Keng Hua Paper Products vs. CA, RTC of Manila and Sea-Land Service Inc.

Facts:

Sea-Land Service (private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines.

On June 29, 1982, Sea-land received at its Hong Kong terminal a sealed container, containing 76 bales of “unsorted waste paper” for shipment to Keng Hua Paper Products in Manila. A bill of lading was issued by Sea-Land to cover the shipment.

On July 9. 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to Keng Hua but it failed to discharge the shipment from the container during the “free time” period or grace period. The shipment thus remained inside Sea-Land’s container from July 29, 1982—the date the “free time” period expired—until November 22, 1983. In total, it stayed with Sea-land for 481 days.

Demurrage charges amounting to P67,340.00 accrued during the 481-day period. Letters as well as numerous demands were sent to Keng Hua who refused to settle its obligation.

For its part, Keng Hua alleges that: o It purchased 50 tons of waste paper from the

shipper in Hong Kong, Ho Kee Waste Paper as manifested in a Letter of Credit issued by Equitable Banking Corporation. Partial shipment was permitted under said letter, and the remaining balance of the shipment was only 10 metric tons.

o The shipment Sea-Land was asking Keng Hua to accept is 20 metric tons, which is 10 more than the remaining balance.

o Sea-Land had no cause of action against Keng Hua because it did not hire Sea-Land to carry the merchandise. Instead its cause of action should have been against the shipper.

o Keng Hua duly notified Sea-land about the wrong shipment in a letter dated January 24, 1983.

RTC found Keng Hua liable for demurrage, attorney’s fees and expenses of litigation.

Upon appeal with the CA, the petition was still denied. Issue: Whether Keng Hua is bound by the bill of lading. YES

Held: Two functions to be served by the bill of lading: 1. It is a receipt for the goods shipped. 2. It is a contract by which three parties, namely the shipper, carrier and consignee undertake specific responsibilities and assume stipulated obligations. A bill of lading delivered and accepted constitutes the contract of carriage even though not signed, because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all its terms and conditions of which the acceptor has actual or constructive notice. Simply put, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives

rise to the presumption that the same was a perfected and binding contract. In this case, Section 17 of the bill of lading provides: “17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper’s failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper’s failure to supply information or otherwise to comply with all laws, regulations and requirements of law in connection with the goods of from any other act or omission of the shipper or consignee:” (Underscoring supplied.) Keng Hua argues that it should not be bound by the bill of lading because it never gave its consent thereto. It further argues that the demurrage was a consequence of Sea-land’s mistake of shipping more than what was bought. This discrepancy, it alleges, justifies its refusal to accept the shipment. Both arguments are wrong. Keng Hua, having been afforded an opportunity to examine the bill of lading, did not immediately object to any term or stipulation therein. It was only 6 months later, on January 24, 1983, that it sent a letter to Sea-Land saying it could not accept the shipment. This inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, the letter of refusal it supposedly sent to Sea-Land only indicates Keng Hua’s inability to use the delivery permit because the bill of lading and other shipping documents were returned by the banks to Ho Kee. It merely proved Keng Hua’s refusal to pick up the cargo, not its rejection of the bill of lading. The Notice of Refused or On Hand Freight presented by Keng Hua as proof of its nonacceptance is likewise of no consequence. It was not written by Keng Hua. It was sent by Sea-Land to Keng Hua four months after the latter received the bill of lading. If it is to be accorded any legal significance at all, it is to highlight Keng Hua’s prolonged failure to object to the bill of lading. Keng Hua should thus be bound to pay demurrage to Sea-Land. In The Apollon, Justice Story made the following relevant comment on the nature of demurrage: “In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile usage as

to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship’s expenses, wear and tear, and common employment.” On overshipment

The contract of carriage must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. The carrier cannot be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-à-vis the commercial invoice and letter of credit. Thus, the discrepancy cannot negate Keng Hua’s obligation to Sea-Land arising from the contract of transportation. Furthermore, Sea-Land had no knowledge of the contents of the container. The contract of carriage was under the arrangement known as “Shipper’s Load And Count,” and the shipper was solely responsible for the loading of the container while the carrier was oblivious to the contents of the shipment. Petitioner’s remedy in case of overshipment lies against the seller/shipper, not against the carrier. On payment of interest

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

Magellan Manufacturing Corp vs. CA and Orient Overseas Container Lines and F.E. Zuellig

Facts:

On May 20, 1980, Magellan Manufacturing entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for $23,220.

As payment thereof, a letter of creit was issued to Magellan Manufacturing by Choju Co.

James Cu, president of Magellan Manufacturing, then contracted F.E. Zuellig, a shipping agent, to ship the anahaw fans through Orient Overseas Container.

James Cu specified that he needed an on-board bill of lading and that transshipment is not allowed under the letter of credit.

Magellan Manufacturing paid F.E. Zuelling the freight charges and secured a copy of the bill of lading,

which was presented to Allied Bank. The bank then credited the amount of $23,220 to Magellan Manufacturing’s account.

When James Cu however went to the bank later, he was informed that the payment was refused by Choju Co. because there was no on-board bill of lading, and there was a transshipment of goods. As a result, the anahaw fans were shipped back to Manila, for which Choju demanded from Magellan Manufacturing payment of P246,043.43. James Cu abandoned the whole cargo and demanded damages from Choju.

When Magellan Manufacturing informed Overseas Orient of what happened, the latter issued a certificate stating that its bill of lading is an on board bill of lading and that there was no actual transshipment of the fans. According to Overseas, when the goods are transferred from one vessel to another which both belong to the same owner which was what happened to the Anahaw fans, there is no transshipment.

This certification was sent to Choju Co., but the company still refused to accept the goods which arrived on Japan on July 19, 1980.

Overseas Orient billed Magellan Manufacturing the amount of P16,342. 21 for such shipment and P34,928.71 for demurrage in Japan from July 26 to August 31, 1980. (This totals to P51, 271.02)

In a letter, Overseas gave Magellan Manufacturing the option to pay the sum or to abandon the anahaw fans to enable Overseas to sell them at public auction to cover the cost of shipment and demurrages. Magellan Manufacturing chose to abandon the goods.

However, in a letter dated June 22, 1981 Overseas Orient demanded for payment of P298,150.93 from Magellan Manufacturing which represents the freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October 22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans on May 20, 1981.

Subsequently Magellan Manufacturing filed the complaint in this case against F.E. Zuellig and Overseas Orient, praying that the latter pay whatever Magellan Manufacturing was not able to earn from Choju Co., amounting to P174,150.00.

In answer, F.E. Zuellig and Overseas Orient allege that the bill of lading clearly shows that there will be a transshipment and that Magellan Manufacturing was well aware that MV Pacific Dispatcher was only up to Hongkong where the subject cargo will be transferred to another vessel for Japan.

RTC decided in favor of F.E. Zuelling and Overseas Orient, ruling that Magellan Manufacturing had given its consent to the contents of the bill of lading.

The CA likewise affirmed the findings of the RTC. However, it reduced the freight charges and demurrages to be paid by Magellan Manufacturing to P52,102.45, which represents the costs incurred in Japan but not in Manila. This is because there was no timely notice to Magellan Manufacturing that the goods were already in Manila in addition to the fact that Overseas had given Magellan Manufacturing the option of abandoning the goods in exchange for demurrages.

Issues: Whether or not there was transshipment. YES.

Whether or not Magellan Manufacturing is bound by the bill of lading. YES

Held: Transshipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in another," or "the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached," or "the transfer for further transportation from one ship or conveyance to another." Clearly, either in its ordinary or its strictly legal acceptation, there is transshipment whether or not the same person, firm or entity owns the vessels. Transshipment is not dependent upon the ownership of the transporting ships or conveyances or in the change of carriers, but rather on the fact of actual physical transfer of cargo from one vessel to another. That there was transshipment in this case is the inescapable conclusion, as there unmistakably appears on the face of the bill of lading the entry “Hong Kong” in the blank space labeled “transshipment”. Magellan Manufacturing is saying that since there was a mistake in documentation on the part of Overseas Orient, such mistake militates against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the parties. This would be an exception to the parol evidence rule and would therefore permit it to explain or present evidence to contract the terms of the bill of lading. However, in the light of the series of events that transpired in this case, there can be no other logical conclusion other than that Magellan Manufacturing had full knowledge of, and actually consented to the terms and conditions of the bill of lading thereby making the same conclusive as to it. Records show that James Cu himself, in his capacity as president of Magellan Manufacturing, received and signed the bill of lading. There is no better way to significy consent than by voluntarily signing the document which embodies the agreement. As found by the Court of Appeals, there clearly appears on the face of the bill of lading under column “PORT OF TRANSHIPMENT” an entry “HONGKONG”. Despite said entries, James Cu still delivered his voucher and the corresponding check-in payment of the freight, implying that he consented to the transshipment. Furthermore in his testimony, James Cu categorically stated that he knew for a fact the shipment was to be unloaded in Hong Kong from MV Pacific Dispatcher to be transferred to a mother vessel, the MV Oriental Researcher. Magellan Manufacturing’s argument that it cannot be deemed to have agreed thereto even if it signed the bill of lading because it had made known to Overseas that transshipment was not allowed under the letter of credit weighs less in comparison to the contents of the bill of lading evidencing the intention of the parties. Magellan Manufacturing, in citing Article 1371 of the New Civil Code, forgets that the first paragraph of the very same article provides “that if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control.” In addition, the same provision states that “in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.” The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any interpretation. The intention of the parties which is the carriage of the cargo under

the terms specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be bound thereby. Moreover, it is a well-known commercial usage that transshipment of freight without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of the contract and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a cause otherwise excepted. 26 It is highly improbable to suppose that private respondents, having been engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have undertaken such transshipment without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they could only have undertaken transshipment with the shipper's permission, as evidenced by the signature of James Cu. As to the on board bill of lading

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

It will be recalled that Magellan Manufacturing entered into the contract with Choju Co., Ltd. way back on May 20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it more than ample time to find a carrier that could comply with the requirements of shipment under the letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al. and reiterated in Servando, et al. vs. Philippine Steam Navigation Co., plane tickets as well as bills of lading are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. The respondent court correctly observed in the present case that "when the appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and conditions as embodied therein. In sum, Magellan Manufacturing had full knowledge that the bill issued to it contained terms and conditions clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring that such violations may be overlooked, if not

disregarded, so long as the cargo is delivered on time. Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of the petitioner's making for which it must bear the consequences. As finally averred F.E. Zuellig and Overseas Orient, , "... the questions of whether or not there was a violation of the terms and conditions of the letter of credit, or whether or not such violation was the cause or motive for the rejection by the Japanese buyer should not affect them since they were not privies to the terms and conditions of Magellan Manufacturing's letter of credit and cannot therefore be held liable for any violation thereof by any of the parties thereto." As to demurrage

Normally, the shipper is liable for freightage due to the fact that the shipment was made for its benefit or under its direction, and correspondingly, the carrier is entitled to collect charges for its shipping services. However, there is no dispute that F.E. Zuellig and Overseas Orient expressly and on their own volition granted Magellan Manufacturing an option with respect to the satisfaction of freightage and demurrage charges. Having given such option, especially since it was accepted by Magellan Manufacturing, F.E. Zuellig and Overseas are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. F.E. Zuellig and Overseas, in giving the option, and Magellan Manufacturing, in exercising that option, are concluded by their respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of the option would be to countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of mutuality of contracts. It will be remembered that in overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further, with much more reason can petitioner in the instant case properly abandon the goods, not only because of the unreasonable delay in its delivery but because of the option which was categorically granted to and exercised by it as a means of settling its liability for the cost and expenses of reshipment. And, said choice having been duly communicated, the same is binding upon the parties on legal and equitable considerations of estoppel. Magellan Manufacturing cannot therefore be made liable to pay even the P52,102.45 as costs. The counterclaim of F.E. Zuellig and Overseas Orient are likewise set aside.

Maersk Lines vs. CA and Efren Castillo, doing business under the name and style of Ethegal Laboratories

Facts:

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

Efren Castillo is the proprietor of Ethegal Laboratories, a firm engaged in the manufacture of pharmaceutical products.

On November 12, 1976, Castillo ordered from Eli Lilly Inc. of Puerto Rico through its agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The

capsules were placed in 6 drums of 100,000 capsules each valued at $1,668.71.

Through a Memorandum of Shipment, the shipper Eli Lilly, Inc. advised Castillo that the 600,000 empty gelatin capsules were already shipped on board MV “Anders Maerskine” for shipment to Philippines via Oakland, California. In the Memorandum, shipper Eli Lilly specified the date of arrival to be April 3, 1977.

For reasons unknown, said cargo was mishipped and diverted to Richmond, Virginia, USA and then transported back to Oakland, California.

The goods only arrived in the Philippines on June 10, 1977 or 2 months after the date specified in the memorandum.

Castillo refused to take delivery of the goods on account of its failure to arrive on time. Alleging gross negligence and undue delay in the delivery of the goods, Castillo filed an action for rescission of contract with damages against Maersk and Eli Lilly Inc.

Maersk denies that it committed breach of contract, stating that the shipment was transported in accordance with the provisions of the bill of lading and that its liability under the law on transportation of goods attaches only in case of loss, destruction or deterioration of the goods as provided in Art. 1734.

Eli alleges that the delay in the arrival of the goods was due solely to the gross negligence of Maersk Line.

RTC dismissed the complaint against Eli Lilly. It held Maersk Line liable for damages, as follows:

o P369,000 as unrealized profit o P200,000 as moral damages o P10,000 as exemplary damages o P11,680.97 as cost of credit line o P50,000 as attorney’s fees

CA upheld the RTC’s decision but modified the damages awarded as such:

o P11,680.97 as compensatory damages o P50,000 as moral damages o P20,000 as exemplary damages o P30,000 for attorney’s fees o 30% of the total damages awarded except

for attorney’s fees Issue: Whether the contract of adhesion is valid. YES

Whether or not Castillo is entitled to damages under the bill of lading. YES

Held: The bill of lading in this case reads: 6. GENERAL (1) The Carrier does not undertake that the goods shall arrive at the port of discharge or the place of delivery at any particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in no circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the Carrier should nevertheless be held legally liable for any such direct or indirect or consequential loss or damage caused by delay, such liability shall in no event exceed the freight paid for the transport covered by this Bill of Lading.

It is not disputed that the provision at the back of the bill of lading is a contract of adhesion. Generally, contracts of adhesion are considered void since these types of contracts are prepared and drafted only by one party, usually the carrier; and the only participation left of the other party is to affix his signature thereto. Nonetheless, it is settled that bills of lading are not entirely prohibited. One who adheres to the contract is in reality free to reject it in its entirety; and if he adheres, he gives his consent. Citing Magellan, the Supreme Court ruled: “It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as contract to transport and deliver the same a therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public policy. A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not.” However, this ruling only applies if such contracts will not create an absurd situation as in this case. The provision in Section 6 of the bill of lading has the effect of practically leaving the date of arrival of the shipment on the sole determination and will of the carrier. While it is true that common carriers are not obligated by law to carry and deliver merchandise, and persons are not vested with the right to prompt delivery unless such common carriers previously assume the obligation to deliver at a given date or time, delivery of shipment or cargo should at least be made within a reasonable time. In Saludo Jr. vs. CA, the Court held: “The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver properly within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge, and the default in himself, and has no remedy over, then his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts.” While there was no special contract entered into by the parties indicating the date of arrival, Maersk Lines was nevertheless aware of the specific date when the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there

arises no need to execute another contract for that purpose as it would be a mere superfluity. The facts in the case show that a delay in the delivery of the goods spanning a period of 2 months and 7 days is beyond the realm of reasonableness. Through Maersk Line’s negligence, the goods were mishipped to Richmond, Virginia. Its insistence that it cannot be held liable for the delay is without merit. As to damages

Actual and compensatory damages require substantial proof. Castillo here was able to prove through an invoice the amount he paid as costs of the credit line for the subject goods. The award of actual damages in the amount of P11,680.97 is thus correct. Under Art. 2220 of the Civil Code, moral damages may be awarded in “breaches of contract where the defendant acted fraudulently or in bad faith”. Maersk Line never even bothered to explain the reason for the delay in the delivery of the subject shipment. The award of moral damages is therefore proper. It is also proper to award exemplary damages to Castillo. Exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There was gross negligence on the part of Maersk in mishipping the goods destined for Manila but was inexplicably shipped to Richmond, Virginia, USA. Gross carelessness or negligence constitutes wanton misconduct. The award of attorney’s fees is likewise proper for the abovementioned reasons. The award however of 30% of the total damages is unconscionable and should be deleted.

Reyma Brokerage vs. Philippine Home Assurance Corporation

Facts:

On October 2, 1979, MS Malmros Monsoon received onboard at Fremantle, Brisbane Queensland Australia, a shipment of 2,680 cartons of hard frozen boneless beef contained in 5 containers. This was from shipper Craig Mostyn & Co., Pty. Ltd, for transport to Manila, in favor of consignee RFM Corp. The transaction was covered by Bill of Lading No. 53149.

On October 13, 1979, MS Malmros Monsoon arrived at Pier 3 of the Port of Manila and discharged the shipment into the possession of Reyma Brokerage, the arrastre operator.

The shipment was transferred from Pier 3 to the Reefer Van Area of Pier 13.

On October 22, 1979, Reyma Brokerage loaded the containers in 2 trucks and delivered them to Grech Food Industries Cold Storage in Pasig, arriving there at 1:00am of October 23.

On the same day, at 9:00am, the containers were stripped and the representative of Reyma Brokerage and RFM Corp. counted the contents of the 5 containers.

After an inventory of a certain container, it was discovered that 203 cartons were found short out of the loaded 2,680 cartons of hard frozen boneless beef.

This shortage, according to RFM is attributable to Reyma Brokerage as the loss occurred while the container was in the custody and responsibility of PHAC.

RFM’s claim for recovery having been denied, it filed a claim with PHAC under its Marine Cargo Insurance Policy. PHAC paid RFM P88,658.22 and thus subrogated RFM in this claim for the recovery of the said amount.

RTC and CA ruled against Reyma Brokerage.

Reyma Brokerage argues: o A said-to-contain bill of lading for sealed

containers is receipt only of the containers but not of their contents which the carrier was not in a position to verify

o Since there is no evidence of tampering seals, presumptions cannot take the place of proof in a due-process system where the burden of proof relies on plaintiff

o If the tampering was ingeniously done and the tampered seal cannot be determined unless separated from the container, plaintiff virtually admits that the containers could have been tampered even before Reyma Brokerage took possession of them

o That the carrier should have been joined with them as defendants

Issue: Whether Reyma Brokerage is liable for the shortage of 230 cartons. YES

Held: Reyma Brokerage insists that the case of US Lines Inc. vs. Commissioner finds application in this case because the transactions are identical since in both cases the cargoes are containerized. (By containerized, it means that the shipper loads his cargoes in a specially designed container, seals the container and delivers it to the carrier for transportation. The carrier does not participate in the counting of the merchandise for loading into the container, the actual loading thereof nor the sealing of the container. Having no actual knowledge of the kind, quantity or condition of the contents of the container, the carrier issues the corresponding bill of lading based on the declaration of the shipper. The bill of lading describes the cargo as a container simply and it states the contents of the container either as advised by the shipper or prefaced by the phrase “said to contain”. Clearly the matter quantity, description and conditions of the cargo is the sole responsibility of the shipper.) Moreover, looking at the bill of lading in this case, it contains the following stipulations: “Weight, measurement marks and numbers (except loading marks for which the carrier is only responsible if stamped or otherwise shown clearly in letters at least 50 mm high) quality contents and value shown above are furnished by the Merchant and have not been checked and are to be considered unknown, unless expressly acknowledged and agreed to.” Also, the bottom portion of the bill of lading provides: “This bill of lading is a receipt only for the number of packages shown above.” Evidently, the carrier, by signifying in the bill of lading that it is a receipt for the number of packages shown above, had explicitly admitted the containerized shipments actually had the number of packages declared by the shipper in the bill of

lading. This conclusion is further bolstered by the stipulation printed in the bill of lading, “unless expressly acknowledged and agreed to.” Therefore, the phrase “said to contain” also appearing in the bill of lading must give way to reality. This express acknowledgement makes the case at bar an exception to the United States Line doctrine. The said doctrine applies only where the carrier of the containerized cargo simply admits the information furnished by the shipper with regard to the goods, but not where the carrier makes an explicit admission to the weight, measurement marks, numbers, etc. and inscribes these admissions as stipulations in the bill of lading itself. In short what governs is the dictum that the bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described. Furthermore, Reyma Brokerage’s contention that the shortage occurred before it came into its custody is without merit. It even contradicts itself because contrary to these arguments, it included allegations in its answer that all the containerized shipments arrived in Manila with the seals intact, and that it received the said sealed containers of the shipments, particularly container No.. BROU-4306561 which sustained the loss of 203 cartons from the arrastre operator also with the seals intact. As Reyma prima facie received all the shipments in the sealed containers, it has the burden to rebut the conclusion that it received the same without shortage. There was no such effort on the part of Reyma in this case. In fact, the Court of Appeals found that: “Tthe containers were delivered to the consignee's warehouse at Grech Food Industries Cold Storage in Pasig, Rizal after more than nine (9) hours which is highly auspicious as the trip from the piers to Pasig, takes only one (1) hours and there were (sic) no heavy traffic along the route. This will militate against the stand of the defendant that the loss of the 203 cartons of hard frozen boneless beef meat occurred while it was outside its custody as the contrary had been proven by plaintiff.” On prescription (just in case)

The action has not prescribed as Reyma being the broker and PHAC being the insurer, the prescriptive period is 10 years. 10 years have not yet lapsed from the delivery of the shipment.

Samar Mining Company vs. Nordeutshcer Lloyd & C.F. Sharp & Company Inc.

Facts:

Samar Mining Company Inc. imported one crate of Optima welded wedge wire sieves through M/S Schwabenstein, a vessel owned by Nordeutscher Lloyd. The shipment is covered by a Bill of Lading duly issued to Samar Mining.

Upon arrival of the aforesaid vessel at the port of Manila, the goods were unloaded and delivered in good order and condition to the bonded warehouse of AMCYL.

The goods however were never delivered to, nor received Samar Mining at the port of destination, which is Davao.

After failing to elicit a response from Lloyd, Samar Mining filed a formal claim for P1,691.93 or $424 but neither paid. Hence the instant suit.

RTC rendered judgment in favor of Samar Mining.

Issue: Whether Lloyd can be held liable under the bill of lading. NO

Held: A close scrutiny of the bill of lading reveals that one crate of Optima welded wedge wire sieves was received by the carrier at the port of loading, which is Bremen Germany, while the freight had been prepaid up to the port of destination or the port of discharge of goods, which in this case is Davao. The carrier undertook to transport the goods in its vessel, M/S Schwabenstein, only up to Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination. As instructed above, the following words appeared typewritten under the column for description of contents: PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT PREPAID It is clear that in discharging the goods from the ship at the port of Manila, Lloyd was acting in full accord with the stipulations in the bill of lading. The delivery of the goods to AMCYL was part of their duty to transship the goods from Manila to Davao. However, Lloyd et. al now seek refuge under Section 1, paragraph 3, and Section 11 of the same bill, which provides respectively: “The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ...” xxx “Whenever the carrier or master may deem it advisable or in any case where the goods are placed at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part of the goods before or after loading at the original port of shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and without any other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental thereto” Under this provision, they claim that they have discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from the ship, and are therefore absolved from any responsibility for the cargo. The case finds similarity with Phoenix Assurance Co., Ltd vs. United States Lines. Said case matches the controversy not only as to the material facts, but as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were

destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading. (Sorry, funny lang ang awesome likeness.)

In the said case, the court found the following stipulations as not being contrary to law, morals, good customs, public order or public policy and sustained their validity: “The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof.” Applying this to the case at bar, and in conformity with the provisions of the New Civil Code, Section 11 of the bill of lading and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while the same are not in the latter’s actual custody. The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738. Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. Article 1738 finds no applicability to the instant case. The article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of. Article 1736 however is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. Similarly, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or his duly authorized agent and a reasonable time is given to him to remove the goods. Here, there was actual delivery to the consignee through its duly authorized agent, the carrier.

Here, there were two undertakings that appeared on the bill of lading in question. 1. The first is for the transport of goods from Bremen, Germany to Manila. 2. The second is for the transshipment of the same goods from Manila to Davao, with Lloyd acting as agent of the consignee. At the hiatus between these two undertakings, which is the moment when the goods are discharged in Manila, its personality changes from that of carrier to agent of the consignee. Thus the character of defendant’s possession also changes, from possession in its own name as carrier, to possession in the name of consignee as agent. Such being the case, there was actual delivery of the goods from defendant as carrier to the same defendant as agent of the consignee. Upon such delivery, the defendant ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is how 1736 applies. But even as agent of Samar Mining, defendants cannot be made answerable for the value of the missing goods. Defendants had commenced the performance of its duty as agent, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency. The records fail to reveal proof of negligence, deceit or fraud committed by defendant or by its representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as defendant's substitute in storing the goods awaiting transshipment. The actions of defendant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question.

United States Lines Inc. vs. Commissioner of Customs

Facts:

On October 15, 1976, the vessel “American Venture” arrived in Manila from HongKong.

Among the shipment on board were cargoes consigned by the same shipper and from the same loading port consisting of 2 containers, which were described in the respective bills of lading No. 38 and 39 as follows:

o Shipper’s Load and Count 1 Container 38 cases 100% Cotton brushed denim 1 Container 40 cases 100% Cotton sulphur dyed denim Total: One container only

The aforestated information as furnished by the Shipper was copied or entered into the vessel’s Inward Foreign Manifest.

Upon opening of the containers by the Bureau of Customs, it was discovered that the first container contained 34 cases instead of 38 cases, and that the second container contained 44 cases instead of 40 cases. The total number of cases in the two containers was the save however, which is 78 cases.

With the consent of the customs authorities, US Lines accordingly amended the Manifest to reflect the actual quantity of the cases in each container.

Subsequently, the Collector of Customs instituted proceedings against US Lines Inc. for violation of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code. It found US Lines guilty of violating said provisions, and ordered it to pay P10,000.

On appeal, the Commissioner of Customs affirmed the decision in toto.

A petition to review with the Court of Tax Appeals also ended with the CTA affirming the assailed decision. In its decision, the CTA ruled that the term “Shipper’s Load and Count” as defined in Customs Administrative Order No. 8-75 cannot be viewed as an exception to the provisions of Sections 1005 and 2521 of the Tarrif and Customs Code.

Issue: Whether or not the carrier of a containerized cargo should be held liable for a fine under Sec. 2521 in relation to Sec. 1005 of the Tarrif and Customs Code upon a clerical error imputable to the Shipper alone. NO

Held: The pertinent provisions are as follows: Sec. 1124 of Customs Administrative Order No. 8-75 reads as follows: . Shipper's 'Load and Count' a container packed with cargo by one shipper where the quantity, description and conditions of the cargo is the sole responsibility of the shipper. (emphasis supplied); . and quoted hereunder are the relevant provisions of the Tariff and Customs Code: . SEC. 1005. Every vessel from a foreign port must have on board a complete manifest of all her cargo. . xxx xxx xxx Each manifest shall include the port of departure and the port of delivery with the marks, numbers, quantity and description of the packages and the names of the consignee thereof. . xxx xxx xxx A cargo manifest shall in no case be changed or altered after entry of the vessel except by means of an amendment by the master, consignee or agent thereof, under oath, and attached to the original manifest: Provided, however, that after the invoice and/or entry covering an importation have been received and recorded in the office of the Appraiser, no amendment of the Manifest shall be allowed, except when it is obvious that a clerical error or any other discrepancy has been committed in the preparation of the manifest without any fraudulent intent, discovery of which could not have been made until after examination of the importation has been completed. (Emphasis supplied) SEC. 2521. Failure to Supply Requisite Manifests. - If any vessel or aircraft enters or departs from a port of entry without submitting the proper manifests to the customs authorities, or shall enter or depart conveying unmanifested cargo other than as stated in the next preceding section hereof, such vessel or aircraft shall be fined in a sum not less than ten thousand

pesos (P10,000.00) but not exceeding thirty thousand P30,000.00 pesos. The same fine shall be imposed upon any arriving or departing vessel or aircraft if the master or pilot in command shall fail to deliver or mail to the Commission on Audit a true copy of the manifest of the incoming or outgoing cargo, as required by law xxxx US Lines contends that Sec. 24 of Customs Admin Order NO. 8-75 was promulgated in line with the government policy of encouraging containerization which results in the decongestion of ports of entry. Under the system of containerization, the shipper loads his cargoes in a specially designed container, seals the container and delivers it to the carrier for transportation. The carrier does not participate in the counting of the merchandise for loading into the container, the actual loading thereof nor the sealing of the container. Having no actual knowledge of the kind, quantity or condition of the contents of the container, the carrier issues the corresponding bill of lading based on the declaration of the shipper. The bill of lading describes the cargo as a container simply and it states the contents of the container either as advised by the shipper or prefaced by the phrase "said to contain." Clearly then, the matter quantity, description and conditions of the cargo is the sole responsibility of the shipper. The case at bar is exactly the situation intended to be covered by Sec. 24 of CAO No. 8-75. The order provides, in relation to Sec. 1005 and Sec. 2521, that containerized cargoes on “Shipper’s Load and Count” shipping arrangement do not need to be checked and inventoried by the carrier at the port of loading or before it enters the port of unloading in the Philippines, since it is the shipper who has the sole responsibility for the quantity, description and condition of the cargoes shipped in container vans, each container van being considered as a unit of transport. The vessel “American Venture” faithfully complied with the requirements of Sec. 1005 of the Tarrif and Customs Code. While there was a slight error in its manifest, there was no fraudulent intent or negligence on the part of the vessel. The vessel relied on the information submitted by the shipper on the bill of lading, and there was no way for it to discover the contents of the containers until after they opened it. Considering therefore, that the total number of cases of cotton denims as declared by the shipper in the manifest is 78 as borne on two containers, and considering the undisputed fact that the same total number of 78 cases of cotton denims were found by the Bureau of Customs on board petitioner's vessel, it is clear that the vessel's Manifest reflects a complete and substantially accurate statement of the cargoes contained therein in accordance with the requirement of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code. No violation could therefore be attributed to US Lines Inc. The fine is lifted.

Caltex Philippines vs. Sulpicio Lines Inc.

Facts:

On December 19, 1987, MT Vector left Limay, Bataan at about 8:00pm, enroute to Masbate. It was loaded with 8,800 barrels of petroleum products shipped by Caltex.

MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil.

During this particular voyage, MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract.

On December 20, 1987, the passenger ship MV Doña Paz, left the port of Tacloban at about 6:30am. It was headed for Manila with a complement of 59 crew members and 1,493 passengers.

The MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, plying the route of Manila-Tacloban-Catbalogan-Manila-Catbalogan-Tacolban-Manila, making trips twice a week.

At about 10:30pm of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All crewmembers of Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident.

It was later found out that Doña Paz carried an estimated 4,000 passengers, many of whom were not in the passenger manifest. Only 24 survived the tragedy. Among those who perished were a public school teacher (Sebastian Cañezal) and his daughter who was only 11 years old. (Tinanong kasi to ni Ma’am sa recit dati.)

On March 22, 1988 the Board of Marine Inquiry found that MT Vector, its registered operator Francisco Soriano and its owner and actual operator Vector Shipping were at fault for the collision.

On February 13, 1989, the relatives of the deceased filed with the RTC a complaint for Damages Arising from Breach of Contract of Carriage against Sulpicio Lines. Sulpicio in turn filed a third party complaint against Francisco Soriano, Vector Shipping and Caltex.

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

The RTC dismissed the third party complaint against Caltex and held Sulpicio lines liable.

The CA modified the trial court’s ruling and included Caltex as one of those liable for damages.

o P100,000 as compensatory damages for the death of Sebastian Cañezal and his daughter

o P306,480 for the unrealized income of the Sebastian Cañezal

o P300,000 as moral damages o P50,000 as attorney’s fees o Cost of the suit

Caltex was held equally liable with Sulpicio, being made to pay half of the above-mentioned damages.

Issues: Whether or not MT Vector can be considered a common carrier. YES Whether or not Caltex can be held liable. NO

Held:

Caltex and Vector entered into a contract of affreightment also known as a voyage charter.

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship. Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. MT Vector is a common carrier.

In determining liability, it is important to answer the question: does a charter party agreement turn the common carrier into a private one? In this case it did not. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier. In Planters Products, Inc. vs. Court of Appeals, the Supreme Court said: “It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage charter. 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.” MT Vector still being under the possession of Vector Shipping, and being thus a common carrier, under the Carriage of Goods by Sea Act : Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to - (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; xxx xxx xxx Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.

Caltex cannot be held liable for damages under the Civil Code.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in “public service.” The Civil Code demands diligence which is required by the nature of the obligation and that which corresponds with the circumstances of the persons, the time and the place. Hence, considering the nature of the obligation between Caltex and MT Vector, the liability as found by the Court of Appeals is without basis. 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 vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general is concerned. By the same token, passengers cannot be expected to inquire every time they board a common carrier, whether the carrier possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice would be an absurdity in a business where time is always of the essence. Considering the nature of transportation business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its operation. Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes. Furthermore, a cursory reading of the records show that Caltex had reason to believe MT Vector could legally transport cargo at that time of the year. During cross-examination, it was shown that the representative of Caltex urged MT Vector to renew the Certificate of Inspection several times, and was assured that it would be sent a copy. Caltex and Vector had been doing business since 1985. Past services rendered showed no reason for Caltex to observe a higher degree of diligence. Caltex is therefore absolved from liability, but the liability of Sulpicio Lines and Vector Shipping remain the same.

Fortune Express Inc vs. CA, Paulie Caorong and her minor children Yasser King, Rose Heinni and Prince Alexander

Facts:

Fortune Express is a bus company in northern Mindanao. Paulie Caorong is the widow of Atty. Caorong while Yasser King, Rose Heinni and Prince Alexander are their minor children.

On November 18, 1989, a bus of Fortune Express figured in an accident with a jeepney in Kauswagan, Lanao del Norte. This resulted in the death of several passengers, including two Maranaos.

Crisanto Generalao, a volunteer field agent of the Constabulary Regional Security Unit conducted an investigation of the accident and found that the owner of the jeepney was a Maranao residing in Delabayan, Lanao del Norte. He also found that certain Maranaos were planning to take revenge on Fortune Express by burning some of its buses.

Generalao submitted his report to Sgt. Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro. He went to see Diosdado Bravo, who assured him that the necessary precautions would be taken to insure the safety of lives and property.

On November 22, 1989, at 6:45pm, 3 Maranaos who pretended to be passengers seized a bus of Fortune Express at Linamon, Lanao del Norte while on its way to Iligan. Among the passengers was Atty. Caorong.

The bus driver was ordered by the leader to stop the bus on the side of the highway. He was then shot in the arm, and one Maranao started pouring gasoline inside the bus while the other held the passengers at bay with a handgun. The leader then ordered the passengers to get off the bus.

The passengers, including Atty. Caorong, steped out of the bus and went behind the bushes in a field some distance from the highway.

However, Atty. Caorong returned to the bus to retrieve something. At that time, one of the armed men was pouring gasoline on the head of the driver. The driver regained consciousness and heard Atty. Caorong pleading with the armed men to spare the driver’s life, but they were adamant and repeated their warning that they were going to burn the bus along with its driver.

During this exchange the driver climbed out of the left window of the bus and crawled to the canal on the opposite side of the highway. He heard shots from inside the bus. One of the passengers then saw Atty. Caorong had been hit.

The bus was subsequently set on fire, but some passengers were able to pull Atty. Caorong out of the burning bus. He was rushed to the Mercy Community Hospital in Iligan, but died while undergoing operation.

The private respondents brought a suit for breach of contract of carriage with the RTC of Iligan City, but the RTC denied its claim. It ratiocinated that Fortune Express could not be faulted for its failure to accord faith and credit to the report of Mr. Generalao, and the fact that it did not provide security to its buses in light of the circumstances. Furthermore it ruled that the assailants did not have the least intention of harming any passengers, and Atty. Caorong’s death was an unexpected and unforeseen occurrence over which Fortune Express had no control.

On appeal, the Court of Appeals reversed the decision of the RTC, holding that Fortune Express, in not adopting even a single safety measure for the protection of its passengers, failed to exercise the degree of diligence required of common carriers. It suggested that a simple frisking could have been conducted to discover the handguns and the gallon of gasoline that had been used in the shooting of the victim and the burning of the bus.

The CA required Fortune Express to pay the following:

o P3,399,649.20 as death indemnity o P50,000 and P500 per appearance as

attorney’s fees Issue: Whether Fortune Express can be held liable. YES

Whether the seizure of the bus can be considered force majeure. NO

Whether there was contributory negligence on the part of the deceased. NO

Held: There was breach of contract of carriage.

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a passenger on account of the wilful acts of other passengers, if the employees of the common carrier could have prevented the act the exercise of the diligence of a good father of a family. In the present case, it is clear that because of the negligence of Fortune Express’ employees, the seizure of the bus by Mananggolo and his men was made possible. Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning to take revenge on Fortune Express by burning some of its buses and the assurance of Fortune Express’s operation manager, Diosdado Bravo, that the necessary precautions would be taken, Fortune Express did nothing to protect the safety of its passengers. Under the circumstances, simple precautionary measures to protect the safety of passengers, such as frisking passengers and inspecting their baggages, preferably with non-intrusive gadgets such as metal detectors, before allowing them on board could have been employed without violating the passenger’s constitutional rights. As held in Gacal v. Philippine Air Lines, Inc., a common carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting their baggages. From the foregoing, it is evident that Fortune Express’ employees failed to prevent the attack on one of petitioner’s buses because they did not exercise the diligence of a good father of a family. Hence, it should be held liable for the death of Atty. Caorong. Seizure of bus not a case of force majeure.

Art. 1174 of the Civil Code defines a fortuitous even as an occurrence which could not be foreseen or which though foreseen, is inevitable. In Yobido v. Court of Appeals, the following requisites were laid down in order for an event to be considered force majeure: (1) the cause of the breach of the obligation must be independent of the human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurrence must be such as to render it impossible for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The absence of any of the requisites mentioned above would prevent the obligor from being excused from liability. In Vasquez vs. CA, a common carrier was held liable for its failure to take the necessary precautions against an approaching typhoon, of which it had been warned. The event was foreseeable and thus the second requisite was not fulfilled. The same applies in this case. Fortune Express had knowledge that the Maranois were going to attack its buses but it took no steps to safeguard the lives and properties of its passengers. No contributory negligence on part of deceased.

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

Death indemnity of P50,000 – entitled. Actual damages of P30,00 for the wake and burial of Atty. Caorong – entitled since Fortune Express does not question this finding of the trial court. Moral damages of P100,000 for the suffering caused by Atty. Caorong’s death to his widow – entitled since this was not also questioned. Exemplary damages of P100,000 since Fortune acted in a wanton and reckless manner for failing to take the necessary precautions to protect the safety of passengers – entitled. Attorney’s fees of P50,000 – entitled since there was an award of exemplary damages. Compensation for loss of earning capacity – P2,121,404.90. Computed as follows:

Gross Necessary Net earning = Life x Annual - Living Capacity Expectancy Income Expenses Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80) and the age of the deceased. Since Atty. Caorong was 37 years old at the time of his death, he had a life expectancy of 28 2/3 more years. His projected gross annual income, computed based on his monthly salary of P11,385.00[23] as a lawyer in the Department of Agrarian Reform at the time of his death, was P148,005.00. Allowing for necessary living expenses of fifty percent (50%) of his projected gross annual income, his total earning capacity amounts to P2,121,404.90.