holding that the
request for, and the result of, the bad order
examination, Exhibits "D-1" and "D-2" did not
serve the purpose of a claim, contrary to the
doctrine laid down in Firemen's Fund Ins. Co.
vs. Manila Port Service Co., et al., 16 SCRA 796-
798.
II
The respondent judge erred in holding that the
claim for spillage/ loss was filed beyond the
fifteen (15) day period.
III
The respondent judge erred in dismissing the
complaint with costs against the plaintiff.
11
In both the Comment on the Petition and the Brief
with this Court, respondent Razon no longer raised as an issue
the matter regarding its responsibility for the loss of 111 bags of
soybean meal, the value of which petitioner New Zealand now
seeks to collect in this suit. Respondent Razon, however,
maintained its refusal of liability for such loss, solely on the basis
of petitioner's alleged failure to file a formal claim within fifteen
(15) days from the date of last delivery of the soybean meal to the
consignee's warehouse, in accordance with Article VI, Section 1
(supra) of the, Management Contract.
In Consunji v. Manila Port Service and Manila Railroad Co.,
Court in 1960 stated:
... Carriers or depositaries sometimes require
presentation of claims within a short time after
deliveryas a condition precedent
liability for losses. Such requirement is not
empty formalism. It has a definite purpose,
i.e., to afford the carrier or depositary
reasonable opportunity and facilities to check the
validity of the claims while facts are still fresh in
the minds of the persons who took part in the
And it transaction and documents are still
for the available.... 14
We took special note of the above pronouncement six (6) years
later in Fireman's Fund Insurance Co. v. Manila Port Service Co., et
al. 15 There, fifteen (15) cases of nylon merchandise had been
10
discharged from the carrying vessel and received by defendant
Manila Port Service Co., the arrastre operator, on 7 July 1961.
Out of those fifteen (15) cases, however, only twelve (12) had been
delivered to the consignee in good condition. Consequently, on 20
July 1961, the consignee's broker requested a bad order
defendant's own inspector to be short of three (3) cases. On 15
August 1961, a formal claim for indemnity was then filed by the
consignee, who was later replaced in the action by plaintiff
Fireman's Fund Insurance Co., the insurer of the goods.
Defendant, however, refused to honor the claim, arguing that the
same had not been filed within fifteen (15) days from the date of
discharge of the shipment from the carrying vessel, as required
under the arrastre Management Contract then in force between
itself and the Bureau of Customs. The trial court upheld this
argument and hence dismissed the complaint. On appeal by the
consignee, this Court, speaking through Mr. Justice J.B.L. Reyes,
reversed the trial court and found the defendant arrastre operator
liable for the value of the lost cargo, explaining as follows:
However, the trial court has overlooked the
significance of the request for, and the result of,
the bad order examination, which were filed and
done within fifteen days from the haulage of the
goods from the vessel. Said request and result, in
effect, served the purpose of a claim, which is-
12
it filed
to afford the carrier or
depositary reasonable
opportunity and facilities to
cheek the validity of the
claims while facts are still
fresh in the minds of the
persons who took part in the
transaction and documents
are still available. (Consunji
vs. Manila Port Service, L-
15551, 29 November 1960)
13
this
Indeed, the examination undertaken by the
defendant's own inspector not only gave the
defendant an opportunity to check the goods but
is itself a verification of its own liability ... . 16
to their
In other words, what the Court considered as the crucial factor in
declaring the defendant arrastre operator liable for the loss
occasioned, in the Fireman's Fund case, was the fact that
defendant, by virtue of the consignee's request for a bad order
examination, had been able formally to verify the existence and
extent of its liability within fifteen (15) days from the date of
discharge of the shipment from the carrying vessel i.e., within the
same period stipulated under the Management Contract for the
consignee to file a formal claim. That a formal claim had been filed
by the consignee beyond the stipulated period of fifteen (15) days
neither relieved defendant of liability nor excused payment
thereof, the purpose of a formal claim, as contemplated
in Consunji, having already been fully served and satisfied by the
consignee's timely request for, and the eventual result of, the bad
order examination of the nylon merchandise shipped.
Relating the doctrine of Fireman's Fund to the case at bar, the
record shows that delivery to the warehouse of consignee
Monterey Farms Corporation of the 5,974 bags of soybean meal,
had been completed by respondent Razon (arrastre operator) on 9
July 1974. On that same day, a bad order examination of the
goods delivered was requested by the consignee and was, in fact,
conducted by respondent Razon's own inspector, in the presence
of representatives of both the Bureau of Customs and the
consignee. The ensuing bad order examination report what the
trial court considered a "certificate of loss-confirmed that out of
the 5,974 bags of soybean meal loaded on board the M/S
"Zamboanga" and shipped to Manila, 173 bags had been
damaged in transitu while an additional 111 bags had been
damaged after the entire shipment had been discharged from the
vessel and placed in the custody of respondent Razon. Hence, as
early as 9 July 1974 (the date of last delivery to the consignee's
warehouse), respondent Razon had been able to verify and
ascertain for itself not only the existence of its liability to the
consignee but, more significantly, the exact amount thereof i.e.
P5,746.61, representing the value of 111 bags of soybean meal.
We note further that such verification and ascertainment of
liability on the part of respondent Razon, had been accomplished
"within thirty (30) days from the date of delivery of last package to
the consignee, broker or importer" as well as "within fifteen (15)
days from the date of issuance by the Contractor [respondent
Razon] of a certificate of loss, damage or injury or certificate of
non-delivery" the periods prescribed under Article VI, Section 1
of the Management Contract here involved, within which a request
for certificate of loss and a formal claim, respectively, must be filed
by the consignee or his agent. Evidently, therefore, the rule laid
down by the Court in Fireman's Fund finds appropriate
application in the case at bar.
In its questioned decision, however, the trial court held:
The Fireman's Fund Insurance Co. case is not
authoritative in the case at bar. The request for,
and the result of, the bad order examination
cannot be considered as a claim within the
contemplation of Article VI, No. 1, of the
Management Contract (Exhibit 34), for being, in
effect, a certificate of loss, damage, injury or
non-delivery, the said result, precisely tolls the
commencement of the 15 days within which the
formal claim should be filed. It, therefore,
cannot serve a claim. Otherwise, it would have
been an empty formalism for the contract to
require that a formal claim be filed from the
issuance of said result of a request for bad
order examination, or certificate of loss,
damage, injury or non- delivery, for that
17
matter.
There appears no dispute that the certificate of loss referred to in
the Management Contract here involved is very similar to if not
Identical with the report issued as a result of a bad order
examination. We think that the trial court took an unreasonably
restrictive view of the applicable provisions of the Management
Contract (quoted earlier). Under the Management Contract, the
consignee had a period of thirty (30) days from the last delivery of
the goods within which to request a certificate of loss from the
arrastre operator. From the date of such request for a certificate of
loss, the arrastre operator had a period of fifteen (15) days within
which to issue a certificate of loss either actually or constructively.
And from such date of issuance of a certificate of loss, the
consignee had fifteen (15) days within which to file a formal claim
with all accompanying documentation against the arrastre
operator. In other words, the consignee had a period ranging
from 45 to 60 days from the date of last delivery of the goodswithin
which to submit a formal claim to the arrastre operator. In the
case at bar, as already pointed out, the request for a bad order
examination and the issuance of a report flowing from such bad
order examination, both occurred on the very date of last delivery
of the goods to the consignee, i.e., 9 July 1974. The formal
documented claim of the consignee was filed just thirty-one (31)
days after final delivery of the goods to the consignee and after
verification and ascertainment by the arrastre operator of its own
liability for misdelivery or delivery in bad order of the 1l1 bags of
soybean meal. Thus, the consignee literally complied with the
second proviso of Article VI, Section 1 of the Management
Contract that:
The request for certificate of loss shall be made
within thirty (30) days from the date of delivery
of last package to the consignee, broker or
importer.
Of course, the consignee had not literally complied with the other
proviso of Article VI, Section 1 of the Management Contract which,
in addition, required the formal claim to be filed with the
contractor "within fifteen (15) days from date of issuance by the
contractor of a certificate of loss, damage or injury or certificate of
non-delivery." But the whole purpose of time limitations for the
filing of claims and this is the thrust of Fireman's Fund had
already been fully satisfied by the demand of the consignee for a
bad order examination and by the report of the arrastre operator
on the results thereof. the operator had become aware of and had
verified the facts giving rise to its liability. The arrastre operator
thus suffered no prejudice at all by the lack of literal compliance
with the fifteen (15) day limitation.
Under these circumstances, the Court is compelled to hold that
the consignee had substantially complied with the second time
requirement of Article VI, Section 1 of the Management Contract
and that to release the arrastre operator from liability the reality
and substantive legitimacy of which he does not, and indeed
cannot, dispute, is intolerable to the conscience of the Court. In
fact, the reasonableness and hence the enforceability of the
second (15-day) time limitation appears open to serious question,
when conjoined with the first (30-day) prescriptive period; but this
it is not absolutely necessary to determine.
The Court must stress that respondent E. Razon, being an
arrastre operator, is a public utility, discharging functions which
are heavily invested with public interest. Provisions limiting the
liability of a public utility operator through the imposition of
multiple prescriptive periods for the filing of claims by members of
the general public who must deal with the public utility operator,
must be carefully scrutinized and reasonably construed so as to
protect the legitimate interest of the public which the utility must
serve.
WHEREFORE, the Court Resolved to GRANT the Petition for
Review and to SET ASIDE the trial court's Decision in Civil Case
No. 97581. Private respondent E. Razon, Inc. is hereby ORDERED
to pay petitioner New Zealand Insurance Co., Ltd. the amount of
P5,746.61 in satisfaction of petitioner's claim for indemnity. Costs
against private respondent.
SO ORDERED.
Fernan, C.J., Bidin and Cortes, JJ., concur.
[G.R. No. L-7444. May 30, 1956.]
CEBU ARRASTRE SERVICE, Petitioner-Appellant, vs.
COLLECTOR OF INTERNAL REVENUE,Respondent-Appellee.
DECISION
MONTEMAYOR, J.:
This is an appeal from the decision of the Board of Tax Appeals
affirming the decision of the Collector of Internal Revenue (later
referred to as COLLECTOR), denying exemption to thePetitioner-
Appellant Cebu Arrastre Service (later referred to as CEBU
ARRASTRE) from the percentage tax under section 191 of the
National Internal Revenue Code, and for refund of the amount of
P2,867.02 already paid.
In 1952 the Cebu Arrastre, an association of persons engaged in
the handling of cargoes carried by coastwise vessels stopping at
the port of Cebu, thru its counsel Atty. Jose Muaa petitioned the
Collector of Internal Revenue for the exemption and the refund
based on the following grounds:chanroblesvirtuallawlibrary
(1) That they were a group of laborers who had recently
organized themselves into an arrastre service association merely
for the purpose of centralizing the collection of handling charges
and making direct payment to the men in order to insure the
compliance of the Minimum Wage Law requirement.
(2) That the work of the men of the said arrastre group is under
the direct supervision and control of the officers of the ships.
(3) That the Cebu Arrastre Service is engaged solely in the
loading and unloading of cargoes to and from the boats and is not
engaged in the transportation business.
Acting upon the petition, the Collector referred the matter to his
agent in Cebu for investigation. Mr. Ignacio Quijano, the Assistant
Agent, conducted the investigation and filed his report, the
pertinent portions of which are as
follows:chanroblesvirtuallawlibrary
1. The loading and unloading of cargoes to and from the ships
holds is done by the laborers under the Cebu Arrastre Service
Co., Inc.
2. The supervision of the ships officers in the work is confined
only to the proper handling of the cargoes according to their
nature and to the proper placing of the cargoes inside the ships
holds.
3. As to the laborers actuations outside of the handling and
placing of cargoes inside the ships holds the officers of the ship
have no supervision.
xxx xxx xxx
6. The Cebu Arrastre Service Co., Inc. is not engaged in the
transportation of the cargoes from the wharf to the bodegas of the
shippers. The shippers have their own trucks or provide for the
transportation of their cargoes from the wharf to their bodegas.
7. The laborers of the Cebu Arrastre Service Co., Inc. help only
in the loading of the cargoes from the wharf to the shippers
trucks, for the shippers trucks are provided with their own
journales.
On the basis of said report the Collector denied the petition,
holding that inasmuch as the Cebu Arrastre was engaged in the
loading and unloading of vessels in port, it may be considered a
stevedore within the meaning of section 191 of the Tax Code. In
this connection, it may be stated that section 191 of the Tax Code
imposes a tax equivalent to 3 per cent of the gross receipts on
certain businesses and business entities, among them stevedores.
In his brief counsel for Petitioner-Appellant bitterly assails the
proceedings had in this case, saying that it has been most
inquisitorial, reminiscent of the ancient and antiquated method of
administering justice by which the Defendant was condemned
without benefit of confrontation. The guarantee and protection
jealousy safeguarded by our Constitution has been completely
disregarded. The report of the BIR Agent was a mere unilateral
affair and its findings were arrived at without the Petitioner-
Appellants having had the slightest opportunity to be confronted
and his side heard. We have examined the record of the
proceedings and find this attack unfounded. Although the Board
of Tax Appeals as an appellate board usually considers only the
evidence that comes with the appeal, nevertheless, in this case a
hearing was had before it, and the very same counsel Atty. Jose
Muaa testified on behalf of the Cebu Arrastre, his client and of
which he was the president, but he failed to present any evidence
or give any testimony in support of his present contention that the
Cebu Arrastre is not engaged in the work of loading cargoes into
the holds of the boat or unloading the same from it. But in his
memorandum filed with the Tax Board, he made statements which
the Tax Board liberally considered as evidence but which the
Board regarded as insufficient and not entirely credible. We
reproduce a portion of the decision of the Tax Board on this
point:chanroblesvirtuallawlibrary
In its memorandum filed with us in support of its petition for
review of the case, Petitioners counsel makes some additional
statements of facts wherein he avers that, Their work (that of the
companys laborers) was simply the handling of cargoes at the
wharf almost mechanically under the control and supervision of
the shipping companies. In cases where boats had booms their
work was simply to load on the wharf at the ships tackle by
placing the cargoes in the sling and hooking unto the tackle, and
unloading by unhooking the sling from the tackle and discharging
the cargoes on the wharf. In rare cases where the boats have no
booms, these men carry the cargoes up to the deck for the
stevedores on board to store in the hold, in the case of loading,
and carry cargoes from the deck which have been unloaded from
the hold by the stevedores to the wharf.
We have here three descriptions of the kind of work performed by
the laborers of Petitionercorporation, of which one is widely
different from the other two:chanroblesvirtuallawlibrary one is
from the investigator of the Bureau of Internal Revenue who says
that the laborers in question carry cargoes to and from the pier to
the hold of ships, which agrees with the description appearing on
the original request to the Collector by the President and
Counselor of the Corporation, the other being the contention of
the same official of the Arrastre Service who, in his memorandum
on appeal, would have us believe that its workingmen merely place
the cargoes in the slings and then leave the ships tackle to lift and
drop them into the holds or dump them on decks, there to be
stowed by another set of workingmen, presumably not connected
at all with the Arrastre Service Corporation. When ships are not
provided with booms, cargoes are carried by the Arrastre Service
laborers over planks or ladders to be dumped into the deck or into
the hold, there to be stowed by another set of stevedores not
related to the Corporation.
xxx xxx xxx
The question, then revolves around the facts and around the
credibility of the description depicting the exact nature of the work
of the laborers working under the contracts entered into by the
Cebu Arrastre Co. Inc. with Cebu shipowners. We just determine
therefore, which of the two conflicting versions comes nearer the
reality of the situation.
We may say at the outset that the preponderance of evidence is in
favor of the version of the Assistant Agent of the Bureau of
Internal Revenue of Cebu. According to him the loading and
unloading of cargoes to and from the ships holds is done by the
laborers under the Cebu Arrastre Service Co., Inc. and the ships
officers supervision is limited to the proper placing of the same
inside the ships hold, the inference being that said proper placing
(stowing) is being done by the corporation laborers. This is not
contradicted by the version of the Petitioneras given in its original
petition wherein it says:chanroblesvirtuallawlibrary The men
working under the Cebu Arrastre Service are same men of
Katubusanan sa Mamumuo who have been handling the loading
of the boats of the Aboitiz & Co. and of the Philippine Navigation
Co. since 1947 up to the present. It says also, further
on:chanroblesvirtuallawlibrary The Cebu Arrastre Service is
dedicated itself solely to the loading and unloading of cargoes on
the boats .. It is true that the President and Counsel corrected
this description in the memorandum on appeal to the effect that
laborers of the corporation do not, except on rare occasions,
engage in loading or unloading the boat but limit their work on
loading or unloading pele-mele the slings of the boats under
contract with the Arrastre Service, but in the opinion of the Board
this amendment is not nearer to the truth than the original
version which was corroborated by the official who investigated
the case by order of the Collector of Internal Revenue.
Stevedores are class of laborers at the ports whose business it is
to load and unload vessels. (The Senator, 21 F. 191).
Stevedore is defined as one whose occupation is to load and
unload vessels in port; chan roblesvirtualawlibraryin other
words, a contractor or a jobber for special business ready to be
employed by anybody at his line of work (Rankin vs. Merchants
and Miners Transp. Co., 73 Ga. 239, 54 Am. Rep. 874).
Stevedore and longshoreman, are synonymous terms when
interpreted in the light of the work they perform, namely loading
and unloading of vessels (Zampiere vs. Willian Spencer and Son
Corporation, 18b N.Y.S. 639, 640, 194 App. Div. 576).
Under the above definitions the Cebu Arrastre admittedly engaged
in the work of loading and unloading coastwise vessels calling at
the port of Cebu, should be regarded as a stevedore and therefore
subject to the percentage tax under section 191 of the Tax Code.
But even if we applied the narrower and more specific concept of
stevedore used by the Tax Board, namely, that a stevedore is one
who places cargoes in the holds of ships in such a way that the
boat would maintain an even keel, and that even with the
movement of the boat, especially in rough weather, the cargoes
would not be displaced from their original position, still, under the
finding of fact made by the Tax Board that the Cebu Arrastre is
engaged in this work of towing cargo either in the hold or even on
the deck, Appellant would be subject to the tax. We also agree
with the Tax Board that the purpose for which the Petitioner-
Appellant was organized, and the supervision exercised by the
ships officers over its work in loading and unloading vessels
including the towing of cargo, has nothing to do with the tax
liability of the Petitioner-Appellant.
In view of the foregoing, the decision appealed from is hereby
affirmed, with costs in both instances.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo,
Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21835 August 19, 1967
THE CHIEF OF STAFF, ARMED FORCES OF THE
PHILIPPINES, plaintiff-appellee,
vs.

It is noteworthy that in the agreement entered into by the COLLECTOR OF INTERNAL REVENUE, ET AL., defendants-
shipowners and the corporation mention is twice made of the appellees.
arrastre service on the vessels (but never on the piers) to be done MADRIGAL SHIPPING CO., INC., and CESARIO
by the laborers of the Cebu Arrastre Service Inc. Another SIPACO, defendants-appellants.
circumstance which may help in obtaining a clear picture of the
situation is that nowhere in these papers is it contended that the
stevedores actually performing the stowing work belong to an Bausa, Ampril and Suarez for defendant-appellant Madrigal
organization not related to the Petitioner. Shipping Co., Inc.
We quote the following definitions of stevedores, Cesar R. Canonizado for defendant-appellant C. Sipaco.
viz:chanroblesvirtuallawlibrary Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B.
Stevedores is one who works at, or one who is responsible for, the Afurong and V. M. Pangilinan for plaintiff-appellee.
unloading and loading of a vessel in port. (Websters New
International Dictionary, Second Edition (unabridged), p. 2473).
BENGZON, J.P., J.:
A stevedore is a person employed in loading and unloading a
vessel. (The Owego, D. C. Wash., 292 F. 505, 507).
C.Y. George Khoong and K.H. Powel Khoong, father and son, and
business partners, organized the Leyte Supply Corporation which
acquired from the U.S. Foreign Liquidation Commission surplus
war materials worth P160,000.00. In June 1948 the Khoongs
purchased from said corporation the same war materials.
Subsequently, they hired Cesario Sipaco to possess, keep and
administer said surplus materials while the same were stored in
Tacloban City. Next, they chartered the steamship Lepus of the
Madrigal Shipping Co., Inc. to transport the surplus materials to
Hongkong.
SS "Lepus" arrived in Tacloban and the Visayan Workers' Union
loaded the war materials on board, after which it sailed for
Hongkong via the Port of Manila. While docked in Manila its cargo
of surplus war materials were seized by the Government pursuant
to Executive Order No. 339 dated August 7, 1950. Whereupon, the
cargo was unloaded at Pier 11 and later on stored in Hangar 801
in Nichols Air Base.
Upon prior authority of their owners, the Armed Forces of the
Philippines used some of the confiscated cargo for which it agreed
to pay the price fixed of P24,292.00. This amount, however, could
not immediately be paid direct to the owners inasmuch as the
Armed Forces received several claims on the cargo which far
exceeded the agreed price of P24,292.00.
On January 21, 1953 the Chief of Staff of the Armed Forces of the
Philippines filed a complaint in interpleader with the Court of
First Instance of Manila against the several claimants.
Meanwhile, with leave of court, the remaining surplus goods were
sold at public auction. The proceeds thereof plus the sum of
P24,292.00 paid by the Armed Forces, amounting to P29,948.50,
were deposited with the clerk of the trial court.
On March 23, 1963 the lower court rendered the following
judgment:
WHEREFORE, judgment is hereby rendered declaring
the claim of the Bureau of Internal Revenue in the
amount of P10,100.00, the claim of Madrigal Shipping
Co., Inc. in the amount of P37,250.00, the claim of the
Philippine Port Terminal, Inc. in the amount
P5,000.00 and the claim of the Visayan Workers' Union
in the amount of P5,073.00 preferred credits with
respect to the amount of P29,948.50 now in the
possession of the Clerk of this Court, pursuant to the
provisions of Article 2241 of the Civil Code. The claim of
the Bureau of Internal Revenue, in the amount of
P10,100.00 shall first be satisfied and the claims of the
Madrigal Shipping Co., Inc., the Philippine Port Terminal,
Inc., and the Visayan Workers' Union shall
satisfied pro rata from the balance after the payment of
the costs of this action, pursuant to the provisions of
Article 2249 of the Civil Code.
Madrigal Shipping Co., Inc. and Cesario Sipaco appealed to this
Court on purely legal issues which are:
1. With respect to the preference of credits among the claimants,
should the Spanish Civil Code of 1889 or the New Civil Code of
the Philippines (Republic Act 386) be applied?
2. Under the proper law, who among the claimants enjoys
preference?
All the claims against the goods in question matured and became
demandable prior to the effectivity of the Civil Code of the
Philippines. Consequently, the law prevailing at the time, that is,
the Spanish Civil Code of 1889, should govern the preference of
credits.1
It is contended that the claim of the Collector of Internal Revenue
for sales taxes on the goods in question is not preferred because
(1) the Khoongs were not the persons liable for the sales taxes
thereon for they were not the importer of said goods, 2 not to
mention that the tax lien does not follow the goods into the hands
of a third party who has no knowledge of the outstanding tax
liability;3 and (2) a surety bond has been posted to answer for the
tax liability.1wph1.t
The theory of non-liability of the Khoongs for the sales taxes on
the surplus goods in question for the reason that they were not
the importer thereof will not hold, considering that the Khoongs
assumed liability for said taxes. 4This assumption of liability on the
part of the Khoongs is understandable and must have been made
with good reason. The Khoongs are the 90% owner of Leyte Supply
Corporation, the original importer. As a matter of fact, they have
considered themselves as the original purchasers of the surplus
goods from the U.S. Foreign Liquidation Commission as can be
seen from their statements, to wit:
WHEREAS, we have rights, title and interests over the
following properties which we through the Leyte
Supply Corporation bought from the Foreign Liquidation
Commission. * * *5
* * * and over all the surplus goods we purchased under
of VSD Contract P.O. 489, Invoice No. 527-RP, from the
Foreign Liquidation Commission, U.S.A., loaded at
Tacloban, Leyte in the S/S LEPUS and later unloaded at
the port of Manila, * * * *6
As to the argument of non-existence of the tax lien, it is observed
that Article 1922 of the Spanish Civil Code of 1889 does not
provide for taxes as preferred credits or liens. Sec. 315 of the
National Internal Revenue Code however states:
be
Sec. 315. Nature and extent of tax lien.Every internal-
revenue tax on property or on any business or
occupation, and every tax on resources and receipts, and
any increment to any of them incident to delinquency,
shall constitute a lien superior to all other charges or
 liens not only on the property itself upon which such tax We now come to the claim of defendant-appellant Cesario Sipaco
may be imposed but also upon the property used in any whose credit was not recognized by the trial court as preferred. On
business or occupation upon which the tax is imposed September 2, 1948 the Khoongs sent Cesario Sipaco a letter-
and upon all property rights therein. appointment 9 worded as follows:

Accordingly, the lien for sales taxes on the surplus goods has Effective as of September 1, 1948 you are appointed as
attached from the moment they were due and shall continue to an administrator of our company (Leyte Supply
exist in accordance with law. 7 Section 315 of the Tax Code, the Enterprise) with a compensation of ONE HUNDRED
pertinent law, limits to five years the duration of the lien for estate SEVENTY-FIVE PESOS (P175.00) a week. Your travel
and gift taxes, but remains silent with respect to all other internal expense outside of Tacloban on official business will be
revenue taxes. Consequently, the lien as to all those other taxes borne by the company.
continues until there is payment or the lapse of the period within
which the Commissioner of Internal Revenue may assess and Subsequently, the Khoongs executed a power of attorney dated
collect them pursuant to Sections 331 to 333 of the Tax Code, April 8, 1949 in favor of Cesario Sipaco and We quote: 10

whichever comes earlier. The alleged dissolution of the lien by

reason of the filing of a surety bond to answer for the payment of KNOW ALL MEN BY THESE PRESENTS:
taxes due, finds no support in the law.

That C. Y. GEORGE KHOONG and K. H. POWELL

Madrigal Shipping Co., Inc. maintains further that the claim of KHOONG, both of legal age, married and residents of 601
the Visayan Workers Union in the amount of P5,073.00 Columbia Road, Shanghai, the latter being represented
representing stevedoring wages in loading the surplus goods in in this act by the former, have named and constituted
question aboard SS "Lepus" is not preferred under Article 1922 of and by these presents name and constitute C. R.
the Spanish Civil Code of 1889 nor under Article 2241 of the Civil SIPACO, of legal age, married and resident of Tacloban,
Code of the Philippines; and that claims for laborers' wages Leyte, to be their true and lawful attorney-in-fact for
mentioned in paragraph (6) of Article 2241 of the Civil Code of the them and in their name, place and stead and for their
Philippines refer to labor in productive industrial entities and not use and benefit, to do and perform all or any of the
to stevedoring. following acts and things, namely:

As aforestated, the Civil Code of the Philippines does not apply 1. To demand and receive from CECIL L. MARQUIS any
herein and so We shall confine the inquiry to the Spanish Civil and all of the properties and commodities, including the
Code. books of accounts and other records, which belong to C.
Y. George Khoong and K. H. Powell Khoong by virtue of
Article 1922 of the Spanish Civil Code fails to mention claims for their purchase of the same from the Leyte Supply
laborers' wages as among those given preference. Apparently, the Corporation which properties consist of:
proposition that stevedoring wages are not preferred has merit.
However, paragraph 4 of said article gives preference to credits for aircraft spare parts and accessories,
transportation of goods and expenditures for the carriage and communications and signal equipment, radio
preservation thereof, under which the stevedoring wages can be spare parts and accessories, radio testing and
classified. aircraft testing equipment with an approximate
tonnage of 5,700 measurement tons, at present
Stevedoring refers to the carriage of goods from the warehouse or located among others at
pier to the holds of the vessel. 8 It is a necessary operation in the
transportation of goods by sea. Accordingly, the expenses incurred Cebu City 165 F. Gonzales St., down and
therefor in the form of wages are necessary expenditures in the upstairs
carriage of the goods.

Tacloban, Leyte Veteranos St.

With respect to the claim of the Philippine Ports Terminal for
arrastre and storage fees which the lower court declared as
and to issue proper receipt therefor;
preferred, We are convinced that it constitutes a credit
contemplated in paragraph 4 of Article 1922 of the Civil Code of
2. To possess, keep and administer the foregoing
1889, it being an expense for the preservation of the goods. The
properties located in Tacloban, Leyte, with power to
arrastre and storage service was rendered by the Philippine Ports
dispose of so much of said properties from time to time
Terminal after the surplus goods were unloaded at Pier 11 of the
as he shall think fit;
Port of Manila preliminary to their transfer to Nichols Air Base.
Without the services of the Philippine Port Terminal, said goods
3. To ship and transport the foregoing properties to
would have been left on the pier exposed to the elements and
Shanghai or to any other port designated by any or either
pilferage.
of the above-named Khoongs;
 4. To demand, institute legal proceedings for, and receive
from Cecil L. Marquis the properties as aforestated and
from any and all persons such payments for the sale of
the properties he is herein authorized to dispose of
with power and authority to execute and deliver full
receipts for all payments made to him;
5. To make, sign, seal, execute and deliver contracts,
documents, agreements and other writings of whatever
nature or kind with any and all third persons, concerns,
or entities upon such terms and conditions as he shall
think fit;
1. Credits for the construction, repair, preservation, or
purchase price of personal property in the possession of
the debtor, to the extent of the value of the same;
(emphasis supplied).
as an expense for the preservation of the surplus goods. It is not
disputed that Sipaco was hired, and that he rendered service
primarily to keep and preserve the goods in question. The stay of
the surplus goods in Tacloban was more or less temporary, for
their owners intended them to be shipped to Hongkong. Really
there was nothing more for him to do but preserve the goods in
good condition while awaiting shipment.

6. To open accounts in any bank in the Philippines, to Wherefore, the judgment appeared from is modified, the claims of
deposit money and to withdraw the same by check, the Collector of Internal Revenue in the amount of P10,100.00,
receipt, draft or any other written instrument in the Madrigal Shipping Co., Inc. in the amount of P37,250.00,
name of C. Y. George Khoong and/or Leyte Supply Philippine Ports Terminal, Inc. in the amount of P5,000.00,
Enterprise; to sign, indorse, draw, accept, make, execute, Visayan Workers Union in the amount of P5,073.00 and Cesario
deliver, and cash treasury warrants, checks, drafts, bills Sipaco in the amount of P9,050.00 are declared preferred credits.
of exchange, promissory notes, and all other kinds of The claim of the Collector of Internal Revenue shall first be
negotiable instruments and commercial papers; satisfied, after which the claims of Madrigal Shipping Co., Inc.,
Philippine Ports Terminal, Inc., Visayan Workers Union and
7. In general, to do all other acts, deeds, matters and Cesario Sipaco shall be satisfied pro rata in accordance with
things whatsoever in or about our estate, property, and Article 1926 of the Civil Code of 1889. No costs.
affairs as fully and effectually to all intents and purposes
as we could do in our own proper persons if personally So ordered.
present.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and
HEREBY GIVING AND GRANTING unto our said Fernando, JJ., concur.
attorney-in-fact full power and authority whatsoever Concepcion, C.J., and Dizon, J., are on leave.
requisite and necessary or proper to be done in and
about the premises, as fully to all intents and purposes
Republic of the Philippines
as we might do or could lawfully do if personally present, SUPREME COURT
and hereby ratifying and confirming all that our said Manila
attorney-in-fact shall do or cause to be done under and EN BANC
by virtue of these presents.
G.R. No. L-54958 September 2, 1983
ANGLO-FIL TRADING CORPORATION, ADUANA STEVEDORING
IN WITNESS WHEREOF, they have caused these CORPORATION, ANDA STEVEDORING CORPORATION, BEN
presents to be signed on this 8th day of April, 1949 in PAZ PORT SERVICE, INC., MANILA STEVEDORING
the City of Manila, Philippines. CORPORATION, WATERFRONT STEVEDORING AND
ARRASTRE SERVICES, INC., VANGUARD STEVEDORING AND
By virtue of the two documents mentioned above, Sipaco rendered ARRASTRE SERVICES, INC., and LUVIMIN
service for the Khoongs and allegedly made advances in the sum STEVEDORING/ARRASTRE & DEVELOPMENT
of P2,300.00 for the safekeeping and preservation of the surplus CORPORATION, petitioners,
materials involved in this case. His advances and salaries which vs.
HON. ALFREDO LAZARO, in his capacity as Presiding Judge of
have remained unpaid totalled P9,050.00. In 1951 he obtained
Branch XXV, of the Court of First Instance of Manila,
from the Court of First Instance of Manila a judgment (based on
PHILIPPINE PORTS AUTHORITY, COL. EUSTAQUIO S. BACLIG,
compromise) for said amount of P9,050.00 against the Khoongs,
JR., CDR. PRIMITIVO SOLIS, JR., and OCEAN TERMINAL
who thereafter assigned to him their right to collect from the
SERVICES, INC., respondents.
Armed Forces of the Philippines up to said amount plus costs and
x-----------------------x
fees.
G.R. No. L-54966
PHILIPPINE INTEGRATED PORT SERVICES, INC., petitioner,
Sipaco's claim of preference comes within the purview of
vs.
paragraph 1 of Article 1922 of the Civil Code of 1889, which
THE HONORABLE ALFREDO M. LAZARO, Judge of the Court
reads:
of First Instance of Manila, Branch XXV, PHILIPPINE PORTS
AUTHORITY, COL. EUSTAQUIO S. BACLIG, JR., CDR.
PRIMITIVO S. SOLIS, JR., and OCEAN TERMINAL SERVICES, the integrated of the stevedoring operations in Manila South
INC., respondents. Harbor and emphasizing the need for such integration as well as
the strengthening of the PPA in order to remedy the problems
GUTIERREZ, JR., J.:
therein. In compliance therewith, PPA made a study evaluation of
These two petitioners foe certiorari seek to annul the order of the the arrastre and stevedoring industry in the ports where
Court of First Instance of Manila issued ex-parte, lifting the integration had not yet been achieved. A special committee was
restraining orders it had previously issued. The setting aside of created on April 25, 1980 to make a final evaluation of existing
the restraining orders enabled the implementation of the operators in the South Harbor and to select the most qualified
Management Contract executed by and between respondents, among them.
providing for respondent Ocean Terminal Services, Inc. as the
On April 28, 1980, the committee submitted its report
exclusive stevedoring contractor at the South Harbor, Port of
recommending the award of an exclusive contract for stevedoring
Manila.
services in the South Harbor to respondent Ocean Terminal
Involved in these two petitions is the operation of stevedoring work Services, Inc. (OTSI) after finding it the best qualified among the
in the South Harbor of the Port of Manila. Stevedoring, as the existing contractors. The committee report and recommendation
term is understood in the port business, consists of the handling were indorsed by respondent Primitivo Solis, Jr., Port Manager of
of cargo from the hold of the ship to the dock, in case of pier-side Manila, to respondent Baclig on April 30, 1980. On May 14, 1980,
unloading, or to a barge, in case of unloading at sea. The loading the latter approved the recommendation.
on the ship of outgoing cargo is also part of stevedoring work.
In accordance with the Presidents memorandum dated April 18,
Stevedoring charges at rates approved by the Government are
1980, PPA submitted the committee report to him. On May 24,
assessed and collected for the services.
1980, the President approved the recommendation to award an
The Philippines Ports Authority (PPA), the government agency exclusive management contract to OTSI.
charged with the management and control of all ports, was
On June 27, 1980, PPA and OTSI entered into a management
created by Presidential Decree No. 505, promulgated on July 11,
contract which provided, among others, for a five-year exclusive
1974, later superseded by Presidential Decree No. 857 dated
operation by OTSI of stevedoring services in the South Harbor,
December 23, 1975. The PPAs function is to carry out an
renewable for another five (5) years. The contract set the
integrated program for the planning, development, financing, and
commencement of the exclusive operation by OTSI upon proper
operation of ports and port districts throughout the country.
determination by PPA which shall not be earlier that two (2)
Among other things, the powers, duties, and jurisdiction of the
months from the approval of the contract by the Board of
Bureau of Customs concerning arrastre operations were
Directors of the PPA. The latter gave its approval on June 27,
transferred to and vested in the PPA.
1980.
The Philippine Integrated Port Services, Inc., (PIPSI), petitioner in
On July 23, 1980, petitioner PIPSI instituted an action against
G.R. No. 54966, is a stevedoring operator at the Manila South
PPA and OTSI for the nullification of the contract between the two,
Harbor. Anglo-Fil Trading Corporation, Aduana Stevedoring
the annulment of the 10% of gross stevedoring revenue being
Corporation, Anda Stevedoring Corporation, Ben Paz Port Service,
collected by PPA, and injunction with preliminary injunction. The
Inc., Manila Stevedoring and Arrastre Services, Inc., (Anglo-Fil, et
case was docketed as Civil Case No. 133477 in the Court of First
al.,) petitioners in G.R. No. 54958, are stevedoring and arrastre
Instance of Manila, provided over by respondent Judge Alfredo
operators and contractors, likewise at Manila South Harbor, Port
Lazaro. On July 29, 1980, the respondent court issued a
of Manila. Anglo-Fil, et al., are members of the Philippine
restraining order ex-parte, enjoining respondents PPA and OTSI
Association of Stevedoring Operators and Contractors, Inc.
from implementing the exclusive contract of stevedoring between
(PASOC).
them.
Prior to the present controversy which arose as a result of the
On August 21, 1980, with leave of court, petitioners, Anglo-Fil, et
actions of the PPA, twenty-three (23) contractors competed at the
al., filed their complaint in intervention. The motion was granted
South Harbor for the performance of stevedoring work. The
and on August 22, 1980, respondent court issued another ex-
licenses of these contractors had long expired when the PPA took
parte restraining order in the case to include the petitioners
over the control and management of ports but they continued to
Anglo-Fil et al., under the benefits of such order.
operate afterwards on the strength of temporary permits and
hold-over authorities issued by PPA. On August 30, 1980, PPA filed an urgent motion to lift the
restraining orders "in view of their long delay in the resolution of
On May 4, 1976, the Board of Directors of PPA passed Resolution
the injunction incident and the countervailing public interest
No. 10, approving and adopting and adopting a set of policies on
involved." On September 1, 1980, respondent Judge issued an
Port Administration, Management and Operation. The PPA
order, which reads:
adopted as its own the own the Bureau of Customs policy of
placing on only one organization the responsibility for the "AS PRAYED FOR, the restraining orders issued by the this Court
operation of arrastre and stevedoring services in one port. on July 29, 1980 and August 20, 1980, are hereby dissolved,
lifted, and set aside without prejudice to the Courts resolution on
On April 11, 1980, Presidential Ferdinand E. Marcos issued Letter
the propriety of issuing the writ of preliminary injunction prayed
of Instruction No. 1005-A which among other things, directed PPA;
for by the petitioners."
To expeditiously evaluate all recognized cargo-handling
On September 5, 1980, PPA sent a letter to the General Manager
contractors and port-related service operators doing
of PIPSI informing him that due to the lifting of the temporary
business in all Port Districts in the country under such
restraining order, it was withdrawing PIPSIs hold-over authority to
criteria as PPA may set and to determine the qualified
operate or provide stevedoring services at South Harbor effective
contractor or operator under said criteria in order to
September 7, 1980.
ensure effective utilization of port facilities, prevent
pilferage and/or pinpoint responsibility for its and Petitioners Anglo-Fil, et al., and PIPSI, therefore, filed the present
provide optimum services to major ports vital to the petitions for certiorari with preliminary injunction alleging that
countrys trade and economy. the lifting of the retraining orders ex-parte by respondent Judge
was clearly affected with grave abuse of discretion amounting to
This was followed by the Presidents memorandum to respondent
Bacling dated April 18, 1980, directing submission of a report on
lack of jurisdiction. They also applied for the issuance in the
meantime of a restraining order.
On September 9, 1980, we ordered the consolidation of the two
cases and on August 12, 1980, heard the petitioners motions for a
restraining order.
On September 15, 1980, the respondent court issued an order in
Civil Case No. 133477 denying the application of petitioners for a
writ of preliminary injunction and affirming its order of September
1, 1980 lifting the temporary restraining orders issued in the case.
On the same day, the Katipunan ng mga Manggagawa sa Daungan
(KAMADA), a labor federation and its thirteen (13) member labor
organizations filed a petition to intervene in the consolidated
cases. According to KAMADA, its members would lose their jobs if
the contract was implemented. It also alleged that the collective
bargaining contract between OTSI and PWUP would be prejudicial
to workers because KAMADA members received greater benefits
from the ousted contractors;
On September 29, 1980, PIPSI filed a supplemental petition to
annul the order of the respondent judge denying the application
for preliminary injunction and affirming the orders issued on July
29 and August 22, 1980.1wphi1
On October 14, 1980, PPA filed its comment with opposition to
preliminary injunction stating that the lifting of the restraining
orders by respondent judge was intended to preserve the status
quo pending resolution of the preliminary injunction; that said
orders were issued without hearing or bond, therefore, the
dissolution was proper considering that it had been in force for
one month and an early resolution of the motion for injunction
was not in sight, and that in dissolving an injunction already
issued, the court cannot be considered as having acted without
jurisdiction or in excess thereof even if dissolution had been made
without previous notice to the adverse party and without a
hearing. Furthermore, it argued that when the purpose of an
administrative determination is to decide whether a right or
privilege which an applicant does not possess shall be granted to
him or withheld in the exercise of a discretion vested by statute,
notice and hearing are not necessary. It also added that the policy
of integration in the award by PPA to OTSI is impressed with
public interest while what is involved as far as petitioners were
concerned was merely their alleged right to operate stevedoring
services, a property right the denial of which could easily be
restored in the event the respondent court decided that petitioners
are entitled to it.
In their consolidated reply, Anglo-Fil, et al., argued that the
temporary order in their favor was not issued ex-parte for the
following reasons: a) it was issued when PIPSI and PPA were
already conducting hearings on the petition for preliminary
injunction; b) it was announced in open court; and c) PPA did not
object to such issuance. Likewise, they argued that although a
permit to operate is a privilege, its withdrawal must comply with
due process of law just like the practice of law, medicine, or
accountancy, and that not only property rights are involved but
their very livelihood, their right to live.
On October 21, 1980, we issued a resolution granting the
temporary mandatory restraining order "effective immediately
ordering respondents to allow the workers represented by said
petitioner-intervenors to render the stevedoring services performed
by them on foreign vessels in the Manila South Harbor before the
execution of the exclusive stevedoring contract of June 27, 1980
until further orders of the Court, the order of respondent Judge,
dated September 1 and 15, 1980 as well as the implementing
letter of Philippine Ports Authority of September 5, 1980 to the
contrary notwithstanding."
On October 24, 1980, PPA issued Memorandum Order No. 23
providing for guidelines in implementing the temporary mandatory
restraining order of the Supreme Court dated October 21, 1980, to
wit:
xxx xxx xxx
(1.) The Office of the Harbor Master shall determine
which union has serviced a particular vessel for the
period from January 1, 1980 to June 26, 1980. The
number of services performed by a particular union for a
given vessel shall be quantified for the said period after
which each union shall be identified whether they are
affiliated with PWUP or KAMADA.
(2.) The most number of times that a union has serviced
a particular vessel with its affiliation properly considered
shall continue to service said vessel for its incoming calls
or arrivals.
(3.) If there is a tie in the number of services performed
by both PWUP and KAMADA affiliated unions, the last
union that serviced said vessel shall be allowed to
continue servicing the same on all its incoming calls or
arrivals.
(4.) Once the union has been properly identified during
the berthing meeting, the Harbor Master shall inform
Ocean Terminal Services, Inc. accordingly and shall be
authorized to negotiate with the union or the gang leader
concerned on the number of gangs as may be required by
the vessel or its agent.
(5.) All unions in this order shall refer only to South
Harbor stevedoring union.
(6.) KAMADA shall have the duty and responsibility to
certify that the stevedores deployed in any given vessel
allowed for their work are bona fide members of their
group and that they were the same stevedores who
serviced assigned vessel prior to the stevedoring services
integration.
On November 7 and 10, 1980 OTSI and PPA filed their separate
answers to KAMADAs petition in intervention. They assured this
Court that none of the legitimate stevedores who had joined the
KAMADA would be displaced from work provided he joined PWUP.
Written guarantees of this assurance were separately submitted to
this Court by both OTSI and PWUP. OTSI further alleged in its
answer that, contrary to the claim of KAMADA, the CBA signed by
OTSI with PWUP represented the best of employment ever offered
to the stevedores in the South Harbor.
On November 13, 1980, Anglo-Fil, et al., filed an urgent motion to
cite PPA and OTSI in contempt on the following grounds: 1)
issuance of PPA-POM Memorandum No. 23, series of 1980; 2)
letter of October 29, 1980 of PPA to Anglo-Fil, et al., denying
a "non-existing" request for permission to operate by the latter; and
3) refusal of PPA authorities to issue gate passes to KAMADA-
affiliated stevedores to be used and employed by Anglo-Fil, et al.,
in their resumption of work, pursuant to the Supreme Court order
of October 21, 1980.
On November 20, 1980, PPA filed a motion to lift the temporary
mandatory restraining order but the same was denied by this
Court.
On November 26, 1980, an urgent motion for clarification of the
resolution of October 21, 1980 was filed by KAMADA seeking
clarification as to which company its workers should work for,
alleging that after Antranco Stevedores Union (Antranco) a
KAMADA member, had received a letter from OTSI to supply the
necessary stevedores gang to service the S/S "Success", Anglo-Fil
Trading Corporation prohibited its employees who are members of
Antranco from working for OTSI in the light of the resolution of
this Court and the existing collective bargaining agreement
between said union and Anglo-FilTrading Corporation. As a
consequence, the union was allegedly unable to service S/S
"Success" and from October 21, 1980 up to the present, OTSI
failed to allow members of KAMADA to service several vessels.
A joint manifestation was filed by respondents PPA and OTSI
alleging compliance with the above resolution to the effect that
KAMADA workers have been and are being employed on the
vessels they used to serve prior to June 27, 1980, and justifying
issuance of PPA-POM Memorandum No. 23, as a means to avert
possible conflict among the competing union groups (PWUP and
KAMADA) involved, to provide a reasonable and fair system for
determining which group had previously worked on a vessel and
should work on its subsequent calls, and to insure that only the
bonafide stevedores contemplated by the order of this Court are
allowed to work.
On December 2, 1980, another motion for clarification was filed by
KAMADA regarding the phrase "foreign vessels" which it stated to
be inaccurate as KAMADA members also work on vessels of
Philippine registry like those operated by Sweet Lines and Lorenzo
Shipping Lines whose vessels also dock at the Manila South
Harbor. It suggested that the basis should not be the foreign
vessels but the shipping agents or charterers and consignees and
that the basis for determining and quantifying the vessels given to
PWUP or KAMADA should be from January 1, 1978 to September
7, 1980.
This Court in a resolution dated December 9, 1980, granted the
motion of KAMADA to wit:
xxx xxx xxx
x x x (3) GRANT the motion for clarification by petitioners-
intervenors issuing a resolution previously released, the pertinent
portion of which reads, for while the order of October 21, 1980 is
on its face quite definite as to what it purports to require, this
resolution may remove any doubt as to its purpose and intent,
thus assuring the utmost fidelity in its compliance. The order
requires and mandates that all workers represented by said
petitioners-invtervenors can continue rendering stevedoring
services performed by them on foreign vessels, in Manila South
Harbor before the execution of the exclusive stevedoring contract
of June 27, 1980, until further orders of the Court, without any
reference to any particular vessel, the decisive factor being
shipping lines involved and the fact that they were at that time
rendering stevedoring services, irrespective of the labor unions to
which they are affiliated. xxx."
Inspite of our clarificatory order, various problems in its
implementation appear to have beset the parties. Repeated
motions and manifestations and countermotions and
countermanifestations were filed with unbroken regularity,
swelling the records of these petitions to unusual proportions.
After requiring the parties to submit their respective positions, we
issued on January 6, 1983, a resolution which modified our
earlier orders as follows:
"G.R. No. 54958 (Anglo-Fil Trading Corporation, et al. vs.
Hon.Alfredo Lazaro, et al.); and G.R. No. 54966 (Philippine
Integrated Port Services, Inc. vs. Hon. Alfredo Lazaro, et al.).
Considering the urgent motion and manifestation of petitioners-
intervenors filed on March 20, 1982, the comment of respondent
Ocean Terminal Services, Inc., filed on June 7, 1982, the
comment of respondent Philippine Ports Authority filed on June 8,
1982, the reply of petitioners-intervenors filed on June 28, 1982,
the rejoinder of respondent Ocean Terminal Services, Inc., filed on
July 27, 1982, the rejoinder of respondent Philippine Ports
Authority filed on August 6, 1982 and the supplemental motion
and manifestation filed by petitioners-intervenors on September
15, 1982, the Court Resolved to direct the parties concerned to
observe the following guidelines in the allocation of stevedoring
assignments: 1. Any vessel belonging to a shipping line shall be
assigned for stevedoring work to the union that had served that
shipping line the greatest number of times as appearing in the
PPA records for the six-month period immediately preceding the
execution of the stevedoring contract of OTSI. 2. The above
notwithstanding, whenever a vessel destined to or proceeding from
the Port of Manila has been chartered for a particular voyage by a
consignee or any person having interest in the goods carried
therein, such vessel shall be assigned for stevedoring work to the
union that served the charterer the greater number of times as
appearing in the PPA records for six-month period immediately
preceding the execution of the stevedoring contract of OTSI. In
case there are two or more charterer who pays the highest freight
charges shall be the determining fact in the assignment. 3. Vessels
of new shipping lines calling at the Port of Manila for the first time
as well as vessels contracted by new charterers shall be assigned
to the union of choice of the new shipping line or charterer as the
case may be."
The main issue in these petitions is whether or not the respondent
judge acted with grave abuse of discretion when he lifted ex-parte
the temporary restraining order he had earlier issued also ex-
parte.
From the viewpoint of procedure, we see no grave abuse of
discretion or want of jurisdiction. Subsequent to the issuance to
the questioned order, the respondent court heard the parties on
the petitioners application for a writ of preliminary injunction
and, after hearing the parties evidence and arguments, denied
the application for the writ. We also agree the with the
respondents that it is not grave abuse of discretion when a court
dissolves ex-parte abuse of discretion when a court dissolves ex-
parte a restraining order also issued ex-parte. (Calaya v. Ramos,
79 Phil, 640; Clarke v. Philippine Ready Mix Concrete Co., 88 Phil.
460; Larap Labor Union v. Victoriano, 97 Phil. 435.)
The restraining orders dated July 29, 1980 and August 22, 1980
respectively provide:
xxx xxx xxx
"Finding the allegations in the complaint to be sufficient in form
and in substance, a temporary restraining order is hereby issued
x x x.
xxx xxx xxx
"and to maintain the status quo until further orders from this court.
x x x.
xxx xxx xxx
"It appearing that on July 29, 1980, this Court issued an order
granting the prayer of the original plaintiff for a temporary
restraining order, the same order is hereby reiterated and to
include Anglo-Fil Trading Corporation. x x x.
xxx xxx xxx
"plaintiffs-intervenors herein and for the parties to serve the
status quo until further orders from this Court." (Italics supplied)
A restraining order is an order to maintain the subject of
controversy in status quo until the hearing of an application for a
temporary injunction. Unless extended by the court, a restraining
order ceases to be operative at the expiration of the time fixed by
its terms. In cases where it has been granted ex-parte, it may be
dissolved upon motion before answer. (See the Revised Rules of
Court, Francisco, pp. 184-186, citing 43 CJS, 28 Am. Jur)
From the aforequoted dispositive portions, it is beyond doubt that
the duration of the restraining orders was "until further orders
from the court." In lifting said restraining orders on September 1,
1980, respondent judge merely exercised the prerogative he earlier
reposed upon himself to terminate such orders when
circumstances so warranted. Considering again that the previous
grants of the restraining orders in favor of petitioners were made
ex-parte and without bond, the need for a notice and hearing in
regard to such lifting was not necessary, much less mandatory.
The petitioners contention that the lifting of the restraining order
had rendered moot and academic the injunction case in the trial
court is likewise untenable. A restraining order is distinguished
from an injunction in that it is intended as a restraint on the
defendant until the propriety of granting an injunction pendente
lite can be determined, and it goes no further than to preserve the
status quo until such determination. Therefore, the grant, denial,
or lifting of a restraining order does not in anyway pre-empt the
courts power to decide the issue in the main action which in the
case at bar, is the injunction suit. In fact, the records will show
that the trial court proceeded with the main suit for injunction
after the lifting of the restraining orders.
Petitioner PIPSI also maintains that there were no considerations
of public interest which supported the lifting. On the contrary, the
lifting allegedly permitted a situation palpably against public
interest, that is, confiscation of petitioners business and those
similarly situated. This, again, is untenable.
The streamlining of the stevedoring activities in the various ports
of the Philippines was undertaken by PPA to implement LOI No.
1005-A. The public interest, public welfare, and public policy
sought to be subserved by said LOI are clearly set forth in its
whereas clauses. They areas follows:
xxx xxx xxx
"WHEREAS, it is a declared national policy to support and
accelerate the development of government port facilities as well as
vital port development projects and services;
xxx xxx xxx
"WHEREAS, it is a prime concern of government to protect the
interests of legitimate port workers and port users in the country;
xxx xxx xxx
"WHEREAS, there is need to rationalize and integrate cargo-
handling and other port-related services as may have been
contracted out or authorized by the PPA in the various ports of
the country;
"WHEREAS, the procedures of voluntary merger, consolidation
and/or bidding for the awarding or contracting of cargo-handling
and other port-related services have heretofore proven ineffective
and resulted in prolonged and unproductive wrangling, all to the
detriment of efficient port operations and development; and
"WHEREAS, it now become necessary to revitalize and streamline
the PPA to carry out its functions and duties as a vital link in the
governmental machinery and the thrust for national economic
development;"
xxx xxx xxx
Clearly, there is a reasonable relation between the undeniable
existence of an undesirable situation and the statutory attempt to
avoid it. "Public welfare, then, lies at the bottom of the enactment
of said law, and the state in order to promote the general welfare
may interfere with personal liberty, with property, and with
business and occupations." (See Alalayan v. National Power
Corporation, 24 SCRA 172; Ermita-Malate Hotel and Motel
Owners Association v. City Mayor, 20 SCRA 849) These
considerations were considered by the respondent judge when he
issued his questioned order dated September 1, 1980. He stated:
xxx xxx xxx
"While in the main this Court is not insensitive to the plight of the
petitioners, the overriding considerations of public interest, as
impressed by the Office of the Solicitor General, must be given
greater weight and important. This is compounded by the way and
manner by which the parties are now fashioning and shaping
their respective positions. The proceedings, to say the least, have
become accented with a myriad of contentious facts and
intercalated with complex legal issues. For the matter is not a
simple determination of right and wrong but a collision of ideas
and viewpoints. All these, indeed, militate against an early
resolution of the application for a writ of preliminary injunction.
xxx xxx xxx
The above statement are sufficient bases for the lifting of the
order. It is clear that not only did the respondent judge base the
lifting on consideration of public interest but also on the fact that
the restraining orders were issued ex-parte without bond and that
the resolution of the motion for preliminary injunction was still far
from being decided.
The statement of the respondent judge that "it cannot sit in
judgment, without prejudice to public interest, on the truth and
wisdom of the allegation in support of the Urgent Motion" should
not be interpreted to mean that courts cannot pass upon the
greater issue of whether or not public interest is served or is
prejudiced. The determination by PPA that the measure sought to
be enforced is justified by public interest and the PPA manner of
implementing a Presidential Decree and Letters of Instruction are
subject to judicial review.
The Constitution defines the powers of government. Who is to
determine the nature, scope, and extent of such powers? The
Constitution has provided for the instrumentality of the judiciary
as the rational way. In determining whether or not the exercise of
powers vested by the Constitution truly serves the general welfare
or is affected by public interest, the judiciary does not assert any
superiority over the other departments but only fulfills the solemn
and sacred obligation assigned to it by the Constitutions to
determine conflicting claims of authority and to establish for the
parties in an actual controversy the rights which that instrument
secures and guarantees to them. This is in truth all that is
involved in what is termed "judicial supremacy" which properly is
the power of judicial review under the Constitutions. (See Angara
vs. Electoral Commission, 63 Phil. 139) This is why questions of
expropriation of private lands, we have upheld the courts
authority to make inquiry on whether or not lands were private
and whether the purpose was in fact, public. (City of Manila v.
Chinese Community of Manila, 40 Phil. 340). Similarly, in the
present cases, the question of whether or not the lifting of the
restraining orders will prejudice public interest and will run
counter to the protection to labor provision of the Constitution is
determinable by the judiciary under the power of judicial review.
From the records of these petitions, it is evident that the writ of
certiorari cannot be granted. The respondent judges action was
not tainted by any capricious or whimsical exercise of judgment
amounting to lack of jurisdiction.
It is settled to the point of being elementary that the only question
involved in certiorari is jurisdiction, either want of jurisdiction or
excess thereof, and abuse of discretion shall warrant the issuance
of the extra-ordinary remedy of certiorari only when the same is
grave as when the power is exercised in an arbitrary or despotic
manner. . . . (FS. Divinagracia Agro Commercial, Inc. v. Court of
Appeals, 104 SCRA 180; Abig v. Constantino, 3 SCRA 299; Abad
Santos v. Province of Tarlac, 67 Phil. 480; Alafriz v. Nable, 72 Phil.
278; Travers Luna, Inc. v. Nable, 72 Phil. 278; and Villa Rey
Transit, Inc. v. Bello, 75 SCRA 735).
It is not sufficient, however, to resolve these petitions on whether
or not there was grave abuse of discretion tantamount to lack or
exercise of jurisdiction.
The larger issue remains. Behind the maneuvering and
skirmishing of the parties lies a question of power. Does the PPA
have the power and authority to award an exclusive stevedoring
contract in favor of respondent OTSI? Is the PPA-OTSI
Management Contract executed pursuant to P.D. No. 857 and LOI
No. 1005-A, valid?
The facts bearing on this issue are not in dispute and are worth
reiterating. They are summarized by the respondent court as
follows:
xxx xxx xxx
"Before the advent of Presidential Decree No. 505, as amended by
Presidential Decree No. 857, the administration and management
of the South Harbor, Port of Manila, was under the Bureau of
Customs. It appears that the plaintiffs, among others, were
engaged in and allowed to operate stevedoring services on the
basis of special permits granted by the Bureau of Customs
(Exhibit A).
"It further developed that the number of stevedoring operators or
contractors made it difficult for the Bureau of Customs to
maintain order and discipline among them to the detriment of
efficiency and the desired performance at the South Harbor. This
appears to be true with other ports. Thus, an in-depth study and
analysis of the problems attendant to arrastre and stevedoring
operations was initiated. The only solution appeared to be the
integration of contractors engaged in stevedoring services with the
ultimate objective of having only one stevedoring contractor to
engage in cargo-handling service in a given port. Accordingly, on
May 8, 1975, the Bureau of Customs issued Customs
Memorandum Order No. 28-75 providing guidelines for the merger
of the multi-operators in the same ports (Exhibit 1).
"On December 23, 1975, Presidential Decree No. 857 was
promulgated superseding Presidential Decree No. 505 whereby the
jurisdiction of the Bureau of Customs concerning arrastre
operations, among others, were transferred and vested in the PPA.
"On May 4, 1976, the PPA, pursuant to its avowed objectives,
approved the PPA policies on port administration, management
and operation, adopting as a policy the horizontal and vertical
integration of existing operators at each port (Exhibit 2 and 3).
"On January 19, 1977, a memorandum order was issued whereby
the different port operators or contractors who have existing
permits, licenses, contracts, and other kinds of memorandum
agreement issued by the Bureau of Customs were Temporarily
allowed the continuance of their services on a hold-over
capacity until such time when the PPA implements its own
pertinent policy guidelines on the matter (Exhibits 5 and 6).
On May 27, 1977, PPA Memorandum Order No. 21, series of 1977,
was passed reiterating the implementation of the policy on
integration to insure efficiency and economic in cargo-handling
operation and provide better service to port users and to amply
protect the interest of labor and the government as well. It is the
declared policy that there should only be one stevedoring
contractor to engage in cargo-handling services in a given port.
"On April 11, 1980, the Presidential issued Letter of Instruction
No. 1005-A (Exhibit 7) which directed the PPA to accelerate the
rationalization of all cargo-handling services and to expeditiously
evaluate all recognized cargo-handling contractors and port
related service operators under such criteria as the PPA may set
and to determine the qualified contractor or operator in order to
insure effective utilization of port facilities, prevent pilferage
and/or pinpoint responsibility for it and provide services major
ports vital to the countrys trade and economy. This Letter of
Instruction was dictated by experience where the procedures of
voluntary mergers, consolidation and/or bidding for the awarding
or contracting of cargo-handling and other port related services
have heretofore proven ineffective and resulted in prolonged and
unproductive wrangling, all to the detriment of efficient port
operations and development.
"On April 18, 1980, the President issued a memorandum to the
PPA (Annex B of the Answer and Opposition of OCEAN) to submit
its report on the integration and rationalization of the stevedoring
operation in Manila South Harbor and the submission for his
approval of the resolution of the board regarding contracts entered
into in connection therewith. This memorandum was dictated by
heavy losses suffered by shippers as well as the smuggling of
textiles in the South Harbor.
"Pursuant to and in compliance with the Letter of Instruction of
April 11, 1980 and the Memorandum of the President dated April
18, 1980, the PPA created a Special Evaluation Committee
composed of Atty. David R. Simon, member of the Legal
Department of PPA and concurrently Assistant to the Port of
Manila, as Chairman; Mr. Leonardo Mejia, Chief of the
Commercial Development Division, Port of Manila; and, Capt.
Jovito G. Tamayo, Harbor Master and Chief of the Harbor
Operations Division of the Port of Manila, as members. The
respective and individual duties of the members of the Committee
taken in their integral entirely could easily sum up to an almost
complete overview of the functions of stevedoring contractors and
place them in a vantage position as to provide proper evaluation
and determination of the individual performance, qualification,
and compliance of PPA requirements by each stevedoring operator.
"The Committee took into account certain factors with their
corresponding percentage weights in its determination, who
among the existing operators, is most qualified for an award of an
exclusive contract. In connection therewith, OCEAN was rated
95% topping all the rest by a wide margin.
"On April 28, 1980, the Evaluation Committee submitted its report
recommending the conclusion of a management contract with
OCEAN being the most qualified (Exhibit 8) which
recommendation was adopted by the PPA.
"On June 27, 1980, a management contract was executed by and
between PPA and OCEAN (Exhibit 11).
"On August 19, 1980, the President approved the exclusive
management contract between PPA and OCEAN (Exhibit 10).
"In the meantime, in letters dated July 13, 1980 (Exhibit N) and
July 14, 1980 (Exhibit F), PIPSI and INTERVENORS were
informed of the management contract with OCEAN as exclusive
operator at the South harbor, Port of Manila, beginning August
27, 1980."
xxx xxx xxx
The petitioners are on extremely shaky grounds when they invoke
the non-impairment clause to sustain their charge of invalidity.
According to the petitioners, contracts entered into with local and
foreign clients or customers would be impaired.
Even in the United States during the heyday of the laissez faire
philosophy, we are informed that the American Supreme Courts
interpretations have never allowed the contract clause to be an
inflexible barrier to public regulation. According to Gerald
Gunther, Professor of Constitutional Law at Stanford University,
historians have probably exaggerated the impact of the early
contract clause decisions on American economic and legal
developments, that the protected position of corporations in the
19th century was due less to any shield supplied by the U.S.
Supreme Court than to legislative unwillingness to impose
restraints-an unwillingness reflecting the laissez faire philosophy
of the day. After analyzing the leading cases on the contract clause
from 1810 (Fletcher v. Peck, 6 Cranch 87) to 1880 (Stone v.
Mississippi, 101 U.S. 814) he cites the 1914 decision in Atlantic
Coast Line R. Co. v. Goldsboro (232 U.S. 548) where the U.S. Court
ruled "It is settled that neither the contract clause nor the due
process clause has the effect of overriding the power of the State
to establish all regulations that are reasonably necessary to
secure the health, safety, good order, comfort, or general welfare of
the community; that this power can neither be abdicated nor
bargained away, and is inalienable even by express grant; and that
all contract and property rights are held subject to its fair
exercise" and Manigault v. Springs (199 U.S. 473) where the same
Court stated that "parties by entering itno contract may not stop
the legislature from enacting laws intended for the public good."
(See Gunther, Cases and Materials On Constitutional Law, 1980
Edition, pp. 554-570).
In the Philippines, the subservience of the contract clause to the
police power enacting public regulations intended for the general
welfare of the community is even more clearcut.
As pointed out by then Senior Associate, now Chief Justice
Enrique M. Fernando, the laissez faire or let alone philosophy has
no place in our scheme of things, not even under the 1935
Constitution. (See Fernando, The Constitution of the
Philippines, Second Edition, pp. 111-114) In his concurring
opinion in Agricultural Credit and Cooperative Financing
Administration v. Confederation of Unions (30 SCRA 649, 682-683)
Chief Justice Fernando stated:
"xxx With the decision reached by us today, the Government is
freed from the compulsion exerted by the Bacani doctrine of the
constituent-ministrant test as a criterion for the type of activity in
which it may engage. Its constricting effect is consigned to
oblivion. No doubts or misgivings need assail us that
governmental efforts to promote the public weal, whether through
regulatory legislation of vast scope and amplitude or through the
undertaking of business activities, would have to face a searching
and rigorous scrutiny. It is clear that their legitimacy cannot be
challenged on the ground alone of their being offensive to the
implications of the laissez-faire concept. Unless there be a
repugnancy then to the limitations expressly set forth in the
Constitution to protect individual rights, the government enjoys a
much wider latitude of action as to the means it chooses to cope
with grave social and economic problems that urgently press for
solution. xxx"
The Manila South Harbor is public property owned by the State.
The operations of this premiere port of the country, including
stevedoring work, are affected with public interest. Stevedoring
services are subject to regulation and control for the public good
and in the interest of general welfare.
Not only does the PPA, as an agency of the State enjoy the
presumption of validity in favor of its official acts implementing its
statutory charter, it has more than adequately proved that the
integration of port services-is far from arbitrary and is related to
the stated governmental objective.
A single contractor furnishing the stevedoring requirements of a
port has in its favor the economy of scale and the maximum
utilization of equipment and manpower. In turn, effective
supervision and control as well as collection and accounting of the
government share of revenues are rendered easier for PPA than
where there are 23 contractors for it to oversee. As respondent
court found from the evidence, the multiple-contractor system has
bred cut-throat competitions in the port. Understandably, most
contractors had been unable to acquire sufficient modern
facilities, observe labor standards for their workers, maintain
efficiency in services, and pay PPA dues. The questioned program
would accelerate the rationalization and integration of all cargo-
handling activities and port-related services in major ports and
the development of vital port facilities, projects, and services.
The contention of petitioners Anglo-Fil, et al., that due process
was violated resulting to a confiscatory effect on private property
is likewise without merit.
In the first place, the petitioners were operating merely on "hold-
over" permits. These permits which were based on PPA
memorandum Order No. 1, dated January 19, 1977 provided:
xxx xxx xxx
"In view thereof and pending proper evaluation by this Office of all
existing permits, licenses, contracts, and other kinds of
memorandum agreements issued by the Bureau of Customs to the
different port operators or contractors, you may temporarily allow
the continuance of their services on a hold-over capacity until
such time when the PPA implements its own pertinent policy
guidelines on the matter.
xxx xxx xxx
Clearly, all hold-over permits were by nature temporary and
subject to subsequent policy guidelines as may be implemented by
PPA. Such should have served as sufficient notice to petitioners
that, at any time, their authorities may be terminated.
Petitioners PIPISI would also impress upon this Court that the
certification issued to it and its fellow contractors by PPA, dated
August 30, 1979, showed that they were not only kept in the dark
as to PPAs subsequent move to award OTSI an exclusive contract,
but that they were actually lulled into believing that their
temporary permits were being given pending issuance of their PTO
or Permit to Operate.
We do not believe so. The second paragraph of the certification
states that the hold-over permit was still subject to the
memorandum quoted above. The certification provided that: "In
accordance with PPA Memo Circular No. I, dated January 9, 1977,
the said firm is allowed to continue operating at the South Harbor,
Port manila." (italics supplied.)
Whether or not the petitioners would be issued a PTO depended
on the sound discretion of PPA and on the policies, rules and
regulations that the latter may implement in accordance with the
statutory grant of power. Petitioners, therefore, cannot be said to
have been deprived of property without due process because, in
this respect, what was given them was not a property right but a
mere privilege and they should have taken cognizance in the
South Harbor, their permits can be withdrawn anytime the public
welfare deems it best to do so.
The absence of arbitrariness or bad faith is manifest in the
selection procedure adopted. The award in fabvor of OTSI was the
result of an evaluation of performance of existing contractors
made by a special committee created by the PPA. The respondent
court found from the evidence that the members of that
committee were "in a vantage position as to provide proper
evaluation and determination of the individual performance,
qualification, and compliance of the PPA requirements by each
stevedoring operator." The committee rated OTSI with the highest
grade of 95% in its evaluation.
And significantly, since no less than the President of the
Philippines approved the award of the management contract to
OTSI presumptively after through consideration of all factors
relevant to efficient stevedoring services, it is difficult for this
Court to find a violation of due process in the selection procedure.
In the language of the Chief Justice in Lim v. Secretary (34 SCRA
751) if the task of overturning a decision of a department head is
attended with difficulty, the burden of persuasion becomes much
heavier when the challenged action is encased in the armor of an
explicit presidential approval. In the case at bar, there is nothing
in the record remotely assailing the motives of the President in
giving his imprimatur to the award.
In seeking the nullification of the management contract, the
petitioners also invoke the constitutional provision on monopolies
and combination. Section 2, Article XIV of the Constitution
provides:
The state shall regulate or prohibit private monopolies when the
public interest so requires.1wphi1 No combinations in restraint
of trade or unfair competition shall be allowed.
Private monopolies are not necessarily prohibited by the
Constitution. They may be allowed to exist but under State
regulation. A determination must first be made whether public
interest requires that the State should regulate or prohibit private
monopolies. A distinction prevails as regards combinations in
restraint of trade and unfair competition which are prohibited
outright by the Constitution.
By their very nature, certain public services or public utilities
such those which supply water, electricity, transportation,
telephone, telegraph, etc. must me given exclusive franchises if
public interest is to be served. Such exclusive franchises are not
violative of the law against monopolies. (58 Corpus Juris
Segundum 958-964).
Neither is the management contract violative of the Anti-Graft
Law. It is a contract executed in pursuance to law and the
instructions of the President to carry out government objectives to
promote public interest. The act did not cause "undue injury" to
the petitioners who as explained earlier had no vested property
rights entitled to protection. There is no undue injury to the
government nor any unwarranted benefit to OTSI consideration
for PPA which is the payment by OTSI of ten percent (10%) of its
gross income, something which petitioner PIPSI is loathe to pay.
The rationalization and effective utilization of port facilities is to
the advantage of the Government. Furthermore, the discretion in
choosing the stevedoring contractor for the south Harbor, Port
Manila, belongs by law to PPA. As long as standards are set in
determining the contractor and such standards are reasonable
and related to the purpose for which they are used, the courts
should not inquire into the wisdom of PPAs choice. The criterion
used by PPA namely, the identification of a contractor with the
highest potential for operating an exclusive service, appears
reasonable. The factors which were taken into account in
determining the exclusive contractor are indicia
reasonableness. They are:
Productivity. 25%
Equipment Requirement
Capability 25%
Financial Capability 15%
Promptness in Paying
Government share 25%
Compliance with other
PPA Requirements... 20%
It is settled rule that unless the case justifies it, the judiciary will
not interfere in purely administrative matters. (Monark
International, Inc. v. Noriel, 83 SCRA 114) Such discretionary
power vested in the proper administrative body, in the absence of
arbitrariness and grave abuse so as to go beyond the statutory
authority, is not subject to the contrary judgment or control of
others. (See Meralco Securities Corporation v. Savellano, 117
SCRA 804). In general, courts have no supervisory power over the
proceedings and actions of the administrative departments of the
government. This is particularly true with respect to acts involving
the exercise of judgment or discretion, and to findings of fact. (Pajo
v. Ago and Ortiz, 108 Phil.905)
In view of the foregoing, we find the PPA-OTSI Management
Contract executed on June 27, 1980, valid and devoid of any
constitutional or legal infirmity. The respondents, however, should
maintain the policy of absorption of bona-fide displaced port
workers in the integration scheme as mandated not only by LOI
No. 1005-A but by the policy of the State to assure the rights of
workers to security of tenure. (sec. 9, Art. II, Constitution) We note
that both PPA and OTSI have given assurance in their answers
that none of the legitimate stevedores would be displaced from
work although they added that their bonafide stevedores should
join PWUP. Which union a worker or various workers should join
cannot be ordained by this Court in these petitions where the
basic issue is the validity of the exclusive stevedoring contract
given to one operator for one port. This matter will have to be
eventually threshed out by the workers themselves and the
Ministry of Labor and Employment before it may be elevated to us,
if ever. However, we reiterate the guidelines earlier issued that no
bona fide stevedore or worker should be deprived of employment
he used to enjoy simply because of the execution and
implementation of the disputed Management Contract. This
absorption of bona fide workers is an act of social justice. When a
person has no property, his job may possibly be his only
possession or means of livelihood. Therefore, he should be
protected against any arbitrary and unjust deprivation of his job.
(See Bondoc v. Peoples Bank and Trust Company, 103 SCRA 599)
As to the contempt charges, we note that the Order of this Court
dated October 21, 1980 allowed "petitioners-intervenors" meaning
KAMADA workers to work at the South Harbor pending resolution
of this case, "the order of respondent judge xxx as well as the
implementing letter of Philippine Ports Authority xxx to the
contrary notwithstanding." It is not clear from said orders that the
petitioners who are stevedoring operators and contactors were also
specifically included. There was no mention of them being
included and allowed with KAMADA workers to resume operations
at the South Harbor. The petitioners read into the order
something which was not there. The only clear import of the Order
was that KAMADA workers must be allowed to work
of notwithstanding any contrary provisions in the Management
Contract, a situation brought about by the lifting of the
restraining orders, the denial of the petition for preliminary
injunction, and the implementing letter of PPA. It is a settled rule
that a party cannot be punished for contempt unless the act
which is forbidden or required to be done is clearly and exactly
defined, so that there can be no reasonable doubt or uncertainty
as to what specific act or thing is forbidden or required. (Lee Yick
Hon v. Collector of Customs, 41 Phil. 548, citing U.S. v. Achi-son,
etc. R. Co., 146 Fed. 176, 183; 13 CJ 15)
WHEREFORE, the petitions in G.R. No. 54958 and G.R. No.
54966 are hereby DISMISSED for lack of merit. The respondents
are, however, directed to comply with the guidelines in the above
decision on the absorption of bonafide stevedores and as thus
modifies, the temporary restraining order dated October 21, 1980
is made PERMANENT. No costs.
100% SO ORDERED.
Concepcion, Jr., Guerrero, Abad Santos, Melencio-Herrera, Plana,
Escolin and Relova, JJ., concur.
Fernando, C.J., concurs and adds a brief statement on the rights
of labor entitled to full respect.
Teehankee, J., files a brief dissent.
Makasiar and Aquino, JJ., in the result.
De Castro, J., on leave.
Vasquez, J., took no part.
G.R. No. L-73490
UNITED 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 of
Customs, 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 xxx
Each 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 xxx
A 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 REYMA BROKERAGE, INC., petitioner,
prefaced by the phrase "said to contain." Clearly then, the matter vs.
quantity, description and conditions of the cargo is the sole
PHILIPPINE HOME ASSURANCE CORPORATION, and THE
responsibility of the shipper. .
HONORABLE COURT OF APPEALS, respondents.
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. Ponciano H. Gupit for petitioner.
2521 shows that containerized cargoes on "Shipper's Load and
Count" shipping arrangement are not required to be checked and
Fajardo Law Offices for private respondent.
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. .
SARMIENTO, J.:p
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. Assailed in this petition for review on certiorari is the decision of
However there was a slight error thru no fraudulent intent or the Court of Appeals in CA-G.R. CV No. 14550, 1promulgated on
negligence of the vessel. Said vessel relied on the information in November 29, 1988, which affirmed in toto the decision of the
the bill of lading submitted by the shipper in making the Manifest.
Regional Trial Court, National Capital Judicial Region, Branch 31,
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 Manila. 2
container contained 34 cases and the second container contained
44 cases. Furthermore, noteworthy is the fact that Container No. The challenged decision of the trial court disposes as follows:
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 WHEREFORE, judgment is hereby rendered in
of Container No. 2020984 and Container No. 2101730 are parts of favor of the plaintiff and against the defendant
the same importation coming from one and the same shipper and as follows:
destined to the same consignee and that in the examination of
contents for Customs purposes, the number of cases should be
a. To pay the sum of P88,650.22 plus legal
the total in the 2 containers, to wit 78 cases. .
interest thereon from the date of the filing of the
Considering therefore, that the total number of cases of cotton
Complaint until the same is fully paid;
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 b. To pay a sum equivalent to 25% of the entire
Bureau of Customs on board petitioner's vessel, it is clear that the amount as attorney's fees; and
vessel's Manifest reflects a complete and substantially accurate
statement of the cargoes contained therein in accordance with the
c. To pay the costs of this suit.
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- SO ORDERED. 3
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 The facts of the ease found by the court a quo and adopted by the
be attributed to the shipper. Finally, there was no financial loss for respondent court, are, in brief:
the government. .
WHEREFORE, finding the instant petition meritorious, the On October 2, 1979, the vessel 'MS Malmros
assailed decision of the Court of Tax Appeals imposing a fine of P Monsoon' received onboard at Fremantle,
10,000.00 on petitioner's vessel, MV "American Venture" for Brisbane Queensland, Australia from shipper
alleged violation of Sec. 1005 in relation to Sec. 2521 of the Tariff
Craig Mostyn & Co., Pty. Ltd. (of Brisbane,
and Customs Code, as amended, is hereby REVERSED and SET
ASIDE. . Queensland) a shipment of 2,680 cartons of
hard frozen boneless beef contained in five (5)
SO ORDERED.
containers complete and in good order and
Fernan C.J., Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur
condition for transport to Manila in favor of the
eventual consignee RFM Corp. under Bill of
Republic of the Philippines
Lading No. 53149, dated October 2, 1979. On
SUPREME COURT
October 13, 1979, the MS 'Malmros Monsoon'
Manila arrived at Pier 3 of the Port of Manila and
discharged the shipment into the possession
SECOND DIVISION and custody of the defendant, the arrastre
operator in the case at bar (Exh. 'A'). From Pier
G.R. No. 93464 October 7, 1991 3, the shipment was transferred to the Reefer
Van Area of Pier 13 and on October 22, 1979,
 the defendant arrastre contractor loaded the
containers in two (2) trucks and delivered them
to Grech Food Industries Cold Storage in Pasig,
Rizal arriving there at 1:00 o'clock A.M., the
following morning, October 23, 1979. Four (4)
personnel of defendant, a driver and a helper in
each truck made the delivery. On October 23,
1979 at 9:00 o'clock in the morning, the
containers were stripped and the representative
of the defendant and consignee counted the
contents of five (5) containers and after an
inventory of Container No. BROU-430656[1], it
was discovered that 203 cartons were found
short out of the loaded 2,680 cartons of hard
frozen boneless beef which according to the
consignee was totally attributable
defendant as it occurred while
container in question was in the custody and
responsibility of the defendant. Consignee filed
claim for the recovery of the missing 203
cartons but the same was denied
consequently, consignee filed the claim with the
plaintiff under its Marine Cargo Insurance
Policy. The consignee was paid by plaintiff the
amount of P88,658.22 (Exhs.'F' and 'G'). The
payment of consignee's claim by the plaintiff
had subrogated the latter to file this instant
claim for the recovery of the said amount (Exh.
'H'). 4
As earlier indicated, the lower courts ruled against the herein
petitioner despite its pleas specifically the following:
I. That, in the light of US Lines case (G.R. NO.
73490, June 18, 1987), a "said-to-contain" bill
of lading for sealed containers is "receipt' only of
the containers but not of their contents which
the carrier was not in a position to verify.
II. That, since there is no evidence of tampering
of seals, presumptions cannot take the place of
proof in a due-process system where the burden
of proof lies on the plaintiff
respondent), and [where] the rule is that
plaintiff must rely on the strength of his own
evidence and not on the weakness of the
defense.
III. That, if, as claimed by private respondent,
the "tampering" was ingeniously done and the
tampered seal cannot be determined unless
"separated" from the container, then plaintiff
(private respondent) virtually admits that the
containers could have been tampered from the
very start (i.e., before petitioner took possession
of them) but nobody noticed the tampering.
IV. That, in the light of the foregoing, it was not
procedurally and equitably sound of private
respondent to sue petitioner alone without
joining the carrier and the arrastre contractor
as alternative defendants; petitioner should not
be singled out as defendant.
V. That, this case is barred by prescription, as
previously alleged in petitioner's Answer in the
lower court; as a mere subrogee, private
respondent cannot have more rights than the
consignee itself who could not have brought this
action beyond the one-year prescriptive period
(one year from October 22, 1979) fixed by the
carriage of goods by sea act. 5
to the
the said
The issue presented is whether or not the respondent court
committed a reversible error in declaring the petitioner liable for
the short delivery of 203 cartons from the containerized
shipments.The petition is without merit.The petitioner insists that
and
the ruling of United States Lines Inc. vs. Commissioner of
Customs 6 which held that:
It is petitioner's contention that Sec. 24 of
Customs Administrative Order No. 8-75 * was
promulgated in the 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
(private 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.
is controlling in the case at bar because the transactions are
Identical, in that, in the present case, the cargoes in question are
containerized. And the bill of lading, has, among others, the
following entries: 7
SHIPPED ON BOARD FIVE SHIPPER PACKED
CONTAINERS SAID TO CONTAIN
CARTONS HARD FROZEN BONELESS 72938
kgs = 160800 lbs nett
536 CARTONS - CONTAINER NO:
430915 (4) 536 CARTONS - CONTAINER NO:
ITLU 780480 (2) 536 CARTONS - CONTAINER
NO: BROU 430773 (7) 536 CARTONS
CONTAINER NO: ITLU 780254 (3)
CARTONS - CONTAINER NO: BROU 4306561
Moreover, we must note also that the bill of lading itself contains
the printed stipulations:
xxx xxx xxx
Weight, measurement marks and numbers (except loading marks
for which the carrier is only responsible if stamped or otherwise
shown clearly in letters at least 50 mm high) quality contents and
value shown above are furnished by the Merchant and have not
been checked and are to be considered unknown, unless expressly
acknowledged and agreed to. 8
And in the bottom portion of the bill of lading there appears the
statement:
This bill of lading is a receipt only for the
number of packages shown above. 9 which was
duly signed by the carrier.
Evidently, the carrier, by signifying in the bill of lading that "it is a
receipt ... for the number of packages shown above," had explicitly
admitted that the containerized shipments had actually the
number of packages declared by the shipper in the bill of lading.
And this conclusion is bolstered by the stipulation printed in the
bill of lading, "unless expressly acknowledged and agreed to."
Therefore, the phrase "said to contain" also appearing in the bill of
lading must give way to this reality.
Hence, this express acknowledgment of the carrier makes the case
at bar an exception to the doctrine enunciated in United States
Lines. The rule enunciated by United States Lines applies to a
situation where the carrier of the containerized cargo simply
admits the information furnished by the shipper with regard to
the goods it shipped as reflected in the bill of lading ("said to
contain") but not where the carrier of the containerized cargo
makes anexplicit admission as to the weight, measurement marks,
numbers, quality contents, and value, and more so. inscribed
these admissions as stipulations in the bill of lading itself, or
made them an addendum thereto, to which the carrier affixed its
express acknowledgment as what happened in this case. In its
stead, the dictum that the bill of lading shall be prima
facie evidence of the receipt by the carrier of the goods as therein
described 10 governs. We have already held that:
... [a] bill of lading operates both as a receipt
2680 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 receipt, it
recites the date and place of shipment,
BROU describes the goods as to quantity, weight,
dimensions, Identification marks and condition,
quality, and value. As a contract it names the
- contracting parties, which include the
536 consignee, fixes the route, destination, and
freight rates or charges, and stipulates the
rights and obligations assumed by the
parties. 11
In addition, the petitioner contends that it can not possibly be
held liable for the shortage of the containerized goods because
before the same came into its custody the same had already
passed through different hands. And passing the buck, so to
speak, it surmises that the shortfall occurred either in Brisbane,
or on board the carrier, or at the piers (Piers 3 and 13), or at the
consignee's warehouse in Pasig. But wherever, the shortage could
not be blamed on the petitioner.
The petitioner contradicts itself for contrary to these posturings, it
included allegations in its answer that all the containerized
shipments arrived in Manila with the seals intact, 12 and that the
petitioner received the said sealed containers of the shipments,
particularly container No. BROU-4306561 which sustained the
loss of 203 cartons from the arrastre operator, also with the seals
intact. 13 It can therefore be concluded that the petitioner
received all the shipments as itemized in the bill of lading. For the
rule is well-established that the facts alleged in a party's pleading
are deemed admissions of that party and binding upon it. 14
As the petitioner prima facie received all the shipments in the
sealed containers, it has the burden to rebut the conclusion that
it received the same without shortage, It has been authoritatively
said that:
... prima facie evidence is of course, like all
evidence susceptible to rebuttal; but unrebutted
it remains sufficient, as a matter of law to
establish the ultimate proposition it purports to
prove. It goes without saving that such evidence
can only be overcome by contrary proof and not
by mere surmises and speculations. 15
We have gone over the records and we find that the petitioner had
not overthrown this presumption by contrary evidence. Therefore,
the respondent court did not commit any reversible error in
agreeing with the trial court that the loss of the 203 cartons is
attributable to the petitioner.
On this score, the respondent court found that:
 xxx xxx xxx
... The fact remains that on October 13, 1979,
the vessel MS 'Malmroo Monsoon" arrived at
Pier 3 of the Port of Manila and the shipment
was discharged into possession and custody of
the arrastre operator with the seals of the
containers intact on same date (Exh, 'H'). It was
only on October 22, 1979 when defendant
withdrew the containers to be delivered to the
Grech Food Industries Cold Storage arriving at
1:00 o'clock in the morning of the following day
October 23, 1979 that the contents
Container No. BROU 306561 was counted and
there it was discovered that the shipment was
short of 203 cartons (Exhs. 'A', 'D' and 'E'). In
other words, the containers were delivered to
the consignee's warehouse at Grech
Industries Cold Storage in Pasig, Rizal after
more than nine (9) hours which is highly
auspicious as the trip from the piers to Pasig,
takes only one (1) hours and there were (sic) no
heavy traffic along the route. This will militate
against the stand of the defendant that the loss
of the 203 cartons of hard frozen boneless beef
meat occurred while it was outside its custody
as the contrary had been proven by plaintiff. 16
xxx xxx xxx
There being no showing that the respondent court overlooked
certain facts of substance and value, which if taken into account
would affect the result of this case necessitating
reversal, 17 we must deny the petition for review.
Belatedly, the petitioner raises the issue of prescription citing sec.
2(6), paragraph 4 of the Carriage of Goods by Sea Act which
provides:
... the carrier and the ship shall be discharged
from all liability in respect of loss or damage
unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered: ...
This defense had been waived and/or abandoned by the petitioner.
Other than the allegation of prescription in the answer, the
petitioner never pursued this matter either in the
proceedings of the trial court or in the Court of Appeals. The
petitioner can not now be allowed to raise this issue to this Court
after such waiver or abandonment.
Granting arguendo that petitioner can still put up prescription as
its defense, nonetheless it will not prosper considering that the
petitioner is not a carrier or a vessel or a charterer or the legal
holder of the bill of lading. The petitioner is the broker. And the
private respondent is the insurer. The prescriptive period of this
cause of action is ten years. In the present case, ten years have
not yet lapsed from the delivery of the shipment. 18
WHEREFORE, the petition is hereby DENIED. Costs against the
petitioner.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Regalado, JJ.,
concur.
of THIRD DIVISION
[G.R. No. 80256. October 2, 1992.]
BANKERS & MANUFACTURERS ASSURANCE
CORP., Petitioner, v. COURT OF APPEALS, F. E. ZUELLIG &
Food
CO., INC. and E. RAZON, INC., Respondents.
Dollete, Blanco, Ejercito and Associates for Petitioner.
SYLLABUS
1. CIVIL LAW; TRANSPORTATION; SHIPMENT IN CONTAINER;
CARRIERS DUTY IS MERELY TO TRANSPORT. It must be
underscored that the shipment involved in the case at bar was
"containerized." The goods under this arrangement are stuffed,
packed, and loaded by the shipper at a place of his choice, usually
his own warehouse, in the absence of the carrier. The container is
sealed by the shipper and thereafter picked up by the carrier.
Consequently, the recital of the bill of lading for goods thus
its
transported ordinarily would declare "Said to Contain", "Shippers
Load and Count", "Full Container Load", and the amount or
quantity of goods in the container in a particular package is only
prima facie evidence of the amount or quantity which may be
overthrown by parol evidence. A shipment under this arrangement
is not inspected or inventoried by the carrier whose duty is only to
transport and deliver the containers in the same condition as
when the carrier received and accepted the containers for
transport.
2. ID.; ID.; ID.; ID.; RULE ON PRIMA FACIE LIABILITY OF
CARRIER NOT APPLICABLE IN CASE AT BAR. If any of the
vans were found in bad condition, or if any inspection of the goods
was to be done in order to determine the condition thereof, the
same should have been done at pierside, the pier warehouse, or at
any time and place while the vans were under the care and
custody of the carrier or of the arrastre operator. Unfortunately for
petitioner, even as one of the three vans was inspected and
later
stripped, the two other vans were not similarly gone over. Rather,
these two vans and the contents of the one previously stripped
were accepted without exception as to any supposed bad order or
condition by petitioners own broker. To all appearances, therefore,
the shipment was accepted by petitioner in good order. It logically
follows that the case at bar presents no occasion for the necessity
of discussing the diligence required of a carrier or of the theory of
prima facie liability of the carrier, for from all indications, the
shipment did not suffer loss or damage while it was under the
care of the carrier, or of the arrastre operator, it must be added.

DECISION
MELO, J.:
After the Court of Appeals in CA-G.R. CV No. 08226 (July 8, 1987,
Kapunan, Puno (P), Marigomen,JJ.,) affirmed the dismissal by
Branch XVI of the Regional Trial Court of Manila of petitioners
complaint for recovery of the amount it had paid its insured
concerning the loss of a portion of a shipment, petitioner has
interposed the instant petition for review on certiorari.
Petitioner presents the following bare operative facts: 108 cases of
copper tubings were imported by Ali Trading Company. The
tubings were insured by petitioner and arrived in Manila on board
the vessel S/S "Oriental Ambassador" on November 4, 1978, and
turned over to private respondent E. Razon, the Manila arrastre
operator upon discharge at the waterfront. The carrying vessel is
represented in the Philippines by its agent, the other private
respondent, F. E. Zuellig and Co., Inc. Upon inspection by the
importer, the shipment was allegedly found to have sustained
loses by way of theft and pilferage for which petitioner, as insurer,
compensated the importer in the amount of
P31,014.00.chanrobles lawlibrary : rednad
Petitioner, in subrogation of the importer-consignee and on the
basis of what it asserts had been already established - that a
portion of the shipment was lost through theft and pilferage -
forthwith concludes that the burden of proof of proving a case of
non-liability shifted to private respondents, one of whom, the
carrier, being obligated to exercise extraordinary diligence in the
transport and care of the shipment. The implication of petitioners
statement is that private respondents have not shown why they
are not liable. The premises of the argument of petitioner may be
well-taken but the conclusions are not borne out or supported by
the record.
It must be underscored that the shipment involved in the case at
bar was "containerized." The goods under this arrangement are
stuffed, packed, and loaded by the shipper at a place of his choice,
usually his own warehouse, in the absence of the carrier. The
container is sealed by the shipper and thereafter picked up by the
carrier. Consequently, the recital of the bill of lading for goods
thus transported ordinarily would declare "Said to Contain",
"Shippers Load and Count", "Full Container Load", and the
amount or quantity of goods in the container in a particular
package is only prima facie evidence of the amount or quantity
which may be overthrown by parol evidence.
A shipment under this arrangement is not inspected or
inventoried by the carrier whose duty is only to transport and
deliver the containers in the same condition as when the carrier
received and accepted the containers for transport. In the case at
bar, the copper tubings were placed in three containers. Upon
arrival in Manila on November 4, 1978, the shipment was
discharge in apparent good order and condition and from the
piers docking apron, the containers were shifted to the container
yard of Pier 3 for safekeeping. Three weeks later, one of the
container vans, said to contain 19 cases of the cargo, was
"stripped" in the presence of petitioners surveyors, and three
cases were found to be in bad order. The 19 cases of the van
stripped were then kept inside Warehouse No. 3 of Pier 3 pending
delivery. It should be stressed at this point, that the three cases
found in bad order are not the cases for which the claim below
was presented, for although the three cases appeared to be in bad
order, the contents remained good and intact.
The two other container vans were not moved from the container
yard and they were not stripped. On December 8, 1978, the cargo
was released to the care of the consignees authorized customs
broker, the RGS Customs Brokerage. The broker, accepting the
shipment without exception as to bad order, caused the delivery of
the vans to the consignees warehouse in Makati. It was at that
place, when the contents of the two containers were removed and
inspected, that petitioners surveyors reported, that checked
against the packing list, the shipment in Container No.
OOLU2559269 was short of seven cases (see p. 18,
Rollo).chanrobles law library
Under the prevailing circumstances, it is, therefore, not surprising
why the Court of Appeals in sustaining the trial court, simply
quoted the latter, thus:jgc:chanrobles.com.ph
"It must be also considered that the subject container was not
stripped of its contents at the pier zone. The two unstripped
containers (together with the 19 cases removed from the stripped
third container) were delivered to, and received by, the customs
broker for the consignee without any exception or notation of bad
order or shortlanding (Exhs. 1, 2 and 3-Vessel). If there was any
suspicion or indication of irregularity or theft or pilferage,
plaintiffs or consignees representatives should have noted the
same on the gate passes or insisted that some form of protest form
part of the documents concerning the shipment. Yet, no such step
was taken. The shipment appears to have been delivered to the
customs broker in good order and condition and complete save for
the three cases noted as being apparently in bad order.
Consider further that the stripping of the subject container was
done at the consignees warehouse where, according to plaintiffs
surveyor, the loss of the seven cases was discovered. The evidence
is not settled as whether the defendants representatives were
notified of, and were present at, the unsealing and opening of the
containers in the bodega. Nor is the evidence clear how much time
elapsed between the release of the shipment from the pier and the
stripping of the containers at consignees bodega. All these fail to
discount the possibility that the loss in question could have taken
place after the containers had left the pier." (pp. 20-21, Rollo)
Verily, if any of the vans were found in bad condition, or if any
inspection of the goods was to be done in order to determine the
condition thereof, the same should have been done at pierside, the
pier warehouse, or at any time and place while the vans were
under the care and custody of the carrier or of the arrastre
operator. Unfortunately for petitioner, even as one of the three
vans was inspected and stripped, the two other vans were not
similarly gone over. Rather, these two vans and the contents of the
one previously stripped were accepted without exception as to any
supposed bad order or condition by petitioners own broker. To all
appearances, therefore, the shipment was accepted by petitioner
in good order.chanrobles law library : red
It logically follows that the case at bar presents no occasion for the
necessity of discussing the diligence required of a carrier or of the
theory of prima facie liability of the carrier, for from all
indications, the shipment did not suffer loss or damage while it
was under the care of the carrier, or of the arrastre operator, it
must be added.
WHEREFORE, the petition is hereby DISMISSED and the decision
of the Court of Appeals AFFIRMED, with costs against petitioner.
SO ORDERED.
Bidin, Davide, Jr. and Romero, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10051 March 9, 1916
ERLANGER & GALINGER, plaintiffs-appellants,
vs.
THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL., defendants.
THE "OELWERKE TEUTONIA" and NEW ZEALAND INSURANCE
CO. (LTD.), appellants.
Gilbert, Haussermann, Cohn and Fisher for plaintiff-appellant.
Rohde and Wright and Lawrence, Ross and Block for defendant-
appellants.
PER CURIAM:
The facts in this case are as follows:
First. The steamship Nippon loaded principally with copra and
with some other general merchandise sailed from Manila on May
7, 1913, bound for Singapore. Second. The steamship Nippon went
aground on Scarborough Reef about 4.30 in the afternoon of May
8, 1913. Third. Scarborough Reef is about 120 to 130 miles from
the nearest point on the Island of Luzon. Fourth. On May 9, 1913,
the chief officer, Weston, and nine members of the crew left
the Nippon and succeeded in reaching the coast of Luzon at Santa
Cruz, Zambales, on the morning of May 12, 1913. Fifth. On May
12, 1913, the chief officer sent a telegram to Helm, the Director of
the Bureau of Navigation, at Manila, which was as follows:
SANTA CRUZ, ZAMBALES,
May 12, 1913.
DIRECTOR OF BUREAU OF NAVIGATION, Manila.
Nippon stranded on Scarborough Reef, wants immediate
assistance for saving crew boats gone. 12.15 p. m.
(Sgd.) WESTON.
Sixth. On the same day (May 12) at 1.30 p. m., the Government of
the Philippine Islands ordered the coast guard cutter Mindoro with
life-saving appliances to the scene of the wreck of the Nippon .
Seventh. On the same day (May 12) at 3 p. m. the
steamship Manchuria sailed from Manila for Hongkong and was
requested to pass by Scarborough Reef. Eighth.
The Manchuria arrived at Scarborough Reef some time before the
arrival of theMindoro on May 13, 1913, and took on board the
captain and the remainder of the crew. Ninth. The Manchuriawas
still near Scarborough Reef when the Mindoro arrived. The captain
of the Manchuria informed the captain of the Mindoro that the
captain and crew of the Nippon were on board the Manchuria and
were proceeding to Hongkong. Tenth. The captain of
the Mindoro offered to render assistance to the captain and crew
of the Nippon , which assistance was declined
The Mindoro proceeded to the Nippon and removed the balance of
the baggage of the officers and crew, which was found upon the
deck. Eleventh. The Mindoro proceeded to Santa Cruz, Zambales,
where the chief officer, Weston, and the nine members of the crew
were taken on board and brought to Manila, arriving there on May
14, 1913. Twelfth. On May 13, 1913, Dixon, captain of
the Manchuria sent the following message:
S. S. `MANCHURIA', May 13, 1913.
All rescued from the Nippon . Stranded on extreme north
end of shoal. Vessel stranded May 9. She is full of water
fore and aft and is badly ashore. Ship abandoned.
Proceed Hongkong.
(Sgd.) "DIXON.
The captain of the Nippon saw the above message before it was
sent. Thirteenth. On May 14, 1913, the plaintiff applied to the
Director of Navigation for a charter of a coast guard cutter, for the
purpose of proceeding to "the stranded and abandoned
steamer Nippon ." Fourteenth. The coast guard cutter Mindoro was
chartered to the plaintiffs and started on its return to the S.
S. Nippon on May 14, 1913. Fifteenth. The plaintiffs took
possession of the Nippon on or about May 17, 1913, and
continued in possession until about the 1st of July, when the last
of the cargo was shipped to Manila. Sixteenth. The Nippon was
floated and towed to Olongapo, where temporary repairs were
made, and then brought to Manila. Seventeenth.
The Manchuria arrived at Hongkong on the evening of May 14,
1913. When the captain and crew left the Nippon and went on
board of Manchuria, they took with them the chronometer, the
ship's register, the ship's articles, the ship's log, and as much of
the crew's baggage as a small boat could carry. The balance of the
baggage of the crew was packed and left on the deck of
the Nippon and was later removed to the Mindoro, without protest
on the part of the captain of the Nippon , as above indicated.
Eighteenth. The cargo was brought to the port of Manila and the
following values were fixed:
Copra (approximately 1317 tons) valued at, less P142,657.05
cost of sale by Collector of Customs
General cargo sold at customhouse 5,939.68
Agar-agar 5,635.00
Camphor 1,850.00
Curios 150.00
Total 156,231.73
Nineteenth. The ship was valued at P250.000. The plaintiffs' claim
against the ship was settled for L15,000 or about P145,800.
The plaintiffs brought the present action (August 5, 1913;
amended complaint, September 23, 1913) against the insurance
companies and underwriters, who represented the cargo salved
from the Nippon, to have the amount of salvage, to which the
plaintiffs were entitled, determined.
The case came on for trial before the Honorable A. S. Crossfield.
The Oelwerke Teutonia, a corporation, appeared as claimant of the
copra. The New Zealand Insurance Company appeared as insurer
and assignee of the owners of 33 crates of agar-agar; The Tokio
Marine Insurance Company appeared as the insurer and assignee
of 1,000 cases of bean oil and two cases of bamboo lacquer work;
and The Thames and Mersey Marine Insurance Company
appeared as a reinsurer to the extent of P6,500 on the cargo of
copra. The court found that the plaintiffs were "entitled to recover
one-half of the net proceeds from the property salved and sold
(which has nothing to do with the steamship itself), and one-half
the value of the property delivered to the claimants."
Judgment was entered as follows:
 In favor of the plaintiffs, Erlanger & Galinger for one-half
of the net proceeds of sales amounting to P47,298.36
and one-half of the interest accruing thereon, and
against Carl Maeckler for the sum of P925, and against
the New Zealand Insurance Company (Ltd.) for the sum
of P2,800, and against whomever the two cases marked
R W, Copenhagen, were delivered to, and for the sum
of P2,370.68, out of the proceeds of the sale of 1,000
cases of vegetable oil, and in favor of the 'Oelwerke
Teutonia' for the sum of P71,328.53, now deposited with
the Hongkong & Shanghai Banking Corporation, together
with one-half of the interest thereon.
No costs were taxed.
The Oelwerke Teutonia, The New Zealand Insurance Company
(Ltd.), and Erlanger & Galinger appealed from this decision. The
Oelwerke Teutonia made the following assignments of error: "
(I) The court below erred in finding that the plaintiffs are
salvors of the copra in question. (II) The court erred in
holding that the plaintiffs are entitled to recover one-half
of the proceeds of the copra. (III) The court erred in
rendering judgment in favor of the plaintiffs for half of
the proceeds of the copra. (IV) The court erred in
disallowing the defendants' counterclaim. (V) The court
erred in overruling defendant's motion for a new trial."
The New Zealand Insurance Company (Ltd.) made the following
assignments of error:
Now comes the New Zealand Insurance Company (Ltd.),
defendant and appellant in the above-entitled cause, and
avers that in the proceedings in the said cause, in the
Court of First Instance of Manila, there was manifest
error to the prejudice of this appellant, in this, to wit:
(I) That said court found that the plaintiffs are entitled to
one-half of the value of thirty crates of agar-agar
delivered to his appellant; (II) That the said court ordered
judgment in favor of the plaintiffs and against this
appellant for the sum of P2,800; (III) That the said court
denied the motion of this appellant for a new trial.
The appellants, Erlanger & Galinger, made the following
assignments of error:
Error No. 1. The court erred in ruling that the plaintiffs
were not entitled to a reimbursement of their expenses,
out of the gross value of the salved property, before the
division of the remainder into moieties between the
salvors and the claimants. Error No. 2. The court erred
in holding that the cargo and the vessel are equally
chargeable with the expense of salvage. Error No. 3. The
court erred in refusing to award the plaintiffs, out of the
proceeds of the sale of the cargo, the sum of P28,755.86
as compensation and the sum of P98,720 as
reimbursement of expenses, or a total of P127,475.08.
Error No. 4. The court erred in awarding into the
claimaint 'Oelwerke Teutonia' the sum of P17,328.53, or
any part thereof out of the proceeds of the salved cargo.
Error No. 5. The court erred in denying the motion of the
plaintiffs for a new trial."
The assignments of error and the briefs of all of the appellants
raised by three questions: (1) Was the ship abandoned? (2) Was
the salvage conducted with skill, diligence, and efficiency? (3) Was
the award justified?
The general rules and principles governing salvage services and
salvage awards are well settled. This branch of the law of the sea
dates back to the early history of navigation. We find the recorded
in the Laws of Oleron, which were promulgated sometime before
the year 1266, at article IV:
If a vessel, departing with her lading from Bordeaux, or
any other place, happens in the course of her voyage, to
be rendered unfit to proceed therein, and the mariners
save as much of the lading as possibly they can; if the
merchants require their goods of the master, he may
deliver them if he pleases, they paying the freight in
proportion to the part of the voyage that is performed,
and the costs of the salvage. But if the master can
readily repair his vessel, he may do it; of if he pleases, he
may freight another ship to perform his voyage. And if he
has promised the people who help him to save the ship
the third, or the half part of the goods saved for the
danger they ran, the judicatures of the country should
consider the pains and trouble they have been at, and
reward them accordingly, without any regard to the
promises made them by the parties concerned in the
time of their distress. (See 30 Fed. Cas., at page 1172).
The courts of the United States and England have, in a long line of
adjudicated cases, discussed the various phases of this important
subject. In general, salvage may be defined as a service which one
person renders to the owner of a ship or goods, by his own labor,
preserving the goods or the ship which the owner or those
entrusted with the care of them have either abandoned in distress
at sea, or are unable to protect and secure. The Supreme Court of
the United States and the other Federal Courts of the United
States have had occasion numerous times to quote with approval
the following definition from Flanders on Maritime Law:
Salvage is founded on the equity of remunerating private
and individual services performed in saving, in whole or
in part, a ship or its cargo from impending peril, or
recovering them after actual loss. It is a compensation for
actual services rendered to the property charged with it,
and is allowed for meritorious conduct of the salvor, and
in consideration of a benefit conferred upon the person
whose property he has saved. A claim for salvage rests on
the principle that, unless the property be in fact saved by
those who claim the compensation, it can not be allowed,
however benevolent their intention and however heroic
their conduct. (The Job H. Jackson, 161 Fed. Rep., 1015,
1017; The Amelia, 1 Cranch, 1; The Alberta, 9 Cranch,
369; Clarke vs. Dodge Healy, 4 Wash. C. C., 651; Fed.
Cas. No. 2849.)
In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749;
30 Fed. Cas. 4, 5), the court laid down practically the same rule.
The relief of property from an impending peril of the sea,
by the voluntary exertions of those who are under no
legal obligation to render assistance, and the consequent
ultimate safety of the property, constitute a case of
salvage. It may be a case of more or less merit, according
to the degree of peril in which the property was, and the
danger and difficulty of relieving it; but these
circumstances affect the degree of the service and not its
nature.
In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court
said:
Salvage is the compensation allowed to persons by whose
assistance a ship or her cargo has been saved, in whole
or in part, from impending peril on the sea, or in
recovering such property from actual loss, as in case of
shipwreck, derelict, or recapture.
It will be noticed from the above definitions that there are certain
definite conditions which must always exist in a case of pure
salvage. The Supreme Court of the United States, speaking
through Mr. Justice Clifford, in the case of The Mayflower vs. The
Sabine (101 U. S., 384) makes those conditions three (p. 384).
 Three elements are necessary to a valid salvage claim: (1)
A marine peril. (2) Service voluntarily rendered when not
required as an existing duty or from a special contract.
(3) Success, in whole or in part, or that the service
rendered contributed to such success.
These are the general principles governing salvage.
The question whether or not a particular ship and her cargo is a
fit object of salvage depends upon her condition at the time the
salvage services are performed. In the present case the plaintiff-
appellant claims that the Nipponwas a derelict or quasi-derelict
and that their claim should be adjudged upon this cases. A
derelict is defined as "A ship or her cargo which is abandoned and
deserted at sea by those who were in charge of it, without any
hope of recovering it (sine spe recuperandi), or without any
intention of returning to it (sine animo revertendi). Whether
property is to be adjudged derelict is determimed by ascertaining
what was the intention and expectation of those in charge of it
when they quitted it. If those in charge left with the intention of
returning, or of procuring assistance, the property is not derelict,
but if they quitted the property with the intention of finally leaving
it, it is derelict, and a change of their intention and an attempt to
return will not change its nature." (Abbott's Law of Merchant
Ships and Seamen, Fourteenth Edition, p. 994.)
This contention of the plaintiffs raises the first question: (1) Was
the ship abandoned?
The defendant-appellant Oelwerke Teutonia contends that the
captain and the crew did not leave the ship sine animo
revertendi, but that it was their intention to go to Hongkong and
procure assistance with which to save the ship and her cargo.
Whether the intention to return exists in a particular case is
always difficult to determine. It is indeed a rare case when the
master of the ship will leave without the intention of returning, if
there is the slightest hope of saving his vessel. In the case of The
Coromandel (1 Swab., 208) Dr. Lushington said:
It may be perfectly true that the master and these fifteen
men, when they had got on board The Young Frederick,
and were sailing away to Yarmouth, intended, if possible,
to employ steamers to go and rescue the vessel, which
was at no great distance. But is not that the case every
day? A master and crew abandon a vessel for the safety
of their lives; he does not contemplate returning to use
his own exertions, but the master hardly ever abandons
a vessel on the coast without the intention, if he can
obtain assistance, to save his vessel. That does not take
away the legal character of derelict. (Norcross vs. The
Laura, 14 Wall., 336.)
Judge Crossfield found that:
At the time the plaintiff commenced the attempt to salve
what was possible of the S. S. Nippon and cargo, it was
justified, from all the conditions existing, in believing
that it had been abandoned and in taking possession,
even though the master of the vessel intended when he
left it, to return and attempt salvage.
Such intention, if it existed, does not appear to have been
very firmly fixed, considering the leisurely manner in
which the master proceeded after he reached the Port of
Hongkong.
The evidence amply supports this finding. The chief officer,
Weston, upon reaching the coast of Zambales, on May 12, 1913,
sent the following telegram to the Director of the Bureau of
Navigation:
SANTA CRUZ, ZAMBALES,
May 12, 1913.
DIRECTOR OF BUREAU OF NAVIGATION, Manila.
Nippon stranded on Scarborough Reef, wants immediate
assistance for saving crew boats gone 12.15 p. m.
(Sgd.) R. WESTON.
On the evening of the same day Weston sent the following
telegram:
SANTA CRUZ, ZAMBALES,
May 12, 1913.
DIRECTOR OF BUREAU OF NAVIGATION, Manila.
Left with nine hands at noon, 9th, 26 men still on board,
ship well on reef, stern part afloat, about ten feed of
water in holds, starboard list, heavy swell breaking over,
little hope of saving ship 6.27 p. m.
(Sgd.) WESTON.
On May 13, 1913, Captain Dixon of the S. S. Manchuria, after
rescuing the remainder of the crew, left on board the Nippon , sent
the following telegram to the Director of Navigation.
S. S. `MANCHURIA,' May 13, 1913.
All rescued from the Nippon . Stranded on extreme north
end of shoal. Vessel stranded May 9th. She is full of
water fore and aft, and is badly ashore. Ship abandoned.
Proceeding Hongkong 9.40 a. m.
(Sgd.) DIXON, Master.
On May 14, 1913, after the members of the crew who came ashore
with Weston had reached Manila, they made the following signed
statement:
MANILA, P. I., May 14, 1913.
We, the undersigned officers and part of the crew of the
Swedish steamer Nippon, do hereby declare that the S.
S. Nippon struck on Scarborough Reef, about 4.30 on the
afternoon on Thursday May 8 1913. Two of her boats
were lost after we struck the reef, leaving only two on
board and those damaged. The ship was filled with water
and pounding on the reef and we considered her a wreck.
In company with the chief officer, we left the ship about
noon on Friday, May 9, 1913, in a small boat and
reached Sta. Cruz Zambales, a distance of 130 miles on
the morning of Monday, May 12, 1913, and immediately
the chief officer wired the Director of Navigation at
Manila for assistance to rescue the balance of the crew
left aboard the Nippon, as we considered their lives in
danger and the ship a wreck, with little hope of saving
her.
(Signed.)
F. Carman A.G. Erickson
G.E. Johansson F. Palm
W. Bratt J. Karlberg
B. Nyolram E. Thulin
E. Petterson
On May 16, 1913, Captain Anderson of the Coast Guard
cutter Mindoro made the following report to the Director of
Navigation.
 Q. By 'all' you mean yourself, passenger, and all the
S.S. Mindoro
members of the crew that remained?
Manila, P.I., May 16, 1913
A. Yes.
Sir Q. What did you take with you?
I have the honor to make he following report of voyage A. Just personal luggage, not all, what you could
made to Scarborough Reef, May 12 to 14, 1913 for carry in a small boat, it could not be very much
officers and crew of S.S. Nippon. considering that the boat was broken and there were 27
May 13, 1913, being 2 1/2 miles sought of reef, I men, the ship's chronometer and ship's papers.
observed S. S. Nippon stranded on the N. E. edge of reef. Q. What do you mean by `ship's papers'?
I immediately steered northward around the western A. Register, articles.
edge of reef and arrived of stranded ship at 9.30 a. m. S.
Q. Did you take the ship's log?
S. Manchuria was laying to about 1 1/2 miles northward
of reef, making signals for me to come alongside. I A. Yes; that is the first thing I take.
immediately proceeded out to the Manchuria; upon Q. That is the first thing you take under what
arrival alongside the Manchuria the captain of the same circumstances?
ship informed me that the S. S. Nippon was abandoned A. Under any circumstances of accidents to the ship;
and that he had the captain and crew on board for because it is the official record up to the time an
Hongkong. I then asked the captain of the Manchuria if accident happens.
the captain of the Nippon cared to go to Hongkong, as I Q. Do you mean to state, captain, that in the event of
was there to bring him and the crew to Manila if he any accident to a ship, no matter how slight, that the
desired to go. The captain of theManchuria again ship's log and register and articles are taken ashore?
informed me that the captain of the Nippon intended to
A. The ship's log on any occasion has to be brought
go to Hongkong. I answered `All right, I will then go and before the Swedish Consul.
have a look at the Nippon and see how badly she is
Q. How about the register and articles?
wrecked.' The captain of theManchuria made the remark
that she was half full of water and that she was very A. Of course not.
badly wrecked, but that there was still some baggage left Q. Under what circumstances do you take ashore the
on broad. He also informed me that he had a wire from ship's articles and register?
the Director of Navigation ordering me to proceed to A. When I leave the ship myself I have, of course, to
Santa Cruz to pick up boat's crew from Nippon . I said, take those papers with me.
`All right. I will go and get baggage and have a look at the Q. Every time you leave the ship?
wreck.' I then left the Manchuria and steamed over to the
A. No. Every time when I leave it stranded as she
wreck. On arrival alongside of the wreck I took on board
was. If I go on shore and try to get means for taking my
all baggage packed standing on deck and sounded
ship off the ground, I have to prove what ship it is and all
around the ship, fore and aft, finding 11 feet of water
that. In the meantime a gale may come up and the ship
forward at low water and 20 feet aft in board, gradually
be torn off the rock and destroyed and the papers lost."
decreasing from forward to aft and I found in holds about
(P. 336.) Q. What were the conditions prevailing aboard
8 feet of water and the cargo as far as I could see, on top,
the ship from the time that she stranded until
was nice and dry, and it is my opinion that with the
theManchuria arrived?
position the ship is laying in and with the Southwest
monsoon blowing the ship and most of the cargo can be A. The first night there was very bad sea and high
salved, if work is started before the heavy typhoon wind. The ship was came so much better than we could
season sets in. After leaving the wreck, I proceeded to send the boat off about 11 o'clock in the forenoon by
Santa Cruz and picked up the first officer and crew of using precautions, oil, etc. The third and fourth day the
nine men and brought them to Manila. weather was fine.
On my second trip to the wreck, May 15th, I (P. 337.) Q. And do you now admit that you were
examined Nippon more fully and I believe that if the mighty glad to get off the Nippon ?
cargo is taken out the ship can be saved after the holes A. We were all mighty glad.
are pathed up, if this is done before the heavy weather Q. Why were you mighty glad?
sets in.
A. Chiefly because the crew had insisted on leaving
Very respectfully, the ship in some way, by building rafts, or in that boat of
ours. And secondly because of the uncertainty. We did
(Sgd.) GEO. ANDERSON,
not know if our boat had reached shore. The scene of the
Captain, 'Mindoro.'
accident was quite out of the track of any vessel, so it
THE DIRECTOR OF NAVIGATION, Manila. was quite natural when we saw that ship coming up we
Copy sent Struckman & Company, May 16, 1913. were glad to get into communication with the outside
world.
(Sgd.) "A. S. Thompson, chief clerk.
Q. You say that the crew had insisted on leaving the
The testimony of Captain Eggert of the Nippon regarding the
ship?
circumstances of the wreck, is as follows: (2d part of record, p.
327). "(P. 334.) A. They were not insisting on it because they can not
insist against the master of a ship. But they would like to
Q. When the Manchuria visited the scene of the
get off.
wreck on May 13, how many of you went on board?
Q. Why were they discussing the question?
A. We all went on board.
 A. Because they considered it better to leave the ship
and reach land rather than stay on the ship, not
knowing if the boat had reached land or not.
Q. They considered it better for what purpose?
A. Being safe.
Q. You mean better from the standpoint of safety of
their life and limb?
A. Yes. To their lives.
(P. 343.) Q. Captain, if your purpose in leaving
the Nippon was to go to Hongkong for the purpose of
arranging for her salvage, why did you not leave some of
the crew on board?
A. How could I leave some of the crew on board when
there was no attendant? There could be a gale at any
time and the ship would have slipped off and broken to
pieces. I first of all was responsible for their lives."
(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you
not leave the Nippon , with the intention of returning and
the hope of recovering your ship and cargo?
A. I left the Nippon with the full intention of
returning to the ship and try to recover her, and I
discussed that matter during the three days we were on
the reef with every member I could see in the crew, and
with the passenger. Everybody knew as soon as I put my
foot on the Manchuria it was for the purpose of getting
assistance. Captain Dixon knew, his officers knew it, and
his crew knew it.
(Mr. Cohn.) You have not fully replied to the question
asked you by counsel for the defendant, which is whether
you had the hope of recovering the ship.
A. I had hope if the weather continued fine.
(Mr. Cohn.) If you had that hope why didn't you leave
some of your crew on board?
A. Because the hope would not justify me leaving any
of the crew on the ship.
(Mr. Cohn.) Your hope was so slight it did not warrant
your leaving anybody on board?
A. A hope is always slight. I mean to say your hope
will never justify you to risk another man's life, even if
you have a very good foundation for your hope. Life
comes before property.
(Mr. Cohn.) Just what do you mean by "hope"?
A. I mean to say that if the weather continues fine
there is no risk, but if there is a typhoon or gale we will
be worse off and the ship will be smashed and the crew
perish. That is what I mean by a "hope" in this occasion.
(Mr. Cohn.) What you mean, Captain, is that you were
going to Hongkong and if you could find some one that
was willing to go out and look for your ship, and if your
ship was still there, that you would undertake to salve
her if you could.
A. Of course.
Chief Engineer Emil Gohde was asked why the crew wanted to get
ashore.
(P. 353.) Q. Why did they want to get to shore?
A. They wanted to save their lives. We didn't know
the weather in the China Sea. We could have expected a
typhoon in a couple of days and very likely the ship
would have gone into the sea.
Captain Eggert sent the following cablegram to the
owners of the Nippon , after reaching Hongkong on May
14, 1913:
(P. 360.) Nippon wrecked during typhoon eight May
Scarborough Shoal latitude 15 longitude 118 probably
total wreck bottom seriously damaged ship full of water
chief officer and nine men took to boat for rescue landed
twelfth Luzon mailsteamer Manchuria saved captain and
remaining crew morning thirteenth. Arrived Hongkong
tonight. Wreck on edge of reef, will probably slip off and
sink by first gale captain arranging to visit wreck and
attempt salvage.
EGGERT.
Captain Eggert did not make any determined effort to arrange for
the salvage of the Nippon, as will be seen from the testimony.
(P. 330. Captain Eggert testifying).
Q. What did you do upon your arrival in Hongkong?
A. The first thing I did it was about 5 o'clock in the
afternoon I went to the office of our agents my
owners' agents. It was then close up so I had to proceed
to the private residence of the manager. From there I
dispatched a telegram to the owners.
xxx xxx xxx
Q. What date was this telegram sent?
A. On the evening of the 14th.
Q. Of what month?
A. Of May.
Q. Did you enter into any negotiations with persons
or firms?
A. Yes. The first thing in the morning of the 15th I
visited together with the Swedish Consul the Tykoo
dockyard people, the Hongkong dockyard people, and
went to the Mitsui Bussan Kaisha branch office, and
those people sent a wire to their home office in Nagasaki.
Q. What, if anything, interrupted your negotiations
with the firms and persons in Hongkong relative to the
salvage of the Nippon and her cargo?
A. A wire from my owners.
xxx xxx xxx
Q. When was this telegram received by you, Captain?
A. On the 17th.
Q. What did you do then?
A. I tried to find out when the next steamer was
leaving for Manila and there was none leaving before the
20th, the steamer I took and proceeded here.
From the above it will be seen that Capt. Eggert had over two days
in which to arrange for salvage operations and he did nothing,
while the plaintiffs, who were strangers and had no interest, sent
out a salvage expedition in twenty-four hours after they discovered
that the ship was wrecked.
The evidence proves that the Nippon was in peril; that the captain
left in order to protect his life and the lives of the crew; that
the animo revertendi was slight. The argument of the defendant-
appellant to the effect that the ship was in no danger is a bit out
of place in view of the statement of the captain that she would
sink with the first gale, coupled with the fact that a typhoon was
the cause of her stranding.
The Federal Courts have, a number of times, had presented to
them cases in which the facts were very similar to the facts in the
present case. The claim for salvage was allowed in each of these
cases. In The Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts
were as follows: The Bee sailed from Boston to Nova Scotia. Three
days after leaving port a gale was encountered which forced her to
run into a cove on the north side of Grand Manan Island, where
an anchor was let out. The ship was somewhat injured from the
force of the storm. The master and the crew stayed on board for 24
hours and then went ashore to procure assistance. The island was
very sparsely settled. They met on shore a number of men (the
libelants) to whom they explained the predicament and position of
the ship. These men immediately went to the ship, boarded her,
and took possession. After the master had been ashore about five
hours he returned to the ship and found the libelants in
possession. The owners contended that the master was excluded
from the ship wrongfully and therefore the libelants could not
claim salvage. The court stated the law as follows (p. 44):
When a vessel is found at sea, deserted, and has been
abandoned by the master and crew without the intention
of returning and resuming the possession, she is, in the
sense of the law, derelict, and the finder who takes the
possession with the intention of saving her, gains a right
of possession, which he can maintain against the true
owner. The owner does not, indeed, renounce his right of
property. This is not presumed to be his intention, nor
does the finder acquire any such right. But the owner
does abandon temporarily his right of possession, which
is transferred to the finder, who becomes bound to
preserve the property with good faith, and bring it to a
place of safety for the owner's use; and he acquired a
right to be paid for his services a reasonable and proper
compensation, out of the property itself. He is not bound
to part with the possession until this is paid, or it is
taken into the custody of the law, preparatory to the
amount of salvage being legally ascertained. Should be
salvors meet with the owner after an abandonment, and
he should tender his assistance in saving and securing
the property, surely this ought not, without good
reasons, to be refused, as this would be no bar to the
right of salvage, and should it be unreasonably rejected it
might affect the judgment of a court materially, as to the
amount proper to be allowed. Still, as I understand the
law, the right of possession is in the salvor. But when the
owner, or the master and crew who represent him, leave
a vessel temporarily, without any intention of a final
abandonment, but with the intent to return and resume
the possession, she is not considered as a legal derelict,
nor is the right of possession lost by such temporary
absence for the purpose of obtaining assistance,
although no individual may be remaining on board for
the purpose of retaining the possession. Property is not,
in the sense of the law, derelict and the possession left
vacant for the finder, until the spes recuperandi is gone,
and the animus revertendi is finally given up. (The Aquila,
1 C. Rob. Adm., 41.) But when a man finds property
thus temporarily left to the mercy of the elements,
whether from necessity or any other cause, though not
finally abandoned and legally derelict, and he takes
possession of it with the bona fide intention of saving it
for the owner, he will not be treated as a trespasser. On
the contrary, if by his exertions he contributes materially
to the preservation of the property, he will entitle himself
to a remuneration according to the merits of his service
as a salvor.
The court allowed salvage in this case. They held that the master
had taken insufficient precautions to protect his vessel and
although the ship was not a legal derelict, the libelants were
salvors and entitled to salvage.
In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the
ship John Gilpin, in attempting to leave New York harbor in a
winter storm, was driven ashore. The ship's crew sent for help and
in the meantime put forth every effort to get her off. Help arrived
toward evening, but accomplished nothing. The master and crew
went ashore. The same night the libelants went out to the ship
with equipment and started working. It was contended that the
master had gone ashore for assistance. He returned the next
morning with a tug and some men and demanded possession,
which was refused. Salvage was allowed. The court said (p. 676):
The libelants, in the exercise of their calling as wreckers,
coming to a vessel in that plight, would be guilty of a
dereliction of duty if they failed to employ all their means
for the instantaneous preservation of property so
circumstanced. This may not be strictly and technically a
case of derelict (Clarke vs. The Dodge Healy, Case No.
2849), if really the master of the brig had gone to the city
to obtain the necessary help to save the cargo and brig,
intending at the time, to return with all practicable
dispatch. It appears he came to the wreck by 8 or 9 a. m.
the following day, in a steam-tug, with men to assist in
saving the cargo. The animus revertendi et
recuperandi may thus far have continued with the
master, but this mental hope or purpose must be
regarded inoperative and unavailing as an actual
occupancy of the vessel, or manifestation to others of a
continuing possession. She was absolutely deserted for
12 or 14 hours in a condition when her instant
destruction was menaced, and the lives of those who
should attempt to remain by her would be considered in
highest jeopardy. She was quite derelict; and being thus
found (The Boston, Case no. 1673; Rowe vs. The Brig,
Case no. 12093; 1 Sir Lionel Jenkins, 89) by the
libelants, the possession they took of her was lawful.
(The Emulous, Case No. 4480.)
Possession being thus taken when the vessel was, in
fact, abandoned and quite derelict, under peril of instant
destruction, the libelants had a right to retain it until the
salvage was completed, and no other person could
interfere against them forcibly, provided they were able to
effect the purpose, and were conducting the business
with fidelity and vigor.
In The Shawmut (155 Fed. Rep., 476) the court allowed salvage
upon the following facts: The four-masted schooner Myrtle
Tunnel sailed from Brunswick bound for New York. The first day
out a hurricane struck her and tore the sails away and carried off
the deck load. She was badly damaged and leaking. The master of
the Myrtle Tunnel requested towage by the steamship Mae to the
port of Charleston. The Mae, on account of her own damaged
condition, was unable to tow but she took the master and crew of
the Myrtle Tunnel off and landed them at Charleston. The owners
were notified and they started an expedition out in search. Before
this expedition reached her, the steamship Shawmut sighted
the Myrtle Tunnel, and, finding that she was abandoned and
waterlogged, took her in two and succeeded in taking her to
Charleston. The owners of the Myrtle Tunnelcontended that she
was not derelict, because the master had gone ashore to procure
assistance. With reference to this question, the court said (p. 478):
The first question that arises is whether the Myrtle
Tunnel is a derelict. Prima facie a vessel found at sea in a
situation of peril, with no one aboard of her, is a derelict;
but where the master and crew leave such vessel
temporarily, without any intention of final abandonment,
for the purpose of obtaining assistance, and with the
intent to return and resume possession, she is not
technically a derelict. It is not of substantial importance
to decide that question. She was what may be called a
quasi-derelict; abandoned, helpless, her sails gone,
entirely without power in herself to save herself from a
 situation not of imminent, but of considerable peril; lying
about midway between the Gulf Stream and the shore,
and about 30 miles from either. An east wind would have
driven her upon one, and a west wind into the other,
where she should have become a total loss. Lying in the
pathway of commence, with nothing aboard to indicate
an intention to return and resume possession, it was a
highly meritorious act upon the part of the Shawmut to
take possession of her, and the award must be governed
by the rules which govern in case of derelicts; the
amount of it to be modified in some degree in the interest
of the owners in consideration of their prompt,
intelligent, and praiseworthy efforts to resume
possession of her, wherein they incurred considerable
expense.
The first of these cases was decided in 1836 and the last in 1907.
The indicate that the abandonment of a vessel by all on board,
when the vessel is in peril, will justify third parties in taking
possession with the bona fide intention of saving the vessel and its
cargo for its owners. The mental hope of the master and the crew
will in no way affect the possession nor the right to salvage. See
also The Hyderabad (11 Fed. Rep., 749), The Cairnsmore (20 Fed.
Rep., 519), Pearce vs. The Ann L. Lockwood (37 Fed. Rep., 233).
This brings us to the second question raised by the assignments
of error: (2) Was the salvage conducted with skill, diligence, and
efficiency? The court found:
While the plaintiff entered upon the salvage proceedings
without proper means and not being adapted by their
business to conduct their work, and while it may appear
that possibly the salvage might have been conducted in a
better manner and have accomplished somewhat better
results in the saving of the copra cargo, yet it appears
that they quickly remedied their lack of means and
corrected the conduct of the work so that it
accomplished fairly good results.
It does not appear from the evidence that anyone then or
subsequently suggested or found any other course which
might have been pursued and which would have brought
better results.
There was some dispute whether Manila or Hongkong should be
used as a base for operations. Capt. Robinson, who was the only
one of the experts who had had any experience in handling wet
copra, unqualifiedly approved Manila as a base for operations. (P.
437, 3d part of record):
Q. Assuming that you had been asked to undertake
the work of salving the steamer Nippon and her cargo,
please state whether you would have undertaken that
work with the men and material available in Manila, or
whether you would have gone to Hongkong and used
Hongkong men and material and made Hongkong your
base on operations.
A. Certainly not. I would have made Manila my base,
which I always have done.
Lebreton, a stevedore, testified that he would have gotten some of
his materials from Hongkong but that he would have freighted the
salved cargo to Manila. All other things being equal, the fact that
Hongkong is forty sailing hours from Scarborough Reef while
Manila is less than twenty-four sailing hours would make Manila
by far the more logical base.
The plaintiffs sent men into the hold of the ship and sacked the
copra and brought it to Manila where it was sold. Some of the
witnesses contended that other methods should have been used.
They testified that "grabs" or "claim shells" would have brought
better results, but none of these witnesses had had any
experience in unloading wet copra. Capt. Robinson was the only
witness called who had had any experience in this class of work.
He testified that the only way all the copra could be gotten out
was by sacks or by canvas slights; that "grabs" would be of no use
because of the inability to work with them between decks. The
copra was in three layers. The top layer was dry, the middle layer
was submerged every time the tide rose, and the lower layer was
submerged all of the time. It was manifestly impossible to keep
these layers separate by using "grabs" or "clam shells." The fact
that wet copra is exceedingly difficult to handle, on account of the
gases which arise from it, is also of prime importance in weighing
the testimony of defendant's witnesses, because none of them had
ever had experience with wet copra.
The plaintiffs commenced the actual work of salving the ship and
cargo on May 18, 1913. The last of the cargo was a brought to
Manila the latter part of June. The last of the dry copra was
brought to Manila on June 5. The estimates of the experts with
regard to the time necessary to remove the cargo ranged from
eight to twenty days. The greater portion of the cargo was brought
in by the plaintiffs within fifteen days. The delay after June 5 was
due to the difficulty in inducing laborers to work with wet copra.
This difficulty would have arisen with any set of salvors and
cannot be attributed to a lack of care or diligence on the part of
the plaintiffs.
The plaintiffs were diligent in commencing the work and were
careful and efficient in its pursuit and conclusion.
The third and last question is with regard to the amount of the
award (3) Was the award justified?
Compensation as salvage is not viewed by the admiralty
courts merely as pay on the principle of quantum
meruit or as a remuneration pro opere et labore, but as a
reward given for perilous services, voluntarily rendered,
and as an inducement to mariners to embark in such
dangerous enterprises to save life and property. (The
Mayflower vs. The Sabine, 101 U. S., 384.)
The plaintiff-appellant contends that the expenses incurred
should be deducted from the entire amount of the salved property
and the remainder be divided as a reward for the services
rendered. This contention has no basis in the law of salvage
compensation. The expenses incurred by the plaintiffs must be
borne by them. It is true that the award should be liberal enough
to cover the expenses and give an extra amount as a reward for
the services rendered but the expenses are used in no other way
as a basis for the final award. A part of the risk that the plaintiffs
incurred was that the goods salved would not pay them for the
amount expended in salving them. The plaintiffs knew this risk
and they should not have spent more money than their reasonable
share of the proceeds would amount to under any circumstances.
In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the
actual expenditure by the libelant in salving the vessel in question
was $568.95. The ship when sold brought $792. The libelant
wanted the court to first deduct the expenses. The court refused
to do this but decreed a moiety. The court said (p. 86):
A salvor, in the view of the maritime law, has an interest
in the property; it is called a lien, but it never goes, in
the absence of a contract expressly made, upon the idea
of a debt due by the owner to the salvor for services
rendered, as at common law, but upon the principle that
the service creates a property in the thing saved. He is,
to all intents and purposes, a joint owner, and if the
property is lost he must bear his share like other joint
owners.
This is the governing principle here. The libelant and the
owners must mutually bear their respective share of the
loss in value by the sale. If the libelant has been
unfortunate and has spent his time and money in saving
 a property not worth the expenditure he made, or if,
having saved enough to compensate him, it is lost by the
uncertainties of a judicial sale for partition, so to speak,
it is a misfortune not uncommon to all who seek gain by
adventurous speculations in values. The libelant says in
his testimony that he relied entirely on his rights as a
salvor. This being so he knew the risk he ran and it was
his own folly to expend more money in the service than
his reasonable share would have been worth under all
circumstances and contingencies. He can rely neither on
the common law idea of an implied contract to pay for
work on and about one's property what the work is
reasonably worth with alien attached by possession for
satisfaction, nor upon any notion of an implied maritime
contract for the service, with a maritime lien to secure it,
as in the case of repairs, or supplies furnished a needy
vessel, or the like. In such a case the owner would lose
all if the property did not satisfy the debt, when fairly
sold. But this doctrine has no place in the maritime law
of salvage. It does not proceed upon any theory of an
implied obligation, either of the owner or the res, to pay
a quantum meruit, nor actual expenses incurred, but
rather on that of a reasonable compensation or reward,
as the case may be, to one who has rescued the res from
danger of total loss. If he gets the whole, the property
had as well been lost entirely, so far as the owner is
concerned. (Smith vs. The Joseph Stewart, Fed. Cas. No.
13070.) I think the public policy of encouragement for
such service does not, of itself, furnish sufficient support
for a rule which would exclude the owner from all benefit
to be derived from the service.
In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas.,
1350) the court said (p. 1353):
The claim of the libelants is for salvage, the services
rendered were salvage services and the owners are to
receive their property again, after paying salvage for the
services rendered them. What service would it be to them
to take their property under circumstances calling for the
whole of it by way of indemnity? The mistake of the
captain and the supercargo, and part owner of
the Triton as to the value of the property on board
the Adolphe, should not operate to the injury of the
owners thereof; the salvors must bear the consequences
of their own mistake, taking such a proportion only of
the property salved, as by the law of the admiralty
should be awarded them.
In The Edwards (12 Fed. Rep., 508, 509), the court said:
It is true that in rendering a salvage service the salvor
assumes the risks of failure, and his salvage depends
upon his success and the amount of property saved; yet
when there is enough to fully compensate him for time
and labor, and leave a reasonable proportion for the
owner, he should certainly be awarded that, if the
amount will allow no more.
In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:
Without regard to the element of reward which is
intended by the salvage allowance, it is manifest that
remuneration pro opere et labore would be placed in
excess of the fund here, if such basis were allowable.
Therefore, it is contended on behalf of the libelant that
the entire sum remaining should be awarded for the
salvage service;. . . .
While salvage is of the nature of a reward of meritorious
service, and for determination of its amount the interests
of the public and the encouragement of others to
undertake like service are taken into consideration, as
well as the risk incurred, and the value of the property
saved, and where the proceeds for division are small, the
proportion of allowance to the salvor may be enlarged to
answer these purposes, nevertheless, the doctrine of
salvage requires, as a prerequisite to any allowance, that
the service `must be productive of some benefit to the
owners of the property salved; for, however meritorious
the exertions of alleged salvors may be, if they are not
attended with benefit to the owners, they can not be
compensated as such.' (Abb. Shipp. [London Ed., 1892],
722.) The claim of the libelant can only be supported as
one for salvage. It does not constitute a personal
demand, upon quantum meruit, against the owners, but
gives an interest in the property saved, which entitles the
salvor to a liberal share of the proceeds. . . .
(P. 747.) One of the grounds for liberality in salvage
awards is the risk assumed by the salvor, that he can
have no recompense for service or expense unless he is
successful in the rescue of property, and that his reward
must be within the measure of his success. He obtains
an interest in the property, and in its proceeds when
sold, but accompanied by the same risk of any
misfortune or depreciation which may occur to reduce its
value. In other words, he can only have a portion, in any
event; and the fact that his exertions were meritorious
and that their actual value, or the expense actually
incurred, exceeded the amount produced by the service,
cannot operate to absorb the entire proceeds against the
established rules of salvage. (The Carl Schurz, Fed. Cas.
No. 2414).
The plaintiff-appellants contends that the award of the lower court
of one-half is the established rule in cases of derelicts and should
not be disturbed. It is well established now that the courts have a
wide discretion in settling the award. The award is now
determined by the particular facts and the degree of merit. In The
Job H. Jackson(161 Fed. Rep., 1015, 1018), the court said:
There is no fixed rule for salvage allowance. The old rule
in cases of a derelict was 50 per cent of the property
salved; but under modern decisions and practice, it may
be less, or it may be more. The allowance rests in the
sound discretion of the court or judge, who hears the
case, hears the witnesses testify, looks into their eyes,
and is acquainted with the environments of the
rescue. . . . An allowance for salvage should not be
weighed in golden scales, but should be made as a
reward for meritorious voluntary services, rendered at a
time when danger of loss is imminent, as a reward for
such services so rendered, and for the purpose of
encouraging others in like services.
In The Lamington (86 Fed. Rep., 675, 678), the court said:
While it appears most clearly that, since the old hard
and fast rule of `50 per cent of a derelict' was abandoned,
the award is determined by a consideration of the
peculiar facts of each case, it is none the less true that
the admiralty courts have always been careful not only to
encourage salving enterprises by liberality, when
possible, but also to recognize the fact that it is, after all,
a speculation in which desert and reward will not always
balance.
The award is largely in the discretion of the trial court and it is
rare that the appellate court will disturb the findings.
Appellate courts rarely reduce salvage awards, unless
there has been some violation of just principles, or some
clear or palpable mistake. They are reluctant to disturb
 such award, solely on the ground that the subordinate
court gave too large a sum, unless they are clearly
satisfied that the court below made an exorbitant
estimate of the services. It is equally true that, when the
law gives a party a right to appeal, he has the right to
demand the conscientious judgment of the appellate
court on every question arising in the case, and the
allowance of salvage originally decreased has, in many
cases, been increased or diminished in the appellate
court, even where it did not violate any of the just
principles which should regulate the subject, but was
unreasonably excessive or inadequate. (Post vs. Jones,
19 How., 161). Although the amount to be awarded as
salvage rests, as it is said, in the discretion of the court
awarding it, appellate courts will look to see if that
discretion has been exercised by the court of first
instance in the spirit of those decisions which higher
tribunals have recognized and enforced, and will readjust
the amount if the decree below does not follow in the
path of authority, even though no principle has been
violated or mistake made.
The property of the defendant-appellants which was salved was
forced to pay the same proportion of the award without
distinction. The day copra and the agar-agar was salved with
much more ease than the wet copra. The courts have, almost
universally, made a distinction in this regard. In The America (1
Fed. Cas., 596), decided in 1836, the award was as follows: 25 per
cent on cargo salved dry; 50 per cent on cargo salved damaged; 60
per cent on cargo salved by diving.
In The Ajax (1 Fed. Cas., 252(, decided in 1836, the award was as
follows: 33 per cent on the dry; 50 per cent on the wet; 50 per cent
on ship's materials. In The Nathaniel Kimball (Fed. Cas. No.
10033), decided in 1853, the award was as follows: 30 per cent on
dry cargo; 50 per cent on wet, salved by diving and working under
water.
In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award
was as follows: 33 per cent, and as to some cargo where diving
was necessary, 60 per cent.
In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award
was as follows: 25 per cent salving dry deck cotton; 45 per cent
salving cotton submerged between decks; 55 per cent salving
cotton by diving.
In The John Wesley (Fed. Cas. No. 7433), decided in 1866, the
award was as follows: 15 per cent; on damaged cotton a slightly
higher per cent.
In The Northwester (Fed. Cas. No. 10333), decided in 1873, the
award was as follows: 20 per cent on cotton dry; 33 1/3 per cent
on cotton wet and burnt; 40 per cent on materials; 50 per cent on
property salved by diving.
In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537),
decided in 1887, the award was as follows: 25 per cent on dry
cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials.
In the cases in which the full award of 50 per cent was allowed the
court usually made the comment: "services highly meritorious,"
"meritorious service," "with great labor and difficulty," or similar
remarks.
In the salvage operations conducted by the plaintiff, the following
property was involved:
First, the steamship Nippon , valued at P250,000.00
Second, copra, net value, salved 142,657.05
Third, agar-agar, net value, salved 5,635.00 VICENTE MADRIGAL, defendant-appellee.
Fourth, general cargo 5,939.68
Fifth, camphor, net value, salved 1,850.00
Sixth, curios, net value, salved 150.00
The plaintiff and the owners of the ship have heretofore, by
mutual agreement, settled the question of the amount of salvage
of the ship. The plaintiff received for that part of their services the
sum of L15,000 or about P145,800.
No appeal was taken from the judgment of the lower court
concerning the amount of salvage allowed by it for the general
cargo, the camphor, nor the curios salved.
The only question raised by the appellants is as to the amount of
salvage which should be awarded to the plaintiff-appellants for the
copra and the agar-agar. After a careful study of the entire record
and taking into account the amount which the plaintiffs has
heretofore received, we have arrived at the conclusion that in
equity and justice the plaintiff-appellants should receive for their
services the following amounts:
(a) 40 per cent of the net value of the wet copra salved.
(b) 25 per cent of the net value of the dry copra salved.
(c) 20 per cent of the net value of the agar-agar salved.
The net value of the wet copra salved amounted to P40,381.94; 40
per cent of that amount would be P16,152.78. The net value of the
dry copra salved amounted to P102,272.11; 25 per cent of that
amount would be P25,568.77.
In ascertaining the net value of the copra salved, the expenses
incurred by the Collector of Customs in the sale of the copra,
amounting to P4,080.01, has been deducted from the total
amount of the copra salved in the proportion of 2.5 to 1. Dividing
the expense in that proportion we have deducted from the amount
of the dry copra salved the sum of P2,914.39, and from the
amount of the wet copra salved, the sum of P1,165.62.
The net value of the agar-agar salved amounted to P5,636; 20 per
cent of that amount would be P1,127.
In view of all of the foregoing, it is hereby ordered and decreed
that the judgment of the lower court be modified, and that a
judgment be entered against the defendant-appellants and in favor
of the plaintiff-appellant, as follows: First, it is hereby ordered and
decreed that a judgment be entered against the defendant, the
Oelwerke Teutonia, and in favor of the plaintiff in the sum of
P41,721.55. Second, it is further ordered and decreed that a
judgment be entered against the defendant, the New Zealand
Insurance Company (Ltd.), and in favor of the plaintiff, in the sum
of P1,127. Third, it is further ordered and decreed that the
amount of the judgment hereinbefore rendered in favor of the
plaintiff be paid out of the money which is now under the control
of the Court of First Instance of the city of Manila. And without
any finding as to costs, it is so ordered.
Arellano, C.J., Torres, Johnson, Carson, and Trent, JJ.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15871 November 7, 1921
THE ATLANTIC, GULF & PACIFIC COMPANY OF MANILA and
SIMMIE & GRILK, plaintiffs-appellants,
vs.
UCHIDA KISEN KAISHA and MITSUI BUSSAN
KAISHA, defendants-appellants.
Kincaid, Perkins & Kincaid for plaintiffs and appellants.
Cohn & Fisher for defendants and appellants.
Felix M. Roxas and Williams & Ferrier for appellee.
JOHNSON, J.:
This action was commenced by the plaintiffs in the Court of First
Instance of the city of Manila to recover from the defendants the
sum of P300,000 as compensation for the salvage of the
steamship Kyodo Maru and part of her cargo, in Manila Bay, in the
months of October and November, 1918. Judgment was rendered
in favor of the plaintiffs and against the defendants Uchida Kisen
Kaisha and Mitsui Bussan Kaisha in solidum for the sum of
P14,000 and for costs. The action was dismissed as regards the
defendants Vicente Madrigal, the owner of the cargo. From that
judgment the plaintiffs and the defendants Uchida Kisen Kaisha
and Mitsui Bussan Kaisha appealed to this Court.
It appears from the record that on the 21st day of October, 1918,
while the steampship Kyodo Maru was discharging a cargo of coal,
the property of the defendant Vicente Madrigal, in the harbor of
Manila, inside the breakwater, one of the lighters alongside said
vessel sank. In swinging with the tide, the Kyodo Maru came
violently in contact with this submerged lighter, the result being
that her hull was perforated.
The said steamer began to sink during the morning of October
22d and touched the bottom of the harbor at 10 o'clock of the
same morning. She continued to sink deeper into the mud until,
on October 23d, the forward half of the vessel was entirely
submerged, while the stern half was still afloat.
The depth of the water in that part of the harbor where the vessel
was moored at the time of the accident is about 21 feet at low tide.
The depth of the vessel from deck to keel is about 35 feet. The
value of the vessel at the time of the accident was about
P1,300,000, Philippine currency.
On the afternoon of October 23d, the plaintiffs, at the request of
the captain and agents of the ship, took possession of the sinking
vessel as salvors and commenced salvage operation at once. At
that time they had submitted two propositions to the captain and
agents of the ship as to compensation for the salvage services to
be performed: One for P150,000 in case of success and
reimbursement of expenses in case of failure, and another for
P300,000 "no cure no pay." The plaintiffs were informed that the
propositions would be transmitted to the owners of the vessel in
Japan for acceptance or rejection, but they were requested to
continue work in the meantime, upon the understanding that if
no special contract should be made they would be compensated
as salvors.
The vessel was floated on October 30th and the salvage operations
ended the following day. On the afternoon of October 30th the
plaintiffs were informed in writing that the head office of the
steamship company in Japan had, by cable, rejected both of the
above-mentioned propositions, and that it was proposed to settle
with them on the basis of the reasonable value of their services as
salvors. Plaintiffs then made demand for payment of P150,000.
Defendants (not including Madrigal) offered to pay P75,000.
Plaintiffs then made a counter offer of P125,000. This was
rejected, and plaintiffs then brought the present action for the
recovery of a salvage award of P300,000; but, in their trial brief,
they reduced this demand to P297,443.40.
During the pendency of the negotiations regarding the value of the
salvage services, it was agreed that the vessel should be freed
from any lien which the plaintiffs might have upon her as salvors,
in consideration of the agreement of the defendant Mitsui Bussan
Kaisha to respond in solidum with the owner of the vessel, the
defendant Uchida Kisen Kaisha, for whatever might be found due
the salvors upon final judgment.
There is no dispute with regard to the foregoing facts. The only
dispute in this case is (1) with regard to the amount of
compensation to be awarded to the plaintiffs for the salvage of the
ship in question, and (2) whether or not the defendant-appellee
Vicente Madrigal, as owner of the cargo, is liable for any
contribution to such compensation.
I. While the plaintiffs originally claimed P300,000 as
compensation, which they reduced to P297,443.40 in their trial
brief in the court below, they have further reduced the same to
P275,000 in their brief on appeal to this court; whereas the
defendants-appellants still maintain their original contention that
the plaintiffs are not entitled to more than P75,000. This question
of compensation involves two elements: (a) The actual expenses
incurred in the salvage operation, and (b) the reward for services
rendered by the plaintiffs as salvors.
A. Attached to the plaintiffs' complaint is a statement (Exhibit A)
of the expenses alleged to have been incurred by them,
aggregating the sum of P63,074.45. The defendants-appellants, in
their brief, vigorously challenge the reasonableness of these
charges, alleging that they "are palpably, grossly and sinfully
exaggerated," and contend that if the plaintiffs "are allowed
P40,000 to recover their out-of-pocket expenses and the
reasonable value of the use of their equipment, they would
certainly not be the losers."
Among the items in Exhibit A which are impugned by the
defendants-appellants are the following:
(1) Rental of pump lighter .................................................. P11
(2) Rental of derrick No. 2 ................................................. 9,60
(3) Rental of the launch Columbia ................................... 4,80
(4) Ferry service .................................................................. 7,41
(5) Rental of pumps ........................................................... 3,00
(6) Use of hose .................................................................... 10,6
(7) Charges for labor and supervision, consisting of:
(a) Preliminary labor in connection with preparing
equipment, machine shop work, and overhauling
equipment upon its return ................................................ P1,3
(b) Labor at ship ............................................................... 3,35
(c) Supervision ................................................................. 2,50
7,242.00
We shall not undertake to analyze the evidence relative to each of
the foregoing items with a view to arriving at an accurate estimate
of the total expenses incurred by the plaintiff. Such a task would
be impossible of accomplishment inasmuch as plaintiffs
themselves have "just figured it out roughly," and the defendants'
expert witness, Swann, by whom they endeavored to show that
the plaintiffs' charges were grossly exaggerated, also admits that
his estimates have only been "figured out roughly." Suffice it to say
that after a perusal of the luminous briefs of the eminent counsel
for both parties, in relation with the evidence adduced during the
trial of the cause, we are persuaded that most of the charges for
expenses made by the plaintiffs are really exorbitant. Considering
all of the facts and circumstances of this case, and specially the
inflated war prices of materials at the time the salvage in question
was performed, we are of the opinion that the sum of P50,000
would be a very reasonable allowance to the plaintiffs for their
cash outlay and the rental value of their equipment.
B. With regard to the reward for salvage services, defendants-
appellants maintain that the sum of P35,000 would be a liberal
net award to the salvors.
Section 10 of Act No. 2616 prescribes the rule for determining the
reward for salvage as follows:
In a case coming under the last preceding section as well
as in the absence of an agreement, the reward for salvage
or assistance shall be fixed by the Court of First Instance
of the province where the things salvage are found,
taking into account principally the expenditures made to
recover or save the vessel or the cargo or both, the zeal
demonstrated, the time employed, the services rendered,
the excessive expenses occasioned, the number of
persons who aided, the danger to which they and their
vessels were exposed, as well as that which menaced the
things recovered or salvaged, and the value of such
things after deducting the expenses.
Counsel for defendants-appellants, however, assail the validity of
said Act (No. 2616) "upon the ground that salvage is a matter
which pertains, both as regard the substantive law and procedure,
to the admiralty jurisdiction of the courts, and that, therefore, it is
not within the scope of the law-making authority of the Philippine
Legislature." In support of that contention counsel call attention
to the fact that section 56 of Act No. 136 provided that the Courts
of First Instance shall have original jurisdiction "in all actions in
admiralty and maritime jurisdiction, irrespective of the value of
the property in controversy or the amount of the demand;" and
that both the Philippine Bill and the Jones Law provide "that the
admiralty jurisdiction of the Supreme Court and Courts of First
Instance shall not be changed except by act of Congress." Counsel
maintain that the phrase "admiralty and maritime jurisdiction,
used in said Act No. 136, and the same phrase used in the
Organic Law, are identical in meaning and that both apply not
only to the mere power to hear and decide, but to the maritime
law as a body.
In the case of Heath vs. The Steamer San Nicolas (7 Phil., 532),
this court held that "the phrase 'admiralty and maritime
jurisdiction' found in Act No. 136, section 56, paragraph 4, did not
put in force in these Islands the law, practice, and procedure in
force in admiralty courts in the United States." In the case of G.
Urrutia and Co. vs. Pasig Steamer and Lighter Co. (22 Phil., 330,
decided March 22, 1912, four years prior to the passage of Act No.
2616), this court said: "There being no express legislation exactly
applicable to cases of salvage, nor legal principles thereto relating
established by the courts, pursuant to the second paragraph of
article 6 of the Civil Code, we must fall back upon the customs of
the place, and, in the absence thereof, general principles of law."
In the case of the United States vs. Bull (15 Phil., 7), this court
held that "an Act of the legislative authority of the Philippine
Government which has not been expressly disapproved by
Congress is valid unless its subject-matter has been covered by
Congressional legislation, or its enactment forbidden by some
provision of the organic law." It is not even suggested that the Act
in question (No. 2616) has been expressly disapproved by
Congress, and our attention has not been called to any Act of
Congress, applicable to the Philippine Islands, relating to the
subject-matter of said Act No. 2616, nor are we aware of the
existence of any such Act. The only question, then, is whether the
provision in our organic law (the Philippine Bill and the Jones
Law) "that the admiralty jurisdiction of the Supreme Court and
Courts of First Instance shall not be changed except by act of
Congress," should be construed as forbidding the Philippine
Legislature from enacting such a law as Act No. 2616, relating to
salvage a matter pertaining to admiralty. The answer to that
question depends upon whether or not Act No. 2616 doing in any
way change the admiralty jurisdiction of the Supreme Court and
the Courts of First Instance, as provided by Act No. 136.
Even granting, without deciding, the contention of defendants-
appellants that the phrase "admiralty jurisdiction" used in our
organic law applies not only to the power to hear and decide but to
the maritime law as a body, still we are unable to say that Act No.
2616 has effected any change in the admiralty jurisdiction of this
court and the Courts of First Instance. Counsel cite the case
of The Jelling (253 Fed. Rep., 381), The Felix (62 Fed. Rep., 620),
and The L. W. Perry (71 Fed. Rep., 745), in an effort to show that
the rules prescribed by section 11 of Act No. 2616 are different
from the American maritime law. Again granting that they are
different, yet, as decided by this court in the San
Nicolas case, supra, the phrase "admiralty and maritime
jurisdiction" found in Act No. 136 did not put in force in these
Islands the law, practice, and procedure in force in the admiralty
courts in the United States. The American maritime law not being
necessarily in force in these Islands, it is clear that Act No. 2616
of the Philippine Legislature could not and did not affect the
same.
Therefore, following our decision in the Bull case, supra, we are of
the opinion and so decide that Act No. 2616 is valid until
expressly disapproved by Congress.lawphil.net
Applying now the rules prescribed by section 10 of said Act No.
2616, above quoted, in determining the reward for the salvage in
question, the following facts should be taken into account: (1)
That the salvage operations in question were performed in Manila
Bay, inside the breakwater, where the depth of the water was only
about 21 feet at low tide; (2) that those operations lasted eight
days from noon of October 23rd to October 31st although the
salvors appear to have rendered services until the 8th of
November; (3) that the vessel salved and its cargo were never in
danger of total loss, although it is admitted that if the vessel had
sunk and listed, the expenses of recovering the same would have
been considerable; (4) that the salvage operation was
comparatively simple, consisting merely of using pumps to prevent
the vessel from sinking any further, while the salvors were
building a cofferdam around the submerged forehatch preparatory
to pumping her out; (5) that there was no danger to the lives and
property of the salvors in view of the proximity to the shore of the
place where the work was performed; (6) that the value of the
equipment used, including the launches employed to maintain the
ferry service, was about P300,000; (7) that the plaintiffs' outlay,
together with the reasonable rental value of their equipment, was,
as we have heretofore estimated, the sum of P50,000; (8) that
the Kyodo Maru was, at the time she was salved, valued at
P1,300,000; (9) that the captain of said vessel was in a hurry to
get her out because he had to meet a new charter in Japan; and
(10) that the plaintiffs accomplished the salvage with energy and
promptitude, to the entire satisfaction of the captain and agents of
the vessel.
Considering all of the foregoing facts in relation with the award
heretofore made by this court in the salvage cases of Erlanger and
Galinger vs. Swedish East Asiatic Co., Ltd. (34 Phil., 178), Manila
Railroad Co. vs. Macondray and Co. (37 Phil., 850), and G Urrutia
and Co. vs. Pasig Steamer and Lighter Co. (22 Phil., 330), we are
persuaded that the sum of P50,000 would be an equitably liberal
net compensation to the plaintiffs as salvors of the Kyodo Maru.
This together with the sum of P50,000 which we have found
should be allowed them for their expenses and the reasonable
rental value of their equipment, makes a total award to the
plaintiffs of the sum of P100,000. We are persuaded that this
amount is a sufficient compensation for the outlay and effort of
the salvors in the present case, and that the same is liberal
enough to constitute an inducement to others to render like
services in similar emergencies in the future.
II. The next question for determination is the liability, if any, of the
defendant Vicente Madrigal as owner of the cargo, to contribute to
the salvage award above-mentioned.
At the time the plaintiffs commenced their work as salvors there
were 2,005 tons of coal on the vessel, the property of the said
defendant. In order to raise the vessel it was necessary for the
salvors to take part of said coal from her. The coal so taken and
brought ashore by the plaintiffs amounted to 573 tons. The value
of that coal in Manila at that time was P45 a ton.
The lower court absolved this defendant from liability upon the
ground (a) that "it does not appear that the cargo was in serious
danger of injury or loss," and (b) that although the plaintiffs may
perhaps be entitled to compensation for the unloading and
landing of the 573 tons, the record contains no data from which
the amount of such compensation can be determined. Defendants
appellants take exception to that conclusion of the lower court
and contend that the salvage award should be apportioned
between them, as owners of the vessel, and defendant-appellee, as
owner of the cargo; that the value of the whole amount of coal on
board the vessel at the time of the salvage was P92,525, which is
approximately 6 per cent of the value of the vessel; and that
that proportion should be awarded against the defendant-
appellee. Defendant-appellee, on the other hand, contends that:
"All the service rendered to the cargo, the property of this
defendant if any was in fact so rendered, was not rendered with an
intent to benefit the cargo, but to assist the salvors in their
principal work, the raising of the ship. They would not have
removed a ton of this coal had its removal not facilitated the
salving of the ship and such removal did not operate in any way to
benefit the cargo, nor save it from any risk or damage. The only
benefit may be one to the owner of the coal in an amount
equivalent to the stevedoring charges he would have had to pay to
remove from the ship the 573 tons taken from her by these
plaintiffs. As there is no evidence as to the value of this, and as
this defendant has offered to pay and is still willing to pay the
plaintiff that amount, it need not be further discussed here."
While we agree with the defendant-appellee that, as the record
shows, the removal of the 573 tons of coal from the vessel was
merely incidental to, and necessitated by, the raising of said
vessel, we cannot agree with him that "such removal did not
operate in any way to benefit the cargo, nor save it from any risk
or damage.' Had the vessel completely sunk and listed, extreme
difficulty would no doubt have been encountered in removing the
coal in question from her hold, thus occasioning considerable
expense and loss to this defendant. It is also undeniable that part
of the plaintiffs expenses which we have allowed against
defendants-appellants were incurred in carrying such coal to the
shore. It is but just, then, that defendant-appellee should share a
proportionate amount of the award.
Considering, however, that the removal of said coal from the
sinking vessel was merely incidental to salving her; and
considering that only 573 tons of such cargo were actually taken
by the plaintiffs from the ship, it being no longer necessary to
touch the rest for the purpose of raising her, we are of the opinion
that full justice would be done to all the parties concerned by
taking the value of the said 573 tons of coal in relation with the
value of the ship, and thus apportion the salvage award between
their respective owners. The said 573 tons of coal, at P45 a ton,
are worth P25,785, which is approximately 2 per cent of the value
of the ship (which is estimated at P1,300,000). Hence the
defendant-appellee should be made to pay 2 per cent of the award
of P100,000, or the sum of P2,000.
Wherefore, the judgment appealed from is hereby modified, and it
is hereby ordered and decreed that the plaintiffs have and recover
the sum of P98,000, Philippine currency, from the defendants
Uchida Kisen Kaisha and Mitsui Bussan Kaisha, jointly and
severally, and the sum of P2,000, Philippine currency, from the
defendant Vicente Madrigal, without any findings as to costs in
this instance. So ordered.
Araullo, Street, Avancea and Villamor, JJ., concur.
THIRD DIVISION
[G.R. No. 146018. June 25, 2003]
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs.
UCPB GENERAL INSURANCE COMPANY,
INC., respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may,
by stipulation in the bill of lading, be limited to the value declared
by the shipper. On the other hand, the liability of the insurer is
determined by the actual value covered by the insurance policy
and the insurance premiums paid therefor, and not necessarily by
the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review [1] under Rule 45 of
the Rules of Court, seeking to set aside the August 31, 2000
Decision[2] and the November 17, 2000 Resolution[3] of the Court of
Appeals[4] (CA) in CA-GR SP No. 62751. The dispositive part of the
Decision reads:
IN THE LIGHT OF THE FOREGOING, the appeal
is GRANTED. The Decision appealed from
is REVERSED. [Petitioner] is hereby condemned to pay to
[respondent] the total amount of P148,500.00, with interest
thereon, at the rate of 6% per annum, from date of this Decision
of the Court. [Respondents] claim for attorneys fees
[is] DISMISSED. [Petitioners] counterclaims are DISMISSED.[5]
The assailed Resolution denied petitioners Motion for
Reconsideration.
On the other hand, the disposition of the Regional Trial
Courts[6] Decision,[7] which was later reversed by the CA, states:
WHEREFORE, premises considered, the case is hereby
DISMISSED for lack of merit.
No cost.[8]
The Facts
The facts of the case are summarized by the appellate court
in this wise:
Sometime on December 11, 1991, Nestor Angelia delivered to the
Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping
Lines), [petitioner] for brevity, cargo consisting of one (1) carton
of Christmas dcor and two (2) sacks of plastic toys, to be
transported on board the M/V Tandag on its Voyage No. T-
189 scheduled to depart from Cebu City, on December 12, 1991,
for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No.
58, freight prepaid, covering the cargo. Nestor Angelia was both
the shipper and consignee of the cargo valued, on the face thereof,
in the amount of P6,500.00. Zosimo Mercado likewise delivered
cargo to [petitioner], consisting of two (2) cartons of plastic toys
and Christmas decor, one (1) roll of floor mat and one (1) bundle of
various or assorted goods for transportation thereof from Cebu
City to Tandag, Surigao del Sur, on board the said vessel, and said
voyage. [Petitioner] issued Bill of Lading No. 59 covering the
cargo which, on the face thereof, was valued in the amount
of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.
On December 12, 1991, Feliciana Legaspi insured the cargo,
covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount
of P100,000.00 against all risks under Open Policy No.
002/91/254 for which she was issued, by [respondent], Marine
Risk Note No. 18409 on said date. She also insured the cargo
covered by Bill of Lading No. 58, with [respondent], for the
amount of P50,000.00, under Open Policy No. 002/91/254 on
the basis of which [respondent] issued Marine Risk Note No.
18410 on said date.
When the vessel left port, it had thirty-four (34) passengers and
assorted cargo on board, including the goods of Legaspi. After the
vessel had passed by the Mandaue-Mactan Bridge, fire ensued in
the engine room, and, despite earnest efforts of the officers and
crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The
Captain filed the required Marine Protest.
Shortly thereafter, Feliciana Legaspi filed a claim, with
[respondent], for the value of the cargo insured under Marine
Risk Note No. 18409 and covered by Bill of Lading No. 59. She
submitted, in support of her claim, a Receipt, dated December
11, 1991, purportedly signed by Zosimo Mercado, and Order
Slips purportedly signed by him for the goods he received from
Feliciana Legaspi valued in the amount of P110,056.00.
[Respondent] approved the claim of Feliciana Legaspi and drew
and issued UCPB Check No. 612939, dated March 9, 1992, in the
net amount of P99,000.00, in settlement of her claim after which
she executed aSubrogation Receipt/Deed, for said amount, in
favor of [respondent]. She also filed a claim for the value of the
cargo covered by Bill of Lading No. 58. She submitted to
[respondent] a Receipt, dated December 11, 1991 and Order
Slips, purportedly signed by Nestor Angelia for the goods he
received from Feliciana Legaspi valued
at P60,338.00. [Respondent] approved her claim and remitted to
Feliciana Legaspi the net amount ofP49,500.00, after which she
signed a Subrogation Receipt/Deed, dated March 9, 1992, in
favor of [respondent].
On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi,
filed a complaint anchored on torts against [petitioner], with the
Regional Trial Court of Makati City, for the collection of the total
principal amount ofP148,500.00, which it paid to Feliciana
Legaspi for the loss of the cargo, praying that judgment be
rendered in its favor and against the [petitioner] as follows:
WHEREFORE, it is respectfully prayed of this Honorable Court
that after due hearing, judgment be rendered ordering [petitioner]
to pay [respondent] the following.
1. Actual damages in the amount of P148,500.00 plus interest
thereon at the legal rate from the time of filing of this complaint
until fully paid;
2. Attorneys fees in the amount of P10,000.00; and
3. Cost of suit.
[Respondent] further prays for such other reliefs and remedies as
this Honorable Court may deem just and equitable under the
premises.
[Respondent] alleged, inter alia, in its complaint, that the cargo
subject of its complaint was delivered to, and received by,
[petitioner] for transportation to Tandag, Surigao del Sur
under Bill of Ladings, Annexes A and B of the complaint; that the
loss of the cargo was due to the negligence of the [petitioner]; and
that Feliciana Legaspi had executed Subrogation
Receipts/Deeds in favor of [respondent] after paying to her the
value of the cargo on account of the Marine Risk Notes it issued
in her favor covering the cargo.
In its Answer to the complaint, [petitioner] alleged that: (a)
[petitioner] was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; (b) the complaint stated no
cause of action against [petitioner]; and (c) the shippers/consignee
had already been paid the value of the goods as stated in the Bill
of Lading and, hence, [petitioner] cannot be held liable for the
loss of the cargo beyond the value thereof declared in the Bill of
Lading.
After [respondent] rested its case, [petitioner] prayed for and was
allowed, by the Court a quo, to take the depositions of Chester
Cokaliong, the Vice-President and Chief Operating Officer of
[petitioner], and a resident of Cebu City, and of Noel Tanyu, an
officer of the Equitable Banking Corporation, in Cebu City, and a
resident of Cebu City, to be given before the Presiding Judge of
Branch 106 of the Regional Trial Court of Cebu City.Chester
Cokaliong and Noel Tanyu did testify, by way of deposition, before
the Court and declared inter alia, that: [petitioner] is a family
corporation like the Chester Marketing, Inc.; Nestor Angelia had
been doing business with [petitioner] and Chester Marketing, Inc.,
for years, and incurred an account with Chester Marketing, Inc.
for his purchases from said corporation; [petitioner] did issue Bills
of Lading Nos. 58 and 59 for the cargo described therein with
Zosimo Mercado and Nestor Angelia as shippers/consignees,
respectively; the engine room of the M/V Tandag caught fire after
it passed the Mandaue/Mactan Bridge resulting in the total loss
of the vessel and its cargo; an investigation was conducted by the
Board of Marine Inquiry of the Philippine Coast Guard which
rendered a Report, dated February 13, 1992 absolving [petitioner]
of any responsibility on account of the fire, which Report of the
Board was approved by the District Commander of the Philippine
Coast Guard; a few days after the sinking of the vessel, a
representative of the Legaspi Marketing filed claims for the values
of the goods under Bills of Lading Nos. 58 and 59 in behalf of
the shippers/consignees, Nestor Angelia and Zosimo Mercado;
[petitioner] was able to ascertain, from the shippers/consignees
and the representative of the Legaspi Marketing that the cargo
covered by Bill of Lading No. 59 was owned by Legaspi Marketing
and consigned to Zosimo Mercado while that covered by Bill of
Lading No. 58 was purchased by Nestor Angelia from the Legaspi
Marketing; that [petitioner] approved the claim of Legaspi
Marketing for the value of the cargo under Bill of Lading No.
59 and remitted to Legaspi Marketing the said amount under
Equitable Banking Corporation Check No. 20230486 dated
August 12, 1992, in the amount of P14,000.00 for which the
representative of the Legaspi Marketing signed Voucher No. 4379,
dated August 12, 1992, for the said amount of P14,000.00 in full
payment of claims under Bill of Lading No. 59; that [petitioner]
approved the claim of Nestor Angelia in the amount of P6,500.00
but that since the latter owed Chester Marketing, Inc., for some
purchases, [petitioner] merely set off the amount due to Nestor
Angelia under Bill of Lading No. 58 against his account with
Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original
of the check after it was received by Legaspi Marketing, hence, the
production of the microfilm copy by Noel Tanyu of the Equitable
Banking Corporation; [petitioner] never knew, before settling with
Legaspi Marketing and Nestor Angelia that the cargo under
both Bills of Lading were insured with [respondent], or that
Feliciana Legaspi filed claims for the value of the cargo with
[respondent] and that the latter approved the claims of Feliciana
Legaspi and paid the total amount of P148,500.00 to her;
[petitioner] came to know, for the first time, of the payments by
[respondent] of the claims of Feliciana Legaspi when it was served
with the summons and complaint, on October 8, 1992; after
settling his claim, Nestor Angelia x x x executed the Release and
Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993
in favor of [respondent]; hence, [petitioner] was absolved of any
liability for the loss of the cargo covered by Bills of Lading Nos.
58 and 59; and even if it was, its liability should not exceed the
value of the cargo as stated in the Bills of Lading.
[Petitioner] did not anymore present any other witnesses on its
evidence-in-chief. x x x[9] (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed to prove that the fire
which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep, maintenance
and operation of the vessel.[10]
Petitioner had paid P14,000 to Legaspi Marketing for the
cargo covered by Bill of Lading No. 59. The CA, however, held that
the payment did not extinguish petitioners obligation to
respondent, because there was no evidence that Feliciana Legaspi
(the insured) was the owner/proprietor of Legaspi Marketing. The
CA also pointed out the impropriety of treating the claim under
Bill of Lading No. 58 -- covering cargo valued therein at P6,500 --
as a setoff against Nestor Angelias account with Chester
Enterprises, Inc.
Finally, it ruled that respondent is not bound by the
valuation of the cargo under the Bills of Lading, x x x nor is the
value of the cargo under said Bills of Lading conclusive on the
[respondent].This is so because, in the first place, the goods were
insured with the [respondent] for the total amount
of P150,000.00, which amount may be considered as the face
value of the goods.[11]
Hence this Petition. [12]
Issues
Petitioner raises for our consideration the following alleged
errors of the CA:
I vigilance over the goods it transported. Ensuring the
The Honorable Court of Appeals erred, granting arguendo that
petitioner is liable, in holding that petitioners liability should be
based on the actual insured value of the goods and not from
actual valuation declared by the shipper/consignee in the bill of
lading.
II
The Court of Appeals erred in not affirming the findings of the
Philippine Coast Guard, as sustained by the trial court a quo,
holding that the cause of loss of the aforesaid cargoes under Bill
of Lading Nos. 58 and 59 was due to force majeure and due
diligence was [exercised] by petitioner prior to, during and
immediately after the fire on [petitioners] vessel.
III
The Court of Appeals erred in not holding that respondent UCPB
General Insurance has no cause of action against the petitioner. [13]
In sum, the issues are: (1) Is petitioner liable for the loss of
the goods? (2) If it is liable, what is the extent of its liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods,
subject of this case, was force majeure. It adds that its exercise of
due diligence was adequately proven by the findings of the
Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the
Philippine Coast Guard show that the M/V Tandag sank due to a
fire, which resulted from a crack in the auxiliary engine fuel oil
service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into
flames. The crack was located on the side of the fuel oil tank,
which had a mere two-inch gap from the engine room walling,
thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil
service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a
natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy. [14] Hence, fire is not
considered a natural disaster or calamity. In Eastern Shipping
Lines, Inc. v. Intermediate Appellate Court,[15] we explained:
x x x. This must be so as it arises almost invariably from some act
of man or by human means. It does not fall within the category of
an act of God unless caused by lighting or by other natural
disaster or calamity. It may even be caused by the actual fault or
privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an
extraordinary fortuitous event refers to leases or rural lands where
a reduction of the rent is allowed when more than one-half of the
fruits have been lost due to such event, considering that the law
adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in
Article 1734, supra, Article 1735 of the Civil Code provides that in
all cases other than those mentioned in Article 1734, the common
carrier shall be presumed to have been at fault or to have acted
negligently, unless it proves that it has observed the extraordinary
diligence required by law.
Where loss of cargo results from the failure of the officers of
a vessel to inspect their ship frequently so as to discover the
existence of cracked parts, that loss cannot be attributed to force
majeure, but to the negligence of those officials. [16]
The law provides that a common carrier is presumed to have
been negligent if it fails to prove that it exercised extraordinary
seaworthiness of the vessel is the first step in exercising the
required vigilance. Petitioner did not present sufficient evidence
showing what measures or acts it had undertaken to ensure the
seaworthiness of the vessel. It failed to show when the last
inspection and care of the auxiliary engine fuel oil service tank
was made, what the normal practice was for its maintenance, or
some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant inspection
and care were not possible, and that the last time the vessel was
dry-docked was in November 1990. Necessarily, in accordance
with Article 1735[17] of the Civil Code, we hold petitioner
responsible for the loss of the goods covered by Bills of Lading
Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioners liability should be
based on the actual insured value of the goods, subject of this
case. On the other hand, petitioner claims that its liability should
be limited to the value declared by the shipper/consignee in the
Bill of Lading.
The records[18] show that the Bills of Lading covering the lost
goods contain the stipulation that in case of claim for loss or for
damage to the shipped merchandise or property, [t]he liability of
the common carrier x x x shall not exceed the value of the goods
as appearing in the bill of lading.[19] The attempt by respondent to
make light of this stipulation is unconvincing. As it had the
consignees copies of the Bills of Lading, [20] it could have easily
produced those copies, instead of relying on mere allegations and
suppositions. However, it presented mere photocopies thereof to
disprove petitioners evidence showing the existence of the above
stipulation.
 A stipulation that limits liability is valid [21] as long as it is not
against public policy. In Everett Steamship Corporation v. Court of
Appeals,[22] the Court stated:
A stipulation in the bill of lading limiting the common carriers
liability for loss or destruction of a cargo to a certain sum, unless
the shipper or owner declares a greater value, is sanctioned by
law, particularly Articles 1749 and 1750 of the Civil Code which
provides:
Art. 1749. A stipulation that the common carriers liability is
limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by
this Court in a number of cases. Thus, in Sea-Land Service, Inc.
vs. Intermediate Appellate Court, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of
Goods by Sea Act did not exist, the validity and binding effect of
the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a
limit to liability only if a greater value is not declared for the
shipment in the bill of lading. To hold otherwise would amount to
questioning the justness and fairness of the law itself, and this
the private respondent does not pretend to do. But over and above
that consideration, the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option
of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading.
Pursuant to the afore-quoted provisions of law, it is required that
the stipulation limiting the common carriers liability for loss must
be reasonable and just under the circumstances, and has been
freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically
provides, among others:
18. All claims for which the carrier may be liable shall be adjusted
and settled on the basis of the shippers net invoice cost plus
freight and insurance premiums, if paid, and in no event shall the
carrier be liable for any loss of possible profits or any
consequential loss.
The carrier shall not be liable for any loss of or any damage to or
in any connection with, goods in an amount exceeding One
Hundred Thousand Yen in Japanese Currency (100,000.00) or its
equivalent in any other currency per package or customary freight
unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of
the goods by the carrier and inserted in the Bill of Lading and extra
freight is paid as required.
The above stipulations are, to our mind, reasonable and just. In
the bill of lading, the carrier made it clear that its liability would
only be up to One Hundred Thousand (Y100,000.00)
Yen. However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher than
the limited liability of the carrier. Considering that the shipper did
not declare a higher valuation, it had itself to blame for not
complying with the stipulations. (Italics supplied)
In the present case, the stipulation limiting petitioners
liability is not contrary to public policy. In fact, its just and
reasonable character is evident. The shippers/consignees may
recover the full value of the goods by the simple expedient of
declaring the true value of the shipment in the Bill of
Lading. Other than the payment of a higher freight, there was
nothing to stop them from placing the actual value of the goods
therein. In fact, they committed fraud against the common carrier
by deliberately undervaluing the goods in their Bill of Lading, thus
depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill
of Lading is to protect the common carrier. Such stipulation
obliges the shipper/consignee to notify the common carrier of the
amount that the latter may be liable for in case of loss of the
goods. The common carrier can then take appropriate measures --
getting insurance, if needed, to cover or protect itself. This
precaution on the part of the carrier is reasonable and
prudent. Hence, a shipper/consignee that undervalues the real
worth of the goods it seeks to transport does not only violate a
valid contractual stipulation, but commits a fraudulent act when
it seeks to make the common carrier liable for more than the
amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner
by undervaluing the goods in their respective Bills of
Lading. Hence, petitioner was exposed to a risk that was
deliberately hidden from it, and from which it could not protect
itself.
It is well to point out that, for assuming a higher risk (the
alleged actual value of the goods) the insurance company was paid
the correct higher premium by Feliciana Legaspi; while petitioner
was paid a fee lower than what it was entitled to for transporting
the goods that had been deliberately undervalued by the shippers
in the Bill of Lading. Between the two of them, the insurer should
bear the loss in excess of the value declared in the Bills of
Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the
description of the nature and the value of the goods shipped were
declared and reflected in the bill of lading, like in the present
case. The Court therein considered this declaration as the basis of
the carriers liability and ordered payment based on such
amount. Following this ruling, petitioner should not be held liable
for more than what was declared by the shippers/consignees as
the value of the goods in the bills of lading.
We find no cogent reason to disturb the CAs finding that
Feliciana Legaspi was the owner of the goods covered by Bills of
Lading Nos. 58 and 59. Undoubtedly, the goods were merely
consigned to Nestor Angelia and Zosimo Mercado, respectively;
thus, Feliciana Legaspi or her subrogee (respondent) was entitled
to the goods or, in case of loss, to compensation therefor.There is
no evidence showing that petitioner paid her for the loss of those
goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a
claim for the lost goods under Bill of Lading No. 59, for which the
latter subsequently paid P14,000. But nothing in the records
convincingly shows that the former was the owner of the
goods. Respondent was, however, able to prove that it was
Feliciana Legaspi who owned those goods, and who was thus
entitled to payment for their loss. Hence, the claim for the goods
under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was
not entitled thereto.
With regard to the claim for the goods that were covered by
Bill of Lading No. 58 and valued at P6,500, the parties have not
convinced us to disturb the findings of the CA that compensation
could not validly take place. Thus, we uphold the appellate courts
ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY
GRANTED. The assailed Decision is MODIFIED in the sense that
petitioner is ORDERED to pay respondent the sums of P14,000
 andP6,500, which represent the value of the goods stated in Bills
of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-
Morales, JJ., concur.
The trial court dismissed petitioners complaint for actual
damages on the ground of prescription under the Carriage of
Goods by Sea Act (COGSA).
The facts are as follows:

[1]
Rollo, pp. 10-34. On November 9, 2002, Macro-Lite Korea
Republic of the Philippines Corporation shipped to San Miguel Corporation, through M/V
Supreme Court "DIMI P" vessel, one hundred eighty-five (185) packages (231,000
Manila sheets) of electrolytic tin free steel, complete and in good order
condition and covered by Bill of Lading No. POBUPOHMAN20638.

THIRD DIVISION
[2]
The shipment had a declared value of US$169,850.35 [3] and was
insured with petitioner Insurance Company of North
America against all risks under Marine Policy No. MOPA-06310. [4]
INSURANCE COMPANY OFNORTH AMERICA, G.R. No. 180784
Petitioner,
Present:

The carrying vessel arrived at the port of Manila on

- versus - CARPIO,
November 19, 2002, and when the shipment was discharged
PERALTA,
therefrom, it was noted that seven (7) packages thereof were
ABAD,
damaged and in bad order.[5] The shipment was then turned over
PEREZ,
to the custody of respondent Asian Terminals, Inc. (ATI)
MENDOZA,
on November 21, 2002 for storage and safekeeping pending its
ASIAN TERMINALS, INC.,
withdrawal by the consignee's authorized customs broker, R.V.
Respondent. Promulgated:
Marzan Brokerage Corp. (Marzan).
February 15, 2012
On November 22, 23 and 29, 2002, the subject shipment
x--------------------------------------------- was withdrawn by Marzan from the custody of respondent. On
----x November 29, 2002, prior to the last withdrawal of the shipment,
a joint inspection of the said cargo was conducted per the Request
for Bad Order Survey[6] dated November 29, 2002, and the
examination report, which was written on the same request,
showed that an additional five (5) packages were found to be
damaged and in bad order.

DECISION
On January 6, 2003, the consignee, San Miguel
Corporation, filed separate claims [7] against respondent and
petitioner for the damage to 11,200 sheets of electrolytic tin free
steel.

PERALTA, J.:
Petitioner engaged the services of an independent
adjuster/surveyor, BA McLarens Phils., Inc., to conduct an
investigation and evaluation on the claim and to prepare the
necessary report.[8] BA McLarens Phils., Inc. submitted to
petitioner an Survey Report[9] dated January 22, 2003 and
another report[10] dated May 5, 2003 regarding the damaged
This is a petition for review on certiorari[1] of the Decision
shipment. It noted that out of the reported twelve (12) damaged
of the Regional Trial Court (RTC) of Makati City, Branch 138 (trial
skids, nine (9) of them were rejected and three (3) skids were
court) in Civil Case No. 05-809 and its Order dated December 4,
accepted by the consignees representative as good order. BA
2007 on the ground that the trial court committed reversible error
McLarens Phils., Inc. evaluated the total cost of damage to the
of law.
nine (9) rejected skids (11,200 sheets of electrolytic tin free steel)
to be P431,592.14.
 The petitioner, as insurer of the said cargo, paid the Lading, together with the corresponding invoice and packing list,
consignee the amount of P431,592.14 for the damage caused to was shown to ATI prior to the discharge of the goods from the
the shipment, as evidenced by the Subrogation Receipt vessel. Since the shipment was released from the custody of ATI,
dated January 8, 2004. Thereafter, petitioner, formally demanded the trial court found that the same was declared for tax purposes
reparation against respondent. As respondent failed to satisfy its as well as for the assessment of arrastre charges and other fees.
demand, petitioner filed an action for damages with the RTC of For the purpose, the presentation of the invoice, packing list and
Makati City. other shipping documents to ATI for the proper assessment of the
arrastre charges and other fees satisfied the condition of
The trial court found, thus: declaration of the actual invoices of the value of the goods to
overcome the limitation of liability of the arrastre operator. [12]

The Court finds that the subject

shipment indeed suffered additional damages. Further, the trial court found that there was a valid
The Request for Bad Order Survey No. 56422 subrogation between the petitioner and the assured/consignee
shows that prior to the turn over of the San Miguel Corporation. The respondent admitted the existence
shipment from the custody of ATI to the of Global Marine Policy No. MOPA-06310 with San Miguel
consignee, aside from the seven (7) packages Corporation and Marine Risk Note No. 3445,[13] which showed
which were already damaged upon arrival at the that the cargo was indeed insured with petitioner. The trial court
port of Manila, five (5) more packages were held that petitioners claim is compensable because the
found with "dent, cut and crumple" while in the Subrogation Receipt,16 which was admitted as to its existence by
custody of ATI. This document was issued by respondent, was sufficient to establish not only the relationship
ATI and was jointly executed by the of the insurer and the assured, but also the amount paid to settle
representatives of ATI, consignee and customs, the insurance claim.[14]
and the Shed Supervisor. Thus, ATI is now
estopped from claiming that there was no
additional damage suffered by the shipment. It
is, therefore, only logical to conclude that the However, the trial court dismissed the complaint on the
damage was caused solely by the negligence of ground that the petitioners claim was already barred by the
defendant ATI. This evidence of the plaintiff was statute of limitations. It held that COGSA, embodied in
refuted by the defendant by merely alleging that Commonwealth Act (CA) No. 65, applies to this case, since the
"the damage to the 5 Tin Plates is only in its goods were shipped from a foreign port to the Philippines. The
external packaging. However, the fact remains trial court stated that under the said law, particularly paragraph
that the consignee has rejected the same as 4, Section 3 (6)[15] thereof, the shipper has the right to bring a suit
total loss for not being suitable for their within one year after the delivery of the goods or the date when
intended purpose. In addition, the photographs the goods should have been delivered, in respect of loss or
presented by the plaintiff show that the damage thereto.
shipment also suffered severe dents and some
packages were even critically crumpled.[11] The trial court held:

As to the extent of liability, ATI invoked the Contract for

Cargo Handling Services executed between the Philippine Ports
Authority and Marina Ports Services, Inc. (now Asian Terminals,
In the case at bar, the records show
Inc.). Under the said contract, ATI's liability for damage to cargoes
that the shipment was delivered to the
in its custody is limited to P5,000.00 for each package, unless the
consignee on 22, 23 and 29 of November 2002.
value of the cargo shipment is otherwise specified or manifested
The plaintiff took almost a year to approve and
or communicated in writing, together with the declared Bill of
pay the claim of its assured, San Miguel,
Lading value and supported by a certified packing list to the
despite the fact that it had initially received the
contractor by the interested party or parties before the discharge
latter's claim as well as the inspection report
or lading unto vessel of the goods.
and survey report of McLarens as early as
January 2003. The assured/consignee had only
until November of 2003 within which to file a
suit against the defendant. However, the instant
The trial court found that there was compliance by the case was filed only on September 7, 2005 or
shipper and consignee with the above requirement. The Bill of almost three (3) years from the date the subject
 shipment was delivered to the consignee. The
plaintiff, as insurer of the shipment which has
paid the claim of the insured, is subrogated to
all the rights of the said insured in relation to
the reimbursement of such claim. As such, the
plaintiff cannot acquire better rights than that
of the insured. Thus, the plaintiff has no one
but itself to blame for having acted
lackadaisically on San Miguel's claim.
WHEREFORE, the complaint and counterclaim
are hereby DISMISSED.[16]
Petitioners motion for reconsideration was denied by the
trial court in the Order[17] dated December 4, 2007.
Petitioner filed this petition under Rule 45 of the Rules of
Court directly before this Court, alleging that it is raising a pure
question of law:
THE TRIAL COURT COMMITTED A
PURE AND SERIOUS ERROR OF LAW IN
APPLYING THE ONE-YEAR PRESCRIPTIVE
PERIOD FOR FILING A SUIT UNDER THE
CARRIAGE OF GOODS BY SEA ACT (COGSA) TO
AN ARRASTRE OPERATOR.[18]
Petitioner states that while it is in full accord with the
trial court in finding respondent liable for the damaged shipment,
it submits that the trial courts dismissal of the complaint on the
ground of prescription under the COGSA is legally erroneous. It
contends that the one-year limitation period for bringing a suit in
court under the COGSA is not applicable to this case, because the
prescriptive period applies only to the carrier and the ship. It
argues that respondent, which is engaged in warehousing,
arrastre and stevedoring business, is not a carrier as defined by
the COGSA, because it is not engaged in the business of
transportation of goods by sea in international trade as a common
carrier. Petitioner asserts that since the complaint was filed
against respondent arrastre operator only, without impleading the
carrier, the prescriptive period under the COGSA is not applicable
to this case.
Moreover, petitioner contends that the term carriage of
goods in the COGSA covers the period from the time the goods are
loaded to the vessel to the time they are discharged therefrom. It
points out that it sued respondent only for the additional five (5)
packages of the subject shipment that were found damaged while
in respondents custody, long after the shipment was discharged
from the vessel. The said damage was confirmed by the trial court
and proved by the Request for Bad Order Survey No. 56422. [19]
Petitioner prays that the decision of the trial court be
reversed and set aside and a new judgment be promulgated
granting its prayer for actual damages.
The main issues are: (1) whether or not the one-year
prescriptive period for filing a suit under the COGSA applies to
this action for damages against respondent arrastre operator; and
(2) whether or not petitioner is entitled to recover actual damages
in the amount of P431,592.14 from respondent.
To reiterate, petitioner came straight to this Court to
appeal from the decision of the trial court under Rule 45 of the
Rules of Court on the ground that it is raising only a question of
law.
Microsoft Corporation v. Maxicorp, Inc.[20] explains the
difference between questions of law and questions of fact, thus:
The distinction between questions of
law and questions of fact is settled. A question of
law exists when the doubt or difference centers
on what the law is on a certain state of facts. A
question of fact exists if the doubt centers on the
truth or falsity of the alleged facts. Though this
delineation seems simple, determining the true
nature and extent of the distinction is sometimes
problematic. For example, it is incorrect to
presume that all cases where the facts are not in
dispute automatically involve purely questions of
law.
There is a question of law if the issue raised is
capable of being resolved without need of
reviewing the probative value of the evidence.
The resolution of the issue must rest solely on
what the law provides on the given set of
circumstances. Once it is clear that the issue
invites a review of the evidence presented, the
question posed is one of fact. If the query
requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of
 surrounding circumstances and their relation to
each other, the issue in that query is factual. x x
x[21]

Section 1. That the provisions of

In this case, although petitioner alleged that it is merely
raising a question of law, that is, whether or not the prescriptive
period under the COGSA applies to an action for damages against
respondent arrastre operator, yet petitioner prays for the reversal
of the decision of the trial court and that it be granted the relief
sought, which is the award of actual damages in the amount
of P431,592.14. For a question to be one of law, it must not involve
an examination of the probative value of the evidence presented by
the litigants or any of them.[22] However, to resolve the issue of
whether or not petitioner is entitled to recover actual damages
from respondent requires the Court to evaluate the evidence on
record; hence, petitioner is also raising a question of fact.
Public Act Numbered Five hundred and twenty-
one of the Seventy-fourth Congress of the
United States, approved on April sixteenth,
nineteen hundred and thirty-six, be accepted,
as it is hereby accepted to be made applicable
to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign
trade: Provided, That nothing in the Act shall
be construed as repealing any existing provision
of the Code of Commerce which is now in force,
or as limiting its application.

Under Section 1, Rule 45, providing for appeals

by certiorari before the Supreme Court, it is clearly enunciated
that only questions of law may be set forth. [23] The Court may
resolve questions of fact only when the case falls under the
following exceptions:
Section 1, Title I of CA No. 65 defines the relevant terms
in Carriage of Goods by Sea, thus:
(1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when
the inference made is manifestly mistaken,
absurd, or impossible; (3) when there is grave
Section 1. When used in this Act -
abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when in
making its findings the Court of Appeals went
beyond the issues of the case, or its findings are
(a) The term "carrier" includes the
contrary to the admissions of both the appellant
owner or the charterer who enters into a contract
and the appellee; (7) when the findings are
contrary to those of the trial court; (8) when the of carriage with a shipper.
findings are conclusions without citation of
specific evidence on which they are based; (9) (b) The term "contract of carriage"
when the facts set forth in the petition as well as applies only to contracts of carriage covered by a
in the petitioner's main and reply briefs are not
bill of lading or any similar document of title,
disputed by the respondent; and (10) when the
findings of fact are premised on the supposed insofar as such document relates to the carriage
absence of evidence and contradicted by the of goods by sea, including any bill of lading or
evidence on record.[24] any similar document as aforesaid issued under
or pursuant to a charter party from the moment
at which such bill of lading or similar document
In this case, the fourth exception cited above applies, as of title regulates the relations between a carrier
the trial court rendered judgment based on a misapprehension of and a holder of the same.
facts.
(c) The term "goods" includes goods,
We first resolve the issue on whether or not the one-year wares, merchandise, and articles of every kind
prescriptive period for filing a suit under the COGSA applies to whatsoever, except live animals and cargo which
respondent arrastre operator. by the contract of carriage is stated as being
carried on deck and is so carried.
The Carriage of Goods by Sea Act (COGSA), Public Act
No. 521 of the 74th US Congress, was accepted to be made (d) The term "ship" means any vessel
applicable to all contracts for the carriage of goods by sea to and used for the carriage of goods by sea.
from Philippine ports in foreign trade by virtue of CA No. 65.

Section 1 of CA No. 65 states:

 (e) The term "carriage of of loss or damage, either apparent or concealed,
goods" covers the period from the time when is not given as provided for in this section, that
the goods are loaded to the time when they fact shall not affect or prejudice the right of the
shipper to bring suit within one year after the
are discharged from the ship. [25]

delivery of the goods or the date when the goods

should have been delivered.[26]

It is noted that the term carriage of goods covers the

period from the time when the goods are loaded to the time when
From the provision above, the carrier and the ship may
they are discharged from the ship; thus, it can be inferred that the
put up the defense of prescription if the action for damages is not
period of time when the goods have been discharged from the ship
brought within one year after the delivery of the goods or the date
and given to the custody of the arrastre operator is not covered by
when the goods should have been delivered. It has been held that
the COGSA.
not only the shipper, but also the consignee or legal holder of the
bill may invoke the prescriptive period. [27] However, the COGSA
The prescriptive period for filing an action for the loss or
does not mention that an arrastre operator may invoke the
damage of the goods under the COGSA is found in paragraph (6),
prescriptive period of one year; hence, it does not cover the
Section 3, thus:
arrastre operator.

Respondent arrastre operators responsibility and

liability for losses and damages are set forth in Section 7.01 of the
6) Unless notice of loss or damage and
Contract for Cargo Handling Services executed between
the general nature of such loss or damage be
the Philippine Ports Authority and Marina Ports Services, Inc.
given in writing to the carrier or his agent at the
(now Asian Terminals, Inc.), thus:
port of discharge before or at the time of the
removal of the goods into the custody of the
person entitled to delivery thereof under the
contract of carriage, such removal shall be
Section 7.01 Responsibility and
prima facie evidence of the delivery by the
Liability for Losses and Damages; Exceptions -
carrier of the goods as described in the bill of
The CONTRACTOR shall, at its own expense,
lading. If the loss or damage is not apparent,
handle all merchandise in all work undertaken
the notice must be given within three days of
by it hereunder, diligently and in a skillful,
the delivery.
workman-like and efficient manner. The
CONTRACTOR shall be solely responsible as
an independent contractor, and
hereby agrees to accept liability and to pay
to the shipping company, consignees,

Said notice of loss or damage maybe consignors or other interested party or

endorsed upon the receipt for the goods given
by the person taking delivery thereof.
The notice in writing need not be given
if the state of the goods has at the time of their
receipt been the subject of joint survey or
inspection.
In any event the carrier and the
ship shall be discharged from all liability in
respect of loss or damage unless suit is
brought within one year after delivery of the
goods or the date when the goods should
have been delivered: Provided, That if a notice
parties for the loss, damage or non-delivery
of cargoes in its custody and control to the
extent of the actual invoice value of each
package which in no case shall be more than
FIVE THOUSAND PESOS (P5,000.00) each,
unless the value of the cargo shipment is
otherwise specified or manifested or
communicated in writing together with the
declared Bill of Lading value and supported
by a certified packing list to the
CONTRACTOR by the interested party or
parties before the discharge or loading unto
vessel of the goods. This amount of Five
Thousand Pesos (P5,000.00) per package may
be reviewed and adjusted by the AUTHORITY
from time to time. The CONTRACTOR shall not
be responsible for the condition or the contents
of any package received, nor for the weight nor
 for any loss, injury or damage to the said cargo
before or while the goods are being received or
remains in the piers, sheds, warehouses or
facility, if the loss, injury or damage is caused
by force majeure or other causes beyond the
CONTRACTOR's control or capacity to prevent
or remedy; PROVIDED, that a formal
claim together with the necessary copies of
Bill of Lading, Invoice, Certified Packing List
and Computation arrived at covering the
loss, injury or damage or non-delivery of
such goods shall have been filed with the
CONTRACTOR within fifteen (15) days from
day of issuance by the CONTRACTOR of a
certificate of non-delivery;PROVIDED,
however, that if said CONTRACTOR fails to
issue such certification within fifteen (15)
days from receipt of a written request by the
shipper/consignee or his duly authorized
representative or any interested party, said
certification shall be deemed to have been
issued, and thereafter, the fifteen (15) day
period within which to file the claim
commences; PROVIDED, finally, that the
request for certification of loss shall be made
within thirty (30) days from the date of
delivery of the package to the consignee.[28]
Based on the Contract above, the consignee has a period
of thirty (30) days from the date of delivery of the package to the
consignee within which to request a certificate of loss from the
arrastre operator. From the date of the request for a certificate of
loss, the arrastre operator has a period of fifteen (15) days within
which to issue a certificate of non-delivery/loss either actually or
constructively. Moreover, from the date of issuance of a certificate
of non-delivery/loss, the consignee has fifteen (15) days within
which to file a formal claim covering the loss, injury, damage or
non-delivery of such goods with all accompanying documentation
against the arrastre operator.
Petitioner clarified that it sued respondent only for the
additional five (5) packages of the subject shipment that were
found damaged while in respondents custody, which fact of
damage was sustained by the trial court and proved by the
Request for Bad Order Survey No. 56422.[29]
Petitioner pointed out the importance of the Request for
Bad Order Survey by citing New Zealand Insurance Company
Limited v. Navarro.[30] In the said case, the Court ruled
that the request for, and the result of, the bad order examination,
which were filed and done within fifteen days from the haulage of
the goods from the vessel, served the purpose of a claim, which is
to afford the carrier or depositary reasonable opportunity and
facilities to check the validity of the claims while facts are still
fresh in the minds of the persons who took part in the transaction
and documents are still available. Hence, even if the consignee
therein filed a formal claim beyond the stipulated period of 15
days, the arrastre operator was not relieved of liability as the
purpose of a formal claim had already been satisfied by the
consignees timely request for the bad order examination of the
goods shipped and the result of the said bad order examination.
To elaborate, New Zealand Insurance Company,
Ltd. v. Navarro held:
We took special note of the above
pronouncement six (6) years later in Firemans
Fund Insurance Co. v. Manila Port Service
Co., et al. There, fifteen (15) cases of nylon
merchandise had been discharged from the
carrying vessel and received by defendant
Manila Port Service Co., the arrastre operator,
on 7 July 1961. Out of those fifteen (15) cases,
however, only twelve (12) had been delivered to
the consignee in good condition. Consequently,
on 20 July 1961, the consignee's broker
requested a bad order examination of the
shipment, which was later certified by
defendant's own inspector to be short of three
(3) cases. On 15 August 1961, a formal claim for
indemnity was then filed by the consignee, who
was later replaced in the action by plaintiff
Fireman's Fund Insurance Co., the insurer of
the goods. Defendant, however, refused to honor
the claim, arguing that the same had not been
filed within fifteen (15) days from the date of
discharge of the shipment from the carrying
vessel, as required under the arrastre
Management Contract then in force between
itself and the Bureau of Customs. The trial
court upheld this argument and hence
dismissed the complaint. On appeal by the
consignee, this Court, speaking through Mr.
Justice J.B.L. Reyes, reversed the trial court
and found the defendant arrastre operator
liable for the value of the lost cargo, explaining
as follows:
However, the trial court has
overlooked the significance of the request
for, and the result of, the bad order
examination, which were filed and done
within fifteen days from the haulage of the
goods from the vessel. Said request and
result, in effect, served the purpose of a
claim, which is
to afford the
carrier or depositary
reasonable opportunity and
facilities to check the
 validity of the claims while and placed in the custody of respondent
facts are still fresh in the Razon. Hence, as early as 9 July 1974 (the
minds of the persons who date of last delivery to the consignee's
took part in the
warehouse), respondent Razon had been able
transaction and documents
to verify and ascertain for itself not only the
are still available. (Consunji
vs. Manila Port Service, L- existence of its liability to the consignee
15551, 29 November 1960) but, more significantly, the exact amount
thereof - i.e., P5,746.61, representing the value
Indeed, the examination undertaken by the of 111 bags of soybean meal. We note further
defendant's own inspector not only gave the that such verification and ascertainment of
defendant an opportunity to check the liability on the part of respondent Razon,
goods but is itself a verification of its own had been accomplished "within thirty (30)
liability x x x. days from the date of delivery of last
package to the consignee, broker or
In other words, what the Court
importer" as well as "within fifteen (15) days
considered as the crucial factor in declaring the
defendant arrastre operator liable for the loss from the date of issuance by the Contractor
occasioned, in the Fireman's Fund case, was [respondent Razon] of a certificate of loss,
the fact that defendant, by virtue of the damage or injury or certificate of non-
consignee's request for a bad order delivery" the periods prescribed under Article
examination, had been able formally to verify
VI, Section 1 of the Management Contract here
the existence and extent of its liability within
fifteen (15) days from the date of discharge of involved, within which a request for certificate
the shipment from the carrying of loss and a formal claim, respectively, must be
vessel -- i.e., within the same period stipulated filed by the consignee or his agent. Evidently,
under the Management Contract for the therefore, the rule laid down by the Court
consignee to file a formal claim. That a formal in Fireman's Fundfinds appropriate application
claim had been filed by the consignee in the case at bar.[31]
beyond the stipulated period of fifteen (15)
days neither relieved defendant of liability
nor excused payment thereof, the purpose of
a formal claim, as contemplated in Consunji,
In this case, the records show that the goods were
having already been fully served and
deposited with the arrastre operator on November 21, 2002. The
satisfied by the consignee's timely request
goods were withdrawn from the arrastre operator on November 22,
for, and the eventual result of, the bad order
23 and 29, 2002. Prior to the withdrawal on November 29, 2002,
examination of the nylon merchandise the broker of the importer, Marzan, requested for a bad order
shipped. survey in the presence of a Customs representative and other
parties concerned. The joint inspection of cargo was conducted and
it was found that an additional five (5) packages were found in bad
Relating the doctrine of Fireman's order as evidenced by the document entitled Request for Bad Order
Survey[32] dated November 29, 2002, which document also
Fund to the case at bar, the record shows that
contained the examination report, signed by the Customs
delivery to the warehouse of consignee
representative, Supervisor/Superintendent, consignees
Monterey Farms Corporation of the 5,974 bags representative, and the ATI Inspector.
of soybean meal, had been completed by Thus, as early as November 29, 2002, the date of the last
respondent Razon (arrastre operator) on 9 July withdrawal of the goods from the arrastre operator, respondent ATI
1974. On that same day, a bad order was able to verify that five (5) packages of the shipment were in bad
examination of the goods delivered was order while in its custody. The certificate of non-delivery referred to
requested by the consignee and was, in fact, in the Contract is similar to or identical with the examination
report on the request for bad order survey.[33] Like in the case
conducted by respondent Razon's own
of New Zealand Insurance Company Ltd. v. Navarro, the
inspector, in the presence of representatives of
verification and ascertainment of liability by respondent ATI
both the Bureau of Customs and the consignee.
had been accomplished within thirty (30) days from the date of
The ensuing bad order examination report what
delivery of the package to the consignee and within fifteen (15)
the trial court considered a "certificate of loss
days from the date of issuance by the Contractor (respondent
confirmed that out of the 5,974 bags of soybean
ATI) of the examination report on the request for bad order
meal loaded on board the M/S "Zamboanga" survey. Although the formal claim was filed beyond the 15-day
and shipped to Manila, 173 bags had been period from the issuance of the examination report on the request
damaged in transitu while an additional 111 for bad order survey, the purpose of the time limitations for the
bags had been damaged after the entire filing of claims had already been fully satisfied by the request of the
shipment had been discharged from the vessel consignees broker for a bad order survey and by the examination
report of the arrastre operator on the result thereof, as the arrastre
operator had become aware of and had verified the facts giving rise
to its liability.[34] Hence, the arrastre operator suffered no prejudice PRODUCT NOS. PRODUCTS NAMED NO. OF
by the lack of strict compliance with the 15-day limitation to file
SHEETS NET WT. PER PACKING LIST
the formal complaint.[35]
The next factual issue is whether or not petitioner is
entitled to actual damages in the amount of P431,592.14. The 2HD803763 Electrolytic Tin Free 1,200 1,908
payment of the said amount by petitioner to the assured/consignee
was based on the Evaluation Report [36] of BA McLarens Phils., Inc.,
Steel JISG3315
thus:

2HD803783 -do- 1,200 1,908

xxxx

2HD803784 -do- 1,200 1,908

CIRCUMSTANCES OF LOSS

2HD804460 -do- 1,400 1,698

As reported, the shipment consisting of 185
packages (344.982 MT) Electrolytic Tin Free
Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish 2HD803765 -do- 1,200 1,908
arrived Manila via Ocean Vessel, M/V DIMI P V-
075 on November 9, 2002 and subsequently 2HD804522 -do- 1,200 1,987
docked alongside Pier No. 9, South Harbor,
Manila. The cargo of Electrolyic Tin Free Steel
was discharged ex-vessel complete with seven 2HD804461 -do- 1,400 1,698
(7) skids noted in bad order condition by the
vessel[s] representative. These skids were 2HD804540 -do- 1,200 1,987
identified as nos. 2HD804211, 2HD804460,
SHD804251, SHD803784, 2HD803763, 2HD804549 -do- 1,200 1,987
2HD803765 and 2HD803783and covered with
Bad Order Tally Receipts No. 3709, 3707, 3703
9 SKIDS TOTAL 11,200 16,989 kgs.
and 3704. Thereafter, the same were stored
inside the warehouse of Pier No.
9, South Harbor, Manila, pending delivery to the
consignees warehouse.
On November 22, 23 and 29, 2002, the subject P9,878,547.58 P478,959.88
cargo was withdrawn from the Pier by the
consignee authorized broker, R. V. Marzan
Brokerage Corp. and the same was delivered to ------------------ = 42.7643 x 11,200
the consignees final warehouse located at
Silangan, Canlubang, Laguna complete with 231,000
twelve (12) skids in bad order condition.

Less: Deductible 0.50% based on sum insured 49,392.74

VISUAL INSPECTION

Total P429,567.14
We conducted an ocular inspection on the
reported damaged Electrolytic Tin Free Steel,
Matte Finish at the consignees warehouse Add: Surveyors Fee 2,025.00
located at Brgy. Silangan, Canlubang, Laguna
and noted that out of the reported twelve (12) Sub-Total P431,592.14
damaged skids, nine (9) of them were rejected
and three (3) skids were accepted by the
Note: Above evaluation is Assureds tentative
consignees representative as complete and
liability as the salvage proceeds on the damaged
without exceptions.
stocks has yet to be determined.

xxxx

EVALUATION OF INDEMNITY

We evaluated the loss/damage

sustained by the subject shipments and arrived
as follows:
 in bad order while in its custody before the last withdrawal of the
shipment on November 29, 2002. Hence, even if the formal claim
was filed beyond the 15-day period stipulated in the Contract,
respondent was not prejudiced thereby, since it already knew of the
number of skids damaged in its possession per the examination
RECOVERY ASPECT
report on the request for bad order survey.

Prospect of recovery would be feasible against

Remand of the case to the trial court for the
the shipping company and the Arrastre
determination of the liability of respondent to petitioner is not
operator considering the copies of Bad Order necessary as the Court can resolve the same based on the records
Tally Receipts and Bad Order before it.[43] The Court notes that petitioner, who filed this action for
Certificate issued by the subject parties.[37] damages for the five (5) skids that were damaged while in the
custody of respondent, was not forthright in its claim, as it knew
that the damages it sought in the amount of P431,592.14, which
was based on the Evaluation Report of its adjuster/surveyor, BA
McLarens Phils., Inc., covered nine (9) skids. Based on the same
Evaluation Report, only four of the nine skids were damaged in
To clarify, based on the Evaluation Report, seven (7) the custody of respondent. Petitioner should have been
skids were damaged upon arrival of the vessel per the Bad Order straightforward about its exact claim, which is borne out by the
Cargo Receipts[38] issued by the shipping company, and evidence on record, as petitioner can be granted only the amount of
an additional five (5) skids were damaged in the custody of the damages that is due to it.
arrastre operator per the Bad Order Certificate/Examination
Report[39] issued by the arrastre contractor. The Evaluation Report
states that out of the reported twelve damaged skids, only nine
were rejected, and three were accepted as good order by the Based on the Evaluation Report[44] of BA McLarens Phils.,
consignees representative. Out of the nine skids that were Inc., dated May 5, 2003, the four (4) skids damaged while in the
custody of the arrastre operator and the amount of actual damages
rejected, five skids were damaged upon arrival of the vessel as
therefore are as follows:
shown by the product numbers in the Evaluation Report, which
product numbers matched those in the Bad Order Cargo
Receipts[40] issued by the shipping company. It can then be safely
inferred that the four remaining rejected skids were damaged in
the custody of the arrastre operator, as the Bad Order
Certificate/Examination Report did not indicate the product
numbers thereof. PRODUCT NOS. PRODUCTS NAMED NO. OF
SHEETS NET WT. PER

P
Hence, it should be pointed out that the Evaluation ACKI
Report shows that the claim for actual damages in the amount NG
of P431,592.14 covers five (5)[41] out of the seven (7) skids that LIST
were found to be damaged upon arrival of the vessel and
covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707 2HD804522 Electrolytic Tin Free 1,200 1,987
and 3709,[42] which claim should have been filed with the shipping
company. Petitioner must have realized that the claim for the said Steel JISG3315
five (5) skids was already barred under COGSA; hence, petitioner
filed the claim for actual damages only against respondent arrastre
2HD804461 -do- 1,400 1,698
operator.

2HD804540 -do- 1,200 1,987

As regards the four (4) skids that were damaged in the
custody of the arrastre operator, petitioner is still entitled to recover
2HD804549 -do- 1,200 1,987
from respondent. The Court has ruled that the Request for Bad
Order Survey and the examination report on the said request
satisfied the purpose of a formal claim, as respondent was made ---------------------------------------------------------------------------------

aware of and was able to verify that five (5) skids were damaged or -------------------------
4 SKIDS TOTAL 5,000 BAUTISTA ANGELO, J.:

P9,878,547.58 (Insured value)[45] P213,821.50 This is a petition for review of a decision of the Court of Appeals
which affirms that of court as origin dismissing the complaint
------------------ = 42.7643 x 5,000 without pronouncement as to costs..

231,000 (Total number of sheets) The facts, as found by the Court of Appeals, are:.

Less: Deductible 0.50% based on sum insured[46] 49,392.74
Total P164,428.76
In view of the foregoing, petitioner is entitled to actual
damages in the amount of P164,428.76 for the four (4) skids
damaged while in the custody of respondent.
WHEREFORE, the petition is GRANTED. The Decision of
the Regional Trial Court of Makati City, Branch 138, dated October
17, 2006, in Civil Case No. 05-809, and its Order dated December
4, 2007, are hereby REVERSED and SET ASIDE. Respondent
Asian Terminals, Inc. is ORDERED to pay petitioner Insurance
Company of North America actual damages in the amount of One
Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos
and Seventy-Six Centavos (P164,428.76). Twelve percent (12%)
interest per annum shall be imposed on the amount of actual
damages from the date the award becomes final and executory
until its full satisfaction.
It appears that in the month of December, 1945 the
goods specified in the Bill of Lading marked as Annex A,
were shipped on the 'S.S. Sea Hydra,' of Isthmian
Steamship Company, from New York to Manila, and were
received by the consignee 'Udharam Bazar and Co.',
except one case of vanishing cream valued at P159.78.
The goods were insured against damage or loss by the
'Atlantic Mutual Insurance Co.' `Udharam Bazar and Co.'
Inc., who denied having received the goods for custody,
and the 'International Harvester Co. of the Philippines,'
as agent for the shipping company, who answer that the
goods were landed and delivered to the Customs
authorities. Finally, 'Udaharam Bazar and Co.' claimed
for indemnity of the loss from the insurer, 'Atlantic
Mutual Insurance Co.', and was paid by the latter's agent
'E. E. Elser Inc.' the amount involved, that is, P159.78..
As may be noted, the Court of Appeals held that petitioners have
already lost their right to press their claim against respondent
because of their failure to serve notice thereof upon the carrier
within 30 days after receipt of the notice of loss or damage as
required by clause 18 of the bill of lading which was issued
concerning the shipment of the merchandise which had allegedly
disappeared. In this respect, the court said that, "appellant
unwittingly admitted that they were late in claiming the indemnity
for the loss of the case of the vanishing cream as their written
claim was made on April 25, 1946, or more than 30 days after

Costs against petitioner. they had been fully aware of said loss," and because of this
failure, the Court said the action of petitioners should, and must,
fall. Petitioners now contend that this finding is erroneous in the
light of the provisions of the Carriage of Goods by Sea Act of 1936,
which apply to this case, the same having been made an integral
Republic of the Philippines
part of the covenants agreed upon in the bill of lading.
SUPREME COURT
Manila
There is merit in this contention. If this case were to be governed
by clause 18 of the bill of lading regardless of the provisions of the
EN BANC Carriage of Goods by Sea Act of 1936, the conclusion reached by
the Court of Appeals would indeed the correct, but in our opinion
G.R. No. L-6517 November 29, 1954 this Act cannot be ignored or disregard in determining the equities
of the parties it appearing that the same was made an integral
E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE part of the bill of lading by express stipulation. It should be noted,
COMPANY, petitioners, in this connection, that the Carriage of Goods by Sea Act of 1936

vs. was accepted and adopted by our government by the enactment of

Commonwealth Act No. 65 making said Act "applicable to all
COURT OF APPEALS, INTERNATIONAL HARVESTER
contracts for the carriage in foreign trade." And the pertinent
COMPANY OF THE PHILIPPINES and ISTHMIAN STEAMSHIP
provisions of the Carriage of the Goods by Sea Act of 1936 are:
COMPANY, respondents.

6. Unless notice of loss or damage and the general nature

Gibbs and Chuidian for petitioners.
of such loss or damage be given in writing to the carrier
J. A. Wolfson for respondents.
 of his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage,
such removal shall be prima facieevidence of the delivery
by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice
must be given within three days of the delivery.
xxx xxx xxx
In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or
the date when the goods should have been delivered:
PROVIDED, That if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery
of the goods or the date when the goods should have been
delivered. (Section 3; Emphasis supplied.).
It would therefore appear from the above that a carrier can only
be discharged from liability in respect of loss or damage if the suit
is not brought within one year after the delivery of the goods or
the date when the goods should have been delivered, and that,
even if a notice of loss or damage is not given as required, "that
fact shall not affect or prejudice the right of the shipper to bring
suit within one year after the delivery of the goods." In other
words, regardless of whether the notice of loss or damage has
been given, the shipper can still bring an action to recover said
loss or damage within one year after the delivery of the goods,
and, as we have stated above, this is contrary to the provisions of
clause 18 of the bill of lading. The question that now rises is:
Which of these two provisions should prevail? Is it that contained
in clause 18 of the bill of lading, or that appearing in the Carriage
of Goods by Sea Act?.
The answer is not difficult to surmise. That clause 18 must of
necessity yields to the provisions of the Carriage of Goods by Sea
Act in view of the proviso contained in the same Act which says:
"any clause, covenant, or agreement in a contract of carriage
relieving the carrier or the ship from liability for loss or damage to
or in connection with the goods . . . or lessening such liability
otherwise than as provided in this Act, shall be null and void and
of no effect." (section 3.) This means that a carrier cannot limit its
liability in a manner contrary to what is provided for in said act.
and so clause 18 of the bill of lading must of necessity be null and
void. This interpretation finds no support in a number of cases
recently decided by the American courts. Thus, in Balfour,
Guthrie and Co., Ltd., et al., vs. American-West African Line, Inc.
and American-West African Line, Inc. vs. Balfour, Guthrie & Co.,
Ltd., et al., 136 F. 2d. 320, wherein the bill of lading provided that
the owner should not be liable for loss of cargo unless written
notice thereof was given within 30 days after the goods should
have been delivered and unless written claim therefor was given
within six months after giving such written notice, the United
States Circuit Court of Appeals, Second Circuit, in a decision
promulgated on August 2, 1943, made the following ruling:.
But the Act, section 3 (6), 45 U.S.A. section 1303 (6)
provides that failure to give 'notice of loss or damages'
shall not prejudice the right of the shipper to bring suit
within one year after the date when the goods should
have been delivered. to enforce a bill of lading provision
conditioning a ship owner's liability upon the filing of
written claim of loss, which in turn requires and depends
upon the filing of a prior notice of loss, certainly would
do violence to section 3(6) is that failure to file written
claim of loss in no event may prejudice right of suit
within a year of the scheduled date for cargo delivery.
This is also to be concluded from section 3(8) 46 U.S. C.
A. Section 1303 (8),that any clause in a bill of lading
lessening the liability of the carrier otherwise than as
provided in the Act shall be null and void. A similar
provision in the British Carriage of Goods by Sea Act, 14
and 15 Geo. V. c.22, has been interpreted to nullify any
requirement of written claim as a condition to suit at any
time. CF. Australian United Steam Navigation Co., Ltd.,
vs. Hunt (1921) 2 A. C. 351; Conventry Sheppard and
Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1
But respondents contend that while the United States Carriage of
Goods by Sea Act of 1936 was accepted and adopted by our
government by virtue of Commonwealth Act No. 65, however, said
Act does not have any application to the present case because the
shipment in question was made in December, 1945, and arrived in
Manila in February, 1946 and at that time the Philippines was
still a territory or possession of the United States and, therefore it
may be said that the trade then between the Philippines and the
United States was not a "foreign trade". In other words, it is
contended that the Carriage of Goods by Sea Act as adopted by
our government is only applicable "to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade," and,
therefore, it does not apply to the shipment in question..
Granting arguendo that the Philippines was a territory or
possession of the United States for the purposes of said Act and
that the trade between the Philippines and the United States
before the advent of independence was notforeign trade or can only
be considered in a domestic sense, still we are of the opinion that
the Carriage of Goods by Sea Act of 1936 may have application to
the present case it appearing that the parties have expressly
agreed to make and incorporate the provisions of said Act as
integral part of their contract of carriage. This is an exception to
the rule regarding the applicability of said Act. This is expressly
recognized by section 13 of said Act which contains the following
proviso:
Nothing in this Act shall be held to apply to contracts for
carriage of gods by sea between any port of the United
States or its possessions, and any other port of the
United States or its possessions: Provided, however, That
any bill of lading or similar document of title which
evidence of a contract for the carriage of goods by sea
between such ports, containing an express statement that
it shall be subject to the provisions of this Act, shall be
 subjected hereto as fully as if subject hereto by the
express provisions of this Act. (Emphasis supplied.).
This is also recognized by the very authority cited by counsel for
respondents, who, on this matter, has made the following
comment:
The Philippine Act of 1936 like the U.S. Act of 1936,
applies propio vigore only to foreign commerce to all
contracts for the carriage of goods by sea and from
Philippine ports in foreign trade.
Prior to Philippine Independence on July 4, 1946, trade
between the Philippines and other ports and places
under the American Flag, was not, by an ordinary
definition, foreign commerce. Hence, the U. S. and
Philippine Acts did not apply to such trades, even though
conducted under foreign bottoms and under foreign
flag, unless the carrier expressly exercised the option
given by section 13 of the U.S. Act to carry under the
provisions of that Act. The fact that the U.S. coastwise
flag monopoly did not extend to the Philippine trade did
not alter the fact that the U.S. Trade with the Islands is
domestic. (knaught, Ocean Bills of Lading, 1947 ed. p.
250 (Emphasis supplied.).
Having reached the foregoing conclusion, it would appear clear
that action of petitioners has not yet lapsed or prescribed, as
erroneously held by the Court of Appeals, it appearing that the
present action was brought within one year after the delivery of
the shipment in question..
As regards the contention of respondents that petitioners have the
burden of showing that the loss complained of did not take place
under after the goods left the possession or custody of the carrier
because they failed to give notice of their loss or damage as
required by law, which failures gives rise to the presumption that
the goods were delivered in the bill of lading, suffice it to state
that, according to the Court of Appeals, the required notice was
given by the petitioners to the carrier or its agent on April 25,
1946. That notice is sufficient to overcome the above presumption
within the meaning of the law..
Wherefore the decision appealed from is reversed. Respondents,
other than the Court of Appeals, are hereby sentenced to pay to
the petitioners the sum of P159.78, with legal interest thereon
from the date of the filing of the complaint, plus the costs of
action..
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A.,
Concepcion and Reyes, J. B. L., JJ., concur.
EN BANC
[G.R. No. L-5554. May 27, 1953.]
BENITO CHUA KUY, Petitioner, v. EVERRETT STEAMSHIP
CORPORATION, Respondent.
Carolina C. Grino, Deogracias Castaeda, Jr. and Sevilla,
Aquino, Paras & Aguilla forPetitioner.
Ozaeta, Roxas, Lichauco & Picazo for Respondent.
SYLLABUS
1. BAILMENT AND CARRIERS; WHAT LAW GOVERNS
SHIPMENTS FROM UNITED STATES TO PHILIPPINE PORTS.
Contracts for the carriage of goods by sea, after July 4, 1946, from
the United States to Philippine ports is governed, not by the Code
of Commerce, but by the Carriage of Goods by Sea Act enacted by
the United States Congress on April 16, 1936 (Commonwealth Act
No. 65, section 1).
2. ID.; ID.; PRESCRIPTIVE PERIOD IS ONE YEAR FROM
DELIVERY OF THE CARGO. Where action is brought for
recovery of alleged shortage of cargo from the United States to the
city of Manila, and the suit was filed more than one year from
receipt of the cargo and from the discovery of the shortage, the
action has prescribed. Under section 3, subsection 6, of the
Carriage of Goods by Sea Act, suit can only be brought against the
carrier within one year after delivery of the cargo. The prescriptive
period embodied in the Code of Civil Procedure (Act No. 190) is not
applicable for the simple reason that this is a general law which
only applies to cases not covered by any special act. The
transaction under consideration is covered by the Carriage of
Goods by Sea Act and since this is a special act, its provisions
must of necessity limit or restrict a law of general application.
3. ID.; ID. ID.; WHEN PRESCRIPTIVE PERIOD IS NOT
INTERRUPTED BY ARBITRATION. A mere proposal for
arbitration or the fact that negotiations have been made for the
adjustment of the controversy between the local importer and the
carrier does not suspend the running of the period of prescription,
unless there is an express agreement to the contrary.
DECISION
BAUTISTA ANGELO, J.:
This is a petition for review of the decision of the Court of Appeals
dated February 15, 1952 affirming that of the Court of First
Instance of Manila which holds that the action of petitioner "has
already been barred by operation of law"
The pertinent facts of this Case as found by the Court of Appeals
are:jgc:chanrobles.com.ph
"It appears from the evidence that prior to January 6, 1947, the
plaintiff placed with the indentor Cumberco and Sons an order for
500 cases of evaporated milk of 96 babies. The indentor bought
the merchandise for the plaintiff from the Columbia Pacific
Distributing Company of Portland, Oregon, and its purchase price,
or the sum of $3,825, including the freight charges therefor
amounting $127.94, were paid by the plaintiff to said company
through the China Banking Corporation of Manila. On January 6, Government and, therefore, was a territory of the United States. In
1947, the Columbia Pacific Distributing Company loaded at the view of the particular relations then existing between the United
port of Portland, Oregon, on board the S/S H. H. Raymond of the States and the Philippines, Congress gave the latter the choice of
American Mail Line, Ltd., consigned to the order of the China making or not making the provisions of said Act applicable to
Banking Corporation and Min Sheng Trading, Manila, a quantity transportation to or from ports of the Philippines by inserting in
of goods described in the bill of lading as follows:chanrob1es section 13 thereof a proviso to the effect that "the Philippine
virtual 1aw library Legislature may, by law, exclude its application to transportation
to or from ports of the Philippine Islands." The Commonwealth
Loading Description of goods Gross Measurement Government, however, elected to accept and make applicable to
the Philippines said Act through Commonwealth Act No. 65
weight cu. ft. approved on April 22, 1936, wherein it was provided (section 1)
that the provisions of the Carriage of Goods by Sea Act are
500 Cases evaporated milk 96 11,500 500 "hereby accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign
babies loaded on board, January trade; Provided, That nothing in this Act shall be construed as
repealing any existing provisions of the Code of Commerce which
MTCO 6, 1947 is now in force, or as limiting its application"

(Sgd.) Illegible In view of the fact that section 13 of the Carriage of Goods by Sea
Act provides, among other things, that "Nothing in this Act shall
"The S/S H. H. Raymond arrived at the port of Manila on be held to apply to contracts for carriage of goods by sea between
February 21, 1947, discharged the cargo covered by the above bill any port of the United States or its possessions, and any other
of lading and delivered it to the custody of the Manila Terminal ports of the United States or its possessions," petitioner now
Company. On February 26, 1942, the Manila Terminal Company contends that said Act cannot apply to the contract for carriage of
delivered the cargo to Min Sheng Trading, through the Serrano the goods in question because at the time said Act was made
Transportation, a local broker, under a receipt of the following applicable to the Philippines the latter was still a possession or
tenor:chanrob1es virtual 1aw library territory of the United States. In other words, it is contended that
the Act has application only to transportation of goods in foreign
Received from the Serrano Transportation the following trade, or between ports of the United States and ports of foreign
merchandise in good order and condition:chanrob1es virtual 1aw countries, and since the Philippines was not a foreign country at
library that time, it does not come within the purview of said Act, unless
proper amendment is previously made in the law.
Marks & No. of packages Contents Remarks
Granting arguendo that the Philippines was a territory or
MTCO 500 Ctns. Evap. Milk possession of the United States for the purposes of said Act, a
different situation obtained after it had become an independent
Manila (48 Babies) CPH, 62026 state on July 4, 1946, which eventuality fully places it within the
purview of said Act. If before its declaration of independence, the
(Exh. "B") Five hundred only trade relations between the Philippines and the United States
could only be considered in a domestic sense, after it had become
When the contents of the cases were unpacked, the plaintiff independent said trade relations must have of necessity acquired
discovered that the cargo delivered to him consisted of 500 cases the character of foreign within the meaning of said Act. And there
of 48 babies of evaporated milk, and not 96 babies as ordered by is no need of an express legislation to have the provisions of said
him. The plaintiff immediately gave notice to the defendant of the Act applicable to the Philippines upon the advent of
shortage in the cargo delivered, and later on filed with the latter a independence, as claimed by petitioner, for the simple reason that,
formal claim for said loss which amounted to P3,911.06. Certain foreseeing that eventuality, our legislative body, in enacting
negotiations for the amicable settlement of the matter having Commonwealth Act No. 65, already provided therein that said
failed, this action was instituted on May 7, 1948."cralaw provisions should be made applicable "to all contracts for the
virtua1aw library carriage of goods by sea to and from Philippine ports in foreign
trade." This express proviso clearly paves the way for the
The main issues raised in this appeal are: (1) Whether the application of the Carriage of Goods by Sea Act to all contracts
Carriage of Goods by Sea Act is applicable to this particular case, from Philippine ports to other foreign countries, including the
as claimed by respondent, or the same should be governed by the United States. We therefore find that the Court of Appeals did not
Code of Commerce or other laws, as claimed by petitioner; (2) err in holding that that Act applies to the transaction under
Whether the action of petitioner has already prescribed; and (3) consideration.
Whether respondent should pay the indemnity claimed in the
complaint. (2) Having arrived at the foregoing conclusion, the next question to
consider is whether the present action has already prescribed. To
(1) The Carriage of Goods by Sea Act was enacted by the United answer this question we need to resort to the provisions of said
States Congress on April 16, 1936 (46 U.S.C.A. 1300). Section 13 Act which, as already stated, applies to the present case. Section
of said Act provides that it shall apply "to all contracts of carriage 3, subsection 6, of this Act provides in part:jgc:chanrobles.com.ph
of goods by sea to or from ports of the United States in foreign
trade." The term "United States" was therein defined as including "In any event the carrier and the ship shall be discharged from all
its districts, territories and possessions. liability in respect of loss or damage unless suit is brought within
one year after delivery of the goods or the date when the goods
When said Act was enacted by the United States Congress the should have been delivered: Provided, That if a notice of loss or
political status of the Philippines was then a Commonwealth damage, either apparent or concealed, is not given as provided for
in this section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the
goods or the date when the goods should have been
delivered."cralaw virtua1aw library
There is no dispute in the evidence that the cargo in question was
brought to the City of Manila, Philippines, from Portland, Oregon,
U.S.A., on board a foreign ship; that the cargo was unloaded at
the port of Manila and delivered to petitioner on February 26,
1947; that the alleged shortage in the cargo was discovered by
petitioner on the same date and notice thereof was given to
respondent, as local agent of the owner of the ship, also on the
same date; and that this action was commenced only on May 7,
1948, or after the lapse of one year, two months and nine days
from the delivery of the goods to petitioner. Considering that,
under the provision abovequoted, an action for recovery of loss or
damage in connection with certain cargo can only be brought
against the carrier within one year after delivery of said cargo, it
would seem evident that the action of petitioner has already
prescribed.
Petitioner, however, contends that the prescriptive period
embodied in the Carriage of Goods by Sea Act has no application
to the case at bar because the period of prescription that should
be considered is that embodied in the Code of Civil Procedure,
which repealed the provisions of the Code of Commerce on the
subject, and because, even assuming that the Carriage of Goods
by Sea Act applies to this particular transaction, the prescriptive
period provided therein could not apply to petitioner upon the
theory that "such time-bar applies to the shipper only, and not to
a person other than the shipper." In other words, it is contended
that, under said Act, the action to recover loss or damage can only
be brought by the shipper and not by any other person interested
in the transaction.
The claim that the prescriptive period to be considered in this
case is that embodied in the Code of Civil Procedure is untenable
for the simple reason that this is a general law which only applies
to cases not covered by any special act. As we have already stated,
the transaction under consideration is covered by the Carriage of
Goods by Sea Act, and since this is a special act, its provisions
must of necessity limit or restrict a law of general application. To
hold otherwise would be to render nugatory the prescriptive
provision contained in that special Act.
Neither do we find tenable the claim that the prescriptive period
contained in said act can only be invoked by the shipper,
excluding all other parties to the transaction. While apparently
the proviso contained in the portion of section 3(6) of the act we
have quoted gives the impression that the right to file suit within
one year after delivery of the goods applies to the shipper alone,
however, reading the proviso in conjunction with the rest of
section 3 (6), it at once becomes apparent that the conclusion
drawn by petitioner is unwarranted. In the first place, said section
provides that the notice of loss or damage for which a claim for
indemnity may be made should be given in writing to the carrier
at the port of discharge before or at the time of the removal of the
goods, and if the loss or damage is not apparent said notice
should be given "within three days of the delivery." From the
language of this section, it seems clear that the notice of loss or
damage is required to be filed not necessarily by the shipper but
also by the consignee or any legal holder of the bill of lading. In
fact, said section requires that the notice be given at the port of
discharge and the most logical party to file the notice is either the
consignee or the endorsee of the bill of lading. In the second place,
a study of the historical background of this particular provision
will show that although the word shipper is used in the proviso
referred to by petitioner, the intention of the law was not to
exclude the consignee or endorsee of the bill of lading from
bringing the action but merely to limit the filing of the same
within one year after the delivery of the goods at the port of
discharge. [The Southern Cross, 1940 A. M. C. 59 (SDNY);
Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].
Arnold W. Knauth, an eminent authority on admiralty,
commenting on this proviso, says:jgc:chanrobles.com.ph
"The American Act contains an added proviso, which is not found
in any other Hague Rules text, intended to clarify the foregoing.
This was one of the American amendments agreed to at the 1930
Chamber of Commerce Conference. It provides, in addition to the
text of the Rules, that.
If a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, the fact shall not affect or
prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should
have been delivered.
It seems evident that this language does not alter the sense of the
text of the Hague Rules; it merely reiterates in another form the
rule already laid down. Curiously, the proviso seems limited to the
rights of shippers, and might strictly be construed not to give any
rights to consignees, representatives, or subrogated parties;
whereas the Hague Rules phraseology is broader. As the Act
contains both phrases, it would seem to be as broad as the
broader of the two forms of words." (Ocean Bills of Lading, by
Knauth, p. 229.)
Petitioner finally contends that the negotiations between petitioner
and respondent conducted with a view to reaching an amicable
settlement between them and which caused the delay in the filing
of the present action constitute a waiver on the part of respondent
to set up the prescriptive period or operates as a estoppel on his
part to rely on such prescriptive period to the prejudice of
petitioner. This contention is also untenable. The rule is well-
settled that a mere proposal for arbitration or the fact that
negotiations have been made for the adjustment of a controversy,
even if the proposal is not acted upon, or the adjustment is not
carried out, does not suspend the running of the period of
prescription, unless there is an express agreement to the contrary,
Here there is no such agreement.
"The mere pendency of negotiations for the adjustment of a
controversy does not suspend the statutory prescription against
an action on the claim involved. Where the negotiations result in
an agreement to submit a controversy to the attorneys of the
respective parties for them to advise a plan of settlement, but the
attorneys do not act on such agreement, limitations are not tolled
during the period of submission in the absence of a provision of
the agreement specifically tolling limitations, and the mere fact
that there are negotiations with a view of referring a disputed
matter to arbitrators does not suspend the running of the statute,
there being no express agreement to suspend legal remedies to
await the issue of the negotiation." (54 C. J. S., pp. 284-285.)
Having reached the foregoing conclusion, the other issues raised
by petitioner need not be considered.
Wherefore, the decision appealed from is hereby affirmed, with
costs against petitioner.
Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor, Reyes
and Jugo, JJ., concur.
Republic of the Philippines Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a
SUPREME COURT similar complaint against the petitioner which was docketed as
Manila Civil Case No. 110061, for recovery under the marine insurance
policy for cargo alleging that the goods insured with the petitioner
SECOND DIVISION sustained loss and damage in the sum of P55,996.49.

G.R. No. L-54140 October 14, 1986 The goods were delivered to the plaintiff-consignee on or about
January 25-28, 1977.

FILIPINO MERCHANTS INSURANCE COMPANY,

On May 31, 1978, the petitioner filed its answer. On September
INC., petitioner,
28, 1978, it filed an amended third-party complaint against
vs.
respondent carrier, the Australia-West Pacific Line (Australia-
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch
West).
XXVI of the Court of First Instance of Manila and FROTA
OCEANICA BRASILIERA, respondents.
In both cases, the private respondents filed their respective
answers and subsequently filed a motion for preliminary hearing
G.R. No. L-62001 October 14, 1986 on their affirmative defense of prescription. The private
respondents alleged in their separate answers that the petitioner
FILIPINO MERCHANTS INSURANCE COMPANY, is already barred from filing a claim because under the Carriage of
INC., petitioner, Goods by Sea Act, the suit against the carrier must be filed within
vs. one year after delivery of the goods or the date when the goods
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch should have been delivered...

XVI of the Court of First Instance of Manila and AUSTRALIA-

WEST PACIFIC LINE, respondents. The petitioner contended that the provision relied upon by the
respondents applies only to the shipper and not to the insurer of
the goods.

GUTIERREZ, JR., J.:
These consolidated petitions raise the issue of whether or not the
one-year period within which to file a suit against the carrier and
theship, in case of damage or loss as provided for in the Carriage
of Goods by Sea Act applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint,
docketed as Civil Case No. 109911, against the petitioner before
the then Court of First Instance of Manila for recovery of a sum of
money under the marine insurance policy on cargo. Mr. Choa
alleged that the goods he insured with the petitioner sustained
loss and damage in the amount of P35,987.26. The vessel SS
Frotario which was owned and operated by private respondent
Frota Oceanica Brasiliera, (Frota) discharged the goods at the port
of Manila on December 13, 1976. The said goods were delivered to
the arrastre operator E. Razon, Inc., on December 17, 1976 and
on the same date were received by the consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended answer
disclaiming liability, imputing against the plaintiff the commission
of fraud and counterclaiming for damages.
On January 9, 1978, the petitioner filed a third-party complaint
against the carrier, private respondent Frota and the arrastre
contractor, E. Razon, Inc. for indemnity, subrogation,
reimbursement in the event that it is held liable to the plaintiff.
On April 30, 1980, the respondent judge in Civil Case No. 109911,
upheld respondent Frota and dismissed the petitioner's third-
party complaint. Likewise, on August 31, 1982, the respondent
judge in Civil Case No. 110061 dismissed the petitioner's third-
party complaint against respondent Australia-West on the ground
that the same was filed beyond the prescriptive period provide in
Section 3 (6) of the Carriage of Goods by Sea Act of 1936. These
both cases, the petitioner appealed to us on a pure question of
law, raising the issue of whether or not the prescriptive period of
one year under the said Act also applies to an insurer such as
herein petitioner.
The petitioner maintains that the one-year prescriptive period
cannot cover an insurer which has not settled the claim of its
insured because it cannot be considered as the person referred to
in the applicable provision of the said Act that has the duty or
right to give notice of loss or damage to the carrier or to sue such
carrier within the period of one year and that where an insurer
does not settle the claim of its insured it cannot be considered as
subrogated to the rights of said insured that would then authorize
it to sue the carrier within the time-bar of one year. The petitioner
further contends that the period for the filing of a third-party
complaint must be reckoned from the date when the principal
action was filed, that is, from the time the insured filed a suit
against the petitioner, because the third-party complaint is merely
an incident of the main action.
or
On the other hand, the respondents argue that the one-year
prescriptive period within which to file a case against the carrier
also applies to a claim filed by an insurer who stands as a
subrogee to the insured and that the third-party complaint filed
by the petitioner cannot be reckoned from the firing of the main
action because such complaint is independent of, and separate
and distinct from the insured's action against the petitioner.
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the
general nature of such loss or damage be given
in writing to the carrier or his agent at the port
of discharge before or at the time of the removal
of the goods into the custody of the person
entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie
evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the
loss or damage is not apparent, the notice must
be given within three days of the delivery.
Said notice of loss or damage may be endorsed
upon the receipt for the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the
state of the goods has at the time of their
receipt been the subject of joint survey or
inspection.
In any event the carrier and the ship shall be
discharged from all liability in respect of loss or
damage unless suit is brought within one year
after delivery of the goods or the date when the
goods should have been delivered: Provided,
that if a notice of loss or damage, either
apparent or concealed, is not given as provided
for in this section, that fact shall not affect or
prejudice the right of the shipper to bring the
suit within one year after the delivery of the
goods or the date when the goods should have
been delivered.
In the case of any actual or apprehended loss or
damage, the carrier and the receiver shall give
all reasonable facilities to each other
inspecting and tallying the goods. (Emphasis
supplied) Philippine Permanent and General
Statutes (Revised Edition, Vol. 1, pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214),
expounds on the extent of the applicability of the aforequoted
provision. We ruled:
Neither do we find tenable the claim that the
prescriptive period contained in said act can
only be invoked by the shipper, excluding all
other parties to the transaction. While
apparently the proviso contained in the portion
of section 3(6) of the act we have quoted gives
the impression that the right to file suit within
one year after delivery of the goods applies to
the shipper alone, however, reading the proviso
in conjunction with the rest of section 3(6), it at
once becomes apparent that the conclusion
drawn by petitioner is unwarranted. In the first
place, said section provides that the notice of
loss or damage for which a claim for indemnity
may be made should be given in writing to the
carrier at the port of discharge before or at the
time of the removal of the goods, and if the loss
or damage is not apparent said notice should be
given 'within three days on delivery.' From the
language of this section, it seems clear that the
notice of loss or damage is required to be filed
not necessarily by the shipper but also by the
consignee or any legal holder of the bill of
lading. In fact, said section requires that the
notice be given at the port of discharge and the
most logical party to file the notice is either the
consignee or the endorsee of the bill of lading.
In the second place, a study of the historical
background of this particular provision will
show that although the word shipper is used in
the proviso referred to by the petitioner, the
intention of the law was not to exclude the
consignee or endorsee of the bill of lading from
bringing the action but merely to limit the filing
of the same within one year after the delivery of
the goods at the port of discharge. [The
Southern Cross, 1940, A. M. C. 59 (SDNY);
Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].
Arnold W. Knauth, an eminent authority on
admiralty, commenting on this proviso, says:
xxx xxx xxx
It seems evident that this language does not
alter the sense of the text of the Hague Rules; it
merely reiterates in another form the rule
already laid down. Curiously, the proviso seems
limited to the rightsof shippers, and might
for
strictly be construed not to give any rights to
consignees, representatives, or subrogated
parties; whereas the Hague Rules phraseology
is broader. As the Act contains both phrases, it
would seem to be as broad as the broader of the
two forms of words. (Ocean Bills of Lading, by
Knauth, p. 229).
Clearly, the coverage of the Act includes the insurer of the goods.
Otherwise, what the Act intends to prohibit after the lapse of the
one-year prescriptive period can be done indirectly by the shipper
or owner of the goods by simply filing a claim against the insurer
even after the lapse of one year. This would be the result if we
follow the petitioner's argument that the insurer can, at any time,
proceed against the carrier and the ship since it is not bound by
the time-bar provision. In this situation, the one-year limitation
will be practically useless. This could not have been the intention
of the law which has also for its purpose the protection of the
carrier and the ship from fraudulent claims by having "matters
affecting transportation of goods by sea be decided in as short a
time as possible" and by avoiding incidents which would
"unnecessarily extend the period and permit delays in the
settlement of questions affecting the transportation." (See The Yek
Tong Fire and Marine Insurance Co., Ltd., v. American President
Lines, Inc., 103 Phil. 1125-1126).
In the case of Aetna Insurance Co. v. Luzon Stevedoring
Corporation (62 SCRA 11, 15), we denied the appeal of an
insurance company which filed a suit against the carrier after the
lapse of one year. We ruled:
There is no merit in the appeal. The trial court
correctly held that the one-year statutory and
contractual prescriptive period had already
expired when appellant company filed on April
7, 1965 its action against Barber Line Far East
Service. The one-year period commenced on
February 25, 1964 when the damaged cargo
was delivered to the consignee. (See Chua Kuy
v. Everrett Steamship Corporation, 93 Phil. 207;
Yek Tong Fire & Marine Insurance Co., Ltd. v.
American President Lines, Inc., 103 Phil. 1125).
We likewise agree with the respondents that the third-party
complaint of the petitioner cannot be considered to have been filed
upon the filing of the main action because although it can be said
that a third-party complaint is but ancilliary to the main action
(Eastern Assurance and Surety Corporation v. Cui 105 SCRA
622), it cannot abridge, enlarge, nor modify the substantive rights
of any litigant. It creates no substantive rights. Thus, unless there
is some substantive basis for the third-party Plaintiff's claim, he
cannot utilized the filing of such action to acquire any right of
action against the third-party defendant. (See also Francisco, The
Revised Rules of Court in the Philippines, Vol. 1, 1973 Ed., p.
507). The petitioner can only rightfully file a third-party complaint
against the respondents if, in the first place, it can still validly
maintain an action against the latter.
In the case at bar, the petitioner's action has prescribed under the
provisions of the Carriage of Goods by Sea Act. Hence, whether it
files a third-party complaint or chooses to maintain an
independent action against herein respondents is of no moment.
Had the plaintiffs in the civil cases below filed an action against
the petitioner after the one-year prescriptive period, then the latter
could have successfully denied liability on the ground that by
their own doing, the plaintiffs had prevented the petitioner from
being subrogated to their respective rights against the herein
respondents by filing a suit after the one-year prescriptive period.
The situation, however, does not obtain in the present case. The
plaintiffs in the civil cases below gave extra-judicial notice to their
respective carriers and filed suit against the petitioner well within
one year from their receipt of the goods. The petitioner had plenty
of time within which to act. In Civil Case No. 109911, the
petitioner had more than four months to file a third-party
complaint while in Civil Case No. 110061, it had more than five
months to do so. In both instances, however, the petitioner failed
to file the appropriate action.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G.
R. No. 54140 and G. R. No. 62001 are hereby DISMISSED for lack
of merit. Costs against the petitioner.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
SECOND DIVISION
[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT, petitioners,
vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set
aside the Decision of respondent Court of Appeals dated
December 14, 1995[1] and its Resolution dated February 22,
1996[2] in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies Department v.
South Sea Surety Insurance Co., Inc. and The Charter Insurance
Corporation.[3]
In 1983, petitioner Hongkong Government Supplies
Department (Hongkong) contracted petitioner Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel
pipes and fittings. From August to October, 1983, Mayer shipped
the pipes and fittings to Hongkong as evidenced by Invoice Nos.
MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017
and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and
fittings against all risks with private respondents South Sea
Surety and Insurance Co., Inc. (South Sea) and Charter Insurance
Corp. (Charter). The pipes and fittings covered by Invoice Nos.
MSPC-1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with respondent South Sea, while
those covered by Invoice Nos. 1020, 1017 and 1022 with a total
amount of US$149,470.00 were insured with respondent Charter.
 Petitioners Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine
whether the pipes and fittings are manufactured in accordance
with the specifications in the contract. Industrial Inspection
certified all the pipes and fittings to be in good order condition
before they were loaded in the vessel. Nonetheless, when the
goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.
Petitioners filed a claim against private respondents for
indemnity under the insurance contract. Respondent Charter paid
petitioner Hongkong the amount of HK$64,904.75. Petitioners
demanded payment of the balance of HK$299,345.30 representing
the cost of repair of the damaged pipes. Private respondents
refused to pay because the insurance surveyor's report allegedly
showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their
defense, private respondents averred that they have no obligation
to pay the amount claimed by petitioners because the damage to
the goods is due to factory defects which are not covered by the
insurance policies.
The trial court ruled in favor of petitioners. It found that the
damage to the goods is not due to manufacturing defects. It also
noted that the insurance contracts executed by petitioner Mayer
and private respondents are "all risks" policies which insure
against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained
due to fraud or intentional misconduct on the part of the
insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering
the defendants jointly and severally, to pay the plaintiffs
the following:
1. the sum equivalent in Philippine currency
of HK$299,345.30 with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees;
and
3. costs of suit.
SO ORDERED. [5]
Private respondents elevated the case to respondent Court of
Appeals.
Respondent court affirmed the finding of the trial court that
the damage is not due to factory defect and that it was covered by
the "all risks" insurance policies issued by private respondents to
petitioner Mayer. However, it set aside the decision of the trial
court and dismissed the complaint on the ground
prescription. It held that the action is barred under Section 3(6) of
the Carriage of Goods by Sea Act since it was filed only on April
17, 1986, more than two years from the time the goods were
unloaded from the vessel. Section 3(6) of the Carriage of Goods by
Sea Act provides that "the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date
when the goods should have been delivered." Respondent court
ruled that this provision applies not only to the carrier but also to
the insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding
that petitioners' cause of action had already
prescribed on the mistaken application of the
Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA
42); and
2. The respondent Court of Appeals committed an error
in dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred
in applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that
the carrier and the ship shall be discharged from all liability for
loss or damage to the goods if no suit is filed within one year after
delivery of the goods or the date when they should have been
delivered. Under this provision, only the carrier's liability is
extinguished if no suit is brought within one year. But the liability
of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of
insurance. A close reading of the law reveals that the Carriage of
Goods by Sea Act governs the relationship between the carrier on
the one hand and the shipper, the consignee and/or the insurer
on the other hand. It defines the obligations of the carrier under
the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case
is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v.
Alejandro[8] and the other cases[9] cited therein does not support
respondent court's view that the insurer's liability prescribes after
one year if no action for indemnity is filed against the carrier or
the insurer. In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity for the loss
and damage sustained by the insured goods. The insurer, in turn,
filed a third-party complaint against the carrier for reimbursement
of the amount it paid to the shipper. The insurer filed the third-
party complaint on January 9, 1978, more than one year after
delivery of the goods on December 17, 1977. The court held that
the Insurer was already barred from filing a claim against the
carrier because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after delivery of
of
the goods or the date when the goods should have been
 delivered. The court said that "the coverage of the Act includes the ASIAN TERMINALS, INC.,
insurer of the goods."[10] Respondent. Promulgated
February 15,
The Filipino Merchants case is different from the case at
bar. In Filipino Merchants, it was the insurer which filed a claim x---------------------------------------------
against the carrier for reimbursement of the amount it paid to the ----x
shipper. In the case at bar, it was the shipper which filed a claim
against the insurer. The basis of the shipper's claim is the "all
risks" insurance policies issued by private respondents to
petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits

against the carrier filed either by the shipper, the consignee or the DECISION
insurer. When the court said in Filipino Merchants that Section
3(6) of the Carriage of Goods by Sea Act applies to the insurer, it
meant that the insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period provided in the
law. But it does not mean that the shipper may no longer file a
claim against the insurer because the basis of the insurer's
PERALTA, J.:
liability is the insurance contract. An insurance contract is a
contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which
he may suffer from a specified peril. [11] An "all risks" insurance
policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured. [12] Thus, when private respondents
issued the "all risks" policies to petitioner Mayer, they bound This is a petition for review on certiorari[1] of the Decision
themselves to indemnify the latter in case of loss or damage to the of the Regional Trial Court (RTC) of Makati City, Branch 138 (trial
goods insured. Such obligation prescribes in ten years, in court) in Civil Case No. 05-809 and its Order dated December 4,
accordance with Article 1144 of the New Civil Code. [13]
2007 on the ground that the trial court committed reversible error
of law.
IN VIEW WHEREOF, the petition is GRANTED. The Decision
of respondent Court of Appeals dated December 14, 1995 and its
Resolution dated February 22, 1996 are hereby SET ASIDE and
the Decision of the Regional Trial Court is hereby The trial court dismissed petitioners complaint for actual
REINSTATED. No costs. damages on the ground of prescription under the Carriage of
Goods by Sea Act (COGSA).
SO ORDERED.
The facts are as follows:
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr.,
JJ., concur.

Republic of the Philippines On November 9, 2002, Macro-Lite Korea

Corporation shipped to San Miguel Corporation, through M/V
Supreme Court
"DIMI P" vessel, one hundred eighty-five (185) packages (231,000
Manila
sheets) of electrolytic tin free steel, complete and in good order
condition and covered by Bill of Lading No. POBUPOHMAN20638.
THIRD DIVISION [2]
The shipment had a declared value of US$169,850.35 [3] and was
insured with petitioner Insurance Company of North
INSURANCE COMPANY OFNORTH AMERICA, G.R. No.America
180784against all risks under Marine Policy No. MOPA-06310. [4]
Petitioner,
Present:

- versus - CARPIO, The carrying vessel arrived at the port of Manila on

PERALTA,
November 19, 2002, and when the shipment was discharged
ABAD, therefrom, it was noted that seven (7) packages thereof were
PEREZ, damaged and in bad order.[5] The shipment was then turned over
MENDOZA,
to the custody of respondent Asian Terminals, Inc. (ATI)
on November 21, 2002 for storage and safekeeping pending its and the Shed Supervisor. Thus, ATI is now
withdrawal by the consignee's authorized customs broker, R.V. estopped from claiming that there was no
Marzan Brokerage Corp. (Marzan). additional damage suffered by the shipment. It
is, therefore, only logical to conclude that the
On November 22, 23 and 29, 2002, the subject shipment damage was caused solely by the negligence of
was withdrawn by Marzan from the custody of respondent. On defendant ATI. This evidence of the plaintiff was
November 29, 2002, prior to the last withdrawal of the shipment, refuted by the defendant by merely alleging that
a joint inspection of the said cargo was conducted per the Request "the damage to the 5 Tin Plates is only in its
for Bad Order Survey [6]
dated November 29, 2002, and the external packaging. However, the fact remains
examination report, which was written on the same request, that the consignee has rejected the same as
showed that an additional five (5) packages were found to be total loss for not being suitable for their
damaged and in bad order. intended purpose. In addition, the photographs
presented by the plaintiff show that the
On January 6, 2003, the consignee, San Miguel shipment also suffered severe dents and some
Corporation, filed separate claims [7] against respondent and packages were even critically crumpled.[11]
petitioner for the damage to 11,200 sheets of electrolytic tin free
steel.

As to the extent of liability, ATI invoked the Contract for

Cargo Handling Services executed between the Philippine Ports
Petitioner engaged the services of an independent Authority and Marina Ports Services, Inc. (now Asian Terminals,
adjuster/surveyor, BA McLarens Phils., Inc., to conduct an Inc.). Under the said contract, ATI's liability for damage to cargoes
investigation and evaluation on the claim and to prepare the in its custody is limited to P5,000.00 for each package, unless the
necessary report. [8]
BA McLarens Phils., Inc. submitted to value of the cargo shipment is otherwise specified or manifested
petitioner an Survey Report [9]
dated January 22, 2003 and or communicated in writing, together with the declared Bill of
another report [10]
dated May 5, 2003 regarding the damaged Lading value and supported by a certified packing list to the
shipment. It noted that out of the reported twelve (12) damaged contractor by the interested party or parties before the discharge
skids, nine (9) of them were rejected and three (3) skids were or lading unto vessel of the goods.
accepted by the consignees representative as good order. BA
McLarens Phils., Inc. evaluated the total cost of damage to the
nine (9) rejected skids (11,200 sheets of electrolytic tin free steel)
to be P431,592.14. The trial court found that there was compliance by the
shipper and consignee with the above requirement. The Bill of
The petitioner, as insurer of the said cargo, paid the Lading, together with the corresponding invoice and packing list,
consignee the amount of P431,592.14 for the damage caused to was shown to ATI prior to the discharge of the goods from the
the shipment, as evidenced by the Subrogation Receipt vessel. Since the shipment was released from the custody of ATI,
dated January 8, 2004. Thereafter, petitioner, formally demanded the trial court found that the same was declared for tax purposes
reparation against respondent. As respondent failed to satisfy its as well as for the assessment of arrastre charges and other fees.
demand, petitioner filed an action for damages with the RTC of For the purpose, the presentation of the invoice, packing list and
Makati City. other shipping documents to ATI for the proper assessment of the
arrastre charges and other fees satisfied the condition of
The trial court found, thus: declaration of the actual invoices of the value of the goods to
overcome the limitation of liability of the arrastre operator. [12]

The Court finds that the subject

shipment indeed suffered additional damages. Further, the trial court found that there was a valid
The Request for Bad Order Survey No. 56422 subrogation between the petitioner and the assured/consignee
shows that prior to the turn over of the San Miguel Corporation. The respondent admitted the existence
shipment from the custody of ATI to the of Global Marine Policy No. MOPA-06310 with San Miguel
consignee, aside from the seven (7) packages Corporation and Marine Risk Note No. 3445,[13] which showed
which were already damaged upon arrival at the that the cargo was indeed insured with petitioner. The trial court
port of Manila, five (5) more packages were held that petitioners claim is compensable because the
found with "dent, cut and crumple" while in the Subrogation Receipt,16 which was admitted as to its existence by
custody of ATI. This document was issued by respondent, was sufficient to establish not only the relationship
ATI and was jointly executed by the of the insurer and the assured, but also the amount paid to settle
representatives of ATI, consignee and customs, the insurance claim.[14]

However, the trial court dismissed the complaint on the
ground that the petitioners claim was already barred by the
statute of limitations. It held that COGSA,
Commonwealth Act (CA) No. 65, applies to this case, since the
goods were shipped from a foreign port to the Philippines. The
trial court stated that under the said law, particularly paragraph
4, Section 3 (6)[15] thereof, the shipper has the right to bring a suit
within one year after the delivery of the goods or the date when
the goods should have been delivered, in respect of loss or
damage thereto.
The trial court held:
In the case at bar, the records show
that the shipment was delivered to
consignee on 22, 23 and 29 of November 2002.
The plaintiff took almost a year to approve and
pay the claim of its assured, San Miguel,
despite the fact that it had initially received the
latter's claim as well as the inspection report
and survey report of McLarens as early as
January 2003. The assured/consignee had only
until November of 2003 within which to file a
suit against the defendant. However, the instant
case was filed only on September 7, 2005 or
almost three (3) years from the date the subject
shipment was delivered to the consignee. The
plaintiff, as insurer of the shipment which has
paid the claim of the insured, is subrogated to
all the rights of the said insured in relation to
the reimbursement of such claim. As such, the
plaintiff cannot acquire better rights than that
of the insured. Thus, the plaintiff has no one
but itself to blame for having
lackadaisically on San Miguel's claim.
WHEREFORE, the complaint and counterclaim
are hereby DISMISSED. [16]
Petitioners motion for reconsideration was denied by the
trial court in the Order[17] dated December 4, 2007.
Petitioner filed this petition under Rule 45 of the Rules of
Court directly before this Court, alleging that it is raising a pure
question of law:
embodied in
THE TRIAL COURT COMMITTED A
PURE AND SERIOUS ERROR OF LAW IN
APPLYING THE ONE-YEAR PRESCRIPTIVE
PERIOD FOR FILING A SUIT UNDER THE
CARRIAGE OF GOODS BY SEA ACT (COGSA) TO
AN ARRASTRE OPERATOR.[18]
Petitioner states that while it is in full accord with the
the trial court in finding respondent liable for the damaged shipment,
it submits that the trial courts dismissal of the complaint on the
ground of prescription under the COGSA is legally erroneous. It
contends that the one-year limitation period for bringing a suit in
court under the COGSA is not applicable to this case, because the
prescriptive period applies only to the carrier and the ship. It
argues that respondent, which is engaged in warehousing,
arrastre and stevedoring business, is not a carrier as defined by
the COGSA, because it is not engaged in the business of
transportation of goods by sea in international trade as a common
carrier. Petitioner asserts that since the complaint was filed
against respondent arrastre operator only, without impleading the
carrier, the prescriptive period under the COGSA is not applicable
to this case.
Moreover, petitioner contends that the term carriage of
goods in the COGSA covers the period from the time the goods are
acted
loaded to the vessel to the time they are discharged therefrom. It
points out that it sued respondent only for the additional five (5)
packages of the subject shipment that were found damaged while
in respondents custody, long after the shipment was discharged
from the vessel. The said damage was confirmed by the trial court
and proved by the Request for Bad Order Survey No. 56422. [19]
Petitioner prays that the decision of the trial court be
reversed and set aside and a new judgment be promulgated
granting its prayer for actual damages.
The main issues are: (1) whether or not the one-year
prescriptive period for filing a suit under the COGSA applies to
this action for damages against respondent arrastre operator; and
(2) whether or not petitioner is entitled to recover actual damages
in the amount of P431,592.14 from respondent.
 To reiterate, petitioner came straight to this Court to
appeal from the decision of the trial court under Rule 45 of the
Rules of Court on the ground that it is raising only a question of
law.
Microsoft Corporation v. Maxicorp, Inc.[20] explains the
difference between questions of law and questions of fact, thus:
The distinction between questions of
law and questions of fact is settled. A question of
law exists when the doubt or difference centers
on what the law is on a certain state of facts. A
question of fact exists if the doubt centers on the
truth or falsity of the alleged facts. Though this
delineation seems simple, determining the true
nature and extent of the distinction is sometimes
problematic. For example, it is incorrect to
presume that all cases where the facts are not in
dispute automatically involve purely questions of
law.
There is a question of law if the issue raised is
capable of being resolved without need of
reviewing the probative value of the evidence.
The resolution of the issue must rest solely on
what the law provides on the given set of
circumstances. Once it is clear that the issue
invites a review of the evidence presented, the
question posed is one of fact. If the query
requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of
surrounding circumstances and their relation to
each other, the issue in that query is factual. x x
x[21]
the inference made is manifestly mistaken,
absurd, or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when in
making its findings the Court of Appeals went
beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant
and the appellee; (7) when the findings are
contrary to those of the trial court; (8) when the
findings are conclusions without citation of
specific evidence on which they are based; (9)
when the facts set forth in the petition as well as
in the petitioner's main and reply briefs are not
disputed by the respondent; and (10) when the
findings of fact are premised on the supposed
absence of evidence and contradicted by the
evidence on record.[24]
In this case, the fourth exception cited above applies, as
the trial court rendered judgment based on a misapprehension of
facts.
We first resolve the issue on whether or not the one-year
prescriptive period for filing a suit under the COGSA applies to
respondent arrastre operator.
The Carriage of Goods by Sea Act (COGSA), Public Act
No. 521 of the 74th US Congress, was accepted to be made
applicable to all contracts for the carriage of goods by sea to and
from Philippine ports in foreign trade by virtue of CA No. 65.
Section 1 of CA No. 65 states:

In this case, although petitioner alleged that it is merely

raising a question of law, that is, whether or not the prescriptive Section 1. That the provisions of
period under the COGSA applies to an action for damages against Public Act Numbered Five hundred and twenty-
respondent arrastre operator, yet petitioner prays for the reversal one of the Seventy-fourth Congress of the
of the decision of the trial court and that it be granted the relief United States, approved on April sixteenth,
sought, which is the award of actual damages in the amount nineteen hundred and thirty-six, be accepted,
of P431,592.14. For a question to be one of law, it must not involve
as it is hereby accepted to be made applicable
an examination of the probative value of the evidence presented by
to all contracts for the carriage of goods by
the litigants or any of them.[22] However, to resolve the issue of
sea to and from Philippine ports in foreign
whether or not petitioner is entitled to recover actual damages
trade: Provided, That nothing in the Act shall
from respondent requires the Court to evaluate the evidence on
be construed as repealing any existing provision
record; hence, petitioner is also raising a question of fact.
of the Code of Commerce which is now in force,
or as limiting its application.
Under Section 1, Rule 45, providing for appeals
by certiorari before the Supreme Court, it is clearly enunciated
that only questions of law may be set forth. [23] The Court may
resolve questions of fact only when the case falls under the
following exceptions:

Section 1, Title I of CA No. 65 defines the relevant terms

(1) when the findings are grounded entirely on in Carriage of Goods by Sea, thus:
speculation, surmises, or conjectures; (2) when

Section 1. When used in this Act -
(a) The term "carrier" includes the
owner or the charterer who enters into a contract
of carriage with a shipper.
(b) The term "contract of carriage"
applies only to contracts of carriage covered by a
bill of lading or any similar document of title,
insofar as such document relates to the carriage
of goods by sea, including any bill of lading or
any similar document as aforesaid issued under
or pursuant to a charter party from the moment
at which such bill of lading or similar document
of title regulates the relations between a carrier
and a holder of the same.
(c) The term "goods" includes goods,
wares, merchandise, and articles of every kind
whatsoever, except live animals and cargo which
by the contract of carriage is stated as being
carried on deck and is so carried.
(d) The term "ship" means any vessel
used for the carriage of goods by sea.
(e) The term "carriage of
goods" covers the period from the time when
the goods are loaded to the time when they
are discharged from the ship.[25]
It is noted that the term carriage of goods covers the
period from the time when the goods are loaded to the time when
they are discharged from the ship; thus, it can be inferred that the
period of time when the goods have been discharged from the ship
and given to the custody of the arrastre operator is not covered by
the COGSA.
The prescriptive period for filing an action for the loss or
damage of the goods under the COGSA is found in paragraph (6),
Section 3, thus:
6) Unless notice of loss or damage and
the general nature of such loss or damage be
given in writing to the carrier or his agent at the
port of discharge before or at the time of the
removal of the goods into the custody of the
person entitled to delivery thereof under the
contract of carriage, such removal shall be
prima facie evidence of the delivery by the
carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent,
the notice must be given within three days of
the delivery.
Said notice of loss or damage maybe
endorsed upon the receipt for the goods given
by the person taking delivery thereof.
The notice in writing need not be given
if the state of the goods has at the time of their
receipt been the subject of joint survey or
inspection.
In any event the carrier and the
ship shall be discharged from all liability in
respect of loss or damage unless suit is
brought within one year after delivery of the
goods or the date when the goods should
have been delivered: Provided, That if a notice
of loss or damage, either apparent or concealed,
is not given as provided for in this section, that
fact shall not affect or prejudice the right of the
shipper to bring suit within one year after the
delivery of the goods or the date when the goods
should have been delivered.[26]
From the provision above, the carrier and the ship may
put up the defense of prescription if the action for damages is not
brought within one year after the delivery of the goods or the date
when the goods should have been delivered. It has been held that
not only the shipper, but also the consignee or legal holder of the
bill may invoke the prescriptive period. [27] However, the COGSA
does not mention that an arrastre operator may invoke the
prescriptive period of one year; hence, it does not cover the
arrastre operator.
Respondent arrastre operators responsibility and
liability for losses and damages are set forth in Section 7.01 of the
Contract for Cargo Handling Services executed between
the Philippine Ports Authority and Marina Ports Services, Inc.
(now Asian Terminals, Inc.), thus:
 Section 7.01 Responsibility
Liability for Losses and Damages; Exceptions -
The CONTRACTOR shall, at its own expense,
handle all merchandise in all work undertaken
by it hereunder, diligently and in a skillful,
workman-like and efficient manner.
CONTRACTOR shall be solely responsible as
an independent contractor,
hereby agrees to accept liability and to pay
to the shipping company, consignees,
consignors or other interested party
parties for the loss, damage or non-delivery
of cargoes in its custody and control to the
extent of the actual invoice value of each
package which in no case shall be more than
FIVE THOUSAND PESOS (P5,000.00) each,
unless the value of the cargo shipment is
otherwise specified or manifested
communicated in writing together with the
declared Bill of Lading value and supported
by a certified packing list to
CONTRACTOR by the interested party or
parties before the discharge or loading unto
vessel of the goods. This amount of Five
Thousand Pesos (P5,000.00) per package may
be reviewed and adjusted by the AUTHORITY
from time to time. The CONTRACTOR shall not
be responsible for the condition or the contents
of any package received, nor for the weight nor
for any loss, injury or damage to the said cargo
before or while the goods are being received or
remains in the piers, sheds, warehouses or
facility, if the loss, injury or damage is caused
by force majeure or other causes beyond the
CONTRACTOR's control or capacity to prevent
or remedy; PROVIDED, that a formal
claim together with the necessary copies of
Bill of Lading, Invoice, Certified Packing List
and Computation arrived at covering the
loss, injury or damage or non-delivery of
such goods shall have been filed with the
CONTRACTOR within fifteen (15) days from
day of issuance by the CONTRACTOR of a
certificate of non-delivery;PROVIDED,
however, that if said CONTRACTOR fails to
issue such certification within fifteen (15)
days from receipt of a written request by the
shipper/consignee or his duly authorized
representative or any interested party, said
certification shall be deemed to have been
issued, and thereafter, the fifteen (15) day
period within which to file the
commences; PROVIDED, finally, that
request for certification of loss shall be made
within thirty (30) days from the date of
and delivery of the package to the consignee.[28]
The
Based on the Contract above, the consignee has a period
and of thirty (30) days from the date of delivery of the package to the
consignee within which to request a certificate of loss from the
arrastre operator. From the date of the request for a certificate of
or loss, the arrastre operator has a period of fifteen (15) days within
which to issue a certificate of non-delivery/loss either actually or
constructively. Moreover, from the date of issuance of a certificate
of non-delivery/loss, the consignee has fifteen (15) days within
which to file a formal claim covering the loss, injury, damage or
non-delivery of such goods with all accompanying documentation
against the arrastre operator.
or
Petitioner clarified that it sued respondent only for the
the
additional five (5) packages of the subject shipment that were
found damaged while in respondents custody, which fact of
damage was sustained by the trial court and proved by the
Request for Bad Order Survey No. 56422.[29]
Petitioner pointed out the importance of the Request for
Bad Order Survey by citing New Zealand Insurance Company
Limited v. Navarro.[30] In the said case, the Court ruled
that the request for, and the result of, the bad order examination,
which were filed and done within fifteen days from the haulage of
the goods from the vessel, served the purpose of a claim, which is
to afford the carrier or depositary reasonable opportunity and
facilities to check the validity of the claims while facts are still
fresh in the minds of the persons who took part in the transaction
and documents are still available. Hence, even if the consignee
therein filed a formal claim beyond the stipulated period of 15
days, the arrastre operator was not relieved of liability as the
purpose of a formal claim had already been satisfied by the
consignees timely request for the bad order examination of the
goods shipped and the result of the said bad order examination.
To elaborate, New Zealand Insurance Company,
Ltd. v. Navarro held:
We took special note of the above
pronouncement six (6) years later in Firemans
Fund Insurance Co. v. Manila Port Service
Co., et al. There, fifteen (15) cases of nylon
merchandise had been discharged from the
carrying vessel and received by defendant
Manila Port Service Co., the arrastre operator,
on 7 July 1961. Out of those fifteen (15) cases,
however, only twelve (12) had been delivered to
claim
the consignee in good condition. Consequently,
the on 20 July 1961, the consignee's broker
requested a bad order examination of the
shipment, which was later certified by
defendant's own inspector to be short of three
(3) cases. On 15 August 1961, a formal claim for
indemnity was then filed by the consignee, who
was later replaced in the action by plaintiff
Fireman's Fund Insurance Co., the insurer of
the goods. Defendant, however, refused to honor
the claim, arguing that the same had not been
filed within fifteen (15) days from the date of
discharge of the shipment from the carrying
vessel, as required under the arrastre
Management Contract then in force between
itself and the Bureau of Customs. The trial
court upheld this argument and hence
dismissed the complaint. On appeal by the
consignee, this Court, speaking through Mr.
Justice J.B.L. Reyes, reversed the trial court
and found the defendant arrastre operator
liable for the value of the lost cargo, explaining
as follows:
However, the trial court has
overlooked the significance of the request
for, and the result of, the bad order
examination, which were filed and done
within fifteen days from the haulage of the
goods from the vessel. Said request and
result, in effect, served the purpose of a
claim, which is
to afford the
carrier or depositary
reasonable opportunity and
facilities to check the
validity of the claims while
facts are still fresh in the
minds of the persons who
took part in the
transaction and documents
are still available. (Consunji
vs. Manila Port Service, L-
15551, 29 November 1960)
Indeed, the examination undertaken by the
defendant's own inspector not only gave the
defendant an opportunity to check the
goods but is itself a verification of its own
liability x x x.
In other words, what the Court
considered as the crucial factor in declaring the
defendant arrastre operator liable for the loss
occasioned, in the Fireman's Fund case, was
the fact that defendant, by virtue of the
consignee's request for a bad order
examination, had been able formally to verify
the existence and extent of its liability within
fifteen (15) days from the date of discharge of
the shipment from the carrying
vessel -- i.e., within the same period stipulated
under the Management Contract for the
consignee to file a formal claim. That a formal
claim had been filed by the consignee
beyond the stipulated period of fifteen (15)
days neither relieved defendant of liability
nor excused payment thereof, the purpose of
a formal claim, as contemplated in Consunji,
having already been fully served and
satisfied by the consignee's timely request
for, and the eventual result of, the bad order
examination of the nylon merchandise
shipped.
Relating the doctrine of Fireman's
Fund to the case at bar, the record shows that
delivery to the warehouse of consignee
Monterey Farms Corporation of the 5,974 bags
of soybean meal, had been completed by
respondent Razon (arrastre operator) on 9 July
1974. On that same day, a bad order
examination of the goods delivered was
requested by the consignee and was, in fact,
conducted by respondent Razon's own
inspector, in the presence of representatives of
both the Bureau of Customs and the consignee.
The ensuing bad order examination report what
the trial court considered a "certificate of loss
confirmed that out of the 5,974 bags of soybean
meal loaded on board the M/S "Zamboanga"
and shipped to Manila, 173 bags had been
damaged in transitu while an additional 111
bags had been damaged after the entire
shipment had been discharged from the vessel
and placed in the custody of respondent
Razon. Hence, as early as 9 July 1974 (the
date of last delivery to the consignee's
warehouse), respondent Razon had been able
to verify and ascertain for itself not only the
existence of its liability to the consignee
but, more significantly, the exact amount
thereof - i.e., P5,746.61, representing the value
of 111 bags of soybean meal. We note further
that such verification and ascertainment of
liability on the part of respondent Razon,
had been accomplished "within thirty (30)
days from the date of delivery of last
package to the consignee, broker or
importer" as well as "within fifteen (15) days
from the date of issuance by the Contractor
[respondent Razon] of a certificate of loss,
damage or injury or certificate of non-
delivery" the periods prescribed under Article
VI, Section 1 of the Management Contract here
involved, within which a request for certificate
of loss and a formal claim, respectively, must be
filed by the consignee or his agent. Evidently,
therefore, the rule laid down by the Court
in Fireman's Fundfinds appropriate application
in the case at bar.[31]
 9, South Harbor, Manila, pending delivery to the
consignees warehouse.
In this case, the records show that the goods were On November 22, 23 and 29, 2002, the subject
deposited with the arrastre operator on November 21, 2002. The cargo was withdrawn from the Pier by the
goods were withdrawn from the arrastre operator on November 22, consignee authorized broker, R. V. Marzan
23 and 29, 2002. Prior to the withdrawal on November 29, 2002, Brokerage Corp. and the same was delivered to
the broker of the importer, Marzan, requested for a bad order the consignees final warehouse located at
survey in the presence of a Customs representative and other Silangan, Canlubang, Laguna complete with
parties concerned. The joint inspection of cargo was conducted and twelve (12) skids in bad order condition.
it was found that an additional five (5) packages were found in bad
order as evidenced by the document entitled Request for Bad Order VISUAL INSPECTION
Survey[32] dated November 29, 2002, which document also
contained the examination report, signed by the Customs
representative, Supervisor/Superintendent, consignees We conducted an ocular inspection on the
representative, and the ATI Inspector. reported damaged Electrolytic Tin Free Steel,
Matte Finish at the consignees warehouse
Thus, as early as November 29, 2002, the date of the last
located at Brgy. Silangan, Canlubang, Laguna
withdrawal of the goods from the arrastre operator, respondent ATI
and noted that out of the reported twelve (12)
was able to verify that five (5) packages of the shipment were in bad
order while in its custody. The certificate of non-delivery referred to damaged skids, nine (9) of them were rejected
in the Contract is similar to or identical with the examination and three (3) skids were accepted by the
report on the request for bad order survey.[33] Like in the case consignees representative as complete and
of New Zealand Insurance Company Ltd. v. Navarro, the without exceptions.
verification and ascertainment of liability by respondent ATI
had been accomplished within thirty (30) days from the date of xxxx
delivery of the package to the consignee and within fifteen (15)
days from the date of issuance by the Contractor (respondent EVALUATION OF INDEMNITY
ATI) of the examination report on the request for bad order
survey. Although the formal claim was filed beyond the 15-day
We evaluated the loss/damage
period from the issuance of the examination report on the request
sustained by the subject shipments and arrived
for bad order survey, the purpose of the time limitations for the
as follows:
filing of claims had already been fully satisfied by the request of the
consignees broker for a bad order survey and by the examination
report of the arrastre operator on the result thereof, as the arrastre
operator had become aware of and had verified the facts giving rise
to its liability.[34] Hence, the arrastre operator suffered no prejudice PRODUCT NOS. PRODUCTS NAMED NO. OF
by the lack of strict compliance with the 15-day limitation to file
SHEETS NET WT. PER PACKING LIST
the formal complaint.[35]
The next factual issue is whether or not petitioner is
entitled to actual damages in the amount of P431,592.14. The 2HD803763 Electrolytic Tin Free 1,200 1,908
payment of the said amount by petitioner to the assured/consignee
was based on the Evaluation Report [36] of BA McLarens Phils., Inc., Steel JISG3315
thus:

2HD803783 -do- 1,200 1,908

xxxx

2HD803784 -do- 1,200 1,908

CIRCUMSTANCES OF LOSS

2HD804460 -do- 1,400 1,698

As reported, the shipment consisting of 185
packages (344.982 MT) Electrolytic Tin Free
Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish 2HD803765 -do- 1,200 1,908
arrived Manila via Ocean Vessel, M/V DIMI P V-
075 on November 9, 2002 and subsequently 2HD804522 -do- 1,200 1,987
docked alongside Pier No. 9, South Harbor,
Manila. The cargo of Electrolyic Tin Free Steel
2HD804461 -do- 1,400 1,698
was discharged ex-vessel complete with seven
(7) skids noted in bad order condition by the
vessel[s] representative. These skids were 2HD804540 -do- 1,200 1,987
identified as nos. 2HD804211, 2HD804460,
SHD804251, SHD803784, 2HD803763, 2HD804549 -do- 1,200 1,987
2HD803765 and 2HD803783and covered with
Bad Order Tally Receipts No. 3709, 3707, 3703
9 SKIDS TOTAL 11,200 16,989 kgs.
and 3704. Thereafter, the same were stored
inside the warehouse of Pier No.
 consignees representative. Out of the nine skids that were
rejected, five skids were damaged upon arrival of the vessel as
P9,878,547.58 P478,959.88 shown by the product numbers in the Evaluation Report, which
product numbers matched those in the Bad Order Cargo
------------------ = 42.7643 x 11,200 Receipts[40] issued by the shipping company. It can then be safely
inferred that the four remaining rejected skids were damaged in
231,000 the custody of the arrastre operator, as the Bad Order
Certificate/Examination Report did not indicate the product
Less: Deductible 0.50% based on sum insured 49,392.74 numbers thereof.

Total P429,567.14

Add: Surveyors Fee 2,025.00 Hence, it should be pointed out that the Evaluation
Report shows that the claim for actual damages in the amount

Sub-Total P431,592.14 of P431,592.14 covers five (5)[41] out of the seven (7) skids that
were found to be damaged upon arrival of the vessel and

Note: Above evaluation is Assureds tentative
liability as the salvage proceeds on the damaged
stocks has yet to be determined.
covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707
and 3709,[42] which claim should have been filed with the shipping
company. Petitioner must have realized that the claim for the said
five (5) skids was already barred under COGSA; hence, petitioner
filed the claim for actual damages only against respondent arrastre
operator.

As regards the four (4) skids that were damaged in the

custody of the arrastre operator, petitioner is still entitled to recover
from respondent. The Court has ruled that the Request for Bad
Order Survey and the examination report on the said request
satisfied the purpose of a formal claim, as respondent was made
aware of and was able to verify that five (5) skids were damaged or
in bad order while in its custody before the last withdrawal of the
shipment on November 29, 2002. Hence, even if the formal claim
was filed beyond the 15-day period stipulated in the Contract,
respondent was not prejudiced thereby, since it already knew of the
RECOVERY ASPECT number of skids damaged in its possession per the examination
report on the request for bad order survey.

Prospect of recovery would be feasible against

Remand of the case to the trial court for the
the shipping company and the Arrastre
determination of the liability of respondent to petitioner is not
operator considering the copies of Bad Order
necessary as the Court can resolve the same based on the records
Tally Receipts and Bad Order
before it.[43] The Court notes that petitioner, who filed this action for
Certificate issued by the subject parties.[37] damages for the five (5) skids that were damaged while in the
custody of respondent, was not forthright in its claim, as it knew
that the damages it sought in the amount of P431,592.14, which
was based on the Evaluation Report of its adjuster/surveyor, BA
McLarens Phils., Inc., covered nine (9) skids. Based on the same
Evaluation Report, only four of the nine skids were damaged in
To clarify, based on the Evaluation Report, seven (7) the custody of respondent. Petitioner should have been
skids were damaged upon arrival of the vessel per the Bad Order straightforward about its exact claim, which is borne out by the
Cargo Receipts[38] issued by the shipping company, and evidence on record, as petitioner can be granted only the amount of
an additional five (5) skids were damaged in the custody of the damages that is due to it.
arrastre operator per the Bad Order Certificate/Examination
Report[39] issued by the arrastre contractor. The Evaluation Report
states that out of the reported twelve damaged skids, only nine
were rejected, and three were accepted as good order by the
 Based on the Evaluation Report[44] of BA McLarens Phils.,
Inc., dated May 5, 2003, the four (4) skids damaged while in the
custody of the arrastre operator and the amount of actual damages
therefore are as follows:
Asian Terminals, Inc. is ORDERED to pay petitioner Insurance
Company of North America actual damages in the amount of One
Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos
and Seventy-Six Centavos (P164,428.76). Twelve percent (12%)
interest per annum shall be imposed on the amount of actual
damages from the date the award becomes final and executory
until its full satisfaction.

PRODUCT NOS. PRODUCTS NAMED NO. OF

SHEETS NET WT. PER Costs against petitioner.

ACKI
NG
LISTFIRST DIVISION
[G.R. No. L-7280. January 20, 1956.]
2HD804522 Electrolytic Tin Free 1,200 1,987 TAN LIAO, Plaintiff-Appellant, vs. AMERICAN PRESIDENT
LINES, LTD., Defendant-Appellee.
Steel JISG3315
DECISION
2HD804461 -do- 1,400 1,698 REYES, J. B. L., J.:
This is an action filed by Plaintiff-Appellant Tan Liao against
the Defendant-Appellee American President Lines, Ltd., for the
2HD804540 -do- 1,200 1,987
recovery of P92,755, with interest from the time of the filing of the
complaint, for damages allegedly suffered by Plaintiff due to the
2HD804549 -do- 1,200 1,987 wrongful and unauthorized delay, transshipment, and careless
handling in the transportation of a cargo of eggs undertaken
--------------------------------------------------------------------------------- by Defendant for Plaintiff from the port of New York, U. S. A., to
the port of Manila.
-------------------------
The following facts are not disputed:chanroblesvirtuallawlibrary
On July 30, 1946, Plaintiff entered into a contract with the Kent
4 SKIDS TOTAL 5,000
Sales Co., Inc., of New York City, through the latters agents in
Manila, the Peoples Trading, for the importation of 2,000 cases of
P9,878,547.58 (Insured value)[45] P213,821.50 fresh hen eggs, for a total price of $45,520 (P91,040 in Philippine
currency), to be shipped on the S.S. Marine Leopard, sailing
from New York on August 7, 1946 (Exhibit B). Upon notification
------------------ = 42.7643 x 5,000
and receipt of the payment, made by letter of credit of the
Philippine Trust Co. of Manila, the Kent Sales Co., Inc. issued on
231,000 (Total number of sheets) August 6, 1946 Invoice No. 5070 (Exhibit A) in favor of Plaintiff,
and on the same day contracted with the Defendant shipping
Less: Deductible 0.50% based on sum insured[46] 49,392.74 company to have the eggs shipped to Manila on the vessel S.S.
Marine Leopard as refrigerated cargo, in accordance with B/L
No. 5297 issued on August 6, 1946. Also on the same day (August
Total P164,428.76 6), the Defendant, through ship captain Frank J. Wood, received
at the port of New York the 2,000 cases of eggs and loaded them
on the S.S. Marine Leopard in a refrigerated space for delivery
to Plaintiff in Manila.
Upon arrival in San Francisco, California, on August 30, 1946,
In view of the foregoing, petitioner is entitled to actual the Defendant unloaded the 2,000 cases of eggs from the S.S.
damages in the amount of P164,428.76 for the four (4) skids Marine Leopard, which resumed its voyage, arriving in Singapore
damaged while in the custody of respondent. in September, 1946. The eggs were later shipped on another
of Defendants ships, the S.S. General Meigs, on November 27,
1946, which arrived in Manila on December 26, 1946.
It is claimed by Plaintiff that the discharge of his cargo at the port
of San Francisco was wrongful and unjustified, and a violation of
WHEREFORE, the petition is GRANTED. The Decision of the bill of lading Exhibit B which provided that the eggs would be
the Regional Trial Court of Makati City, Branch 138, dated October shipped to Manila on the S.S. Marine Leopard; chan
17, 2006, in Civil Case No. 05-809, and its Order dated December roblesvirtualawlibrarythat when they were discharged in San
4, 2007, are hereby REVERSED and SET ASIDE. Respondent Francisco, the eggs were exposed to the hot summer weather
without having been placed in refrigeration from August 30 to
September 12, 1946, when they were transferred to the storage
plants of the National Ice and Cold Storage; chan
roblesvirtualawlibrarythat the eggs could have been transhipped
on August 31, 1946, on the S.S. Clovis Victory, also one
of Defendants ships, that arrived in Manila on September 20,
1946; chan roblesvirtualawlibrarythat because of the delay in the
shipment and the careless and repeated handling of the cases of
eggs by mechanical devices, a substantial number of them arrived
broken and damaged; chan roblesvirtualawlibrarythat upon
arrival in Manila, Plaintiff employed the services of marine
surveyors C. B. Nelson & Co., who reported (Exhibit I) that 587 of
the cases were broken, with the eggs contained therein in leaking
condition, while the rest of the eggs in the 1,413 cases were in a
state of deterioration; chan roblesvirtualawlibrarythat upon
recommendation of the surveyors, Plaintiffimmediately disposed of
the eggs, realizing from the sale the amount of P27,300; chan
roblesvirtualawlibrarythat had the cargo arrived in Manila
without any delay, Plaintiff would have been able to sell each case
of eggs for P60, or the entire shipment for the total sum of
P120,000, thereby realizing a profit of P92,755 on his total
investment; chan roblesvirtualawlibraryand that Plaintiff having
sold the eggs for only P27,300, he suffered a loss of P92,700, plus
the sum of P55 which he paid the marine surveyors who inspected
the cargo.
Defendant, upon the other hand, alleged in defense that under the
terms of the Bill of Lading Exhibit B, it was at liberty to tranship
the cargo in question on any other vessel; chan
roblesvirtualawlibrarythat when the eggs were discharged in San
Francisco, they were immediately brought to the storage plant of
the National Ice and Cold Storage Co. so that if they arrived in
Manila in deteriorated condition, it was because of the inherent
nature or defect of the eggs; chan roblesvirtualawlibrarythat the
delay in the transshipment of the cargo was due to the strike of
the union of longshoremen in the western coast of the United
States from September to November, 1947, although when the
goods were unloaded in San Francisco, there was yet no threat of
a strike; chan roblesvirtualawlibraryand that immediately after
the strike, the cargo was loaded and transported on the S.S.
General Meigs. As a special defense,Defendant claimed that
while Plaintiff received the goods in question on December 26,
1946, he filed a claim with Defendant for damages only on July
25, 1947 (denied on February 16, 1948), and brought suit on May
25, 1948, more than a year from the receipt of the goods, and
soPlaintiffs action had prescribed under section 3, paragraph 6 of
the Carriage of Goods by Sea Act.
After trial, the Court below found that Plaintiff had suffered a loss
of P25,896.81 by reason of the delayed arrival of his cargo of eggs,
which Defendant could have transshipped on the S.S. Clovis
Victory which left San Francisco before the strike of the
longshoremen in the west coast of the United States. The Court,
however, found Defendants defense of prescription meritorious,
and so dismissed the case. From the judgment of
dismissal, Plaintiff Tan Liao appealed to this Court.
The main argument of the Appellant is that the present case does
not fall within the following prescriptive provision of the Carriage
of Goods by Sea Act (section 3, paragraph
6):chanroblesvirtuallawlibrary
In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within
one year after delivery of the goods or the date when the goods
should have been delivered:chanroblesvirtuallawlibrary Provided,
That, if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect
or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should
have been delivered.
In support of his contention that the above provision does not
apply, Plaintiff-Appellant argues that the suit or action referred to
therein is one for loss or damage, either apparent or concealed to
the goods, and not one for a breach of the contract of carriage on
the part of the carrier where, as in this case, it is guilty of delay in
the shipment of the goods, causing losses and damages to the
consignee. The distinction drawn is more apparent than real.
Actually, any and all injury or damages suffered by the goods,
while in transit and in the custody of the carrier, amounts to a
breach of the contract of carriage, unless due to fortuitous
event; chan roblesvirtualawlibraryfor the carrier is bound to
transport the goods safely and so breaches its contract if it
neglects such duty.
Appellant also makes a distinction between damage to the goods
and damages to the shipper or consignee, and claims that while
the former falls within the prescriptive period in question, the
latter is governed by the provisions of the Code of Civil Procedure
(now the New Civil Code) on limitation of actions. We see no
difference between the two. Whatever damage or injury is suffered
by the goods while in transit would result in loss or damage to
either the shipper or the consignee. As long as it is claimed,
therefore, as it is done here, that the losses or damages suffered
by the shipper or consignee were due to the arrival of the goods in
damaged or deteriorated condition, the action is still basically one
for damage to the goods, and must be filed within the period of
one year from delivery or receipt, under the above-quoted
provision of the Carriage of Goods by Sea Act.
Appellant furthermore urges that the action or suit referred to in
the provision in question refers only to loss or damage to the
goods in relation to their loading, handling, storage, carriage,
custody, care, and discharge (section 2, supra), and does not
cover or include loss or damage due to the wrongful and
unreasonable delay in their transportation. The argument is
equally untenable. The obligation of the carrier to carry the goods
naturally includes the duty not to delay their transportation, so
unjustified delay, the carrier is held liable therefor. Besides, the
damages or losses claimed to have been suffered by Appellant, on
account of the unreasonable delay in the shipment of his cargo,
still arose from the arrival of the goods in decayed and damaged
state, resulting in Appellants inability to sell them at the price he
would have obtained had they arrived in good condition. This is
shown by the averments of his amended complaint that such
wrongful and unauthorized delay was the
reason for which a great portion of the said cargo of eggs decayed
and became broken and rotten before the same was actually
delivered to the Plaintiff (First Cause of Action, paragraph 4, Rec.
App., 15) (Italics supplied.)
and that because of
the almost rotten condition in which the cargo was found at the
time it reached Manila, the sale thereof only produced the sum of
P27,300 or a difference of P92,700 which is the amount of sure
profits which the Plaintiff should have realized on said 2,000
cases of hen fresh eggs had they arrived on time in the port of
Manila cralaw (Second Cause of Action, paragraph 7, Rec. App.,
pp. 18-19). (Italics supplied.)
And the second cause of action of Appellants complaint clearly
alleges that the Defendantshipping company.
has failed to comply with its duty and contractual obligation with
the Plaintiff to exercise due care in the custody and handling of
the said cargo of eggs as required and demanded by the delicate
nature of the eggs and by the gross negligence and acts of
omission on the part of theDefendant, the aforesaid cargo suffered
damages while the same was still in its custody, control and
possession, as conclusively established by the numerous broken
boxes or containers of the eggs as well as the great number of
broken eggs cralaw; chan roblesvirtualawlibrary(paragraph 2, G.R. No. 74125 July 31, 1990
Rec. App., pp. 16-17.) (Italics supplied.)
Needless to say, such alleged negligence of the Defendant company
UNIVERSAL SHIPPING LINES, INC., petitioner,
in the custody and handling of Appellants cargo falls squarely
vs.
within the provisions of the Carriage of Goods by Sea Act.
There would be some merit in Appellants insistence that the INTERMEDIATE APPELATE COURT and ALLIANCE
damages suffered by him as a result of the delay in the shipment ASSURANCE COMPANY, LTD., respondents.
of his cargo are not covered by the prescriptive provision of the
Carriage of Goods by Sea Act above referred to, if such damages
Del Rosario & Del Rosario Law Office for petitioner. Quasha,
were due, not to the deterioration and decay of the goods while in
Asperilla, Ancheta, Pea, Marcos & Nolasco for private respondents.
transit, but to other causes independent of the condition of the
cargo upon arrival, like a drop in their market value. But the
ultimate objective of Appellants action being to recover damages
suffered by reason of the decay and deterioration of his goods
while in transit, the same is still governed by the prescriptive
GRIO-AQUINO, J.:
period of one year under the Carriage of Goods by Sea Act.
Coming now to Appellants second proposition that the Carriage of
Goods by Sea Act does not repeal the provisions of the Code of In this appeal by certiorari, the petitioner seeks to set aside the
Civil Procedure on prescription of actions, the question has decision of the then Intermediate Appellate Court, now Court of
already been resolved by this Court in the case of Chua Kuy vs. Appeals, promulgated on March 25, 1986 in AC-G.R. CV No.
Everett Steamship Corp., 50 Off. Gaz. No. 1, p. 159, and the very
69824, affirming with modification the decision of the former
recent case of Go Chan & Co. vs. Aboitiz & Co., Supra, p. 179
Court of First Instance of Manila dated February 4, 1981, against
promulgated December 29, 1955, wherein we ruled that the
prescriptive period of one year established in the Carriage of the herein petitioner, Universal Shipping Lines, Inc., the defendant
Goods by Sea Act modified pro tanto the provisions of Act No. 190 in the trial court.
as to goods transported to and from Philippine ports in foreign
trade, the former being a special act while the latter is a law of On or about March 22,1974, SEVALCO Limited, owned and
general application.
operated by the petitioner, shipped from Rotterdam Netherlands,
Lastly, Appellant urges that, assuming that his action against
to Bangkok, Thailand, aboard its M/V "TAIWAN", two (2) cargoes
the Defendant company prescribes in one year, the same accrued,
of 50 palletized cartons consisting of 2,000 units of 25-kilogram
not upon his receipt of the goods, but upon denial of his claim for
damages by the Defendant on February 16, 1948. The claim is bags of State R Brand carton black, with a declared gross weight
clearly without merit, for the law in question explicitly requires of 53,000 kilos each. They were respectively consigned to S.
that suit must be brought within one year after delivery of the Lersen Company, Ltd. and Muang Ngarm Retreads,Ltd., per Bills
goods or the date when the goods should have been delivered. of Lading Nos. RB-15 (Exh. A) and RB-16 (Exh. B). Both
Neither could the pendency of the extra-judicial claim for damages shipments were insured with the private respondent, Alliance
filed with the Defendant company toll or suspend the running of
Assurance Company, Ltd., a foreign insurance company domiciled
the period of limitation; chan roblesvirtualawlibraryfor as already
in London, England, which had withdrawn from the Philippine
ruled in the case of Chua Kuy vs. Everett Steamship Corp., supra,
neither the proposal for arbitration for the fact that negotiations market on June 30, 1951 yet.
have been made for the adjustment of a controversy suspends the
running of the period for prescription, unless there is an express Despite the arrival of the vessel on June 28, 1974 at Bangkok, the
agreement to the contrary. There being no stipulation cargo covered by Bill of Lading No. RB-15 was not unloaded nor
between Appellant and the Defendant company that the
delivered to the consignee, S. Lersen Company, Ltd. The shipment
prescriptive period for the filing of an action for loss or damage to
under Bill of Lading No. RB-16 was delivered to Muang Ngarm
the goods would be suspended by the filing of a claim with the
carrier for damages and pending action thereon, Appellant is Retreads, Ltd. with a total weight shortage of 11,070 kilos because
required to bring suit against the latter within one year from the the cargoes had been either totally or partially dissolved in
receipt of his goods, and not having done so, his action had saltwater which flooded Hatch No. 2 of the vessel where they had
already prescribed. been stored.
Wherefore, the decision appealed from is affirmed. No
pronouncement as to costs. SO ORDERED.
Upon arrival in Manila on July 4, 1974, Arturo C. Saavedra,
Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, master of M/V "TAIWAN" filed a marine protest (Exh. H), pertinent
Labrador and Concepcion, JJ., concur. portions of which read:

Republic of the Philippines By investigation, the source of the water could

SUPREME COURT not be definitely ascertained where it comes
Manila from. However, the bilge pump was employed to
pump out continue working for almost 12 hours
FIRST DIVISION No. 2. The bilge pump was employed every other
day to pump out the water, but it was seems to
be almost same soundings. Suspecting of some
leakage of suction pipes.
 That the hold No. 2 cannot be inspected on
account of the full cargoes inside the hold,
rendering it to be inaccessible.
Suspecting that the water comes from outside
passing through some loosen rivets
starboard side of the ship. (sic.)
That the pumping out the water from the hold
was done by shore help upon arrival at
Bangkok. (sic.) (pp. 23-24, Rollo.)
The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads,
Inc., filed their respective formal claims for loss and damage to
their cargoes on August 7, 1974 (Exhs. N and N-1) and on
November 12,1974 (Exh. M). (p. 24, Rollo.) The insurer paid both
claims in the amounts of I2,180 and 2,547.18 for the loss and
damage to their cargoes.
On June 25, 1976, private respondent, as insurer-subrogee, filed
an action in the Court of First Instance of Manila to recover from
the petitioner and its Manila agent, Carlos Go Thong & Company,
what it paid the consignees of the cargo.
After trial, the court a quo rendered judgment for the private
respondent, the dispositive portion of which reads:
PREMISES CONSIDERED, judgment is hereby
rendered ordering defendants Universal
Shipping Lines, Inc. and Carlos Go Thong &
Co., jointly and severally, to pay plaintiff
Alliance Asurance Co., Ltd., under the first
cause of action, the sum of 12,180.00 or the
peso equivalent thereof, and under the second
cause of action, the sum of 2,547.18 or the
peso equivalent thereof, both with legal interest
thereon from June 25, 1976, the date of the
filing of the present action, until
obligations are fully paid, plus attorney's fees in
the sum of P10,000.00, with costs. (pp. 24-25,
Rollo.)
On appeal to the Court of Appeals, the decision was affirmed after
exculpating petitioner's ship-agents in Manila (Go Thong) from any
liability on the ground that it had no participation in the
shipment of the cargo which had been loaded and discharged in
places other than Manila (p. 28, Rollo).itc-asl
In this appeal by certiorari, petitioner alleges that respondent
court erred:
1. in holding petitioner liable for
damage/loss suffered by the subject shipments;
2. in holding that private respondent has
capacity to sue in this jurisdiction;
3. in finding that private respondent's cause of
action has not yet prescribed; and
4. in awarding attorney's fees without stating
any factual, legal and equitable justification.
on
The petition is not meritorious.
The first assignment of error raises a factual issue which we
decline to review as this Court may review only legal issues which
must be distinctly set forth in the petition (Sec. 2, Rule 45, Rules
of Court). In any event, the Court of Appeals committed no
reversible error in holding, as the trial court did, that:
... It was incumbent upon the defendants to
prove that the losses and damages were due to
causes other than the negligence or fault of
their employees. Said defendants have not
adduced proof on this point. It having been
shown that the losses and damages were
incurred while the shipments were in the
custody of the M/V' Taiwan' the liability of its
owner/operator and shipping agent is clear-they
must pay for the losses and damages sustained
by the consignees as a consequence of the
breach of contract of water transportation. (pp.
27-28, Rollo.)
On the issue of jurisdiction, we uphold the appellate court's ruling
that the private respondent may sue in Philippine courts upon the
marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even
if it has no license to do business in this country, for it is not the
lack of the prescribed license (to do business in the Philippines)
but doing business without such license, which bars a foreign
corporation from access to our courts. (Pacific Vegetable Oil
Corporation vs. Singzon L-7919, April 29, 1955; Eastboard
said Navigation, Ltd. vs. J. Ysmael & Co., Inc.,
L-9090, Sept. 10, 1957.)
Anent the issue of prescription of the action under Section 3(6),
Title I, of the Carriage of Goods by Sea Act (Commonwealth Act
No. 65) which provides that:
... the carrier and the ship shall be discharged
from all liability in respect of loss or damage
unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered. ...
This provision of the law admits of an xception: if the one-year
the period is suspended by express agreement of the parties (Chua Kay
vs. Everett Steamship Corporation, L-5554, May 27,1953; Tan
Liao vs. American President Lines, Ltd., L-7280, January 20,
1956) for in such a case, their agreement becomes the law for
them. (Phoenix Assurance Co., Ltd. vs. United States Lines, 22
SCRA 674; Baluyot vs. Venegas, 22 SCRA 412; Lazo vs. Republic
Surety & Insurance, Co., Inc., 31 SCRA 329; Philippine American
General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22-23).
The exchange of correspondence between the parties and/or their
associates/representatives (Exhs. R, S, S-1, T, T-1 and T-2) shows
that the parties had mutually agreed to extend the time within
which the plaintiff or its predecessors-in-interest may file suit
until December 27,1976. When the complaint was filed on June
25, 1976, that deadline had not yet expired.
An award of attorney's fees lies within the discretion of the court
and depends upon the circumstances of each case (Medco
Industrial Corp., et al. vs. Court of Appeals, et al., 167 SCRA
838).itc-asl In this case, the award of P10,000 as attorney's fees
was reasonable and justified because the defendant's rejection of
the private respondent's demand, compelled the latter to litigate
and incur expenses to protect and enforce its just and valid claim.
WHEREFORE, the petition for review is denied for lack of merit.
Costs against the petitioner.
SO ORDERED.
Narvasa (Chairman), Cruz, Gancayco and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17730 September 29, 1962
F. H. STEVENS & CO., INC., plaintiff-appellant,
vs.
NORDDEUSCHER LLOYD, defendant-appellee.
Delgado, Flores, Macapagal and Dizon for plaintiff-appellant.
Ross, Selph and Carrascoso for defendant-appellee.
CONCEPCION, J.:
This is an appeal from an order granting defendant's motion to
dismiss and, accordingly, dismissing the case without any
pronouncement as to costs.
Plaintiff commenced this action in the Court of First Instance of
Manila on June 24, 1960. It alleged in the complaint that on
March 28, 1959, it had shipped from Hamburg to Manila, aboard
the "MS SCHWABENSTEIN", a vessel of defendant Norddeuscher
Lloyd, 2,000 pieces of prismatical thermometers valued at $650;
that on May 15, 1959, said vessel arrived at Manila; that on May
21, 1959, the master of said vessel notified the plaintiff, thru its
broker, of the delivery of said goods; that, upon examination of the
case containing the same, it turned out that 1,154 pieces of said
thermometers valued at $342.74, were missing and/or destroyed;
that plaintiff immediately filed the corresponding notice of loss
and/or short delivery, followed by the corresponding notice and
formal claim for loss and/or short delivery; that, despite several
demands, defendant had refused and failed to pay said sum of
$342.74; that, as a consequence, plaintiff had, also, incurred
damages in the sums of P1,000, as attorney's fees, and P664.70,
as unrealized profits; and that an action instituted in the
Municipal Court of Manila on April 27, 1960 seemingly, for the
recovery of the value of said thermometers and the amount of said
damages was dismissed by said court on June 13, 1960,
without any trial on the merits, upon the ground of lack of
jurisdiction over the subject-matter of the case, inasmuch as the
same involved the exercise of admiralty and maritime jurisdiction.
Plaintiff prayed for judgment for said sums of $342.74, P1,000
and P664.70, plus costs.
On July 8, 1960, defendant moved to dismiss the complaint upon
the ground that plaintiff's causes of action had prescribed, it
having been filed on June 24, 1960, or more than a year from May
21, 1959, when plaintiff was notified of the delivery of the case
containing the thermometers in question. This motion having been
granted and the complaint dismissed, plaintiff interposed this
appeal, maintaining that the period of one (1) year prescribed in
Commonwealth Act No. 65, in relation to Carriage of Goods by Sea
Act within which the liability of carriers, based upon a contract
of carriage goods by sea, may be enforced by suit was
suspended by the commencement of the first action in the
municipal court, on April 27, 1960; that the running of said
period was resumed or continued on June 13, 1960, when said
action was dismissed; and that, excluding said period from April
27, 1960 to June 13, 1960, or forty-seven (47) days, less than one
(1) year has elapsed from May 21, 1959 to June 24, 1960, when
this case was filed in the court of first instance. In support of this
pretense, plaintiff invokes Article 1155 of the Civil Code of the
Philipines, reading:
The prescription of actions is interrupted when they filed before
the court, when there is a written extrajudicial command by the
creditors, and when there is any written acknowledged judgment
of the debt by the debtor.
Upon mature deliberation, we are of the opinion, and so hold, that
the order appealed from should be reversed, not only because of
the operation of said Article 1155 of our Civil Code, but, also, in
view of the provisions section 49 of Act No. 190, pursuant to
which:
If, in an action commenced, in due time, a judgment for
the plaintiff be reversed, or if the plaintiff fail otherwise
than upon the merits, and the time limited for the
commencement of such action has, at the date of such
reversal or failure, expired, the plaintiff, or, if he die and
the cause of action survive, his representatives may
commence a new action within one year after such date,
and this provision shall apply to any claim asserted in
any pleading by a defendant.
The action commenced by the plaintiff in the Municipal Court of
Manila, on April 27, 1960, was dismissed June 13, 1960, or over
twenty (20) days after the expiration of the period of one (1) year,
beginning from May 21, 1959, within which plaintiff's action could
be brought pursuant to Commonwealth Act No. 65, in relation to
the Carriage of Goods by Sea Act. Under said section of Act No.
190, the period within which plaintiff could initiate the present
case was renewed, therefore, for another year, beginning from
June 14, 1960 (Tolentino Vitug, 39 Phil., 126; Smith vs. McNeal,
100 U.S. 426, 27 L. ed. 986). The case at bar was commenced on
June 24, 1960, or within the period last mentioned.
The cases of Oriental Commercial Co. vs. Jureidini (71 Phil., 25)
and Conspecto vs. Fruto (31 Phil., 144), in which it was held that:
. . . Cuando se entabia una accion dentro del plazo de
prescripcion y se desiste de ella despues, o se sobresee
sin condiciones, por una razon u otra, no hace que la
accion que se entable mas tarde pero ya fuera del
periodo de prescripcion, se pueda considerar como
presentada detro de dicho periodo porque quiere
contrase con la accion entablada con anterioridad. La
falta de gestion de la recurrente por cuya causa se
desestimaron sus demandas segunda y tercera, no puede
 interpretarse sino como una renunciade su parte y, al
ejercitar su ultima accion no se ha colocado en la misma
situacion en que antes se hallaba al ejercitar sus tres
anteriores acciones. Este es el mismo criterio que
expresamos cuando se nos presents una cuestion aniloga
en la causa de Conspecto contra Fruto, 31 Jur. Fil 155.
(Emphasis supplied.)1awphl.nt
are not in point, for the dismissal of the herein plaintiff's
complaint in the municipal court was not due to its desistance or
voluntary abandonment.
Insofar as inconsistent with the conclusion we have thus reached,
the view adopted in Chua Kuy vs. Everett Steamship Corp., L-5534
(May 27, 1953) and Yek Tong Lin Fire & Marine Insurance Co. vs.
American President Lines, Inc., L-11081 (April 30, 1958) should
be, as it is hereby, modified accordingly.
WHEREFORE, the order appealed from is reversed and this case
remanded to the lower court for further proceedings, with costs of
this instance against defendant Norddeuscher Lloyd. It is so
ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Barrera, Paredes, Dizon,
Regala and Makalintal, JJ., concur.
Labrador, J., concurs in the result.
Reyes, J.B.L., took no part.
Facts:
plaintiff, Yek Tong Lin Fire & Marine Insurance Co., Ltd and
defendant V.M. appealed from the judgment of CFI
Pelagio Yusingco authorized Yu Seguioc to administer his
properties and mortgaged the steamship to Yek Tong Lin Fire &
Marine Insurance Co (P45k)
steamhip was repaired by Earnshaw Docks & Honolulu Iron
Works and V.M. was the guarantor and was asked to pay the P8k
bec. Plaintaiff wasnt able to pay V.M., a judicial proceeding was
instituted assigning the rights to V.M. to sell the steamship
Plaintiff filed a 3 -party claim as it was mortgaged to him,
rd
however auction was done and plaintiff was the winning bidder
lower court: defendant Pelgio Yusingco pay P17k, V.M. to turn
over the money received by him in sheriff (was absolved) of
Surigao
Issue: Main: WON preference of credits belong to the creditor-
assignee or to the creditor-mortgagee
WON there was merger of rights
Ruling:
SC: The defendant and appellant V. M. enjoys preference in the
payment of his judgment credit with the proceeds of the sale of
the steamshipYusingco, by virtue of the assignment to him,
because it is so provided not only in article 1922 of the Civil code
but also in article 1926, rule 4, which provides that credits
secured by a pledge exclude all others to the extent of the value of
the thing pledged,
even if mortgage contains a clause to the effect that if the
proceeds of the sale of the steamship Yusingco, in case it is sold by
reason of default in the performance of the conditions thereof,
should be insufficient, the plaintiff could collect its credit on other
property of the debtors.
Plaintiffs only right with respect to said vessel was to sell it
judicially or extrajudicially in accordance with law, upon default in
the performance of the conditions of the mortgage contract
entered into between it and the owners thereof, in order to apply
the proceeds of the sale to its mortgage credit against said owners,
or at least against P. Y., if such proceeds are sufficient (Bachrach
Motor co. vs. summers, 42 Phil., 3), and if insufficient, to collect
the balance thereof on other property belonging to said
defendants, under the circumstances, it could neither take
possession thereof nor sell it pursuant to the conditions of its
mortgage contract.
After the steamship Yusingco had been sold by virtue of the
judicial writ issued in civil case No. 41654 for the execution of the
judgment rendered in favor of V. M., the only right left to the
plaintiff was to collect its mortgage credit from the purchaser
thereof at public auction, inasmuch as the rule is that a mortgage
directly and immediately subjects the property on which it is
imposed, whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created (article 1876,
Civil Code); but it so happens that it can not take such steps now
because it was the purchaser of the steamship Yusingco at public
auction, and it was so with full knowledge that it had a mortgage
credit on said vessel. Obligations are extinguished by the merger
of the rights of the creditor and debtor (articles 1156 and 11922,
Civil Code).
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61352 February 27, 1987
DOLE PHILIPPINES, INC., plaintiff-appellant,
vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-
appellee.
Domingo E. de Lara & Associates for plaintiff-appellant.
Bito, Misa and Lozada Law Office for defendant-appellee.
NARVASA, J.:
This appeal, which was certified to the Court by the Court of
1
Appeals as involving only questions of law, relates to a claim for
loss and/or damage to a shipment of machine parts sought to be
enforced by the consignee, appellant Dole Philippines, Inc.
(hereinafter caged Dole) against the carrier, Maritime Company of
the Philippines (hereinafter called Maritime), under the provisions
of the Carriage of Goods by Sea Act. 2 defense.
The basic facts are succinctly stated in the order of the Trial
3 under date of May 6, 1977, Maritime filed a formal motion to
Court dated March 16, 1977, the relevant portion of which
reads:
xxx xxx xxx
Before the plaintiff started presenting evidence
at today's trial at the instance of the Court the
lawyers entered into the following stipulation of
facts:
1. The cargo subject of the instant case was
discharged in Dadiangas unto the custody of
the consignee on December 18, 1971;
2. The corresponding claim for the damages
sustained by the cargo was filed by the plaintiff
with the defendant vessel on May 4, 1972;
3. On June 11, 1973 the plaintiff filed a
complaint in the Court of First Instance of
Manila, docketed therein as Civil Case No.
91043, embodying three (3) causes of action
involving three (3) separate and different
shipments. The third cause of action therein
involved the cargo now subject of this present
litigation;
4. On December 11, 1974, Judge Serafin
Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the
aforesaid case with prejudice and without
pronouncement as to costs because the parties
had settled or compromised the claims involved
therein. The third cause of action which covered
the cargo subject of this case now was likewise
dismissed but without prejudice as it was not
covered by the settlement. The dismissal of that
complaint containing the three causes of action
was upon a joint motion to dismiss filed by the
parties;
5. Because of the dismissal of the (complaint in
Civil Case No. 91043 with respect to the third
cause of action without prejudice, plaintiff
instituted this present complaint on January 6,
1975.
4
xxx xxx xxx
To the complaint in the subsequent action Maritime filed an
answer pleading inter alia the affirmative defense of prescription
5
under the provisions of the Carriage of Goods by Sea Act, and
following pre-trial, moved for a preliminary hearing on said
6
The Trial Court granted the motion, scheduling the
7
preliminary hearing on April 27, 1977. The record before the
Court does not show whether or not that hearing was held, but
8
dismiss invoking once more the ground of prescription. The
9
motion was opposed by Dole and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and
10
dismissed the complaint Dole sought a reconsideration, which
11
was denied, and thereafter took the present appeal from the
order of dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code
providing that the prescription of actions is interrupted by the
making of an extrajudicial written demand by the creditor is
applicable to actions brought under the Carriage of Goods by Sea
Act which, in its Section 3, paragraph 6, provides that:
*** the carrier and the ship shall be discharged
from all liability in respect of loss or damage
unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered; Provided, That, if a
notice of loss or damage, either apparent or
conceded, is not given as provided for in this
section, that fact shall not affect or prejudice
the right of the shipper to bring suit within one
year after the delivery of the goods or the date
when the goods should have been delivered.
xxx xxx xxx
Dole concedes that its action is subject to the one-year period of
limitation prescribe in the above-cited provision. 12 The substance
of its argument is that since the provisions of the Civil Code are,
by express mandate of said Code, suppletory of deficiencies in the
Code of Commerce and special laws in matters governed by the
13
latter, and there being "*** a patent deficiency *** with respect to
the tolling of the prescriptive period ***" provided for in the
14
Carriage of Goods by Sea Act, prescription under said Act is
subject to the provisions of Article 1155 of the Civil Code on
tolling and because Dole's claim for loss or damage made on May
4, 1972 amounted to a written extrajudicial demand which would
toll or interrupt prescription under Article 1155, it operated to toll
prescription also in actions under the Carriage of Goods by Sea
Act. To much the same effect is the further argument based on
Article 1176 of the Civil Code which provides that the rights and
obligations of common carriers shag be governed by the Code of
Commerce and by special laws in all matters not regulated by the
Civil Code.
These arguments might merit weightier consideration were it not
for the fact that the question has already received a definitive
answer, adverse to the position taken by Dole, in The Yek Tong Lin
Fire & Marine Insurance Co., Ltd. vs. American President Lines,
Inc. 15
There, in a parallel factual situation, where suit to recover
for damage to cargo shipped by vessel from Tokyo to Manila was
filed more than two years after the consignee's receipt of the
cargo, this Court rejected the contention that an extrajudicial
demand toiled the prescriptive period provided for in the Carriage
of Goods by Sea Act, viz:
In the second assignment of error plaintiff-
appellant argues that it was error for the
court a quo not to have considered the action of
plaintiff-appellant suspended by the
extrajudicial demand which took place,
according to defendant's own motion to dismiss
on August 22, 1952. We notice that while
plaintiff avoids stating any date when the goods
arrived in Manila, it relies upon the allegation
period was interrupted "tolled" would be the more precise term
and began to run anew from May 4, 1972, affording Dole
another period of one (1) year counted from that date within which
to institute action on its claim for damage. Unfortunately, Dole let
the new period lapse without filing action. It instituted Civil Case
No. 91043 only on June 11, 1973, more than one month after that
period has expired and its right of action had prescribed.
Dole's contention that the prescriptive period "*** remained tolled
as of May 4, 1972 *** (and that) in legal contemplation *** (the)
case (Civil Case No. 96353) was filed on January 6, 1975 *** well
within the one-year prescriptive period in Sec. 3(6) of the Carriage
16
of Goods by Sea Act." equates tolling with indefinite suspension.
It is clearly fallacious and merits no consideration.
WHEREFORE, the order of dismissal appealed from is affirmed,
with costs against the appellant, Dole Philippines, Inc.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and
Sarmiento, JJ., concur.
Republic of the Philippines
SUPREME COURT

made in the motion to dismiss that a protest Manila

was filed on August 22, 1952 which goes to
show that plaintiff-appellant's counsel has not SECOND DIVISION
been laying the facts squarely before the court
for the consideration of the merits of the case. G.R. No. L-27798 June 15, 1977
We have already decided that in a case governed
by the Carriage of Goods by Sea Act, the general UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon
provisions of the Code of Civil Procedure on
Philippines, Inc.), plaintiff-appellant,
prescription should not be made to apply. (Chua
vs.
Kuy vs. Everett Steamship Corp., G.R. No. L-
MANILA RAILROAD CO., substituted by the PHILIPPINE
5554, May 27, 1953.) Similarly, we now hold
NATIONAL RAILWAYS, MANILA PORT SERVICE and
that in such a case the general provisions of the
AMERICAN STEAMSHIP AGENCIES, INC., defendants-
new Civil Code (Art. 1155) cannot be made to
apply, as such application would have the effect appellees.

of extending the one-year period of prescription

fixed in the law. It is desirable that matters Solicitor General Antonio P. Barredo and Solicitor Buenaventura J.
affecting transportation of goods by sea be Guerrero for appellants.
decided in as short a time as possible; the
application of the provisions of Article 1155 of Salcedo, Del Rosario, Bito & Misa for appellee.
the new Civil Code would unnecessarily extend
the period and permit delays in the settlement
of questions affecting transportation, contrary
to the clear intent and purpose of the law. * * *
AQUINO, J.:

Moreover, no different result would obtain even if the Court were

This is an admiralty and arrastre case. On December 18, 1961 the
to accept the proposition that a written extrajudicial demand does
vessel Daishin Maru arrived in Manila with a cargo of 1,000 bags
toll prescription under the Carriage of Goods by Sea Act. The
of synthetic resin consigned to General Base Metals, Inc. which
demand in this instance would be the claim for damage-filed by
later sold the cargo to Union Carbide Philippines, Inc.
Dole with Maritime on May 4, 1972. The effect of that demand
would have been to renew the one- year prescriptive period from
On the following day, December 19, that cargo was delivered to the
the date of its making. Stated otherwise, under Dole's theory,
Manila Port Service in good order and condition except for twenty-
when its claim was received by Maritime, the one-year prescriptive
five bags which were in bad order (Par. IV and Annexes C to C-25
of Stipulation of Facts).
On January 20 and February 6 and 8, 1962 eight hundred ninety-
eight (898) bags of resin (out of the 1,000 bags) were delivered by
the customs broker to the consignee. One hundred two bags were
missing. The contents of twenty-five bags were damaged or pilfered
while they were in the custody of the arrastre operator (Par. XII
and Annexes D and H of Stipulation of Facts All in all fifty bags
out of the 898 bags were damaged (Annex D-5).
The 152 bags of resin (102 missing and 50 damaged) were valued
at $12.65 a bag or a total value of $1,992.80, which amount at
the prevailing rate of exchange of P3.85 to the American dollar, is
equivalent to P7,402.78 (Annex I of Stipulation of Facts).
The consignee, through the customs broker, filed on January 3,
1962 with the Manila Port Service, as arrastre operator, and the
American Steamship Agencies, Inc., as agent of the carrier, a
provisional claim advising them that the shipment in question was
"shorthanded, short delivered and/or landed in bad order"
(Annexes E and F of Stipulation of Facts).
Formal claims dated June 11, 1962 were made by the consignee
with the arrastre operator and the agent of the carrier (Annexes I
and I-1 of Stipulation of Facts The claims were reiterated by the
consignee's lawyer in his letters dated September 26, 1962 which
were received by the carrier's agent and the arrastre operator on
October 4, 1962 (Annexes J and J-1 of Stipulation of Facts).
As the claims were not paid, Union Carbide Philippines, Inc. filed
a complaint on December 21, 1962 in the Court of First Instance
of Manila against the Manila Railroad Company, the Manila Port
Service and the American Steamship Agencies, Inc. for the
recovery of damages amounting to P7,402.78 as the value of the
undelivered 102 bags of resin and the damaged 50 bags plus legal
rate of interest from the filing of the complaint and P1,000 as
attorney's fees.
Union Carbide's complaint was a double-barrelled action or a
joinder of two causes of action. One was an action in admiralty
under the Carriage of Goods by Sea Act against the carrier's agent
for the recovery of P1,217.56 as the value of twenty-five bags of
resin which were damaged before they were landed (Annex C-25).
The other was an action under the management contract between
the Bureau of Customs and the Manila Port Service, a subsidiary
of the Manila Railroad Company, for the recovery of P6,185.22 as
the value of the undelivered 102 bags of resin and twenty-five
bags, the contents of which were damaged or pilfered while in the
custody of the arrastre operator.
The case was submitted for decision on the basis of a stipulation
of facts. The trial court in its decision of January 15, 1964
dismissed the case as to the carrier's agent on the ground that
the action had already prescribed because it was not "brought
within one year after delivery of the goods", as contemplated in
section 3(6) of the Carriage of Goods by Sea Act. The one-year
period was counted from December 19, 1961 when the cargo was
delivered to the arrastre operator. As above stated, the action was
brought on December 21, 196'2 or two days late, according to the
trial court's reckoning (Civil Case No. 52562).
With respect to the consignee's claim against the arrastre
operator, the trial court found that the provisional claim was filed
within the fifteen-day period fixed in paragraph 15 of the arrastre
contract. Yet, in spite of that finding, the trial court dismissed the
action against the arrastre operator (p. 65, Record on Appeal).
Union Carbide appealed to the Court of Appeals on questions of
fact and of law, That Appellate Court elevated the case to this
Court because in its opinion the appeal raises only the legal issue
of prescription (Resolution of May 10, 1967 in CA-G. R. No.
33743-R).
Union Carbide contends that the trial court erred (1) in finding
that its action was barred by the statute of limitations and (2) in
not holding that the carrier and the arrastre operator were liable
for the value of the undelivered and damaged cargo.
Claim against the carrier's agent.-There is no question that, as
shown in the twenty-five tally sheets, 975 bags of resin were
delivered by the carrier in good order to the arrastre operator and
that only twenty-five (25) bags were damaged while in the carrier's
custody (Annexes C to C-25 and K-1 of Stipulation of Facts).
The one-year period within which the consignee should sue the
carrier is computed from "the delivery of the goods or the date
when the goods should have been delivered". The Carriage of
Goods by Sea Act provides:
RESPONSIBILITIES AND LIABILITIES
SEC. 3. xxx xxx xxx
(6) Unless notice of loss or damage and the
general nature of such loss or damage be given
in writing to the carrier or hi agent at the port
of discharge before or at the time of the removal
of the goods into the custody of the person
entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie
evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the
loss or damage is not apparent, the notice must
be given within three days of thedelivery.
Said notice of loss or damage may be endorsed
upon the receipt for the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the
state of the goods has at the time of their
 receipt been the subject of joint survey or
inspection.
In any event the carrier and the ship shall be
discharged from all liability in respect of loss or
damage unless suit is brought within one year
after delivery of the goods or the date when the
goods should have been delivered:
Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as
provided for in this section, that fact shall not
affect or prejudice the right of the shipper to
bring suit within one year after the delivery of
the goods or the date when the goods should
have been delivered.
In the case of any actual or apprehended loss or
damage the carrier and the receiver shall give
all reasonable facilities to each other
inspecting and tallying the goods.
(Commonwealth Act No. 65, adopting U.S.
Public Act No. 521 of April 16,1936).
What is the meaning of "delivery" in section 3(6) of the Carriage of
Goods by Sea Act The trial court construed delivery as referring to
the discharge or landing of the cargo.
Union Carbide contends that "delivery" does not mean the
discharge of goods or the delivery thereof to the arrastre operator
but the actual delivery of the goods to the consignee by the customs
broker.
The carrier contends that delivery means discharge from the
vessel into the custody of the customs arrastre operator because
under sections 1201 and 1206 of the Tariff and Customs Code
merchandise cannot be directly delivered by the carrier to the
consignee but should first pass through the customhouse at a
port of entry for the collection of customs duties.
The carrier cites the following provisions of the bill of lading to
support its contention:
9. Delivery. The Carrier retains the option of
delivery at all times from ship's side or from
craft, hulk, custom house, warehouse, wharf or
quay at the risk of the shippers, consignees or
owners of the goods, and all expenses incurred
by delivery otherwise than from ship's side shall
be borne by the shippers, consignee or owners
of the goods.
11. Discharge of Goods. The goods may be
discharge without notice, as soon as the ship is
ready to unload, continuously day and night,
Sundays and holidays included, on to wharf or
quay or into warehouse, or into hulk, lazaretto
or craft or on any other place and be stored
there at the risk and expense of the shippers,
consignees or owners of the goods, any custom
of the port to the contrary notwithstanding. In
any case, the Carrier's liability is to cease as
soon as the goods are lifted from ship's deck or
leave the ship's tackle, any custom of the port
to the contrary notwithstanding. Consignees to
pay charges for sorting and stocking the goods
on wharf or in shed.
If the consignees fail to take delivery of their
goods immediately the ship is ready to
discharge them, the Carrier shall be at liberty
to land and warehouse or discharge the said
goods into hulk or craft, or at any other place at
the risk and expense of the shippers,
consignees or owners of the goods without
notice.
for
15. Notice of Claim. Any claim for loss of or
damage to the goods must be preferred in
writing to the Carrier's Agents at the place of
delivery within 3 days after the ship's discharge
thereof, and before the goods are removed from
the quay or ship's " or place of discharge, and in
the event of such claim not being preferred as
above specified, the claim shall be deemed as
waived, and the Carrier shall be discharged
therefrom.
Suit for the recovery of loss or damage shall not
in any event be maintainable against the
Carrier or the ship unless instituted within one
year after the delivery of the written notice
above specified. The amount of claim shall be
restricted to the Cash Value of the goods at the
place and time of original shipment plus all
charges actually paid thereon, and all claims for
either partial or total loss or damage shall be
entertained and adjusted upon this basis of
value. (Annex B).
In this connection, it is pertinent to state that the Tarifff and
Customs Code allows the delivery of imported merchandise to the
arrastre operator:
SEC. 1213. Receiving Handling Custody and
Delivery of Articles. The Bureau of Customs
shall have "elusive supervision and control over
the receiving, handling, custody and delivery of
articles on the wharves and piers at all ports of
entry and in the exercise of its functions it is
hereby authorized to acquire, take over, operate
and superintend such plants and facilities as
may be necessary for the receiving, handling,
custody and delivery of articles, and the
 convenience and comfort of passengers and the
handling of baggage, as well as to acquire fire
protection equipment for use in the piers:
Provided, That whenever in his judgment the
receiving, handling, custody and delivery of
articles can be carried on by private parties
with greater efficiency, the Commissioner may,
after public bidding and subject to the approval
of the department head, contract with any
private party for the service of receiving,
handling, custody and delivery of articles, and
in such event, the contract may include the sale
or lease of government-owned equipment and
facilities used in such service.
The sensible and practical interpretation is that delivery within
the meaning of section 3(6) of the Carriage of Goods by Sea Law
means delivery to the arrastre operator. That delivery is evidenced
by tally sheets which show whether the goods were landed in good
order or in bad order, a fact which the consignee or shipper can
easily ascertain through the customs broker.
To use as basis for computing the one-year period the delivery to
the consignee would be unrealistic and might generate confusion
between the loss or damage sustained by the goods while in the
carrier's custody and the loss or damage caused to the goods
while in the arrastre operator's possession.
Apparently, section 3(6) adheres to the common-law rule that the
duty imposed water carriers was merely to transport from wharf
to wharf and that the carrier was not bound to deliver the goods
at the warehouse of the consignee (Tan Hi vs. United States, 94
Fed. Supp. 432,435).
In the Tan Hi case, it was held that a requirement of Philippine
law that all cargo unloaded at Manila be delivered to the consignee
through the arrastre operator acting as customs' agent was not
unreasonable. The common-law requirements as to the proper
delivery of goods by water carrier apply only when customs
regulations at the port of destination do not otherwise provide.
The delivery must be in accordance with the usages of the port in
order that such delivery would discharge the carrier
responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58 C. J. 372 note
24. See 70 Am. Jur 2nd 613, note 19).
Under the facts of this case, we held that the one-year period was
correctly reckoned by the trial court from December 19, 1961,
when, as agreed upon by the parties and as shown in the tally
sheets, the cargo was discharged from the carrying vessel and
delivered to the Manila Port Service. That one-year period expired
on December 19, 1962. Inasmuch as the action was filed on
December 21, 1962, it was barred by the statute of limitations.
Defendant American Steamship Agencies, Inc., as agent of the
carrier, has no more liability to the consignee's assignee, Union
Carbide Philippines, Inc., in connection with the damaged twenty-
five bags of resin.
Prescription was duly pleaded by the said defendant in its answer
and motion to dismiss. That defense was correctly entertained by
trial court.
Claim against the arrastre operator. The liability of the arrastre
contractor has a factual and legal basis different from that of the
carrier's. The management contract between the Manila Port
Service and the Bureau of Customs provides:
15. ... ; in any event the CONTRACTOR hall be
relieved and released of any and all
responsibility or liability for loss, damage,
misdelivery, and/or non-delivery of goods,
unless suit in the court of proper jurisdiction is
brought within a period of one (1) year from the
date of the discharge of the goods, or from the
date when the claim for the value of such goods
have been rejected or denied by the
CONTRACTOR, provided that such claim shall
have been filed with the CONTRACTOR within
fifteen (15) days from the date of discharge of
the last package from the carrying vessel. ...
(Annex A of Stipulation of Facts
Under the foregoing contractual provisions, the action against the
arrastre operator to enforce liability for loss of the cargo or damage
thereto should be filed within one year from the date of the
discharge of the goods or from the date when the claim for the
value of such goods has been rejected or denied by the arrastre
operator.
However, before such action can be filed a condition precedent
should be complied with and that is, that a claim (provisional or
final) shall have been previously filed with the arrastre operator
within fifteen days from the date of the discharge of the last
package from the carrying vessel (Continental Insurance Company
vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).
of
In this case, the consignee's customs broker filed with the Manila
Port Service as provisional claim advising the latter that the cargo
was "short, short delivered and/or landed in bad order". That
claim was filed on January 3, 1962 or on the fifteenth day
following December 19, 1961, the date of the discharge of the last
package from the carrying vessel. That claim was never formally
rejected or denied by the Manila Port Service.
Having complied with the condition precedent for the filing of a
claim within the fifteen- day period, Union Carbide could file the
court action within one year, either from December 19, 1961 or
from December 19, 1962. This second date is regarded as the
expiration of the period within which the Manila Port Service
should have acted on the claim (Philippine Education Co., Inc. vs.
Manila Port Service, L-24091, 21 SCRA, 174, 178).
In other words, the claimant or consignee has a two-year
prescriptive period, counted from the date of the discharge of the
goods, within which to file the action in the event that the arrastre
contractor, as in this case, has not rejected nor admitted liability
(Continental Insurance Company vs. Manila Port Service, supra.
Philippine Education Company vs. Manila Port Service, L-23444,
October 29, 1971, 42 SCRA 31).
Since the action in this case against the arrastre operator was
filed on December 21, 1962, or within the two-year period expiring
on December 19, 1963, that action was filed on time. The trial
court erred in dismissing the action against the Manila Port
Service and its principal, the Manila Railroad Company.
As shown in the statement of facts, the arrastre operator is
responsible for the value of 102 bags of resin which were not
delivered, and twenty-five bags, which were damaged, or a total of
one hundred twenty-seven bags valued at P6,185.22.
The arrastre operator should pay attorney's fees to the plaintiff for
not having satisfied its plainly valid, just and demandable claim
(Art. 2208, Civil Code). We fix the attorney's fees and the litigation
expenses in the sum of one thousand pesos.
WHEREFORE, the trial court's judgment is affirmed insofar as it
dismissed plaintiff-appellant's claim against defendant American
Steamship Agencies, Inc. on the ground of prescription.
The trial court's decision is reversed insofar as it dismissed
plaintiff's claim against the Manila Railroad Company, as arrastre
operator. The Philippine National Railways, as the successor of the
Manila Railroad Company (See. 22, Republic Act No. 4156), is
hereby ordered to pay plaintiff Union Carbide Philippines, Inc. the
sum of P6,185.22, as the value of the 127 bags of resin (102 bags
missing and 25 bags damaged), with legal rate of interest from the
filing of the complaint on December 21, 1962 up to the date of
payment, Plus P1,000 as attorney's fees and litigation expenses,
and the costs.
Filipino Merchants Insurance Co. V. CA (1989)
G.R. No. 85141 November 28, 1989
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Article 1523 of the Civil Code,Section 13 of the
Insurance Code
FACTS:
Choa Tiek Seng, consignee of the shipment of fishmeal
loaded, insured in "all risks policy" 600 metric tons of
fishmeal in new gunny bags of 90 kilos each from Bangkok,
Thailand to Manila against all risks under warehouse to
warehouse terms but only 59.940 metric tons was imported
When it was unloaded unto the arrastre contractor E.
Razon, Inc. and Filipino Merchants's surveyor ascertained
and certified that in such discharge 105 bags were in bad
order condition which was reflected in the survey report of
Bad Order cargoes
Before delivery to Choa, E. Razon's Bad Order Certificate
showed that a total of 227 bags in bad order condition
Choa brought an action against Filipino Merchants
Insurance Co. who brought a third party complaint
against Compagnie Maritime Des Chargeurs Reunis and/or
E. Razon, Inc.
RTC: Ordered Filipino Merchants to pay Choa and
reimbursefrom Compagnie Maritime Des Chargeurs Reunis
and third party defendant E. Razon, Inc.
CA: Affirmed but modified by adjudicating the third
party complaint
Filipino Merchants contended that Chao has no
insurable interest and therefore the policy should be void and
that it was fraud that it did not disclose of such fact
ISSUE: W/N Choa Tiek Seng as consignee of the shipment has
insurable interest
HELD: YES. CA affirmed.
GR: the burden of proof is upon the insured to show that
a loss arose from a covered peril, but under an "all risks"
policy the burden is not on the insured to prove the precise
cause of loss or damage for which it seeks compensation. The
insured under an "all risks insurance policy" has the initial
burden of proving that the cargo was in good condition when
the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts
to the insurer to show the exception to the coverage. - none
was shown = liable
Section 13 of the Insurance Code defines insurable
interest in property as every interest in property, whether real
or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured.
As vendee/consignee of the goods in transit has such
existing interest. His interest over the goods is based on the
perfected contract of sale. The perfected contract of sale
between him and the shipper of the goods operates to vest in
him an equitable title even before delivery or before be
performed the conditions of the sale. The contract of
shipment, whether under F.O.B., C.I.F., or C. & F. as in this
case, is immaterial in the determination of whether the
vendee has an insurable interest or not in the goods in
transit.
Article 1523 of the Civil Code provides that where, in
pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods
to a carrier, whether named by the buyer or not, for, the
purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule
not obtaining in the present case. The Court has heretofore
ruled that the delivery of the goods on board the carrying
vessels partake of the nature of actual delivery since, from
that time, the foreign buyers assumed the risks of loss of the
goods and paid the insurance premium covering them
 C & F contracts are shipment contracts. The term means
that the price fixed includes in a lump sum the cost of the
goods and freight to the named destination. It simply means
that the seller must pay the costs and freight necessary to
bring the goods to the named destination but the risk of loss
or damage to the goods is transferred from the seller to the
buyer when the goods pass the ship's rail in the port of
shipment.
Moreover, the issue of lack of insurable interest was not
among the defenses averred in petitioners answer.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6517 November 29, 1954
E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE
COMPANY, petitioners,
vs.
COURT OF APPEALS, INTERNATIONAL HARVESTER
COMPANY OF THE PHILIPPINES and ISTHMIAN STEAMSHIP
COMPANY, respondents.
Gibbs and Chuidian for petitioners.
J. A. Wolfson for respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of Appeals
which affirms that of court as origin dismissing the complaint
without pronouncement as to costs..
The facts, as found by the Court of Appeals, are:.
It appears that in the month of December, 1945 the
goods specified in the Bill of Lading marked as Annex A,
were shipped on the 'S.S. Sea Hydra,' of Isthmian
Steamship Company, from New York to Manila, and were
received by the consignee 'Udharam Bazar and Co.',
except one case of vanishing cream valued at P159.78.
The goods were insured against damage or loss by the
'Atlantic Mutual Insurance Co.' `Udharam Bazar and Co.'
Inc., who denied having received the goods for custody,
and the 'International Harvester Co. of the Philippines,'
as agent for the shipping company, who answer that the
goods were landed and delivered to the Customs
authorities. Finally, 'Udaharam Bazar and Co.' claimed
for indemnity of the loss from the insurer, 'Atlantic
Mutual Insurance Co.', and was paid by the latter's agent
'E. E. Elser Inc.' the amount involved, that is, P159.78..
As may be noted, the Court of Appeals held that petitioners have
already lost their right to press their claim against respondent
because of their failure to serve notice thereof upon the carrier
within 30 days after receipt of the notice of loss or damage as
required by clause 18 of the bill of lading which was issued
concerning the shipment of the merchandise which had allegedly
disappeared. In this respect, the court said that, "appellant
unwittingly admitted that they were late in claiming the indemnity
for the loss of the case of the vanishing cream as their written
claim was made on April 25, 1946, or more than 30 days after
they had been fully aware of said loss," and because of this
failure, the Court said the action of petitioners should, and must,
fall. Petitioners now contend that this finding is erroneous in the
light of the provisions of the Carriage of Goods by Sea Act of 1936,
which apply to this case, the same having been made an integral
part of the covenants agreed upon in the bill of lading.
There is merit in this contention. If this case were to be governed
by clause 18 of the bill of lading regardless of the provisions of the
Carriage of Goods by Sea Act of 1936, the conclusion reached by
the Court of Appeals would indeed the correct, but in our opinion
this Act cannot be ignored or disregard in determining the equities
of the parties it appearing that the same was made an integral
part of the bill of lading by express stipulation. It should be noted,
in this connection, that the Carriage of Goods by Sea Act of 1936
was accepted and adopted by our government by the enactment of
Commonwealth Act No. 65 making said Act "applicable to all
contracts for the carriage in foreign trade." And the pertinent
provisions of the Carriage of the Goods by Sea Act of 1936 are:
6. Unless notice of loss or damage and the general nature
of such loss or damage be given in writing to the carrier
of his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage,
such removal shall be prima facieevidence of the delivery
by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice
must be given within three days of the delivery.
xxx xxx xxx
In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or
the date when the goods should have been delivered:
PROVIDED, That if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery
of the goods or the date when the goods should have been
delivered. (Section 3; Emphasis supplied.).
It would therefore appear from the above that a carrier can only
be discharged from liability in respect of loss or damage if the suit
is not brought within one year after the delivery of the goods or
the date when the goods should have been delivered, and that,
even if a notice of loss or damage is not given as required, "that
fact shall not affect or prejudice the right of the shipper to bring
suit within one year after the delivery of the goods." In other
words, regardless of whether the notice of loss or damage has
been given, the shipper can still bring an action to recover said
loss or damage within one year after the delivery of the goods,
and, as we have stated above, this is contrary to the provisions of
clause 18 of the bill of lading. The question that now rises is:
Which of these two provisions should prevail? Is it that contained
in clause 18 of the bill of lading, or that appearing in the Carriage
of Goods by Sea Act?.
The answer is not difficult to surmise. That clause 18 must of
necessity yields to the provisions of the Carriage of Goods by Sea
Act in view of the proviso contained in the same Act which says:
"any clause, covenant, or agreement in a contract of carriage
relieving the carrier or the ship from liability for loss or damage to
or in connection with the goods . . . or lessening such liability
otherwise than as provided in this Act, shall be null and void and
of no effect." (section 3.) This means that a carrier cannot limit its
liability in a manner contrary to what is provided for in said act.
and so clause 18 of the bill of lading must of necessity be null and
void. This interpretation finds no support in a number of cases
recently decided by the American courts. Thus, in Balfour,
Guthrie and Co., Ltd., et al., vs. American-West African Line, Inc.
and American-West African Line, Inc. vs. Balfour, Guthrie & Co.,
Ltd., et al., 136 F. 2d. 320, wherein the bill of lading provided that
the owner should not be liable for loss of cargo unless written
notice thereof was given within 30 days after the goods should
have been delivered and unless written claim therefor was given
within six months after giving such written notice, the United
States Circuit Court of Appeals, Second Circuit, in a decision
promulgated on August 2, 1943, made the following ruling:.
 But the Act, section 3 (6), 45 U.S.A. section 1303 (6)
provides that failure to give 'notice of loss or damages'
shall not prejudice the right of the shipper to bring suit
within one year after the date when the goods should
have been delivered. to enforce a bill of lading provision
conditioning a ship owner's liability upon the filing of
written claim of loss, which in turn requires and depends
upon the filing of a prior notice of loss, certainly would
do violence to section 3(6) is that failure to file written
claim of loss in no event may prejudice right of suit
within a year of the scheduled date for cargo delivery.
This is also to be concluded from section 3(8) 46 U.S. C.
A. Section 1303 (8),that any clause in a bill of lading
lessening the liability of the carrier otherwise than as
provided in the Act shall be null and void. A similar
provision in the British Carriage of Goods by Sea Act, 14
and 15 Geo. V. c.22, has been interpreted to nullify any
requirement of written claim as a condition to suit at any
time. CF. Australian United Steam Navigation Co., Ltd.,
vs. Hunt (1921) 2 A. C. 351; Conventry Sheppard and
Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1
But respondents contend that while the United States Carriage of
Goods by Sea Act of 1936 was accepted and adopted by our
government by virtue of Commonwealth Act No. 65, however, said
Act does not have any application to the present case because the
shipment in question was made in December, 1945, and arrived in
Manila in February, 1946 and at that time the Philippines was
still a territory or possession of the United States and, therefore it
may be said that the trade then between the Philippines and the
United States was not a "foreign trade". In other words, it is
contended that the Carriage of Goods by Sea Act as adopted by
our government is only applicable "to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade," and,
therefore, it does not apply to the shipment in question..
Granting arguendo that the Philippines was a territory or
possession of the United States for the purposes of said Act and
that the trade between the Philippines and the United States
before the advent of independence was notforeign trade or can only
be considered in a domestic sense, still we are of the opinion that
the Carriage of Goods by Sea Act of 1936 may have application to
the present case it appearing that the parties have expressly
agreed to make and incorporate the provisions of said Act as
integral part of their contract of carriage. This is an exception to
the rule regarding the applicability of said Act. This is expressly
recognized by section 13 of said Act which contains the following
proviso:
Nothing in this Act shall be held to apply to contracts for
carriage of gods by sea between any port of the United
States or its possessions, and any other port of the
United States or its possessions: Provided, however, That
any bill of lading or similar document of title which
evidence of a contract for the carriage of goods by sea
between such ports, containing an express statement that
it shall be subject to the provisions of this Act, shall be
subjected hereto as fully as if subject hereto by the
express provisions of this Act. (Emphasis supplied.).
This is also recognized by the very authority cited by counsel for
respondents, who, on this matter, has made the following
comment:
The Philippine Act of 1936 like the U.S. Act of 1936,
applies propio vigore only to foreign commerce to all
contracts for the carriage of goods by sea and from
Philippine ports in foreign trade.
Prior to Philippine Independence on July 4, 1946, trade
between the Philippines and other ports and places
under the American Flag, was not, by an ordinary
definition, foreign commerce. Hence, the U. S. and
Philippine Acts did not apply to such trades, even though
conducted under foreign bottoms and under foreign
flag, unless the carrier expressly exercised the option
given by section 13 of the U.S. Act to carry under the
provisions of that Act. The fact that the U.S. coastwise
flag monopoly did not extend to the Philippine trade did
not alter the fact that the U.S. Trade with the Islands is
domestic. (knaught, Ocean Bills of Lading, 1947 ed. p.
250 (Emphasis supplied.).
Having reached the foregoing conclusion, it would appear clear
that action of petitioners has not yet lapsed or prescribed, as
erroneously held by the Court of Appeals, it appearing that the
present action was brought within one year after the delivery of
the shipment in question..
As regards the contention of respondents that petitioners have the
burden of showing that the loss complained of did not take place
under after the goods left the possession or custody of the carrier
because they failed to give notice of their loss or damage as
required by law, which failures gives rise to the presumption that
the goods were delivered in the bill of lading, suffice it to state
that, according to the Court of Appeals, the required notice was
given by the petitioners to the carrier or its agent on April 25,
1946. That notice is sufficient to overcome the above presumption
within the meaning of the law..
Wherefore the decision appealed from is reversed. Respondents,
other than the Court of Appeals, are hereby sentenced to pay to
the petitioners the sum of P159.78, with legal interest thereon
from the date of the filing of the complaint, plus the costs of
action..
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A.,
Concepcion and Reyes, J. B. L., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 187701 July 23, 2014
PHILAM INSURANCE COMPANY, INC. (now CHARTIS
PHILIPPINES INSURANCE, INC.*), Petitioner,
vs.
HEUNG-A SHIPPING CORPORATION and WALLEM
PHILIPPINES SHIPPING, INC., Respondents.
x-----------------------x
G.R. No. 187812
HEUNG-A SHIPPING CORPORATION and WALLEM
PHILIPPINES SHIPPING, INC., Petitioners,
vs.
PHILAM INSURANCE COMPANY, INC. (now CHARTIS
PHILIPPINES INSURANCE, INC.), Respondent.
DECISION
REYES, J.:
At bar are consolidated petitions for review on certiorari 1 under
Rule 45 of the Rules of Court assailing the Decision2 dated
January 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
89482 affirming with modifications the Decision 3 dated February
26, 2007 of the Regional Trial Court (RTC) of Makati City, Branch
148, in Civil Case No. 01-889.
The Factual Antecedents
On December 19, 2000, Novartis Consumer Health Philippines,
Inc. (NOVARTIS) imported from Jinsuk Trading Co. Ltd., (JINSUK)
in South Korea, 19 pallets of 200 rolls of Ovaltine Power 18
Glaminated plastic packaging material.
In order to ship the goods to the Philippines, JINSUK engaged the
services of Protop Shipping Corporation (PROTOP), a freight
forwarder likewise based in South Korea, to forward the goods to
their consignee, NOVARTIS.
Based on Bill of Lading No. PROTAS 200387 issued by PROTOP,
the cargo was on freight prepaid basis and on "shippers load and
count" which means that the "container [was] packed with cargo
by one shipper where the quantity, description and condition of
the cargo is the sole responsibility of the shipper." 4 Likewise stated
in the bill of lading is the name Sagawa Express Phils., Inc.,
(SAGAWA) designated as the entity in the Philippines which will
obtain the delivery contract.
PROTOP shipped the cargo through Dongnama Shipping Co. Ltd.
(DONGNAMA) which in turn loaded the same on M/V Heung-A
Bangkok V-019 owned and operated by Heung-A Shipping
Corporation, (HEUNG-A), a Korean corporation, pursuant to a slot
charter agreement whereby a space in the latters vessel was
reserved for the exclusive use of the former. Wallem Philippines
Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the
Philippines. NOVARTIS insured the shipment with Philam
Insurance Company, Inc. (PHILAM, now Chartis Philippines
Insurance, Inc.) under All Risk Marine Open Insurance Policy No.
MOP-0801011828 against all loss, damage, liability, or expense
before, during transit and even after the discharge of the shipment
from the carrying vessel until its complete delivery to the
consignees premises. The vessel arrived at the port ofManila,
South Harbor, on December 27, 2000 and the subject shipment
contained in Sea Van Container No. DNAU 420280-9 was
discharged without exception into the possession, custody and
care of Asian Terminals, Inc. (ATI) as the customs arrastre
operator.
The shipment was thereafter withdrawn on January 4, 2001, by
NOVARTIS appointed broker, Stephanie Customs Brokerage
Corporation (STEPHANIE) from ATIs container yard.
The shipment reached NOVARTIS premises on January 5, 2001
and was thereupon inspected by the companys Senior Laboratory
Technician, Annie Rose Caparoso (Caparoso).5
Upon initial inspection, Caparoso found the container van locked
with its load intact. After opening the same, she inspected its
contents and discovered that the boxes of the shipment were wet
and damp. The boxes on one side of the van were in disarray while
others were opened or damaged due to the dampness. Caparoso
further observed that parts of the container van were damaged
and rusty. There were also water droplets on the walls and the
floor was wet. Since the damaged packaging materials might
contaminate the product they were meant to hold, Caparoso
rejected the entire shipment.
Renato Layug and Mario Chin, duly certified adjusters of the
Manila Adjusters and Surveyors Company wereforthwith hailed to
inspect and conduct a survey of the shipment. 6 Their Certificate of
Survey7 dated January 17, 2001 yielded results similar to the
observations of Caparoso, thus:
[T]he sea van panels/sidings and roofing were noted with varying
degrees of indentations and partly corroded/rusty. Internally,
water bead clung along the roofs from rear to front section. The
mid section dented/sagged with affected area was noted
withminutes hole evidently due to thinning/corroded rusty metal
plates. The shipment was noted with several palletized cartons
already in collapsed condition due to wetting. The vans entire
floor length was also observed wet.8
All 17 pallets of the 184 cartons/rolls contained in the sea van
were found wet/water damaged. Sixteen (16)cartons/rolls
supposedly contained in 2 pallets were unaccounted for although
the surveyors remarked that this may be due to short shipment by
the supplier considering that the sea van was fully loaded and can
no longer accommodate the said unaccounted items. The survey
report further stated that the "wetting sustained by the shipment
may have reasonably be attributed to the water seepage that gain
entry into the sea van container damageroofs (minutes hole)
during transit period[sic]."9
Samples from the wet packing materials/boxes were submitted to
the chemist of Precision Analytical Services, Inc. (PRECISION),
Virgin Hernandez (Hernandez), and per Laboratory Report No.
042-07 dated January 16, 2001, the cause of wetting in the
carton boxes and kraft paper/lining materials as well as the
aluminum foil laminated plastic packaging material, was salt
water.10
Aggrieved, NOVARTIS demanded indemnification for the
lost/damaged shipment from PROTOP, SAGAWA, ATI and
STEPHANIE but was denied. Insurance claims were, thus, filed
with PHILAM which paid the insured value of the shipment inthe
adjusted amount of One Million Nine Hundred Four Thousand Six
Hundred Thirteen Pesos and Twenty Centavos (P1,904,613.20).
Claiming that after such payment, it was subrogated to all the
rights and claims of NOVARTIS against the parties liable for the
lost/damaged shipment, PHILAM filed on June 4, 2001, a
complaint for damages against PROTOP, as the issuer of Bill of
Lading No. PROTAS 200387, its ship agent in the Philippines,
SAGAWA, consignee, ATI and the broker, STEPHANIE.
On October 12, 2001, PHILAM sent a demand letter to WALLEM
for reimbursement of the insurance claims paid to
NOVARTIS.11 When WALLEM ignored the demand, PHILAM
impleaded it as additional defendant in an Amended Complaint
duly admitted by the trial court on October 19, 2001. 12
On December 11, 2001, PHILAM filed a Motion to Admit Second
Amended Complaint this time designating PROTOP as the
owner/operator of M/V Heung-A Bangkok V-019 and adding
HEUNG-A as party defendant for being the registered owner of the
vessel.13 The motion was granted and the second amended
complaint was admitted by the trial court on December 14,
2001.14
PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A
denied liability for the lost/damaged shipment.
SAGAWA refuted the allegation that it is the ship agent of PROTOP
and argued that a ship agent represents the owner of the vessel
and not a mere freight forwarder like PROTOP. SAGAWA averred
that its only role with respect to the shipment was to inform
NOVARTIS of its arrival in the Philippines and to facilitate the
surrender of the original bill of lading issued by PROTOP.
SAGAWA further remarked that it was deprived an opportunity to
examine and investigate the nature and extent of the damage
while the matter was still fresh so as tosafeguard itself from
false/fraudulent claims because NOVARTIS failed totimely give
notice about the loss/damage.15
SAGAWA admitted that it has a non-exclusive agency agreement
with PROTOP to serve as the latters delivery contact person in the
Philippines with respect to the subject shipment. SAGAWA is also
a freight forwarding company and that PROTOPwas not charged
any fee for the services rendered by SAGAWA with respect to the
subject shipment and instead the latter was given US$10 as
commission.16 For having been dragged into court on a baseless
cause, SAGAWA counterclaimed for damages in the form of
attorneys fees.
ATI likewise interposed a counterclaim for damages against
PHILAM for its allegedly baseless complaint. ATI averred that it
exercised due care and diligence in handling the subject
container. Also, NOVARTIS, through PHILAM, is now barred from
filing any claim for indemnification because the latter failed to file
the same within 15 days from receipt of the
shipment.17 Meanwhile, STEPHANIE asserted that its only role
with respect to the shipment was its physical retrieval from ATI
and thereafter its delivery to NOVARTIS. That entire time, the
sealwas intact and not broken. Also, based on the Certificate of
Survey, the damage to the shipment was due to salt water which
means that it could not have occurred while STEPHANIE was in
possession thereof during its delivery from ATIs container yard to
NOVARTIS premises. STEPHANIE counterclaimed for moral
damages and attorneys fees.18
WALLEM alleged that the damageand shortages in the shipment
were the responsibility of the shipper, JINSUK, because it was
taken on board on a "shippers load and count" basis which
means that it was the shipper that packed, contained and stuffed
the shipment in the container van without the carriers
participation. The container van was already sealed when it was
loadedon the vessel and hence, the carrier was in no position to
verify the condition and other particulars of the shipment.
WALLEM also asserted that the shipment was opened long after it
was discharged from the vessel and that WALLEM or HEUNG-A
were not present during the inspection, examination and survey.
WALLEM pointed the blame to PROTOP because its obligation to
the shipper as freight forwarder carried the concomitant
responsibility of ensuring the shipments safety from the port of
loading until the final place of delivery. WALLEM claimed to
haveexercised due care and diligence in handling the shipment.
In the alternative, WALLEM averred that any liability which may
be imputed to it is limited only to US$8,500.00 pursuant to the
Carriage of Goods by Sea Act (COGSA).19
HEUNG-A argued that it is not the carrier insofar as NOVARTIS is
concerned. The carrier was either PROTOP, a freight forwarder
considered as a non-vessel operating common carrier or
DONGNAMA which provided the container van to
PROTOP.20 HEUNG-A denied being the carrier of the
subjectshipment and asserted that its only obligation was to
provide DONGNAMA a space on board M/V Heung-A Bangkok V-
019.
PROTOP failed to file an answer to the complaint despite having
been effectively served with alias summons. It was declared in
default in the RTC Order dated June 6, 2002. 21
Ruling of the RTC
In a Decision dated February 26, 2007, the RTC ruled that the
22
damage to the shipment occurred onboard the vessel while in
transit from Korea to the Philippines.
HEUNG-A was adjudged as the common carrier of the subject
shipment by virtue of the admissions of WALLEMs witness,
Ronald Gonzales (Gonzales) that despite the slot charter
agreement with DONGNAMA, it was still the obligation of HEUNG-
A to transport the cargo from Busan, Korea to Manila and thus
any damage to the shipment is the responsibility of the carrier to
the consignee.
The RTC further observed that HEUNG-A failed to present
evidence showing that it exercised the diligence required of a
common carrier in ensuring the safety of the shipment.
The RTC discounted the slot charter agreement between HEUNG-
A and DONGNAMA, and held that it did not bind the consignee
who was not a party thereto. Further, it was HEUNG-As duty to
ensure that the container van was in good condition by taking an
initiative to state in its contract and demand from the owner of the
container van that it should be in a good condition all the time.
Such initiative cannot be shifted to the shipper because it is in no
position to demand the same from the owner of the container van.
WALLEM was held liable as HEUNG-As ship agent in the
Philippines while PROTOP was adjudged liable because the
damage sustained by the shipment was due to the bad condition
of the container van. Also, based on the statement at the backof
the bill of lading, it assumed responsibility for loss and damage as
freight forwarder, viz:
6.1 The responsibility of the Freight Forwarder for the goods
under these conditions covers the period from the time the Freight
Forwarder has taken the goods in his charge to the time of the
delivery.
6.2 The Freight Forwarde[r] shall beliable for loss or damage to the
goods as well as for delay in delivery if the occurrence which
caused the loss, damage, delay in delivery took place while the
goods were in his charge as defined in clause 2.1.a unless the
Freight Forwarder proves that no fault or neglect of his own
servants or agents or any other person referred to in Clause 2.2
has caused or contributed to such loss, damage or delay. However,
the Freight Forwarder shall only be liable for loss following from
delay in delivery if the Consignor has made a declaration of
interest in timely delivery which has been accepted by the Freight
Forwarder and stated in this FBL.23
PHILAM was declared to havebeen validly subrogated in
NOVARTIS stead and thus entitled to recover the insurance
claims it paid to the latter.
ATI and STEPHANIE were exonerated from any liability. SAGAWA
was likewise adjudged not liable for the loss/damage to the
shipment by virtue of the phrase "Shippers Load and Count"
reflected in the bill of lading issued by PROTOP. Since the
container van was packed under the sole responsibility of the
shipper in Korea, SAGAWA, which is based in the Philippines, had
no chance to check if the contents were in good condition or not.
The RTC concluded that SAGAWA cannot be expected to observe
the diligence or care required of a carrier or ship agent. SAGAWA,
ATI and STEPHANIEs counterclaims for attorneys fees were
granted and PHILAM was ordered to pay the same for having been
filed a shotgun case against them. Accordingly, the dispositive
portion of the RTC decision read:
WHEREFORE, premises considered, judgment is hereby rendered
declaring defendants PROTOP SHIPPING CORPORATION,
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES
SHIPPING, INC. solidarily liable to pay x x x PHILAM INSURANCE
COMPANY, INC. the following amounts:
1. [P]1,904,613.20 plus interest of 12% per annum from
December 26, 2001 (date of service of summons to
defendant Heung-A) until full payment;
2. [P]350,000.00 as attorneys fees; and 3. Cost of suit.
With regards to the counter claims, x x x PHILAM INSURANCE
COMPANY, INC. is hereby ordered to pay defendants SAGAWA
EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC., and
STEPHANIE CUSTOMS BROKERAGE CORPORATION the amount
of [P]100,000.00 each as attorneys fees.
SO ORDERED.24
Ruling of the CA
An appeal to the CA was interposed by PHILAM, WALLEM and
HEUNG-A. In a Decision25 dated January 30, 2009, the CA agreed
with the RTC that PROTOP, HEUNG-A and WALLEM are liable for
the damaged shipment. The fact that HEUNG-A was not a party to
the bill of lading did not negate the existence of a contract of
carriage between HEUNG-A and/or WALLEM and NOVARTIS. A
bill of lading is not indispensable for the creation of a contract of
carriage. By agreeing to transport the goods contained in the sea
van providedby DONGNAMA, HEUNG-A impliedly entered into a
contract of carriage with NOVARTIS with whom the goods were
consigned. Hence, it assumed the obligations of a common carrier
to observe extraordinary diligence in the vigilance over the goods
transported by it. Further the Slot Charter Agreement did not
change HEUNG-As character as a common carrier.
Moreover, the proximate cause ofthe damage was the failure of
HEUNG-A to inspect and examine the actual condition of the sea
van before loading it on the vessel. Also, propermeasures in
handling and stowage should have been adopted to prevent
seepage of sea water into the sea van.
The CA rejected WALLEM and HEUNG-As argument that
NOVARTIS failed to comply with Article 366 of the Code of
Commerce requiring that a claim must be made against the
carrier within 24 hours from receipt of the merchandise because
such provision applies only to inter-island shipments within the
Philippines.
The CA limited the liability of PROTOP, WALLEM and HEUNG-A to
US$8,500.00 pursuant to the liability limitation under the COGSA
since the shipper failed to declare the value of the subject cargo in
the bill of lading and since they could not be made answerable for
the two (2) unaccounted pallets because the shipment was on a
"shippers load, count and seal" basis.
The attorneys fees awarded to SAGAWA, ATI and STEPHANIE
were deleted because it was not shown that PHILAM was
motivated by malice and bad faith in impleading them as
defendants. Thus, the CA decision was disposed as follows:
WHEREFORE, premises considered, the appealed Decision is
hereby AFFIRMED with MODIFICATION.Defendants PROTOP
SHIPPING CORPORATION, HEUNG-A SHIPPING CORPORATION
[and] WALLEM PHILIPPINES SHIPPING,INC.s solidary liability to
PHILAM INSURANCE COMPANY, INC. is reduced to $8,500.00
plus interest per annum from26 December 2001 (date ofservice of
summons to defendant Heung-A) until full payment. The award of
attorneys fees in the amount of One Hundred Thousand Pesos
([P]100,000.[00]) each to SAGAWA EXPRESS PHILIPPINES, INC.,
ASIAN TERMINALS, INC. and STEPHANIE CUSTOMS
BROKERAGE is hereby DELETED.
SO ORDERED.26
The foregoing judgment was reiterated in the CA
Resolution27 dated May 8, 2009 which denied the motions for
reconsideration filed by PHILAM, WALLEM and HEUNG-A.
PHILAM thereafter filed a petition for review before the Court
docketed as G.R. No. 187701. WALLEM and HEUNG-A followed
suit and their petition was docketed as G.R. No. 187812.
Considering that both petitions involved similar parties and issue,
emanated from the same Civil Case No. 01-889 and assailed the
same CA judgment, they were ordered consolidated in a
Resolution28 dated January 13, 2010.
In G.R. No. 187701, PHILAM raised the following grounds:
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT
RULED IN ITS DECISION OF 30 JANUARY 2009 THAT [HEUNG-A
and WALLEM] HAVE THE RIGHT TO LIMIT THEIR LIABILITY
UNDER THE PACKAGE LIMITATION OF LIABILITY OF SECTION
4(5) OF THE CARRIAGE OF GOODS BY SEA ACT, 1924, IN VIEW
OF ITS OBSERVATION THAT [NOWHERE] IN THE BILL OF
LADING DID THE SHIPPER DECLARE THE VALUE OF THE
SUBJECT CARGO;
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT
COMPLETELY DISREGARDED THE FUNDAMENTAL BREACHES
OF [HEUNG-A and WALLEM] OF [THEIR] OBLIGATIONS AND
RESPONSIBILITIES UNDER THE CONTRACT OF CARRIAGE AND
LAW OF THE CASE AS LEGAL GROUNDS TO PRECLUDE ITS
AVAILMENT OF THE PACKAGE LIMITATION OF LIABILITY UNDER
SECTION 4(5) OF THE CARRIAGE OF GOODS BY SEA ACT,
1924.29
In G.R. No. 187812, HEUNG-A and WALLEM argued that:
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING
THAT THE CODE OFCOMMERCE, SPECIFICALLY ARTICLE 366
THEREOF, DOES NOT APPLY IN THIS CASE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING
THAT THE SO-CALLED "PARAMOUNT CLAUSE" IN THE BILL OF
LADING, WHICH PROVIDED THAT "COGSA" SHALL GOVERN
THE TRANSACTION, RESULTED IN THE EXCLUSION OR
INAPPLICABILITY OF THE CODE OF COMMERCE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN NOT
RULING THAT [PHILAM] HAS NO RIGHT OF ACTION AGAINST
[HEUNG-A and WALLEM] INSOFAR AS DAMAGE TO CARGO IS
CONCERNED IN VIEW OF THE FACT THAT NO TIMELY CLAIM
WAS FILED PURSUANT TO ARTICLE 366 OF THE CODE OF
COMMERCE OR THE PROVISIONS OF THE BILL OF LADING
NO.DNALGOBUM 005019[;]
THE [CA] GRAVELY ABUSED ITS DISCRETION AMOUNTING TO
EXCESS OR LACK OF JURISDICTION IN FINDING THAT THE
CONTAINERIZED CARGO WAS DAMAGED WHILE IN THE
POSSESSION OR CUSTODY OF THE VESSEL "HEUNG-A
BANGKOK".30
Issues
The arguments proffered by the parties can be summed up into
the following issues: (1) Whether the shipment sustained damage
while in the possession and custody of HEUNG-A, and if so,
whether HEUNG-As liability can be limited to US$500 per
package pursuant tothe COGSA; (2) Whether or not
NOVARTIS/PHILAM failed to file a timely claim against HEUNG-A
and/or WALLEM.
Ruling of the Court
It must be stressed that the question on whether the subject
shipment sustained damaged while in the possession and custody
of HEUNG-A is a factual matter which has already
beendetermined by the RTC and the CA. The courts a quowere
uniform in finding that the goods inside the container van were
damaged by sea water whilein transit on board HEUNG-As vessel.
Being a factual question, it is notreviewable in the herein petition
filed under Rule 45 of the Rules of Court. It isnot the Courts duty
to evaluate and weigh the evidence all over again as such function
is conceded to be within the expertise of the trial court whose
findings, when supported by substantial evidence on record and
affirmed by the CA, are regarded with respect, if not binding
effect, by this Court.31
There are certain instances, however, when the Court is compelled
to deviate from this rule, dismantle the factual findings of the
courts a quoand conduct a probe into the factual questions at
issue. These circumstances are: (1) the inference made
ismanifestly mistaken, absurd or impossible; (2) there is grave
abuse of discretion; (3) the findings are grounded entirely on
speculations, surmises or conjectures; (4) the judgment of the CA
is based on misapprehension of facts; (5) the CA, in making its
findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (6) the
findings of fact are conclusions without citation of specific
evidence on which theyare based; (7) the CA manifestly overlooked
certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (8)
the findings of fact of the CA are premised on the absence
ofevidence and are contradicted by the evidence on record. 32
None of the foregoing instances is extant from records of the
present case. Instead, the Court finds that the factual findings of
the courts a quo are supported by evidence on record.
The uncontested results of the inspection survey conducted by
Manila Adjusters Surveyors Company showed that sea water
seeped into the panels/sidings and roofing of the container van.
This was confirmed by the examination conducted by Hernandez,
the chemist of PRECISION, on samples from the cartons, boxes,
aluminum foil and laminated plastic packaging materials. Based
on the laboratory examination results, the contents of the van
were drenched by sea water, an element which is highly
conspicuous in the high seas. It can thus be reasonably
concluded that negligence occurred while the container van was
in transit, in HEUNG-As possession, control and custody as the
carrier.
Although the container van had defects, they were not, however,
so severe as to accommodate heavy saturation of sea water. The
holes were tiny and the rusty portions did not cause gaps or
tearing. Hence, the van was still in a suitable condition to hold the
goods and protect them from natural weather elements or even
the normal flutter of waves in the seas.
The scale of the damage sustained by the cargo inside the van
could have been only caused by large volume of sea water since
not a single package inside was spared. Aside from the defective
condition of the van, some other circumstance or occurrence
contributed to the damages sustained by the shipment. Since the
presence of sea water is highly concentrated in the high seas and
considering HEUNG-As failure to demonstrate how it exercised
due diligence in handling and preserving the container van while
in transit, it is liable for the damages sustained thereby.
As the carrier of the subject shipment, HEUNG-A was bound to
exercise extraordinary diligence in conveying the same and its slot
charter agreement with DONGNAMA did not divest it of such
characterization nor relieve it of any accountability for the
shipment.
Based on the testimony of Gonzales, 33 WALLEMs employee and
witness, the charter party between HEUNG-A and DONGNAMA
was a contract of affreightment and not a bare boat or demise
charter, viz:
Q: Now, the space charter that you are mentioning is not either a
bareboat or a demise?
A: Yes, sir.
Q: Okay. So in other words, that space charter party is only to
allow the shipper, Dongnama, to load its cargo for a certain
specified space?
A: Yes, sir.34
A charter party has been defined in Planters Products, Inc. v.
Court of Appeals35 as:
[A] contract by which an entire ship, orsome principal part
thereof, is let by the owner to another person for a specified time
or use; a contract of affreightment by which the owner of a ship or
other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight. x x x. 36 (Citations omitted)
A charter party has two types. First, it could be a contract of
affreightment whereby the use of shipping space on vessels is
leased in part or as a whole, to carry goods for others. The
charter-party provides for the hire of vessel only, either for a
determinate period of time (time charter) or for a single or
consecutive voyage (voyage charter). The shipowner supplies the
ships stores, pay for the wages ofthe master and the crew, and
defray the expenses for the maintenance of the ship. 37 The voyage
remains under the responsibility of the carrier and it is
answerable for the loss of goods received for transportation. The
charterer is free from liability to third persons in respect of the
ship.38
Second, charter by demise or bareboat charter under which the
whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its
navigation, including the master and the crew, who are his
servants.39 The charterer mans the vessel with his own people and
becomes, in effect, the owner for the voyage or service stipulated
and hence liable for damages or loss sustained by the goods
transported.40
Clearly then, despite its contract of affreightment with
DONGNAMA, HEUNG-A remained responsible as the carrier,
hence, answerable for the damages incurred by the goods received
for transportation. "[C]ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligenceand vigilance with respect to the safety of
the goods and the passengers they transport. Thus, common
carriers are required to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature
and characteristics of the goods tendered for shipment, and
toexercise due care in the handling and stowage, including such
methods as their nature requires."41
"[C]ommon carriers, as a general rule, are presumed to have been
at fault or negligent if the goods they transported deteriorated or
got lost or destroyed. That is, unless they provethat they exercised
extraordinary diligence in transporting the goods. Inorder to avoid
responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such diligence."42 Further,
under Article 1742 of the Civil Code, even if the loss, destruction,
or deterioration of the goods should be caused by the faulty
nature of the containers, the common carrier must exercise due
diligence to forestall or lessen the loss.
Here, HEUNG-A failed to rebut this prima faciepresumption when
it failed to give adequate explanation as to how the shipment
inside the container van was handled, stored and preserved to
forestall or prevent any damage or loss while the same was inits
possession, custody and control.
PROTOP is solidarily liable with HEUNG-A for the lost/damaged
shipment in view of the bill of lading the former issued to
NOVARTIS. "A bill of lading is a written acknowledgement of the
receipt of goods and an agreement to transport and to deliver
them at a specified place to a person named or on his or her order.
It 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."43 PROTOP breached its contract with
NOVARTIS when it failed to deliver the goods in the same quantity,
quality and description as stated in Bill of Lading No. PROTAS
200387.
The CA did not err in applying the provisions of the COGSA
specifically, the rule on Package Liability Limitation.
Under Article 1753 of the Civil Code, the law of the country to
which the goods are to be transported shall govern the liability of
the common carrier for their loss, destruction or deterioration.
Since the subject shipment was being transported from South
Korea to the Philippines, the Civil Code provisions shall apply. In
all mattersnot regulated by the Civil Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws,44 such as the COGSA.
While the Civil Code contains provisions making the common
carrier liable for loss/damage to the goods transported, it failed to
outline the manner of determining the amount of suchliability.
Article372 of the Code of Commerce fills in this gap, thus:
Article 372. The value of the goods which the carrier must pay in
cases if loss or misplacement shall be determined in accordance
with that declared in the bill of lading, the shipper not being
allowed to present proof that among the goods declared therein
there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and
accessory means of transportation shall be especially bound
infavor of the shipper, although with respect to railroads said
liability shall be subordinated to the provisions of the laws of
concession with respect to the property, and to what this Code
established as to the manner and form of effecting seizures and
attachments against said companies. (Emphasis ours)
In case, however, of the shippers failure to declare the value of the
goods in the bill of lading, Section 4, paragraph 5 of the COGSA
provides:
Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package
lawful money of the United States, or in case of goods not shipped
in packages, per customary freight unit, or the equivalent of that
sum in other currency, unless the nature and value of such goods
have been declared by the shipper before shipment and inserted in
the bill of lading. This declaration, if embodied in the bill of lading
shall be prima facieevidence, but shall be conclusive on the
carrier.
Hence, when there is a loss/damage to goods covered by contracts
of carriage from a foreign port to a Philippine port and in the
absence a shippers declaration of the value of the goods in the bill
of lading, as in the present case, the foregoing provisions of the
COGSA shall apply. The CA, therefore, did not err in ruling that
HEUNG-A, WALLEM and PROTOPs liability is limited to $500 per
package or pallet.45
The Court likewise affirms the CA in pronouncing HEUNG-A,
WALLEM and PROTOP liable only for the lost/damaged 17 pallets
instead of 19 pallets stated in the bill of lading. This is because,
per the "Shippers Load and Count" arrangement, the contents 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. 46 As such, the carrier cannot
be held responsible for any discrepancy if the description in the
bill of lading is different from the actual contents of the
container.47
Consonant with the ruling in the recent Asian Terminals, Inc. v.
Philam Insurance Co., Inc.,48 the prescriptive period for filing an
action for lost/damaged goods governed by contracts of carriage
by sea to and from Philippine ports in foreign trade is governed by
paragraph 6,Section 3 of the COGSA which states:
(6) Unless notice of loss or damageand the general nature of such
loss or damage be given in writing to the carrier or his agent at
the port of discharge before or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof
under the contract of carriage, such removal shall be prima
facieevidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the
delivery.
Said notice of loss or damage maybe endorsed upon the receipt for
the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods
has at the time of their receipt been the subject of joint survey or
inspection. In any event the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless
suit is brought withinone year after delivery of the goods or the
date when the goods should have been delivered: Provided, That if
a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should
have been delivered.
It was further ruled in Asian Terminals that pursuant to the
foregoing COGSA prov:sion, failure to comply with the notice
requirement shall not affect or prejudice the right of the shipper to
bring suit within one year after delivery of the goods.
The consignee, NOV ARTIS, received the subject shipment on
January 5, 2001. PHILAM, as the subrogee of NOVARTIS, filed a
claim against PROTOP on June 4, 2001, against WALLEM on
October 12, 2001 and against HEUNG-A on December 11, 2001,
or all within the one-year prescriptive period. Verily then, despite
NOV AR TIS' failure to comply with the three-day notice
requirement, its subrogee PHILAM is not barred from seeking
reimbursement from PROTOP, HEUNG-A and WALLEM because
the demands for payment were timely filed.
The amount which PHILAM is entitled to receive shall earn a legal
interest at the rate of six percent (6%) per annum from the date of
finality of this judgment until its full satisfaction pursuant to
Nacar v. Gallery Frames.49
WHEREFORE, all the foregoing considered, the Decision dated
January 30, 2009 of the Court of Appeals in CA-G.R. CV No.
89482 is hereby AFFlHMED with MODIFICATION in that the
interest rate on the award of US$8,500.00 shall be six percent
(6%) per annum from the date of finality of this judgment until
fully paid.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT
INSURANCE & SURETY CORPORATION,respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA
FIRE & MARINE INSURANCE CO., LTD.,respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo
insurance, arose from the same incident, the sinking of the M/S
ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S
ASIATICA, a vessel operated by petitioner Eastern Shipping Lines,
Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance
pipes in 28 packages valued at P256,039.00 consigned to
Philippine Blooming Mills Co., Inc., and 7 cases of spare parts
valued at P92,361.75, consigned to Central Textile Mills, Inc. Both
sets of goods were insured against marine risk for their stated
value with respondent Development Insurance and Surety
Corporation.
In G.R. No. 71478, during the same period, the same vessel took
on board 128 cartons of garment fabrics and accessories, in two
(2) containers, consigned to Mariveles Apparel Corporation, and
two cases of surveying instruments consigned to Aman
Enterprises and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire & Marine
Insurance Co., for US $46,583.00, and the 2 cases by respondent
Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and
sank, resulting in the total loss of ship and cargo. The respective
respondent Insurers paid the corresponding marine insurance
values to the consignees concerned and were thus subrogated
unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety
Corporation (Development Insurance, for short), having been
subrogated unto the rights of the two insured companies, filed
suit against petitioner Carrier for the recovery of the amounts it
had paid to the insured before the then Court of First instance of
Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the
loss was due to an extraordinary fortuitous event, hence, it is not
liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of
Development Insurance in the amounts of P256,039.00 and
P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the
then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on
Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance
Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co.,
Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit
against Petitioner Carrier for the recovery of the insured value of
the cargo lost with the then Court of First Instance of Manila,
Branch 11 (Civil Case No. 116151), imputing unseaworthiness of
the ship and non-observance of extraordinary diligence by
petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that
the fire which caused the sinking of the ship is an exempting
circumstance under Section 4(2) (b) of the Carriage of Goods by
Sea Act (COGSA); and that when the loss of fire is established, the
burden of proving negligence of the vessel is shifted to the cargo
shipper.
On September 15, 1980, the Trial Court rendered judgment in
favor of NISSHIN and DOWA in the amounts of US $46,583.00
and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner,
the then Court of Appeals on September 10, 1984, affirmed with
modification the Trial Court's judgment by decreasing the amount
recoverable by DOWA to US $1,000.00 because of $500 per
package limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No.
69044 on January 16, 1985 by the First Division, and G. R. No.
71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No.
69044 was given due course on March 25, 1985, and the parties
were required to submit their respective Memoranda, which they
have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought
reconsideration of the Resolution denying the Petition for Review
and moved for its consolidation with G.R. No. 69044, the lower-
numbered case, which was then pending resolution with the First
Division. The same was granted; the Resolution of the Second
Division of September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the
operator of the M/S Asiatica but merely a charterer thereof. We
note that in G.R. No. 69044, Petitioner Carrier stated in its
Petition:
There are about 22 cases of the "ASIATICA"
pending in various courts where various
plaintiffs are represented by various counsel
representing various consignees or insurance
companies. The common defendant in these
cases is petitioner herein, being the operator of
said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a
general rule, the facts alleged in a party's pleading are deemed
admissions of that party and binding upon it. 2 And an admission
in one pleading in one action may be received in evidence against
the pleader or his successor-in-interest on the trial of another
action to which he is a party, in favor of a party to the latter
action. 3
The threshold issues in both cases are: (1) which law should
govern the Civil Code provisions on Common carriers or the
Carriage of Goods by Sea Act? and (2) who has the burden of proof
to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported
governs the liability of the common carrier in case of their loss,
destruction or deterioration. 4 As the cargoes in question were
transported from Japan to the Philippines, the liability of
Petitioner Carrier is governed primarily by the Civil
Code. 5 However, in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. 6 Thus, the Carriage of
Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over goods, according to all
the circumstances of each case. 8 Common carriers are
responsible for the loss, destruction, or deterioration of the goods
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other
natural disaster or calamity;
9
xxx xxx xxx
Petitioner Carrier claims that the loss of the vessel by fire exempts
it from liability under the phrase "natural disaster or calamity. "
However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost
invariably from some act of man or by human means. 10 It does
not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may
even be caused by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an
extraordinary fortuitous event refers to leases of rural lands where
a reduction of the rent is allowed when more than one-half of the
fruits have been lost due to such event, considering that the law
adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception
in Article 1734, supra, Article 1735 of the Civil Code provides that
all cases than those mention in Article 1734, the common carrier
shall be presumed to have been at fault or to have acted
negligently, unless it proves that it has observed the extraordinary
deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo
shippers, have proven that the transported goods have been lost.
Petitioner Carrier has also proved that the loss was caused by fire.
The burden then is upon Petitioner Carrier to proved that it has
exercised the extraordinary diligence required by law. In this
regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
The cargoes in question were, according to the
witnesses defendant placed in hatches No, 2
and 3 cf the vessel, Boatswain Ernesto Pastrana
noticed that smoke was coming out from hatch
No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the
fire must have started twenty-four 24) our the
same was noticed; that carbon dioxide was
ordered released and the crew was ordered to
open the hatch covers of No, 2 tor
commencement of fire fighting by sea water:
that all of these effort were not enough to
control the fire.
Pursuant to Article 1733, common carriers are
bound to extraordinary diligence in the
vigilance over the goods. The evidence of the
defendant did not show that extraordinary
vigilance was observed by the vessel to prevent
the occurrence of fire at hatches numbers 2
and 3. Defendant's evidence did not likewise
show he amount of diligence made by the crew,
on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in
the hatches, no regular inspection was made as
to their condition during the voyage.
Consequently, the crew could not have even
explain what could have caused the fire. The
defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance
and care had been made by the crew to prevent
the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for
said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had
exercised the extraordinary diligence required by law, Petitioner
Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within
the meaning of Article 1734 of the Civil Code, it is required under
Article 1739 of the same Code that the "natural disaster" must
have been the "proximate and only cause of the loss," and that the
carrier has "exercised due diligence to prevent or minimize the
loss before, during or after the occurrence of the disaster. " This
Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the
Carriage of Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall
be responsible for loss or damage arising or
resulting from
(b) Fire, unless caused by the actual fault or
privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in
effect, found, as a fact, that there was "actual fault" of the carrier
shown by "lack of diligence" in that "when the smoke was noticed,
the fire was already big; that the fire must have started twenty-
four (24) hours before the same was noticed; " and that "after the
cargoes were stored in the hatches, no regular inspection was
made as to their condition during the voyage." The foregoing
suffices to show that the circumstances under which the fire
originated and spread are such as to show that Petitioner Carrier
or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when
loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed
US $500 per package as provided in section 4(5) of the COGSA,
which reads:
(5) Neither the carrier nor the ship shall in any
event be or become liable for any loss or damage
to or in connection with the transportation of
goods in an amount exceeding $500 per
package lawful money of the United States, or
in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that
sum in other currency, unless the nature and
value of such goods have been declared by the
shipper before shipment and inserted in bill of
lading. This declaration if embodied in the bill
of lading shall be prima facie evidence, but all
be conclusive on the carrier.
By agreement between the carrier, master or
agent of the carrier, and the shipper another
maximum amount than that mentioned in this
paragraph may be fixed: Provided, That such
maximum shall not be less than the figure
above named. In no event shall the carrier be
Liable for more than the amount of damage
actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of
liability in this wise:
Art. 1749. A stipulation that the common
carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is
binding.
It is to be noted that the Civil Code does not of itself limit the
liability of the common carrier to a fixed amount per package
although the Code expressly permits a stipulation limiting such
liability. Thus, the COGSA which is suppletory to the provisions of
the Civil Code, steps in and supplements the Code by establishing
a statutory provision limiting the carrier's liability in the absence
of a declaration of a higher value of the goods by the shipper in
the bill of lading. The provisions of the Carriage of Goods by.Sea
Act on limited liability are as much a part of a bill of lading as
though physically in it and as much a part thereof as though
placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of
Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability
for the loss or destruction of the goods. Nor is there a declaration
of a higher value of the goods. Hence, Petitioner Carrier's liability
should not exceed US $500 per package, or its peso equivalent, at
the time of payment of the value of the goods lost, but in no case
"more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes
was P256,039 (Exhibit "C"), which was exactly the amount of the
insurance coverage by Development Insurance (Exhibit "A"), and
the amount affirmed to be paid by respondent Court. The goods
were shipped in 28 packages (Exhibit "C-2") Multiplying 28
packages by $500 would result in a product of $14,000 which, at
the current exchange rate of P20.44 to US $1, would be P286,160,
or "more than the amount of damage actually sustained."
Consequently, the aforestated amount of P256,039 should be
upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"),
their actual value was P92,361.75 (Exhibit "I"), which is likewise
the insured value of the cargo (Exhibit "H") and amount was
affirmed to be paid by respondent Court. however, multiplying
seven (7) cases by $500 per package at the present prevailing rate
of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540
only, which is the amount that should be paid by Petitioner
Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying
instruments are concerned, the amount awarded to DOWA which
was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in
two (2) containers and insured with NISSHIN, the Appellate Court
also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128
cartons (considered as COGSA packages) by $500 to arrive at the
figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial
Court was correct in awarding said amount only for the 128
cartons, which amount is less than the maximum limitation of the
carrier's liability."
We find no reversible error. The 128 cartons and not the two (2)
containers should be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807
(1981), the consignees of tin ingots and the shipper of floor
covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been
shipped in vessel supplied containers. The U.S. District Court
for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of
Appeals, Second Division, modified and affirmed holding that:
When what would ordinarily be considered
packages are shipped in a container supplied by
the carrier and the number of such units is
disclosed in the shipping documents, each of
those units and not the container constitutes
the "package" referred to in liability limitation
provision of Carriage of Goods by Sea Act.
Carriage of Goods by Sea Act, 4(5), 46
U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of
Goods by Sea Act left doubt as to whether
carrier-furnished containers whose contents are
disclosed should be treated as packages, the
interest in securing international uniformity
would suggest that they should not be so
treated. Carriage of Goods by Sea Act, 4(5), 46
U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best,
supra, 451 F 2d at 815, that treating a
container as a package is inconsistent with the
congressional purpose of establishing a
reasonable minimum level of liability, Judge
Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has
not completely escaped
criticism, there is,
nonetheless, much to
commend it. It gives needed
recognition to the
responsibility of the courts to
construe and apply the
statute as enacted, however
great might be the temptation
to "modernize" or reconstitute
it by artful judicial gloss. If
COGSA's package limitation
scheme suffers from internal
illness, Congress alone must
undertake the surgery. There
is, in this regard, obvious
wisdom in the Ninth Circuit's
conclusion in Hartford that
technological advancements,
whether or not forseeable by
the COGSA promulgators, do
not warrant a distortion or
artificial construction of the
statutory term "package." A
ruling that these large
reusable metal pieces of
transport equipment qualify
as COGSA packages at
least where, as here, they
were carrier owned and
supplied would amount to
just such a distortion.
Certainly, if the individual
crates or cartons prepared by
the shipper and containing
his goods can rightly be
considered "packages"
standing by themselves, they
do not suddenly lose that
character upon being stowed
in a carrier's container. I
would liken these containers
to detachable stowage
compartments of the ship.
They simply serve to divide
the ship's overall cargo
stowage space into smaller,
more serviceable loci.
Shippers' packages are quite
literally "stowed" in the
containers utilizing
stevedoring practices and
materials analogous to those
employed in traditional on
board stowage.
In Yeramex International v. S.S. Tando,, 1977
A.M.C. 1807 (E.D. Va.) rev'd on other grounds,
595 F 2nd 943 (4 Cir. 1979), another district
with many maritime cases followed Judge
Beeks' reasoning in Matsushita and similarly
rejected the functional economics test. Judge
Kellam held that when rolls of polyester goods
are packed into cardboard cartons which are
then placed in containers, the cartons and not
the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the
Mitsui test:
Eurygenes concerned a shipment of stereo
equipment packaged by the shipper into
cartons which were then placed by the shipper
into a carrier- furnished container. The number
of cartons was disclosed to the carrier in the bill
of lading. Eurygenes followed the Mitsui test and
treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated
 that a carrier could limit its liability to $500 per
container if the bill of lading failed to disclose
the number of cartons or units within the
container, or if the parties indicated, in clear
and unambiguous language, an agreement to
treat the container as the package.
(Admiralty Litigation in
Perpetuum: The Continuing
Saga of Package Limitations
and Third World Delivery
Problems by Chester D.
Hooper & Keith L. Flicker,
published in Fordham
International Law Journal,
Vol. 6, 1982-83, Number 1)
(Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following
data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories
Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the
contents of the containers, the number of cartons or units, as well
as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons,
not the two (2) containers should be considered as the shipping
unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers
involved herein were carrier-furnished or not. Usually, however,
containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier
was at liberty to pack and carry the goods in containers if they
were not so packed. Thus, at the dorsal side of the Bill of Lading
(Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt
of which is acknowledged on the face of this Bill
of Lading are not already packed into
container(s) at the time of receipt, the Carrier
shall be at liberty to pack and carry them in
any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2)
Containers Only" in the Bill of Lading, meaning that the goods
could probably fit in two (2) containers only. It cannot mean that
the shipper had furnished the containers for if so, "Two (2)
Containers" appearing as the first entry would have sufficed. and
if there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the interpretation of
obscure words or stipulations in a contract shall not favor the
party who caused the obscurity. 20 This applies with even greater
force in a contract of adhesion where a contract is already
prepared and the other party merely adheres to it, like the Bill of
Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its
Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it
sufficient time to take the depositions of its witnesses in Japan by
written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to
present its evidence but it failed to do so. On this point, the Trial
Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August
27, 1979, not to mention the time from June
27, 1978, when its answer was prepared and
filed in Court, until September 26, 1978, when
the pre-trial conference was conducted for the
last time, the defendant had more than nine
months to prepare its evidence. Its belated
notice to take deposition on written
interrogatories of its witnesses in Japan, served
upon the plaintiff on August 25th, just two days
before the hearing set for August 27th, knowing
fully well that it was its undertaking on July 11
the that the deposition of the witnesses would
be dispensed with if by next time it had not yet
been obtained, only proves the lack of merit of
the defendant's motion for postponement, for
which reason it deserves no sympathy from the
Court in that regard. The defendant has told
the Court since February 16, 1979, that it was
going to take the deposition of its witnesses in
Japan. Why did it take until August 25, 1979,
or more than six months, to prepare its written
interrogatories. Only the defendant itself is to
blame for its failure to adduce evidence in
support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of
the case. 23 It cannot complain now that it was denied due process
when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of
opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both
cases, respondent Court affirmed the award by the Trial Court of
attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in
G.R. No. 71478.
Courts being vested with discretion in fixing the amount of
attorney's fees, it is believed that the amount of P5,000.00 would
be more reasonable in G.R. No. 69044. The award of P5,000.00 in
G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in
that petitioner Eastern Shipping Lines shall pay the Development
Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540
for the seven (7) cases of spare parts, with interest at the legal rate
from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.