1

Luzon Stevedoring Corporation vs. Court of Appeals

(156 SCRA 169)

Facts: A maritime collision occurred between the tanker CAVITE owned by LSCO and MV
Fernando Escano (a passenger ship) owned by Escano, as a result the passenger ship sunk.
An action in admiralty was filed by Escano against Luzon. The trial court held that LSCO
Cavite was solely to blame for the collision and held that Luzons claim that its liability should
be limited under Article 837 of the Code of Commerce has not been established. The Court
of Appeals affirmed the trial court. The SC also affirmed the CA. Upon two motions for
reconsideration, the Supreme Court gave course to the petition.

Issue: Whether or not in order to claim limited liability under Article 837 of the Code of
Commerce, it is necessary that the owner abandon the vessel

Held: Yes, abandonment is necessary to claim the limited liability wherein it shall be limited to
the value of the vessel with all the appurtenances and freightage earned in the voyage.
However, if the injury was due to the ship owners fault, the ship owner may not avail of his
right to avail of limited liability by abandoning the vessel.

The real nature of the liability of the ship owner or agent is embodied in the Code of
Commerce. Articles 587, 590 and 837 are intended to limit the liability of the ship owner,
provided that the owner or agent abandons the vessel. Although Article 837 does not
specifically provide that in case of collision there should be abandonment, to enjoy such
limited liability, said article is a mere amplification of the provisions of Articles 587 and 590
which makes it a mere superfluity.

The exception to this rule in Article 837 is when the vessel is totally lost in which case there is
no vessel to abandon, thus abandonment is not required. Because of such loss, the liability of
the owner or agent is extinguished. However, they are still personally liable for claims under
the Workmens Compensation Act and for repairs on the vessel prior to its loss.

In case of illegal or tortious acts of the captain, the liability of the owner and agent is
subsidiary. In such cases, the owner or agent may avail of Article 837 by abandoning the
vessel. But if the injury is caused by the owners fault as where he engages the services of an
inexperienced captain or engineer, he cannot avail of the provisions of Article 837 by
abandoning the vessel. He is personally liable for such damages.

In this case, the Court held that the petitioner is a t fault and since he did not abandon the
vessel, he cannot invoke the benefit of Article 837 to limit his liability to the value of the vessel,
all appurtenances and freightage earned during the voyage.
 2

Caltex [Philippines], Inc. vs. Sulpicio Lines, Inc.

Facts:
On December 20, 1987, motor tanker MV Vector, carrying petroleum products of Caltex,
collided in the open sea with passenger ship MV Doa Paz, causing the death of all but 25 of
the latters passengers. Among those who died were Sebastian Canezal and his daughter
Corazon Canezal. On March 22, 1988, the board of marine inquiry found that Vector
Shipping Corporation was at fault. On February 13, 1989, Teresita Caezal and Sotera E.
Caezal, Sebastian Caezals wife and mother respectively, filed with the Regional Trial
Court of Manila a complaint for damages arising from breach of contract of carriage
against Sulpicio Lines. Sulpicio filed a third-party complaint against Vector and Caltex. The
trial court dismissed the complaint against Caltex, but the Court of Appeals included the
same in the liability. Hence, Caltex filed this petition.
Issue:
Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?
Held:
First: The charterer has no liability for damages under Philippine Maritime laws.
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter.
A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one by
which the owner of a ship or other vessel lets the whole or part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the
payment of freight. A contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein
the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of
the vessel only, either for a determinate period of time or for a single or consecutive voyage,
the ship owner to supply the ships store, pay for the wages of the master of the crew, and
defray the expenses for the maintenance of the ship. If the charter is a contract of
affreightment, which leaves the general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free
from liability to third persons in respect of the ship.
Second: MT Vector is a common carrier
The charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a
common carrier. It is imperative that a public carrier shall remain as such, notwithstanding
the charter of the whole or portion of a vessel by one or more persons, provided the charter
is limited to the ship only, as in the case of a time-charter or voyage charter. It is only when
the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party
is concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer. A common carrier is a person or corporation whose regular business is to carry
passengers or property for all persons who may choose to employ and to remunerate him. 16
MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code.
The public must of necessity rely on the care and skill of common carriers in the vigilance
over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more
complicated and somehow more hazardous. For these reasons, a passenger or a shipper of
goods is under no obligation to conduct an inspection of the ship and its crew, the carrier
being obliged by law to impliedly warrant its seaworthiness.
Third: Is Caltex liable for damages under the Civil Code?
 3

The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in "public service." The relationship between the parties in
this case is governed by special laws. Because of the implied warranty of seaworthiness,
shippers of goods, when transacting with common carriers, are not expected to inquire into
the vessels seaworthiness, genuineness of its licenses and compliance with all maritime laws.
To demand more from shippers and hold them liable in case of failure exhibits nothing but
the futility of our maritime laws insofar as the protection of the public in general is concerned.
Such a practice would be an absurdity in a business where time is always of the essence.
Considering the nature of transportation business, passengers and shippers alike customarily
presume that common carriers possess all the legal requisites in its operation.

Puromines v CA
March 22, 1993
PUROMINES, INC.
vs.
COURT OF APPEALS and PHILIPP BROTHERS OCEANIC, INC
NOCON, J p:

SUMMARY: A sales contract for the sale of prilled urea was entered into by Puromines and Makati Agro and it
was provided therein that any disputes arising from the contract shall be settled by arbitration in London. The
shipment covered by 3 bills of lading was undertaken by MV Liliana Dimitrova with Philipp Brothers as charterer
of said vessel. When shipment covered by Bill of Lading 2&3 were discharged in Manila in bad order and
condition, Puromines filed a complaint with TC for breach of contract of carriage against Maritime, ship-agent and
Philipp Brothers, as charterer. Philipp filed a motion to dismiss on the basis that case should be brought to
arbitration first. Puromines opposed contending that the sales contract does not include contract of carriage, the
latter not covered by agreement on arbitration. SC: Granted Motion to Dismiss, sales contract and bill of lading
provides covers arbitration clause. Assuming the cause of action is based on contract of carriage, it must be first
determined what kind of charter party had with the shipowner to determine liability. If contract of affreightment,
charterer is not liable as possession is still with owner. If charter of demise or bareboat, then charterer is liable as
it is considered the owner and therefore would be liable for damage or loss.

FACTS:
Puromines, Inc. and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with Philipp
Brothers Oceanic, Inc. for the sale of prilled Urea in bulk.
Sales Contract provided an arbitration clause:
o "9. Arbitration: "Any disputes arising under this contract shall be settled by arbitration in London
in accordance with the Arbitration Act 1950 and any statutory amendment or modification thereof.
Each party is to appoint an Arbitrator, and should they be unable to agree, the decision of an
Umpire appointed by them to be final. The Arbitrators and Umpire are all to be commercial men
and resident in London. This submission may be made a rule of the High Court of Justice in
England by either party."
May 22, 88: M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15k metric tons prilled
Urea in bulk complete and in good order and condition for transport to Iloilo and Manila, to be delivered to
Puromines.
3 bills of lading were issued by the ship-agent, Maritime Factors Inc:
o Bill of Lading No. 1 dated May 12, 88 covering 10k metric tons for discharge to Manila;
o Bill of Lading No. 2 of even date covering 4k metric tons for unloading in Iloilo City; and
o Bill of Lading No. 3, same date, covering 1,500 metric tons likewise for discharge in Manila
Shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order and
condition. However, shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in bad
order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt.
o Damages were valued at P683, 056. 29 including additional discharging expenses.
Puromines filed a complaint with the trial court for breach of contract of carriage against Maritime Factors
Inc. (not included as respondent in this petition) as ship-agent for the owners of the vessel MV "Liliana
Dimitrova," while Philipp Brothers Oceanic Inc., was impleaded as charterer of the said vessel
o Caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged
portions of the shipment were due to the improper ventilation and inadequate storage facilities of
the vessel
o Wetting of the cargo was attributable to the failure of the crew to close the hatches before and when
it rained while the shipment was being unloaded in the Port of Manila;
o As a direct and natural consequence of the unseaworthiness and negligence of the vessel,
Puromines suffered damages in the total amount of P683, 056.29.
 4

Maritime Factors, Inc. filed its Answer to the complaint, while Philipp filed a motion to dismiss on the
grounds that:
o the complaint states no cause of action; it was prematurely filed; and Puromines should comply
with the arbitration clause in the sales contract.
Puromines opposed motion to dismiss contending the inapplicability of the arbitration clause inasmuch
as the cause of action did not arise from a violation of the terms of the sales contract but rather for claims
of cargo damages where there is no arbitration agreement.
TC: Denied Philipp's motion to dismiss. Arbitration not applicable.
o Sales contract states in part: 'Any disputes arising under this contract shall be settled by
arbitration
o Facts alleged in the complaint show that the cause of action arose from a breach of contract of
carriage by the vessel chartered by Philipp Brothers thus; the arbitration clause cannot apply to the
dispute in the present action which concerns Puromines' claim for cargo loss/damage arising from
breach of contract of carriage.
o No merit to allegations that Philipp, not being the ship owner, is therefore not the real party in
interest as it was impleaded as charterer of the vessel, hence, a proper party
CA: Complaint Dismissed. The arbitration provision in the sales contract and/or the bills of lading is
applicable in the present case.
o Sales contract is broad enough to include the claim for damages arising from the carriage
and delivery of the goods subject-matter thereof.
o Bills of lading state: 'Any dispute arising under this Bill of Lading shall be referred to arbitration of
the Maritime Arbitration Commission xxx
Hence, this special civil action for certiorari and prohibition.
o Puromines argues that the sales contract does not include the contract of carriage which is a
different contract entered into by the carrier with the cargo owners.
o Error for CA to touch upon the arbitration provision of the bills lading in its decision inasmuch as the
same was not raised as an issue by Philipp who was not a party in the bills of lading
ISSUES:
1) Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales contract
covers a cargo claim against the vessel (owner and/or charterers) for breach of contract of carriage? (YES)
2) Assuming that the cause of action arises from the contract of carriage, whether Philipp, as charterer, would be
liable for the loss or damage? (Depends on type of charter, YES if charter of demise, NO if contract of
affreightment)
3) Whether arbitration provision should not have been discussed as it was not raised as a defense? (NO)

RATIO:
1) Sales contract is comprehensive enough to include claims for damages arising from carriage and delivery of
the goods.
GENERAL RULE: Seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the
contracting of a carrier to deliver the same.
o Art. 1523: Where in pursuance of a contract of sale, the seller is authorized or required to send
the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not,
for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, EXCEPT in the cases provided for in article 1503, first, second and third paragraphs, or
UNLESS a contrary intent appear.
o "Unless otherwise authorized by the buyer, the seller must take such contract with the carrier
on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the
other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to
himself, or may hold the seller responsible in damages."
Sales Contract provides for conditions relative to the delivery of goods, such as date of shipment,
demurrage, weight as determined by the bill of lading at load port and more particularly the provisions in the
contract. xxxx
Puromines derives his right to the cargo from the bill of lading which is the contract of affreightment
together with the sales contract. It is BOUND by the provisions and terms of said bill of lading and of the
ARBITRATION CLAUSE incorporated in the sales contract.

2) Assuming that the liability of Philipp is not based on the sales contract, but rather on the contract of carriage,
being the charterer of the vessel MV "Liliana Dimitrova," it is material to show what kind of charter party Philipp
had with owner of vessel to determine former's liability. Assuming that in the present case, the charter party is a
demise or bareboat charter, then Philipp Brothers is liable to Puromines, Inc., subject to the terms and
conditions of the sales contract. On the other hand, if the contract between Philipp and the owner of the vessel
MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be held liable for the damages caused
by the breach of contract of carriage, the evidence of which is the bill of lading.

Charter party: Definition

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American jurisprudence defines charter party as a contract by which an entire ship or some principal part thereof
is let by the owner to another person for a specified time or use. (Ward v. Thompson)

Two Kinds of Charter Parties

o Charter of demise or bareboat AND contracts of affreightment.

Demise or Bareboat Charter of Veseel Contract of Affreightment

Charterer will generally be considered as OWNER Owner of the vessel leases part or all of its space to
for the voyage or service stipulated haul goods for others
The charterer mans the vessel with his own people It is a contract for a special service to be rendered by
and becomes, in effect, the owner pro hac vice, the owner of the vessel and under such contract the
subject to liability to others for damages caused by GENERAL OWNER RETAINS the possession,
negligence. (Assistance, Inc. v. Teledyne Industries command and navigation of the ship, the charterer or
Inc) freighter merely having use of the space in the
vessel in return for his payment of the charter hire.
(US v. Shea)
To create a demise, the owner of a vessel must Anything short of such a complete transfer is a
completely and exclusively relinquish possession. contract of affreightment (time or voyage charter
party) or not a charter party at all.
Responsibility to third persons for goods shipped on If the charter is a contract of affreightment, which
board a vessel follows the vessel's possession and leaves the general owner in possession of the ship
employment; and if possession is transferred to the as owner for the voyage, the rights, responsibilities
charterer by virtue of a demise, the charterer, and of ownership rest on the owner and the charterer
not the owner, is liable as carrier on the contract is usually free from liability to third persons in
of affreightment made by himself or by the master respect of the ship. (Leary v. US)
with third persons, and is answerable for loss, An owner who retains possession of the ship, though
damage or non-delivery of goods received for the hold is the property of the charterer, remains
transportation. liable as carrier and must answer for any breach of
duty as to the care, loading or unloading of the
cargo. (Gracie v. Palmer)
o In any case, whether the liability of Philipp should be based on the same contract or that of the bill of lading,
the parties are nevertheless obligated to respect the arbitration provisions on the sales contract
and/or the bill of lading. Puromines being a signatory and party to the sales contract cannot escape from
his obligation under the arbitration clause as stated therein.
Arbitration Clauses
o Arbitration has been held valid and constitutional. Even before the enactment of RA 876, SC has
countenanced the settlement of disputes through arbitration. The rule now is that UNLESS the
agreement is such as absolutely to close the doors of the courts against the parties, which agreement would
be void, the courts will look with favor upon such amicable arrangements and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator. (Arbitration as a Means of Reducing Court
Congestion, Coquia, Jorge quoting Malcolm, J.)
o Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida: With a written provision
for arbitration as well as failure on respondent's part to comply, parties must proceed to their arbitration in
accordance with the terms of their agreement (Sec. 6, RA 876). Proceeding in court is merely a summary
remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should proceed to arbitration or not. And
although it has been ruled that a frivolous or patently baseless claim should not be ordered to arbitration it is
also recognized that the mere fact that a defense exist against a claim does not make it frivolous or
baseless.

3) Puromines contention that the arbitration provision in the bills of lading should not have been discussed as an
issue in the CA decision since it was not raised as a special or affirmative defense is without merit. The 3 bills of
lading were attached to the complaint as Annexes and are therefore parts thereof and may be considered as
evidence although not introduced as such. (Philippine Bank of Communications v. CA) It was then proper for
CA/TC to discuss the contents of the bills of lading, having been made part of the record.
DISPOSITIVE: Arbitration clause stated in Sales Contract valid and applicable. CA Affirmed.
 6

De Guzman v. CA

Facts:
Respondent Ernesto Cendana was a junk dealer. He buys scrap materials and brings those
that he gathered to Manila for resale using 2 six-wheeler trucks. On the return trip to
Pangasinan, respondent would load his vehicle with cargo which various merchants wanted
delivered, charging fee lower than the commercial rates. Sometime in November 1970,
petitioner Pedro de Guzman contracted with respondent for the delivery of 750 cartons of
Liberty Milk. On December 1, 1970, respondent loaded the cargo. Only 150 boxes were
delivered to petitioner because the truck carrying the boxes was hijacked along the way.
Petitioner commenced an action claiming the value of the lost merchandise. Petitioner
argues that respondent, being a common carrier, is bound to exercise extraordinary
diligence, which it failed to do. Private respondent denied that he was a common carrier,
and so he could not be held liable for force majeure. The trial court ruled against the
respondent, but such was reversed by the Court of Appeals.
Issues:
(1) Whether or not private respondent is a common carrier
(2) Whether private respondent is liable for the loss of the goods
Held:
(1) Article 1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity. Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow
segment of the general population. It appears to the Court that private respondent is
properly characterized as a common carrier even though he merely "back-hauled" goods
for other merchants from Manila to Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here. A certificate of public
convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers.
(2) Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:
a. Flood, storm, earthquake, lightning, or other natural disaster or calamity;
b. Act of the public enemy in war, whether international or civil;
c. Act or omission of the shipper or owner of the goods;
d. The character of the goods or defects in the packing or in the containers; and
e. Order or act of competent public authority."
The hijacking of the carrier's truck - does not fall within any of the five (5) categories of
exempting causes listed in Article 1734. Private respondent as common carrier is presumed to
have been at fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of private respondent. We believe
and so hold that the limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force." we hold that the occurrence of
the loss must reasonably be regarded as quite beyond the control of the common carrier
and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods,
 7

and are not held liable for acts or events which cannot be foreseen or are inevitable,
provided that they shall have complied with the rigorous standard of extraordinary diligence.

7. Unsworth Transport International Philippines v Court of Appeals

Facts:

- Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of te following

various raw materials for pharmaceutical manufacturing:
o 1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x banana
flavoring;
o 2) 2 drums (of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags
dried yeast; and
o 3) 20 drums (of) Vitabs: Vitamin B Complex Extract
- UTI issued Bill of Lading No. C320/C15991-2
- shipment was insured with private respondent Pioneer Insurance and Surety
Corporation in favor of Unilab against all risks in the amount of P1,779,664.77 under
and by virtue of Marine Risk Note Number MC RM UL 0627 92 and Open Cargo Policy
No. HO-022-RIU
- shipment was loaded in a sealed 1x40 container van, with no. APLU-982012, boarded
on APLs vessel M/V Pres. Jackson, Voyage 42, and transshipped to APLs M/V Pres.
Taft[8] for delivery to petitioner in favor of the consignee Unilab
- September 30, 1992, the shipment arrived at the port of Manila.
- October 6, 1992, UTI received the said shipment in its warehouse after it stamped the
Permit to Deliver Imported Goods procured by the Champs Customs Brokerage.
- October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC)
conducted a stripping survey of the shipment located in petitioners warehouse with
the following result:
o 2-pallets STC 40 bags Dried Yeast, both in good order condition and properly
sealed
o 19- steel drums STC Vitamin B Complex Extract, all in good order condition and
properly sealed
o 1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with
approx. spilling of 1%
- arrastre Jardine Davies Transport Services, Inc. issued Gate Pass No. 7614 which stated
that 22 drums Raw Materials for Pharmaceutical Mfg. were loaded on a truck with
Plate No. PCK-434 facilitated by Champs for delivery to Unilabs warehouse. The
materials were noted to be complete and in good order in the gate pass
- Upon arrival in Unilabs warehouse and shipment was immediately surveyed by an
independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (. The Report stated:
o 1-p/bag torn on side contents partly spilled
o 1-s/drum #7 punctured and retaped on bottom side content lacking
o 5-drums shortship/short delivery
- Unilabs quality control representative rejected one paper bag containing dried
yeast and one steel drum containing Vitamin B Complex as unfit for the intended
purpose
- Unilab filed a formal claim for the damage against Pioneer Insurance and Surety
Corporationand UTI.
- UTI denied liability on the basis of the gate pass issued by Jardine that the goods were
in complete and good condition
- Both RTC and CA ruled that UTI and APL are liable to pay Php76,231.27 with interest at
the legal rate of 6% per annum to be computed starting from September 30, 1993
until fully paid, for and as actual damages
 8

o CAs rational for holding UTI and APL liable: both UTI and APl are common
carriers. By issuing the Bill of Lading, UTI acknowledged receipt of the goods
and agreed to transport and deliver them at a specific place to a person
named or his order. Upon the delivery of the subject shipment to petitioners
warehouse, its liability became similar to that of a depositary. As such, it ought
to have exercised ordinary diligence in the care of the goods. UTI and APL
failed to exercise the required diligence. The CA also rejected UTIs claim that
its liability should be limited to $500 per package pursuant to the Carriage of
Goods by Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice.

Issue: WON UTI is a common carrier

Ruling: UTI even if admittedly a freight forwarder, is considered as a common carrier in this
case.

freight forwarder" refers to a firm holding itself out to the general public (other than as a
pipeline, rail, motor, or water carrier) to provide transportation of property for compensation
and, in the ordinary course of its business, (1) to assemble and consolidate, or to provide for
assembling and consolidating, shipments, and to perform or provide for break-bulk and
distribution operations of the shipments; (2) to assume responsibility for the transportation of
goods from the place of receipt to the place of destination; and (3) to use for any part of the
transportation a carrier subject to the federal law pertaining to common carriers.

A freight forwarders liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods
to their destination instead of merely arranging for their transportation, it becomes liable as a
common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of
a carrier, which actually executes the transport, even though the forwarder does not carry
the merchandise itself.

It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner
undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical
manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to

transport and to deliver them at a specified place to a person named or on his or her
order. It operates both as a receipt and as a contract. It is a receipt for the goods shipped
and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites
the date and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks, condition, quality, and value. As a contract, it names the contracting
parties, which include the consignee; fixes the route, destination, and freight rate or charges;
and stipulates the rights and obligations assumed by the parties.

UTI failed to rebut the prima facie presumption of negligence in the carriage of the subject
shipment.

First, as stated in the bill of lading, the subject shipment was received by UTI in apparent
good order and condition in New York, United States of America. Second, the OCMSC
Survey Report stated that one steel drum STC Vitamin B Complex Extract was discovered to
be with a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No.
7614, issued by Jardine, noted that the subject shipment was in good order and condition, it
 9

was specifically stated that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas
Survey Report stated that 1-s/drum was punctured and retaped on the bottom side and the
content was lacking, and there was a short delivery of 5-drums.

All these conclusively prove the fact of shipment in good order and condition, and the
consequent damage to one steel drum of Vitamin B Complex Extract while in the possession
of petitioner which failed to explain the reason for the damage. Further, petitioner failed to
prove that it observed the extraordinary diligence and precaution which the law requires a
common carrier to exercise and to follow in order to avoid damage to or destruction of the
goods entrusted to it for safe carriage and delivery.

MAGSAYSAY VS AGAN
Transportation General Averages Stranding of a Vessel
In 1949, SS San Antonio, owned by AMInc, embarked on its voyage to Batanes via Aparri. It
was carrying various cargoes, one of which was owned by Agan. One fine weather day, it
accidentally ran aground the mouth of the Cagayan River due to the sudden shifting of the
sands below. SS San Antonio then needed the services of Luzon Stevedoring Co. to tow the
ship and make it afloat so that it can continue its journey. Later, AMInc required the cargo
owners to pay the expenses incurred in making the ship afloat (P841.40 each). The expenses,
AMInc claims, fall under the General Averages Rule under the Code of Commerce, which is
to be shared by ship owner and cargo owners as well.
ISSUE: Whether or not general averages exist in the case at bar.
HELD: No. General averages contemplate that the stranding of the vessel is intentionally
done in order to save the vessel itself from a certain and imminent danger. Here, the
stranding was accidental and it was made afloat for the purpose of saving the voyage and
not the vessel. Note that this happened on a fine weather day. Also, it cannot be said that
the towing was made to save the cargos, for the cargos were not in danger imminent
danger.

MARKET DEVELOPERS v. IAC

GR No. 74978. September 8, 1989
CRUZ, J:

FACTS: On June 20, 1978, petitioner Market Developers, Inc. (MADE) entered into a written barging
and towage contract with private respondent Gaudioso Uy for the shipment of the former's cargo
from Iligan City to Kalibo, Aklan, at the rate of P1.45 per bag.
The petitioner was allowed 4 lay days and agreed to pay demurrage at the rate of P5,000.00
for every day of delay, or in excess of the stipulated allowance. On June 26, 1978, Uy sent a barge
and a tugboat to Iligan City and loading of the petitioner's cargo began immediately. It is not clear
who made the request, but upon completion of the loading on June 29, 1978, the parties agreed to
divert the barge to Culasi, Roxas City, with the cargo being consigned per bill of lading to Modern
Hardware in that city. This new agreement was not reduced to writing.
The shipment arrived in Roxas City on July 13, 1978, and the cargo was eventually unloaded
and duly received by the consignee. There is some dispute as to the time consumed for such
unloading. At any rate, about six months later, Uy demanded payment of demurrage charges in the
sum of P40,855.40 for an alleged delay of eight days and 4/25 hours.
MADE ignored this demand, and Uy filed suit. He was sustained by the trial court, which
ordered the petitioner to pay him the said amount with interest plus P4,000.00 attorney's fees and
the cost of the suit. This decision was fully affirmed on appeal to the respondent court, which is the
reason for this petition. Agreeing with the trial court, the respondent court held that since the
 10

diversion of the cargo to Roxas City was not covered by a new written agreement, the original
agreement must prevail.

ISSUE: Whether or not the first written contract must prevail since the new contract did not contain
any stipulation for demurrage and because it was not in writing.

HELD: No.
To hold that the old agreement was still valid and subsisting notwithstanding this substantial change
was to impose upon the petitioner a condition he had not, and would not have, accepted under the
new agreement.

Article 1356 of the Civil Code provides:

Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when
the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable . . .

We affirmed this rule only recently when we said in Tong v. Intermediate Appellate Court that "a
contract may be entered into in whatever form except where the law requires a document or other
special form as in the contracts enumerated in Article 1388 of the Civil Code. The general rule,
therefore, is that a contract may be oral or written."

The contract executed by MADE and Uy was a contract of affreightment. As defined, a contract of
affreightment is a contract with the shipowner to hire his ship or part of it, for the carriage of goods,
and generally takes the form either of a charter party or a bill of lading.

Article 652 of the Code of Commerce provides that "a charter party must be drawn in duplicate and
signed by the contracting parties" and enumerates the conditions and information to be embodied
in the contract, including "the lay days and extra lay days to be allowed and the demurrage to be
paid for each of them." (requisites of charter party)

But while the rule clearly shows that this kind of contract must be in writing, the succeeding Article
653 just as clearly provides:

If the cargo should be received without a charter party having been signed, the
contract shall be understood as executed in accordance with what appears in the
bill of lading, the sole evidence of title with regard to the cargo for determining
the rights and obligations of the ship agent, of the captain and of the charterer.
(form of charter party)

We read this last provision as meaning that the charter party may be oral, in which case the terms
thereof, not having been reduced to writing, shall be those embodied in the bill of lading.

Therefore, the first written contract was cancelled and replaced by the second verbal contract
because of the change in the destination of the cargo.