Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner, vs.COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other truck which was driven by Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that he could not be held responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting return loads of freight "as a casualoccupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth, be properly characterized as a common carrier.

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

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

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such 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. We think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. ... (Emphasis supplied)

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 back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondent'sprincipal 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.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

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:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character-of the goods or defects in the packing or-in the containers; and(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case — the hijacking of the carrier's truck — does not fall within any of the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the 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.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

xxx xxx xxx

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

(6) that the common carrier's liability for acts committed by thieves, or of robbers who donot act with grave or irresistible threat, violence or force, is dispensed with or diminished; and

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

Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence or force." 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."

In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4

In these circumstances, 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, 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.

We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

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

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs.COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 1 and renewed by the Energy Regulatory Board in 1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper

its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991 . . . .

Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax "on contractors and other independent contractors" under Section 143, Paragraph (e) of the Local Government Code does not include the power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition. 4

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code. 5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid. 7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the

term "common carrier" under the said code pertains to the mode or manner by which a product is delivered to its destination. 8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only by clear and unequivocal provisions of law.

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A) whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other considerations may be of help:

1. That the exemption granted under Sec. 133 (j) encompasses onlycommon carriers so as not to overburden the riding public or commuters with taxes. Plaintiff is not a common carrier, but a special carrier extending its services and facilities to a single specific or "special customer" under a "special contract."

2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local governments than the previous enactments, to make them economically and financially viable to serve the people and discharge their functions with a concomitant obligation to accept certain devolution of powers, . . . So, consistent with this policy even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code. 9

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication. 10On November 29, 1995, the respondent court rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his established roads; and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16 we ruled that:

The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 . . . 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. We think that Article 1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides:

that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxx xxx xxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed to be exempted from the taxing powers of the local government units. May we know the reason why the transportation business is being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states that local government units may not impose taxes on the business of transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier business. Local government units may impose taxes on top of what is already being imposed by the National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 148496 March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL SERVICES, INC., petitioner, vs.UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.

MENDOZA, J.:

This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming the decision2of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of damaged cargo handled by petitioner, 25% thereof as attorney's fees, and the cost of the suit.1âwphi1.nêt

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper and 124 reels

of kraft liner board from the Port Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc.

On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.

SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the shipment.

The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F") with entries appearing therein, classified as "TED" and "TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact of the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others that:

" . . . we opine that damages sustained by shipment is attributable to improper handling in transit presumably whilst in the custody of the broker . . . ."

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not liable. Defendant by reason of the nature of [her] business should have devised ways and means in order to prevent the damage to the cargoes which it is under obligation to take custody of and to forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she] performed to prevent [the] said incident, hence the presumption is that the moment the defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the cargo.

. . . .

Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they have observed the extraordinary diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has

been held that the mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent with its liability." (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary responsibility 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 the right to receive the same.3

Accordingly, the trial court ordered petitioner to pay the following amounts --

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

3. Costs of suit.4

The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari.

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5

It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common carrier, although both the trial court and the Court of Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her, would require.6 Consequently, any damage to the cargo she agrees to transport cannot be presumed to have been due to her fault or negligence.

Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common carrier but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her services out to the public but only offers the same to select parties with whom she may contract in the conduct of her business.

The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar contention and held the party to be a common carrier, thus -

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

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

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on aregular 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 narrowsegment of the general population. We think that Article 1732 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

" x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. x x x" 8

There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an integral part of her business. To uphold petitioner's contention would be to deprive those with whom she contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for her customers, as already noted, is part and parcel of petitioner's business.

Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance over goods" was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires."

In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the "spoilage or wettage" took place while the goods were in the custody of either the carrying vessel "M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no personal knowledge on whether the container vans were first stored in petitioner's warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMC's warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo came from. Thus, the damage to the cargo could not have taken place while these were in her custody.11

Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors indicates that when the shipper transferred the cargo in question to the arrastre operator, these were covered by clean Equipment Interchange Report (EIR) and, when petitioner's employees withdrew the cargo from the arrastre operator, they did so without exception or protest either with regard to the condition of container vans or their contents. The Survey Report pertinently reads --

Details of Discharge:

Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were deemed to have [been] received in good condition.

. . . .

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by Transorient Container Services, Inc. . . . without exception .

[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-appellant from the arrastre still in good order and condition as the same were received by the former without exception, that is, without any report of damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the consignee or make an exception on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the shipment in good order and condition and delivered the same to the consignee damaged. We can only conclude that the damages to the cargo occurred while it was in the possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No proof was proffered to rebut this legal presumption and the presumption of negligence attached to a common carrier in case of loss or damage to the goods.13

Anent petitioner's insistence that the cargo could not have been damaged while in her custody as she immediately delivered the containers to SMC's compound, suffice it to say that to prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature and characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]." Petitioner failed to do this.

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --

Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

. . . .

(4) The character of the goods or defects in the packing or in the containers.

. . . .

For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he

nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting therefrom.14 In this case, petitioner accepted the cargo without exception despite the apparent defects in some of the container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art. 173515 holds.

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.1âwphi1.nêt

SO ORDERED.

THIRD DIVISION

SPOUSES DANTE CRUZ andLEONORA CRUZ,Petitioners, - versus -

G.R. No. 186312 Present:

CARPIO MORALES, J.,Chairperson,BRION,BERSAMIN,

SUN HOLIDAYS, INC.,Respondent.

ABAD,* andVILLARAMA, JR., JJ. Promulgated:June 29, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001[1] against Sun

Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the

death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board

the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro

where the couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue

of a tour package-contract with respondent that included transportation to and from the Resort and the

point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his account of the

incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the

Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of

strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners

son and his wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind

where they boarded M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the

open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain to

step forward to the front, leaving the wheel to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came one after the

other, M/B Coco Beach IIIcapsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the

captain, Matute and the other passengers who reached the surface asked him what they could do to

save the people who were still trapped under the boat. The captain replied Iligtas niyo na lang ang sarili

niyo (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera

passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of

18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including

petitioners son and his wife, died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui

Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.[3]

Petitioners, by letter of October 26, 2000,[4] demanded indemnification from respondent for the death of

their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility for the incident

which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the

amount of P10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that

respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail

notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and

Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]

In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not available to

the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it

exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners allegation,

there was no storm on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B Coco

Beach III was not filled to capacity and had sufficient life jackets for its passengers. By way of

Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and litigation

expenses amounting to not less than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four

conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance

from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the Resorts

assistant manager.[8] He added that M/B Coco Beach III met all four conditions on September 11, 2000,[9] but a subasco or squall, characterized by strong winds and big waves, suddenly occurred, causing the

boat to capsize.[10]

By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed petitioners Complaint and

respondents Counterclaim.

Petitioners Motion for Reconsideration having been denied by Order dated September 2, 2005,[12] they

appealed to the Court of Appeals.

By Decision of August 19, 2008,[13] the appellate court denied petitioners appeal, holding, among

other things, that the trial court correctly ruled that respondent is a private carrier which is only

required to observe ordinary diligence; that respondent in fact observed extraordinary diligence in

transporting its guests on board M/B Coco Beach III; and that the proximate cause of the incident was a

squall, a fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution dated January 16, 2009,[14] they filed the present Petition for Review.[15]

Petitioners maintain the position they took before the trial court, adding that respondent is a

common carrier since by its tour package, the transporting of its guests is an integral part of its resort

business. They inform that another division of the appellate court in fact held respondent liable for

damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is

a common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to its

business as no income is derived therefrom; that it exercised extraordinary diligence as shown by the

conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was caused by a

fortuitous event without any contributory negligence on its part; and that the other case wherein the

appellate court held it liable for damages involved different plaintiffs, issues and evidence.[16]

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing respondent as a common

carrier.

The Civil Code defines common carriers in the following terms:

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

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline). Article 1732 also carefully avoids making any distinctionbetween 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. We think that Article 1733 deliberately refrained from making such distinctions. So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly with the notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, public service includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services . . .[18] (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main

business as to be properly considered ancillary thereto. The constancy of respondents ferry services in

its resort operations is underscored by its having its ownCoco Beach boats. And the tour packages it

offers, which include the ferry services, may be availed of by anyone who can afford to pay the

same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It

would be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice

of beach resort operators offering tour packages to factor the transportation fee in arriving at the tour

package price. That guests who opt not to avail of respondents ferry services pay the same amount is

likewise inconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers has deliberately

refrained from making distinctions on whether the carrying of persons or goods is the carriers principal

business, whether it is offered on a regular basis, or whether it is offered to the general public. The

intent of the law is thus to not consider such distinctions. Otherwise, there is no telling how many other

distinctions may be concocted by unscrupulous businessmen engaged in the carrying of persons or

goods in order to avoid the legal obligations and liabilities of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public

policy, are bound to observe extraordinary diligence for the safety of the passengers transported by

them, according to all the circumstances of each case.[19]They are bound to carry the passengers safely

as far as human care and foresight can provide, using the utmost diligence of very cautious persons,

with due regard for all the circumstances.[20]

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that

the common carrier is at fault or negligent. In fact, there is even no need for the court to make an

express finding of fault or negligence on the part of the common carrier. This statutory presumption

may only be overcome by evidence that the carrier exercised extraordinary diligence.[21]

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage

before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents position does not

impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings

for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which

would also affect the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising weather

specialist of PAGASA, squalls are to be expected under such weather condition.[23]

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and

put other peoples lives at risk.The extraordinary diligence required of common carriers demands that

they take care of the goods or lives entrusted to their hands as if they were their own. This respondent

failed to do.

Respondents insistence that the incident was caused by a fortuitous event does not impress

either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or

the failure of the debtors to comply with their obligations, must have been independent of human will;

(b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable,

impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to

fulfill their obligation in a normal manner; and (d) the obligor must have been free from any

participation in the aggravation of the resulting injury to the creditor.[24]

To fully free a common carrier from any liability, the fortuitous event must have been the proximate

and only cause of the loss.And it should have exercised due diligence to prevent or minimize the loss

before, during and after the occurrence of the fortuitous event.[25]

Respondent cites the squall that occurred during the voyage as the fortuitous event that

overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected

under the weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach

III suffered engine trouble before it capsized and sank.[26] The incident was, therefore, not completely

free from human intervention.

The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised

due diligence to prevent or minimize the loss before, during and after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common carrier in breach of its

contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for

death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.[29]

As for damages representing unearned income, the formula for its computation is:

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death][30]

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at

death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience

Table of Mortality.[31]

The second factor is computed by multiplying the life expectancy by the net earnings of the

deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or income and

less living and other incidental expenses.[32] The loss is not equivalent to the entire earnings of the

deceased, but only such portion as he would have used to support his dependents or heirs.Hence, to be

deducted from his gross earnings are the necessary expenses supposed to be used by the deceased for

his own needs.[33]

In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency Corp.

v. Borja[34] teaches that when, as in this case, there is no showing that the living expenses constituted the

smaller percentage of the gross income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]

2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 [35] which,

when converted to Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:

Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living expenses). = 35 x (P475,200 - P237,600)= 35 x (P237,600) Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract

of carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the Civil

Code, petitioners are entitled to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of

common carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary

damages, which are granted in contractual obligations if the defendant acted in a wanton, fraudulent,

reckless, oppressive or malevolent manner.[37]

Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral

damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded where

exemplary damages are awarded. The Court finds that 10% of the total amount adjudged against

respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals[40] teaches that when an obligation,

regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the

contravenor can be held liable for payment of interest in the concept of actual and compensatory

damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to

run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

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

Since the amounts payable by respondent have been determined with certainty only in the present

petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per

annum until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline

in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is

rendered in favor of petitioners ordering respondent to pay petitioners the following: (1) P50,000 as

indemnity for the death of Ruelito Cruz; (2)P8,316,000 as indemnity for Ruelitos loss of earning capacity;

(3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5) 10% of the total amount

adjudged against respondent as attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per annum

computed from the finality of this decision until full payment.

SO ORDERED.

SECOND DIVISION

[G.R. No. 161833. July 8, 2005]

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs. UNKNOWN OWNER OF THE VESSEL M/V NATIONAL HONOR, NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL CONTAINER SERVICES, INC., respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the Decision[1] dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 57357 which affirmed the Decision dated February 17, 1997 of the Regional Trial Court (RTC) of Manila, Branch 37, in Civil Case No. 95-73338.

The Antecedent

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts and accessories in the port of Pusan, Korea, on board the vessel M/V National Honor, represented in the Philippines by its agent, National Shipping Corporation of the Philippines (NSCP). The shipment was for delivery to Manila, Philippines. Freight forwarder, Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No. SH9410306[2] in the name of the shipper consigned to the order of Metropolitan Bank and Trust Company with arrival notice in Manila to ultimate consignee Blue Mono International Company, Incorporated (BMICI), Binondo, Manila.

NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 [3] in the name of the freight forwarder, as shipper, consigned to the order of Stamm International Inc., Makati, Philippines. It is provided therein that:

12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent good order and condition except as, otherwise, noted of the total number of Containers or other packages or units enumerated overleaf. Proof to the contrary shall be admissible when this Bill of Lading has been transferred to a third party acting in good faith. No representation is made by the Carrier as to the weight, contents, measure, quantity, quality, description, condition, marks, numbers, or value of the

Goods and the Carrier shall be under no responsibility whatsoever in respect of such description or particulars.

13. The shipper, whether principal or agent, represents and warrants that the goods are properly described, marked, secured, and packed and may be handled in ordinary course without damage to the goods, ship, or property or persons and guarantees the correctness of the particulars, weight or each piece or package and description of the goods and agrees to ascertain and to disclose in writing on shipment, any condition, nature, quality, ingredient or characteristic that may cause damage, injury or detriment to the goods, other property, the ship or to persons, and for the failure to do so the shipper agrees to be liable for and fully indemnify the carrier and hold it harmless in respect of any injury or death of any person and loss or damage to cargo or property. The carrier shall be responsible as to the correctness of any such mark, descriptions or representations.[4]

The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in good order condition, covered by Commercial Invoice No. YJ-73564 DTD[5] and a Packing List.[6] There were no markings on the outer portion of the crates except the name of the consignee. [7] Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs. It contained the following articles: one (1) unit Lathe Machine complete with parts and accessories; one (1) unit Surface Grinder complete with parts and accessories; and one (1) unit Milling Machine complete with parts and accessories. On the flooring of the wooden crates were three wooden battens placed side by side to support the weight of the cargo. Crate No. 2, on the other hand, measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine was stuffed in the crate. The shipment had a total invoice value of US$90,000.00 C&F Manila.[8] It was insured for P2,547,270.00 with the Philippine Charter Insurance Corporation (PCIC) thru its general agent, Family Insurance and Investment Corporation,[9] under Marine Risk Note No. 68043 dated October 24, 1994.[10]

The M/V National Honor arrived at the Manila International Container Terminal (MICT) on November 14, 1995. The International Container Terminal Services, Incorporated (ICTSI) was furnished with a copy of the crate cargo list and bill of lading, and it knew the contents of the crate. [11] The following day, the vessel started discharging its cargoes using its winch crane. The crane was operated by Olegario Balsa, a winchman from the ICTSI,[12] the exclusive arrastre operator of MICT.

Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of the ICTSI, conducted an inspection of the cargo.[13] They inspected the hatches, checked the cargo and found it in apparent good condition.[14] Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate No. 1.[15] No sling cable was fastened on the mid-portion of the crate. In Dauzs experience, this was a normal procedure.[16] As the crate was being hoisted from the vessels hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from the vessels twin deck, sending all its contents crashing down hard,[17] resulting in extensive damage to the shipment.

BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such damaged condition.[18] Upon receipt of the damaged shipment, BMICI found that the same could no longer be used for the intended purpose. The Mariners Adjustment Corporation hired by PCIC conducted a survey and declared that the packing of the shipment was considered insufficient. It ruled out the possibility of taxes due to insufficiency of packing. It opined that three to four pieces of cable or wire rope slings, held in all equal setting, never by-passing the center of the crate, should have been used, considering that the crate contained heavy machinery.[19]

BMICI subsequently filed separate claims against the NSCP, [20] the ICTSI,[21] and its insurer, the PCIC,[22] for US$61,500.00. When the other companies denied liability, PCIC paid the claim and was issued a Subrogation Receipt[23] for P1,740,634.50.

On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint for Damages[24] against the Unknown owner of the vessel M/V National Honor, NSCP and ICTSI, as defendants.

PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed, among others

WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered ordering defendants to pay plaintiff, jointly or in the alternative, the following:

1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing of this complaint until fully paid;

2. Attorneys fees in the amount of P100,000.00;

3. Cost of suit.[25]

ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant NSCP, claiming that the loss/damage of the shipment was caused exclusively by the defective material of the wooden battens of the shipment, insufficient packing or acts of the shipper.

At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens placed on the wooden flooring of the crate was of good material but was not strong enough to support the weight of the machines inside the crate. He averred that most stevedores did not know how to read and write; hence, he placed the sling cables only on those portions of the crate where the arrow signs were placed, as in the case of fragile cargo. He said that unless otherwise indicated by arrow signs, the ICTSI used only two cable slings on each side of the crate and would not place a sling cable in the mid-section.[26] He declared that the crate fell from the cranes because the wooden batten in the mid-portion was broken as it was being lifted.[27] He concluded that the loss/damage was caused by the failure of the shipper or its packer to place wooden battens of strong materials under the flooring of the crate, and to place a sign in its mid-term section where the sling cables would be placed.

The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to the cargo could be attributed to insufficient packing and unbalanced weight distribution of the cargo inside the crate as evidenced by the types and shapes of items found.[28]

The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:

WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two defendants are dismissed, with costs against the plaintiff.

SO ORDERED.[29]

According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the internal defect and weakness of the materials used in the fabrication of the crates. The middle wooden batten had a hole (bukong-bukong). The trial court rejected the certification[30] of the shipper, stating

that the shipment was properly packed and secured, as mere hearsay and devoid of any evidentiary weight, the affiant not having testified.

Not satisfied, PCIC appealed[31] to the CA which rendered judgment on January 19, 2004 affirming in toto the appealed decision, with thisfallo

WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February 17, 1997, is AFFIRMED.

SO ORDERED.[32]

The appellate court held, inter alia, that it was bound by the finding of facts of the RTC, especially so where the evidence in support thereof is more than substantial. It ratiocinated that the loss of the shipment was due to an excepted cause [t]he character of the goods or defects in the packing or in the containers and the failure of the shipper to indicate signs to notify the stevedores that extra care should be employed in handling the shipment.[33] It blamed the shipper for its failure to use materials of stronger quality to support the heavy machines and to indicate an arrow in the middle portion of the cargo where additional slings should be attached.[34] The CA concluded that common carriers are not absolute insurers against all risks in the transport of the goods.[35]

Hence, this petition by the PCIC, where it alleges that:

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE SHIPMENT IN THE POSSESSION OF THE ARRASTRE OPERATOR.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.

III.

THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING THAT THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING AND NOT TO THE FAULT AND NEGLIGENCE OF THE RESPONDENTS.[36]

The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to the carrier) in good order, and their arrival at the place of destination in bad order makes out a prima facie case against it; in such case, it is liable for the loss or damage to the cargo absent satisfactory explanation given by the carrier as to the exercise of extraordinary diligence. The petitioner avers that the shipment was sufficiently packed in wooden boxes, as shown by the fact that it was accepted on board the vessel and arrived in Manila safely. It emphasizes that the respondents did not contest the contents of the bill of lading, and that the respondents knew that the manner and condition of the packing of the cargo was normal and barren of defects. It maintains that it behooved the respondent ICTSI to place three to four cables or wire slings in equal settings, including the center portion of the crate to prevent damage to the cargo:

[A] simple look at the manifesto of the cargo and the bill of lading would have alerted respondents of the nature of the cargo consisting of thick and heavy machinery. Extra-care should have been made and extended in the discharge of the subject shipment. Had the respondent only bothered to check the list of its contents, they would have been nervous enough to place additional slings and cables to support those massive machines, which were composed almost entirely of thick steel, clearly intended for heavy industries. As indicated in the list, the boxes contained one lat[h]e machine, one milling machine and one grinding machine-all coming with complete parts and accessories. Yet, not one among the respondents were cautious enough. Here lies the utter failure of the respondents to observed extraordinary diligence in the handling of the cargo in their custody and possession, which the Court of Appeals should have readily observed in its appreciation of the pertinent facts.[37]

The petitioner posits that the loss/damage was caused by the mishandling of the shipment by therein respondent ICTSI, the arrastre operator, and not by its negligence.

The petitioner insists that the respondents did not observe extraordinary diligence in the care of the goods. It argues that in the performance of its obligations, the respondent ICTSI should observe the same degree of diligence as that required of a common carrier under the New Civil Code of the Philippines. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,[38] it posits that respondents are liable in solidum to it, inasmuch as both are charged with the obligation to deliver the goods in good condition to its consignee, BMICI.

Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily liable with it. It further avers that the carrier cannot discharge directly to the consignee because cargo discharging is the monopoly of the arrastre. Liability, therefore, falls solely upon the shoulder of respondent ICTSI, inasmuch as the discharging of cargoes from the vessel was its exclusive responsibility. Besides, the petitioner is raising questions of facts, improper in a petition for review on certiorari.[39]

Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of the Rules of Court. It claims that it is merely a depository and not a common carrier; hence, it is not obliged to exercise extraordinary diligence. It reiterates that the loss/damage was caused by the failure of the shipper or his packer to place a sign on the sides and middle portion of the crate that extra care should be employed in handling the shipment, and that the middle wooden batten on the flooring of the crate had a hole. The respondent asserts that the testimony of Anthony Abarquez, who conducted his investigation at the site of the incident, should prevail over that of Rolando Balatbat. As an alternative, it argues that if ever adjudged liable, its liability is limited only to P3,500.00 as expressed in the liability clause of Gate Pass CFS-BR-GP No. 319773.

The petition has no merit.

The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for review on certiorari. This rule, however, is not ironclad and admits certain exceptions, such as when (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by the presence of evidence on record; (8) the findings of the Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of

the Court of Appeals are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties.[40]

We have reviewed the records and find no justification to warrant the application of any exception to the general rule.

We agree with the contention of the petitioner that common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.[41] The Court has defined extraordinary diligence in the vigilance over the goods as follows:

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.[42]

The common carriers duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them. [43] When the goods shipped are either lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. [44] To overcome the presumption of negligence in the case of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence.[45]

However, under Article 1734 of the New Civil Code, the presumption of negligence does not apply to any of the following causes:

1. Flood, storm, earthquake, lightning or other natural disaster or calamity;2. Act of the public enemy in war, whether international or civil;3. Act or omission of the shipper or owner of the goods;4. The character of the goods or defects in the packing or in the containers;5. Order or act of competent public authority.

It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the common carrier for the loss or damage to the cargo is a closed list. [46] To exculpate itself from liability for the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove any of the aforecited causes claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is negligent.[47]

Defect is the want or absence of something necessary for completeness or perfection; a lack or absence of something essential to completeness; a deficiency in something essential to the proper use for the purpose for which a thing is to be used. [48] On the other hand, inferior means of poor quality, mediocre, or second rate.[49] A thing may be of inferior quality but not necessarily defective. In other words, defectiveness is not synonymous with inferiority.

In the present case, the trial court declared that based on the record, the loss of the shipment was caused by the negligence of the petitioner as the shipper:

The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate No. 1 and the total destruction of its contents were not imputable to any fault or negligence on the part of said defendant in handling the unloading of the cargoes from the carrying vessel, but was due solely to the inherent defect and weakness of the materials used in the fabrication of said crate.

The crate should have three solid and strong wooden batten placed side by side underneath or on the flooring of the crate to support the weight of its contents. However, in the case of the crate in dispute, although there were three wooden battens placed side by side on its flooring, the middle wooden batten, which carried substantial volume of the weight of the crates contents, had a knot hole or bukong-bukong, which considerably affected, reduced and weakened its strength. Because of the enormous weight of the machineries inside this crate, the middle wooden batten gave way and collapsed. As the combined strength of the other two wooden battens were not sufficient to hold and carry the load, they too simultaneously with the middle wooden battens gave way and collapsed (TSN, Sept. 26, 1996, pp. 20-24).

Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing in the record which would indicate that defendant ICTSI had any role in the choice of the materials used in fabricating this crate. Said defendant, therefore, cannot be held as blame worthy for the loss of the machineries contained in Crate No. 1.[50]

The CA affirmed the ruling of the RTC, thus:

The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code, particularly number (4) thereof, i.e., the character of the goods or defects in the packing or in the containers. The trial court found that the breakage of the crate was not due to the fault or negligence of ICTSI, but to the inherent defect and weakness of the materials used in the fabrication of the said crate.

Upon examination of the records, We find no compelling reason to depart from the factual findings of the trial court.

It appears that the wooden batten used as support for the flooring was not made of good materials, which caused the middle portion thereof to give way when it was lifted. The shipper also failed to indicate signs to notify the stevedores that extra care should be employed in handling the shipment.

Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and responsibilities:

Q: With regard to crates, what do you do with the crates?A: Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.

Q: When the crates have arrows drawn and where you placed the slings, what do you do with these crates?

A: A sling is placed on it, Maam.

Q: After you placed the slings, what do you do with the crates?A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

Q: Now, what, if any, were written or were marked on the crate?A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.

Q: And where did you see or what parts of the crate did you see those arrows?A: At the corner of the crate, Maam.

Q: How many arrows did you see?A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?A: Nothing more, Maam.

Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where there are no arrows?

A: You can not place slings if there are no arrows, Maam.

Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea without defect, the fault should be attributed to the arrastre operator who mishandled the cargo, is without merit. The cargo fell while it was being carried only at about five (5) feet high above the ground. It would not have so easily collapsed had the cargo been properly packed. The shipper should have used materials of stronger quality to support the heavy machines. Not only did the shipper fail to properly pack the cargo, it also failed to indicate an arrow in the middle portion of the cargo where additional slings should be attached. At any rate, the issue of negligence is factual in nature and in this regard, it is settled that factual findings of the lower courts are entitled to great weight and respect on appeal, and, in fact, accorded finality when supported by substantial evidence.[51]

We agree with the trial and appellate courts.

The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The petitioner failed to rebut the testimony of Dauz, that the crates were sealed and that the contents thereof could not be seen from the outside.[52] While it is true that the crate contained machineries and spare parts, it cannot thereby be concluded that the respondents knew or should have known that the middle wooden batten had a hole, or that it was not strong enough to bear the weight of the shipment.

There is no showing in the Bill of Lading that the shipment was in good order or condition when the carrier received the cargo, or that the three wooden battens under the flooring of the cargo were not defective or insufficient or inadequate. On the other hand, under Bill of Lading No. NSGPBSML512565 issued by the respondent NSCP and accepted by the petitioner, the latter represented and warranted that the goods were properly packed, and disclosed in writing the condition, nature, quality or characteristic that may cause damage, injury or detriment to the goods. Absent any signs on the shipment requiring the placement of a sling cable in the mid-portion of the crate, the respondent ICTSI was not obliged to do so.

The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that such statement will create a prima facie presumption only as to the external condition and not to that not open to inspection.[53]

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.

SO ORDERED.

THIRD DIVISION

LEA MER INDUSTRIES, INC., G.R. No. 161745Petitioner,Present

Panganiban, J.,Chairman,- versus - Sandoval-Gutierrez,Corona,

Carpio Morales, andGarcia, JJ

Promulgated:MALAYAN INSURANCE CO., INC.,*

Respondent. September 30, 2005x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods

entrusted to them, as required by the nature of their business and for reasons of public policy. C

Consequently, the law presumes that common carriers are at fault or negligent for any loss or damage

to the goods that they transport. In the present case, the evidence submitted by petitioner to overcome

this presumption was sorely insufficient.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the October 9,

2002 Decision[2] and the December 29, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.

66028. The challenged Decision disposed as follows: WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the

Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent] the value of the lost cargo in the amount of P565,000.00. Costs against the [herein petitioner].[4]

The assailed Resolution denied reconsideration.

The Facts

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the

shipment of 900 metric tons of silica sand valued at P565,000.[5] Consigned to Vulcan Industrial and

Mining Corporation, the cargo was to be transported from Palawan to Manila. On October 25, 1991, the

silica sand was placed on board Judy VII, a barge leased by Lea Mer.[6] During the voyage, the vessel sank,

resulting in the loss of the cargo.[7]

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. [8] To recover the

amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Lea

Mer, which refused to comply. Consequently, Malayan instituted a Complaint with the Regional Trial

Court (RTC) of Manila on September 4, 1992, for the collection of P565,000 representing the amount

that respondent had paid Vulcan.[9]

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the

loss was a fortuitous event.[10] The RTC noted that the vessel had sunk because of the bad weather

condition brought about by Typhoon Trining. The court ruled that petitioner had no advance knowledge

of the incoming typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel

from Palawan to Manila.[11]

Ruling of the Court of Appeals

Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus,

the loss of the cargo was occasioned by petitioners fault, not by a fortuitous event.[12]

Hence, this recourse.[13]

The Issues

Petitioner states the issues in this wise: A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a witness of the said report during the trial of this case before the lower court can be admitted in evidence to prove the alleged facts cited in the said report. B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the Regional Trial Court which clearly and unequivocally held that the loss of the cargo subject of this case was caused by fortuitous event for which herein petitioner could not be held liable. C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of discretion in disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel Judy VII was seaworthy at the time of incident and further in disregarding the testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon Trining did not hit Metro Manila or Palawan.[14]

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2)

whether the survey report of Jesus Cortez is admissible in evidence.

The Courts Ruling

The Petition has no merit.First Issue:

Liability for Loss of Cargo

Question of Fact

The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous

event. This issue involves primarily a question of fact, notwithstanding petitioners claim that it pertains

only to a question of law. As a general rule, questions of fact may not be raised in a petition for review.

[15] The present case serves as an exception to this rule, because the factual findings of the appellate and

the trial courts vary.[16] This Court meticulously reviewed the records, but found no reason to reverse the

CA.

Rule on Common Carriers

Common carriers are persons, corporations, firms or associations engaged in the business of carrying or

transporting passengers or goods, or both -- by land, water, or air -- when this service is offered to the

public for compensation.[17]Petitioner is clearly a common carrier, because it offers to the public its

business of transporting goods through its vessels.[18]

Thus, the Court corrects the trial courts finding that petitioner became a private carrier when Vulcan

chartered it.[19]Charter parties are classified as contracts of demise (or bareboat) and affreightment,

which are distinguished as follows: Under the demise or bareboat charter of the vessel, the charterer will generally

be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise, the owner of a

vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.[20]

The distinction is significant, because a demise or bareboat charter indicates a business

undertaking that is privatein character. [21] Consequently, the rights and obligations of the parties to a

contract of private carriage are governed principally by their stipulations, not by the law on common

carriers.[22]

The Contract in the present case was one of affreightment, as shown by the fact that it was

petitioners crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.[23] Necessarily,

petitioner was a common carrier, and the pertinent law governs the present factual circumstances.

Extraordinary Diligence Required 

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the

safety of the passengers they transport, as required by the nature of their business and for reasons of

public policy.[24] Extraordinary diligence requires rendering service with the greatest skill and foresight to

avoid damage and destruction to the goods entrusted for carriage and delivery.[25]

Common carriers are presumed to have been at fault or to have acted negligently for loss or

damage to the goods that they have transported.[26] This presumption can be rebutted only by proof that

they observed extraordinary diligence, or that the loss or damage was occasioned by any of the

following causes:[27]

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character of the goods or defects in the packing or in the containers;(5) Order or act of competent public authority.[28]

Rule on Fortuitous Events 

Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event which

could not be foreseen, or which, though foreseen, was inevitable. Thus, if the loss or damage was due to

such an event, a common carrier is exempted from liability.

Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause of the

unforeseen and unexpected occurrence, or the failure of the debtors to comply with their obligations,

must have been independent of human will; (b) the event that constituted the caso fortuito must have

been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been

such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the

obligor must have been free from any participation in the aggravation of the resulting injury to the

creditor.[29]

To excuse the common carrier fully of any liability, the fortuitous event must have been the

proximate and only cause of the loss.[30] Moreover, it should have exercised due diligence to prevent or

minimize the loss before, during and after the occurrence of the fortuitous event.[31]

Loss in the Instant Case 

There is no controversy regarding the loss of the cargo in the present case. As the common carrier,

petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the loss, or

that the loss had been occasioned by a fortuitous event -- an exempting circumstance.

It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that

the loss of the cargo was due to the bad weather condition brought about by Typhoon Trining.

[32] Evidence was presented to show that petitioner had not been informed of the incoming typhoon, and

that the Philippine Coast Guard had given it clearance to begin the voyage. [33] On October 25, 1991, the

date on which the voyage commenced and the barge sank, Typhoon Trining was allegedly far from

Palawan, where the storm warning was only Signal No. 1.[34]

The evidence presented by petitioner in support of its defense of fortuitous event was sorely

insufficient. As required by the pertinent law, it was not enough for the common carrier to show that

there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a

fact it miserably failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent the loss

before, during or after the alleged fortuitous event.[35] Its witness, Joey A. Draper, testified that he could

no longer remember whether anything had been done to minimize loss when water started entering the

barge.[36] This fact was confirmed during his cross-examination, as shown by the following brief

exchange: Atty. Baldovino, Jr.:Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]

exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?

x x x x x x x x x

Atty. Baldovino, Jr.:

Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?

x x x x x x x x x

Court:

Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?

Joey Draper:I can no longer remember sir, because that happened [a] long time ago.[37]

Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a

preponderance of evidence that the barge was not seaworthy when it sailed for Manila. [38] Respondent

was able to prove that, in the hull of the barge, there were holes that might have caused or aggravated

the sinking.[39] Because the presumption of negligence or fault applied to petitioner, it was incumbent

upon it to show that there were no holes; or, if there were, that they did not aggravate the sinking.

Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna,

testified that the barge was in tip-top or excellent condition, [40] but that he had not personally inspected

it when it left Palawan.[41]

The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31,

1991, did not conclusively prove that the barge was seaworthy. [42] The regularity of the issuance of the

Certificate is disputably presumed.[43] It could be contradicted by competent evidence, which respondent

offered. Moreover, this evidence did not necessarily take into account the actual condition of

the vessel at the time of the commencement of the voyage.[44]

Second Issue:

Admissibility of the Survey Report

Petitioner claims that the Survey Report[45] prepared by Jesus Cortez, the cargo surveyor, should not

have been admitted in evidence. The Court partly agrees. Because he did not testify during the trial,

[46] then the Report that he had prepared was hearsay and therefore inadmissible for the purpose of

proving the truth of its contents.

The Survey Report Not the Sole Evidence

The facts reveal that Cortezs Survey Report was used in the testimonies of respondents witnesses --

Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis

and Harding Company.[47] Soriano testified that the Survey Report had been used in preparing the final

Adjustment Report conducted by their company.[48] The final Report showed that the barge was not

seaworthy because of the existence of the holes. Manlapig testified that he had prepared that Report

after taking into account the findings of the surveyor, as well as the pictures and the sketches of the

place where the sinking occurred.[49] Evidently, the existence of the holes was proved by the testimonies

of the witnesses, not merely by Cortez Survey Report.  Rule on IndependentlyRelevant Statement

 

That witnesses must be examined and presented during the trial, [50] and that their testimonies must be

confined to personal knowledge is required by the rules on evidence, from which we quote:

Section 36. Testimony generally confined to personal knowledge; hearsay excluded. A witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in these rules.[51]

On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which respondent had

offered as evidence.[52] Well-settled is the rule that, unless the affiant is presented as a witness, an

affidavit is considered hearsay.[53]

An exception to the foregoing rule is that on independently relevant statements. A report made

by a person is admissible if it is intended to prove the tenor, not the truth, of the statements.

[54] Independent of the truth or the falsity of the statement given in the report, the fact that it has been

made is relevant. Here, the hearsay rule does not apply.[55]

In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the

testimonies of respondents witnesses. The referral to Cortezs Report was in relation to Manlapigs final

Adjustment Report. Evidently, it was the existence of the Survey Report that was testified to. The

admissibility of that Report as part of the testimonies of the witnesses was correctly ruled upon by the

trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption

of fault that applies to common carriers.

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED.

Costs against petitioner.

SO ORDERED.