G.R. No.

L-25599 April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.

William H. Quasha and Associates for plaintiff-appellee.

Ross, Selph, Salcedo and Associates for defendant-appellant.

BENGZON, J.P., J.:

"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers
1 and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home
Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.

Because the others denied liability, Home Insurance Company paid the consignee P14,870.71
the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement
by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of
First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's
fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.

American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the
goods and that as a mere forwarding agent, it was not responsible for losses or damages to the
cargo.

On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in the
same condition and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71
with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:

(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also
civilly liable for damages in favor of third persons due to the conduct of the captain of the
carrier;
 (b) The stipulation in the charter party contract exempting the owner from liability is against
public policy under Article 1744 of the Civil Code;

(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?

The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if
any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-
versa,5 loading, stowing and discharging at its risk and expense.6Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of
the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.

Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..

Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587
of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the shipper or owner limiting
the liability of the former for loss or destruction of the goods to a degree less than extraordinary
diligence is valid provided it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public policy on common carriers.

The provisions of our Civil Code on common carriers were taken from Anglo-American law. 7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy, 9 and is deemed valid.

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

And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.

WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.
 [G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF

APPEALS AND VLASONS SHIPPING, INC., respondents.

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

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

NATIONAL STEEL CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

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

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

The Case

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

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

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

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

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

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

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

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

SO ORDERED. [3]

The Facts

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

such, does not transport cargo or shipment for the general public. Its services
are available only to specific persons who enter into a special contract of
charter party with its owner. It is undisputed that the ship is a private
carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered
into a contract of affreightment or contract of voyage charter hire with National
Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV
VLASONS I to make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the following terms and
conditions, viz:

1. x x x x x x.

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

3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of
Bill of Lading within fifteen (15) days.

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

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

24 consecutive hours, Sundays and Holidays Included).

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

8. x x x x x x

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

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

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

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including
Stevedoring and Trading, which means that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk
and expenses to owners. x x x (Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.

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

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

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

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

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

(7) In its answer, defendant denied liability for the alleged damage claiming that the
MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the charter party; that in the course of the
voyage from Iligan City to Manila, the MV VLASONS I encountered very rough seas,
strong winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch
covers; that under the Contract of Voyage Charter Hire, defendant shall not be
responsible for losses/damages except on proven willful negligence of the officers of
the vessel, that the officers of said MV VLASONS I exercised due diligence and
proper seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST terms
which means that the vessel was free of risk and expense in connection with the
loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent
defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of
plaintiff who discharged the cargo in Manila were negligent and did not exercise due
care in the discharge of the cargo; and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to plaintiffs warehouse after
discharge from the vessel; and that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter
hire of P75,000.00 despite demands made by defendant;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSCs shipment.
IV

The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

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

The trial court erred in ordering NSC to pay freight, demurrage and attorneys
fees, to VSI. [4]
 As earlier stated, the Court of Appeals modified the decision of the trial
court by reducing the demurrage from P88,000.00 to P44,000.00 and deleting
the award of attorneys fees and expenses of litigation. NSC and VSI filed
separate motions for reconsideration. In a Resolution dated October 20,
[5]

1993, the appellate court denied both motions. Undaunted, NSC and VSI filed
their respective petitions for review before this Court. On motion of VSI, the
Court ordered on February 14, 1994 the consolidation of these petitions. [6]

The Issues

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

[7] [8]

law and fact:

Questions of Law

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

Questions of Fact

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

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

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

following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award
of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its

memorandum: [10]

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

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

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

The Courts Ruling

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

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC

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

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

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

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

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

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

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

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

Court ruled:

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

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17,
1974, that VSI shall not be responsible for losses except on proven willful
negligence of the officers of the vessel. The NANYOZAI Charter Party, which
was incorporated in the parties contract of transportation, further provided that
the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of
due diligence to make the vessel seaworthy or to ensure that the same was
properly manned, equipped and supplied, and to make the holds and all other
parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation. The NANYOZAI Charter Party also provided that
[18]
[o]wners shall not be responsible for split, chafing and/or any damage unless
caused by the negligence or default of the master or crew. [19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove

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

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

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

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

Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him
to believe that the goods were of a class or quality different from what they really
were.

Because the MV Vlasons I was a private carrier, the shipowners

obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule, places
the prima facie presumption of negligence on a common carrier. It is a
hornbook doctrine that:

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

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

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

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual

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

instances, only questions of law -- not questions of fact -- may be raised

[23]

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

Was MV Vlasons I Seaworthy?

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

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

sustained the conclusion of the trial court that MV Vlasons I was

seaworthy. We find no reason to modify or reverse this finding of both the trial
and the appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to
the cargo was caused by the negligence of the officers and the crew of MV
Vlasons I in making their vessel seaworthy and fit for the carriage of
tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an
old and torn tarpaulin or canvas to cover the hatches through which the cargo
was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an uncontroverted fact and denies that MV
[26]
Vlasons I was equipped with new canvas covers in tandem with the old ones
as indicated in the Marine Protest xxx. We disagree.
[27]

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

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

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

xxx xxx xxx [28]

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

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

xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the
hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch
opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood
are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir. [29]

That due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite encountering
rough weather twice, the new tarpaulin did not give way and the ships hatches
and cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based
on overwhelming evidence, that the MV VLASONS I was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-
appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]

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

NSC attempts to discredit the testimony of Angliongto by questioning his

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

aforequoted testimony satisfactorily explained the delay. Seven days lapsed

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

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

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

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that
xxx tinplates sweat by themselves when packed even without being in contact
with water from outside especially when the weather is bad or raining
xxx. The Court of Appeals affirmed the trial courts finding.
[35]
 A discussion of this issue appears inconsequential and unnecessary. As
previously discussed, the damage to the tinplates was occasioned not by
airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

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

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

Third Issue: Admissibility of Certificates Proving Seaworthiness

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

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

NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out that Exhibits 3,
4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications
or certified true copies as required by Sections 25 and 26, Rule 132, of the
Rules of Court. [37]

After a careful examination of these exhibits, the Court rules that Exhibits
3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly
offered as evidence. Exhibits 3 and 4 are certificates issued by private parties,
but they have not been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of
Court, which provides that (e)ntries in official records made in the performance
of a duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima facie evidence of
the facts therein stated. Exhibit 11 is an original certificate of the Philippine
[38]

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

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

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

xxx xxx xxx

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

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

 The Court defined demurrage in its strict sense as the compensation
provided for in the contract of affreightment for the detention of the vessel
beyond the laytime or that period of time agreed on for loading and unloading
of cargo. It is given to compensate the shipowner for the nonuse of the
[40]

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

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

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

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

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

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of
attorneys fees. We disagree. While VSI was compelled to litigate to protect its
rights, such fact by itself will not justify an award of attorneys fees under
Article 2208 of the Civil Code when x x x no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause x x x. Moreover, attorneys fees
[44]

may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a
premium on ones right to litigate or seek judicial redress of legitimate
grievances. [45]
 Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who
caused the damage to the cargo? Ranged against NSC are two formidable
truths. First, both lower courts found that such damage was brought about
during the unloading process when rain and seawater seeped through the
cargo due to the fault or negligence of the stevedores employed by it.Basic is
the rule that factual findings of the trial court, when affirmed by the Court of
Appeals, are binding on the Supreme Court. Although there are settled
exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage
Charter Hire -- placed the burden of proof for such loss or damage upon the
shipper, not upon the shipowner. Such stipulation, while disadvantageous to
NSC, is valid because the parties entered into a contract of private charter, not
one of common carriage. Basic too is the doctrine that courts cannot relieve a
party from the effects of a private contract freely entered into, on the ground
that it is allegedly one-sided or unfair to the plaintiff. The charter party is a
normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price
which is determined not only by the actual costs but also by the risks and
burdens assumed by the shipper in regard to possible loss or damage to the
cargo. In recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it undertook
under the charter party. That NSC failed or neglected to protect itself with such
insurance should not adversely affect VSI, which had nothing to do with such
failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions
are hereby DENIED. The questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.
 [G.R. No. 102316. June 30, 1997]

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY,

INC., petitioner, vs. COURT OF APPEALS AND SEVEN
BROTHERS SHIPPING CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

Is a stipulation in a charter party that the (o)wners shall not be responsible

for loss, split, short-landing, breakages and any kind of damages to the
cargo valid? This is the main question raised in this petition for review
[1]

assailing the Decision of Respondent Court of Appeals in CA-G.R. No. CV-

[2]

20156 promulgated on October 15, 1991. The Court of Appeals modified the
judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171,
the dispositive portion of which reads:

WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and

Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) representing the value of the policy of the lost logs with legal interest
thereon from the date of demand on February 2, 1984 until the amount is fully paid or
in the alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the
amount of TWO MILLION PESOS (P2,000,000.00) representing the value of lost
logs plus legal interest from the date of demand on April 24, 1984 until full payment
thereof; the reasonable attorneys fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.

Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the
sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing
the balance of the stipulated freight charges.

Defendant South Sea Surety and Insurance Companys counterclaim is hereby

dismissed.

In its assailed Decision, Respondent Court of Appeals held:

WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as
the liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned
which is hereby REVERSED and SET ASIDE. [3]

The Facts

The factual antecedents of this case as narrated in the Court of Appeals

Decision are as follows:

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial

Supply, Inc.) entered into an agreement with the defendant Seven Brothers (Shipping
Corporation) whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the formers lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs against loss and/or damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said
date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiffs insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium
and documentary stamps due on the policy was tendered due to the insurer but was
not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the
insurance policy it issued as of the date of the inception for non-payment of the
premium due in accordance with Section 77 of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied
liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the lost logs but the latter denied the
claim.

After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and
against defendants. Both defendants shipping corporation and the surety company
appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a
quo the following assignment of errors, to wit:

A. The lower court erred in holding that the proximate cause of the sinking of the
vessel Seven Ambassadors, was not due to fortuitous event but to the negligence of
the captain in stowing and securing the logs on board, causing the iron chains to snap
and the logs to roll to the portside.

B. The lower court erred in declaring that the non-liability clause of the Seven
Brothers Shipping Corporation from logs (sic) of the cargo stipulated in the charter
party is void for being contrary to public policy invoking article 1745 of the New
Civil Code.

C. The lower court erred in holding defendant-appellant Seven Brothers Shipping

Corporation liable in the alternative and ordering/directing it to pay plaintiff-appellee
the amount of two million (P2,000,000.00) pesos representing the value of the logs
plus legal interest from date of demand until fully paid.

D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping

Corporation to pay appellee reasonable attorneys fees in the amount equivalent to 5%
of the amount of the claim and the costs of the suit.

E. The lower court erred in not awarding defendant-appellant Seven Brothers

Corporation its counter-claim for attorneys fees.

F. The lower court erred in not dismissing the complaint against Seven Brothers
Shipping Corporation.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following
errors:

A. The trial court erred in holding that Victorio Chua was an agent of defendant-
appellant South Sea Surety and Insurance Company, Inc. and likewise erred in not
holding that he was the representative of the insurance broker Columbia Insurance
Brokers, Ltd.

B. The trial court erred in holding that Victorio Chua received

compensation/commission on the premiums paid on the policies issued by the
defendant-appellant South Sea Surety and Insurance Company, Inc.

C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the receipt of payment clause attached to and
forming part of the Marine Cargo Insurance Policy No. 84/24229.

E. The trial court in disregarding the statement of account or bill stating the amount of
premium and documentary stamps to be paid on the policy by the plaintiff-appellee.

F. The trial court erred in disregarding the indorsement of cancellation of the policy
due to non-payment of premium and documentary stamps.

G. The trial court erred in ordering defendant-appellant South Sea Surety and
Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of
the policy with legal interest from 2 February 1984 until the amount is fully paid,

H. The trial court erred in not awarding to the defendant-appellant the attorneys fees
alleged and proven in its counterclaim.

The primary issue to be resolved before us is whether defendants shipping corporation

and the surety company are liable to the plaintiff for the latters lost logs.
[4]

The Court of Appeals affirmed in part the RTC judgment by sustaining the
liability of South Sea Surety and Insurance Company (South Sea), but
modified it by holding that Seven Brothers Shipping Corporation (Seven
Brothers) was not liable for the lost cargo. In modifying the RTC judgment,
[5]

the respondent appellate court ratiocinated thus:

It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss.

The court a quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The provisions on
common carriers should not be applied where the carrier is not acting as such but as a
private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special cargo

or chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American
Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. [6]
 South Sea and herein Petitioner Valenzuela Hardwood and Industrial
Supply, Inc. (Valenzuela) filed separate petitions for review before this
Court. In a Resolution dated June 2, 1995,this Court denied the petition of
South Sea. There the Court found no reason to reverse the factual findings of
[7]

the trial court and the Court of Appeals that Chua was indeed an authorized
agent of South Sea when he received Valenzuelas premium payment for the
marine cargo insurance policy which was thus binding on the insurer. [8]

The Court is now called upon to resolve the petition for review filed by
Valenzuela assailing the CA Decision which exempted Seven Brothers from
any liability for the lost cargo.

The Issue

Petitioner Valenzuelas arguments revolve around a single issue: whether

or not respondent Court (of Appeals) committed a reversible error in upholding
the validity of the stipulation in the charter party executed between the
petitioner and the private respondent exempting the latter from liability for the
loss of petitioners logs arising from the negligence of its (Seven Brothers)
captain.[9]

The Courts Ruling

The petition is not meritorious.

Validity of Stipulation is Lis Mota

The charter party between the petitioner and private respondent stipulated
that the (o)wners shall not be responsible for loss, split, short-landing,
breakages and any kind of damages to the cargo. The validity of
[10]

this stipulation is the lis mota of this case.

It should be noted at the outset that there is no dispute between the
parties that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the snapping of the iron
chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the vessel
and not due to fortuitous event. Likewise undisputed is the status of Private
[11]

Respondent Seven Brothers as a private carrier when it contracted to

transport the cargo of Petitioner Valenzuela. Even the latter admits this in its
petition. [12]

The trial court deemed the charter party stipulation void for being contrary
to public policy, citing Article 1745 of the Civil Code which provides:
[13]

Art. 1745. Any of the following or similar stipulations shall be considered

unreasonable, unjust and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;

(3) That the common carrier need not observe any diligence in the custody of the
goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a
good father of a family, or of a man of ordinary prudence in the vigilance over the
movables transported;

(5) That the common carrier shall not be responsible for the acts or omissions of his or
its employees;

(6) That the common carriers liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with or
diminished;

(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle, ship,
airplane or other equipment used in the contract of carriage.

Petitioner Valenzuela adds that the stipulation is void for being contrary to
Articles 586 and 587 of the Code of Commerce and Articles 1170 and 1173
[14]

of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil
Code, petitioner further contends that said stipulation gives no duty or
[15]

obligation to the private respondent to observe the diligence of a good father

of a family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that
private respondent had acted as a private carrier in transporting petitioners
lauan logs. Thus, Article 1745 and other Civil Code provisions on common
carriers which were cited by petitioner may not be applied unless expressly
stipulated by the parties in their charter party. [16]

In a contract of private carriage, the parties may validly stipulate that

responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by the
negligence of the ship captain. Pursuant to Article 1306 of the Civil [17]

Code, such stipulation is valid because it is freely entered into by the parties
and the same is not contrary to law, morals, good customs, public order, or
public policy. Indeed, their contract of private carriage is not even a contract of
adhesion. We stress that in a contract of private carriage, the parties may
freely stipulate their duties and obligations which perforce would be binding on
them. Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the Civil
Code on common carriers protecting the general public cannot justifiably be
applied to a ship transporting commercial goods as a private
carrier. Consequently, the public policy embodied therein is not contravened
by stipulations in a charter party that lessen or remove the protection given by
law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are
not novel; they were resolved long ago by this Court in Home Insurance Co.
vs. American Steamship Agencies, Inc. In that case, the trial court similarly
[18]

nullified a stipulation identical to that involved in the present case for being
contrary to public policy based on Article 1744 of the Civil Code and Article
587 of the Code of Commerce. Consequently, the trial court held the
shipowner liable for damages resulting from the partial loss of the cargo. This
Court reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine:

The provisions of our Civil Code on common carriers were taken from Anglo-
American law. Under American jurisprudence, a common carrier undertaking to carry
a special cargo or chartered to a special person only, becomes a private carrier. As a
private carrier, a stipulation exempting the owner from liability for the negligence of
its agent is not against public policy, and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no force where the public at
large is not involved, as in this case of a ship totally chartered for the use of a single
party. (Underscoring supplied.)
[19]

Indeed, where the reason for the rule ceases, the rule itself does not
apply. The general public enters into a contract of transportation with common
carriers without a hand or a voice in the preparation thereof. The riding public
merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on
common carriers extends its protective mantle against one-sided stipulations
inserted in tickets, invoices or other documents over which the riding public
has no understanding or, worse, no choice. Compared to the general public, a
charterer in a contract of private carriage is not similarly situated. It can -- and
in fact it usually does -- enter into a free and voluntary agreement. In
practice, the parties in a contract of private carriage can stipulate the carriers
obligations and liabilities over the shipment which, in turn, determine the price
or consideration of the charter. Thus, a charterer, in exchange for convenience
and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal
business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the
present case because it covers only a stipulation exempting a private carrier
from liability for the negligence of his agent, but it does not apply to a
stipulation exempting a private carrier like private respondent from the
negligence of his employee or servant which is the situation in this case. This [20]

contention of petitioner is bereft of merit, for it raises a distinction without any

substantive difference. The case of Home Insurance specifically dealt with the
liability of the shipowner for acts or negligence of its captain and crew and a [21]

charter party stipulation which exempts the owner of the vessel from any loss
or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said
paragraph. Undoubtedly, Home Insurance is applicable to the case at bar.
[22]

The naked assertion of petitioner that the American rule enunciated

in Home Insurance is not the rule in the Philippines deserves scant [23]

consideration. The Court there categorically held that said rule was
reasonable and proceeded to apply it in the resolution of that case. Petitioner
miserably failed to show such circumstances or arguments which would
necessitate a departure from a well-settled rule. Consequently, our ruling in
said case remains a binding judicial precedent based on the doctrine of stare
decisis and Article 8 of the Civil Code which provides that (j)udicial decisions
applying or interpreting the laws or the Constitution shall form part of the legal
system of the Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a
private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid.
[24]

Other Arguments

On the basis of the foregoing alone, the present petition may already be
denied; the Court, however, will discuss the other arguments of petitioner for
the benefit and satisfaction of all concerned.

Articles 586 and 587, Code of Commerce

Petitioner Valenzuela insists that the charter party stipulation is contrary to

Articles 586 and 587 of the Code of Commerce which confer on petitioner the
right to recover damages from the shipowner and ship agent for the acts or
conduct of the captain. We are not persuaded. Whatever rights petitioner
[25]

may have under the aforementioned statutory provisions were waived when it
entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good customs,
or prejudicial to a person with a right recognized by law. As a general rule
patrimonial rights may be waived as opposed to rights to personality and
family rights which may not be made the subject of waiver. Being patently
[26]

and undoubtedly patrimonial, petitioners right conferred under said articles

may be waived. This, the petitioner did by acceding to the contractual
stipulation that it is solely responsible for any damage to the cargo, thereby
exempting the private carrier from any responsibility for loss or damage
thereto. Furthermore, as discussed above, the contract of private carriage
binds petitioner and private respondent alone; it is not imbued with public
policy considerations for the general public or third persons are not affected
thereby.

Articles 1170 and 1173, Civil Code

 Petitioner likewise argues that the stipulation subject of this controversy is
void for being contrary to Articles 1170 and 1173 of the Civil Code which [27]

read:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, shall apply.

If the law does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.

The Court notes that the foregoing articles are applicable only to the
obligor or the one with an obligation to perform. In the instant case, Private
Respondent Seven Brothers is not an obligor in respect of the cargo, for this
obligation to bear the loss was shifted to petitioner by virtue of the charter
party. This shifting of responsibility, as earlier observed, is not void. The
provisions cited by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of
the second paragraph of Article 1173 of the Civil Code which prescribes the
standard of diligence to be observed in the event the law or the contract is
silent. In the instant case, Article 362 of the Code of Commerce provides the [28]

standard of ordinary diligence for the carriage of goods by a carrier. The

standard of diligence under this statutory provision may, however, be modified
in a contract of private carriage as the petitioner and private respondent had
done in their charter party.

Cases Cited by Petitioner Inapplicable

Petitioner cites Shewaram vs. Philippine Airlines, Inc. which, in turn,

[29]

quoted Juan Ysmael & Co. vs. Gabino Barreto & Co. and argues that the
[30]

public policy considerations stated there vis--vis contractual stipulations

limiting the carriers liability be applied with equal force to this case. It also [31]

cites Manila Railroad Co. vs. Compaia Transatlantica and contends that
[32]

stipulations exempting a party from liability for damages due to negligence

should not be countenanced and should be strictly construed against the party
claiming its benefit. We disagree.
[33]

The cases of Shewaram and Ysmael both involve a common carrier; thus,
they necessarily justify the application of such policy considerations and
concomitantly stricter rules. As already discussed above, the public policy
considerations behind the rigorous treatment of common carriers are absent
in the case of private carriers. Hence, the stringent laws applicable to common
carriers are not applied to private carriers. The case of Manila Railroad is also
inapplicable because the action for damages there does not involve a contract
for transportation.Furthermore, the defendant therein made a promise to use
due care in the lifting operations and, consequently, it was bound by its
undertaking; besides, the exemption was intended to cover accidents due to
hidden defects in the apparatus or other unforseeable occurrences not caused
by its personal negligence. This promise was thus construed to make sense
together with the stipulation against liability for damages. In the present
[34]

case, we stress that the private respondent made no such promise. The
agreement of the parties to exempt the shipowner from responsibility for any
damage to the cargo and place responsibility over the same to petitioner is the
lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez
Costelo, Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., N. T.
[35] [36]

Hashim and Co. vs. Rocha and Co., Ohta Development Co. vs.
[37]

SteamshipPompey and Limpangco Sons vs. Yangco Steamship Co. in

[38] [39]

support of its contention that the shipowner be held liable for damages.
These however are not on all fours with the present case because they do
[40]

not involve a similar factual milieu or an identical stipulation in the charter

party expressly exempting the shipowner from responsibility for any damage
to the cargo.

Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of

action against it because this Court has earlier affirmed the liability of South
Sea for the loss suffered by petitioner. Private respondent submits that
petitioner is not legally entitled to collect twice for a single loss. In view of the
[41]

above disquisition upholding the validity of the questioned charter party

stipulation and holding that petitioner may not recover from private
respondent, the present issue is moot and academic. It suffices to state that
the Resolution of this Court dated June 2, 1995 affirming the liability of South
[42]
Sea does not, by itself, necessarily preclude the petitioner from proceeding
against private respondent. An aggrieved party may still recover the deficiency
from the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the Civil
Code provides:

ART. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.

WHEREFORE, premises considered, the petition is hereby DENIED for its

utter failure to show any reversible error on the part of Respondent Court. The
assailed Decision is AFFIRMED.
SO ORDERED.
 [G.R. No. 141910. August 6, 2002]

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO

TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.

DECISION
VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994

thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven
by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South
Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan
City. While the truck was traversing the north diversion road along McArthur highway in
Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall
into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion
Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in
turn, being the subrogee of the rights and interests of Concepcion Industries, Inc.,
sought reimbursement of the amount it had paid to the latter from GPS. Since the
trucking company failed to heed the claim, FGU filed a complaint for damages and
breach of contract of carriage against GPS and its driver Lambert Eroles with the
Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that
GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it
was not so engaged in business as a common carrier. Respondents further claimed that
the cause of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the
extent of damage to the cargoes and the amount it had paid to the assured. GPS,
instead of submitting its evidence, filed with leave of court a motion to dismiss the
complaint by way of demurrer to evidence on the ground that petitioner had failed to
prove that it was a common carrier.
The trial court, in its order of 30 April 1996, granted the motion to dismiss,
[1]

explaining thusly:

Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must
prove his own affirmative allegation, xxx.

In the instant case, plaintiff did not present any single evidence that would prove that
defendant is a common carrier.
xxxxxxxxx

Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss,
damage or deterioration of goods during transport under 1735 of the Civil Code is not
availing.

Thus, the laws governing the contract between the owner of the cargo to whom the
plaintiff was subrogated and the owner of the vehicle which transports the cargo are
the laws on obligation and contract of the Civil Code as well as the law on quasi
delicts.

Under the law on obligation and contract, negligence or fault is not presumed. The
law on quasi delict provides for some presumption of negligence but only upon the
attendance of some circumstances. Thus, Article 2185 provides:

Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the mishap, he was violating any
traffic regulation.

Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.

Considering that plaintiff failed to adduce evidence that defendant is a common

carrier and defendants driver was the one negligent, defendant cannot be made liable
for the damages of the subject cargoes. [2]

The subsequent motion for reconsideration having been denied, plaintiff interposed
[3]

an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding
that the appellee corporation was not a common carrier defined under the law and
existing jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of
GPS. The appellate court, in its decision of 10 June 1999, discoursed, among other
[4]

things, that -

"x x x in order for the presumption of negligence provided for under the law
governing common carrier (Article 1735, Civil Code) to arise, the appellant must first
prove that the appellee is a common carrier.Should the appellant fail to prove that the
appellee is a common carrier, the presumption would not arise; consequently, the
appellant would have to prove that the carrier was negligent.

"x x x x x x x x x
"Because it is the appellant who insists that the appellees can still be considered as a
common carrier, despite its `limited clientele, (assuming it was really a common
carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-
appellant) `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. (Summa
Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the
appellant failed to do -- hence, the dismissal of the plaintiffs complaint by the trial
court is justified.

"x x x x x x x x x

"Based on the foregoing disquisitions and considering the circumstances that the
appellee trucking corporation has been `its exclusive contractor, hauler since 1970,
defendant has no choice but to comply with the directive of its principal, the
inevitable conclusion is that the appellee is a private carrier.

"x x x x x x x x x

"x x x the lower court correctly ruled that 'the application of the law on common
carriers is not warranted and the presumption of fault or negligence on the part of a
common carrier in case of loss, damage or deterioration of good[s] during transport
under [article] 1735 of the Civil Code is not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of fact of
a trial court are entitled to great weight on appeal and should not be disturbed unless
for strong and valid reasons." [5]

Petitioner's motion for reconsideration was likewise denied; hence, the instant
[6]

petition, raising the following issues:

[7]

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON

CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.
II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A

PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT
WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND
POSSESSION.
III
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE
INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of
Appeals to be amply justified. GPS, being an exclusive contractor and hauler of
Concepcion Industries, Inc., rendering or offering its services to no other individual or
entity, cannot be considered a common carrier. Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for hire or compensation, offering
their services to the public, whether to the public in general or to a limited clientele in
[8]

particular, but never on an exclusive basis. The true test of a common carrier is the
[9]

carriage of passengers or goods, providing space for those who opt to avail themselves
of its transportation service for a fee. Given accepted standards, GPS scarcely falls
[10]

within the term common carrier.

The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the subrogee
of Concepcion Industries, Inc., the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The law,
[11]

recognizing the obligatory force of contracts, will not permit a party to be set free from
[12]

liability for any kind of misperformance of the contractual undertaking or a contravention

of the tenor thereof. A breach upon the contract confers upon the injured party a valid
[13]

cause for recovering that which may have been lost or suffered. The remedy serves to
preserve the interests of the promisee that may include his expectation interest, which is
his interest in having the benefit of his bargain by being put in as good a position as he
would have been in had the contract been performed, or his reliance interest, which is
his interest in being reimbursed for loss caused by reliance on the contract by being put
in as good a position as he would have been in had the contract not been made; or his
restitution interest, which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either for their
[14]

makers or for society, unless they are made the basis for action. The effect of every
[15]

infraction is to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation unless he can
[16]

show extenuating circumstances, like proof of his exercise of due diligence (normally
that of the diligence of a good father of a family or, exceptionally by stipulation or by law
such as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage
between it and petitioners assured, and admits that the cargoes it has assumed to
deliver have been lost or damaged while in its custody. In such a situation, a default on,
or failure of compliance with, the obligation in this case, the delivery of the goods in its
custody to the place of destination - gives rise to a presumption of lack of care and
corresponding liability on the part of the contractual obligor the burden being on him to
establish otherwise. GPS has failed to do so.
 Respondent driver, on the other hand, without concrete proof of his negligence or
fault, may not himself be ordered to pay petitioner. The driver, not being a party to the
contract of carriage between petitioners principal and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered into it or
their successors who have assumed their personality or their juridical position.
Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such
[17]

contract can neither favor nor prejudice a third person. Petitioners civil action against
the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would
require the claimant for damages to prove negligence or fault on the part of the
defendant. [18]

A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a
defendant liable where the thing which caused the injury complained of is shown to be
under the latters management and the accident is such that, in the ordinary course of
things, cannot be expected to happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence of explanation by the
defendant, that the accident arose from want of care. It is not a rule of substantive law
[19]

and, as such, it does not create an independent ground of liability. Instead, it is regarded
as a mode of proof, or a mere procedural convenience since it furnishes a substitute for,
and relieves the plaintiff of, the burden of producing specific proof of negligence. The
maxim simply places on the defendant the burden of going forward with the proof.
Resort to the doctrine, however, may be allowed only when (a) the event is of a kind
[20]

which does not ordinarily occur in the absence of negligence; (b) other responsible
causes, including the conduct of the plaintiff and third persons, are sufficiently
eliminated by the evidence; and (c) the indicated negligence is within the scope of the
defendant's duty to the plaintiff. Thus, it is not applicable when an unexplained
[21]

accident may be attributable to one of several causes, for some of which the defendant
could not be responsible. [22]

Res ipsa loquitur generally finds relevance whether or not a contractual relationship
exists between the plaintiff and the defendant, for the inference of negligence arises
from the circumstances and nature of the occurrence and not from the nature of the
relation of the parties. Nevertheless, the requirement that responsible causes other
[23]

than those due to defendants conduct must first be eliminated, for the doctrine to apply,
should be understood as being confined only to cases of pure (non-contractual) tort
since obviously the presumption of negligence in culpa contractual, as previously so
pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of
the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while
he admittedly can be said to have been in control and management of the vehicle which
figured in the accident, it is not equally shown, however, that the accident could have
been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa
loquitur to work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is
reversed, the movant shall be deemed to have waived the right to present evidence.
Thus, respondent corporation may no longer offer proof to establish that it has
[24]

exercised due care in transporting the cargoes of the assured so as to still warrant a
remand of the case to the trial court.
 WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch
66, of Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are
AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said
assailed order of the trial court and decision of the appellate court are REVERSED as
regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay
FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of
P204,450.00. No costs.
SO ORDERED.