transpo july 23 cases

7/31/2019 Transpo July 23 Cases

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SULPICIO LINES vs.THE HONORABLE COURT OF APPEALS

Facts:

- A contract of carriage was entered into between petitioner and ALC for

the transport of the latter's timber from Surigao del Sur

- March 17, 1976, pet sent its tugboat "MT Edmund" and barge "Solid VI"

to Lianga to pick up ALC's timber. However, no loading could be madebecause of the heavy downpour. The next morning, several stevedores

of CBL, who were hired by ALC, boarded the "Solid VI" and opened its

storeroom.

- The stevedores were warned of the gas and heat generated by the

copra stored in the holds of the ship. Not heeding the warning, a

stevedore entered the storeroom and fell unconscious. Two other

stevedores followed, one of whom was Leoncio L. Pamalaran. He also

lost consciousness and eventually died of gas poisoning.

- RTC: in favor of plaintiffs CBL, AGO, Sulpicio to pay J&S

- CA: affirm

Issue: WON Sulpicio liable

Held: yes

Ratio:

- Petraises the following arguments:

o Pamalaran was never a passenger of petitioner

o Pet and its employees were not negligent in the series of events

which led to the death of Pamalaran;

o Pet is not liable under Article 2180

o It is CBL and/or ALC which should be held liable for the death of

the victim; and,

- We agree with CA that although Pamalaran was never a passenger of

petitioner, still the latter is liable as a common carrier for his death

- Despite the absence of a passenger-carrier relationship between them,

the appellate court, just the same, held the patron thereof liable as a

common carrier=> The services rendered were the valuable


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consideration in exchange for the transportation fare.

- ALC had a contract of carriage with pet. The presence of the steve -

dores sent by ALC on board the barge of petitioner was called for by

the contract of carriage. For how else would its lumber be transported

unless it is placed on board? And by whom? Of course, the stevedores.

- Definitely, pet could not expect the shipper itself to load the lumberwithout the aid of the stevedores. Furthermore, pet knew of the pres-

ence and role of the stevedores in its barge and thus consented to

their presence. Hence, pet was responsible for their safety while on

board the barge.

- Pet next claims that its employees even warned the stevedores & tried

to prevent their entry into the storeroom. Such argument, again, is de-

molished by the findings of CA:

appellant failed to prove that its employees were actually trained or given specific

instructions to see to it that the barge is fit and safe not only in transporting goods

but also for people who would be loading the cargo into the bodega of the barge. It

is not enough that appellant's employees have warned the laborers not to enter the

barge after the hatch was opened.Appellant's employees should have been suffi-

ciently instructed to see to it that the hatch of the barge is not opened by any unau-

thorized person and that the hatch is not easily opened by anyone. At the very least,

precautionary measures should have been observed by appellant's employees to see

to it that no one could enter the bodega of the barge until after they have made sure

that it is safe for anyone to enter the same. Failing to exercise due diligence in the

supervision of its employees, the lower court was correct in holding appellant liable

for damages

MARITIMA vs. INSURANCE COMPANY

Sometime in October, 1952, Macleod and Company of the Philippines

contracted by telephone the services of the Compaia Maritima, a shipping

corporation, for the shipment of 2,645 bales of hemp from the former's Sasaprivate pier at Davao City to Manila and for their subsequent transhipment

to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral

contract was later on confirmed by a formal and written booking issued by

Macleod's branch office in Sasa and handcarried to Compaia Maritima's

branch office in Davao in compliance with which the latter sent to Macleod's

private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp

was completed on October 29, 1952. These two lighters were manned each


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by a patron and an assistant patron. The patrons of both barges issued the

corresponding carrier's receipts and that issued by the patron of Barge No.

1025 reads in part:

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND

COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel

Navigator. FINAL DESTINATION: Boston.

Thereafter, the two loaded barges left Macleod's wharf and proceeded to

and moored at the government's marginal wharf in the same place to await

the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on

which the hemp was to be loaded. During the night of October 29, 1952, or

at the early hours of October 30, LCT No. 1025 sank, resulting in the

damage or loss of 1,162 bales of hemp loaded therein. On October 30,

1952, Macleod promptly notified the carrier's main office in Manila and its

branch in Davao advising it of its liability. The damaged hemp was brought

to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning,and redrying. During the period from November 1-15, 1952, the carrier's

trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75

piculs of the reconditioned hemp out of the original cargo of 1,162 bales

weighing 2,324 piculs which had a total value of 116,835.00. After

reclassification, the value of the reconditioned hemp was reduced to

P84,887.28, or a loss in value of P31,947.72. Adding to this last amount the

sum of P8,863.30 representing Macleod's expenses in checking, grading,

rebating, and other fees for washing, cleaning and redrying in the amount ofP19.610.00, the total loss adds up to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on the

carrier's LCT No. 1025, were insured with the Insurance Company of North

America against all losses and damages. In due time, Macleod filed a claim

for the loss it suffered as above stated with said insurance company, and

after the same had been processed, the sum of P64,018.55 was paid, which

was noted down in a document which aside from being a receipt of the

amount paid, was a subrogation agreement between Macleod and theinsurance company wherein the former assigned to the latter its rights over

the insured and damaged cargo. Having failed to recover from the carrier

the sum of P60,421.02, which is the only amount supported by receipts, the

insurance company instituted the present action on October 28, 1953. After

trial, the court a quo rendered judgment ordering the carrier to pay the

insurance company the sum of P60,421.02, with legal interest thereon from

the date of the filing of the complaint until fully paid, and the costs. This


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judgment was affirmed by the Court of Appeals on December 14, 1960.

Hence, this petition for review.

The issues posed before us are: (1) Was there a contract of carriage

between the carrier and the shipper even if the loss occurred when the

hemp was loaded on a barge owned by the carrier which was loaded free of

charge and was not actually loaded on the S.S. Bowline Knot which would

carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was

the damage caused to the cargo or the sinking of the barge where it was

loaded due to a fortuitous event, storm or natural disaster that would

exempt the carrier from liability?; (3) Can respondent insurance company

sue the carrier under its insurance contract as assignee of Macleod in spite

of the fact that the liability of the carrier as insurer is not recognized in this

jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1

as an implied admission by the carrier of the correctness and sufficiency of

the shipper's statement of accounts contrary to the burden of proof rule?;

and (5) Can the insurance company maintain this suit without proof of its

personality to do so?

1. This issue should be answered in the affirmative. As found by the Court of

Appeals, Macleod and Company contracted by telephone the services of

petitioner to ship the hemp in question from the former's private pier at

Sasa, Davao City, to Manila, to be subsequently transhipped to Boston,

Massachusetts, U.S.A., which oral contract was later confirmed by a formal

and written booking issued by the shipper's branch office, Davao City, in

virtue of which the carrier sent two of its lighters to undertake the service. It

also appears that the patrons of said lighters were employees of the carrier

with due authority to undertake the transportation and to sign the

documents that may be necessary therefor so much so that the patron of

LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein

as follows: .

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND

COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel

Navigator. FINAL DESTINATION: Boston.

The fact that the carrier sent its lighters free of charge to take the hemp

from Macleod's wharf at Sasa preparatory to its loading onto the ship

Bowline Knot does not in any way impair the contract of carriage already

entered into between the carrier and the shipper, for that preparatory step

is but part and parcel of said contract of carriage. The lighters were merely


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employed as the first step of the voyage, but once that step was taken and

the hemp delivered to the carrier's employees, the rights and obligations of

the parties attached thereby subjecting them to the principles and usages

of the maritime law. In other words, here we have a complete contract of

carriage the consummation of which has already begun: the shipper

delivering the cargo to the carrier, and the latter taking possession thereof

by placing it on a lighter manned by its authorized employees, under whichMacleod became entitled to the privilege secured to him by law for its safe

transportation and delivery, and the carrier to the full payment of its freight

upon completion of the voyage.

The receipt of goods by the carrier has been said to lie at the foundation of the contract to

carry and deliver, and if actually no goods are received there can be no such contract. The

liability and responsibility of the carrier under a contract for the carriage of goods

commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ...

and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is thecustom to deliver in that way, is a good delivery and binds the vessel receiving the freight,

the liability commencing at the time of delivery to the lighter. ... and, similarly, where

there is a contract to carry goods from one port to another, and they cannot be loaded

directly on the vessel and lighters are sent by the vessel to bring the goods to it, the

lighters are for the time its substitutes, so that the bill of landing is applicable to the goods

as soon as they are placed on the lighters.

... The test as to whether the relation of shipper and carrier had been established is, Had

the control and possession of the cotton been completely surrendered by the shipper to

the railroad company? Whenever the control and possession of goods passes to the carrier

and nothing remains to be done by the shipper, then it can be said with certainty that the

relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333,

30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100,

86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A.

1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).

The claim that there can be no contract of affreightment because the hemp

was not actually loaded on the ship that was to take it from Davao City to

Manila is of no moment, for, as already stated, the delivery of the hemp to

the carrier's lighter is in line with the contract. In fact, the receipt signed bythe patron of the lighter that carried the hemp stated that he was receiving

the cargo "in behalf of S.S. Bowline Knot in good order and condition." On

the other hand, the authorities are to the effect that a bill of lading is not

indispensable for the creation of a contract of carriage.

Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of

lading, although article 350 of the Code of Commerce provides that "the shipper as well as

the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not


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indispensable. As regards the form of the contract of carriage it can be said that provided

that there is a meeting of the minds and from such meeting arise rights and obligations,

there should be no limitations as to form." The bill of lading is not essential to the contract,

although it may become obligatory by reason of the regulations of railroad companies, or

as a condition imposed in the contract by the agreement of the parties themselves. The

bill of lading is juridically a documentary proof of the stipulations and conditions agreed

upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other

words, the Code does not demand, as necessary requisite in the contract of transportation,the delivery of the bill of lading to the shipper, but gives right to both the carrier and the

shipper to mutually demand of each other the delivery of said bill.

The liability of the carrier as common carrier begins with the actual delivery of the goods

for transportation, and not merely with the formal execution of a receipt or bill of lading;

the issuance of a bill of lading is not necessary to complete delivery and acceptance. Even

where it is provided by statute that liability commences with the issuance of the bill of

lading, actual delivery and acceptance are sufficient to bind the carrier.

2. Petitioner disclaims responsibility for the damage of the cargo in question

shielding itself behind the claim offorce majeure or storm which occurred

on the night of October 29, 1952. But the evidence fails to bear this out.

Rather, it shows that the mishap that caused the damage or loss was due,

not to force majeure, but to lack of adequate precautions or measures taken

by the carrier to prevent the loss as may be inferred from the following

findings of the Court of Appeals:

Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had

cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in thesame manner as rain entered "thru tank man-holes", according to the patron of LCT No.

1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be

noted that on the night of the nautical accident there was no storm, flood, or other natural

disaster or calamity. Certainly, winds of 11 miles per hour, although stronger than the

average 4.6 miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot

be classified as storm. For according to Beaufort's wind scale, a storm has wind velocities

of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should

have a velocity of from 55 to 74 miles per hour in order to be classified as storm

The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc.,marine surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-

tight conditions of various buoyancy compartments' (exh. JJJ); and this

report finds confirmation on the above-mentioned admission of two

witnesses for appellant concerning the cracks of the lighter's bottom and

the entrance of the rain water 'thru manholes'." We are not prepared to

dispute this finding of the Court of Appeals.

3. There can also be no doubt that the insurance company can recover from


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the carrier as assignee of the owner of the cargo for the insurance amount it

paid to the latter under the insurance contract. And this is so because since

the cargo that was damaged was insured with respondent company and the

latter paid the amount represented by the loss, it is but fair that it be given

the right to recover from the party responsible for the loss. The instant case,

therefore, is not one between the insured and the insurer, but one between

the shipper and the carrier, because the insurance company merely steppedinto the shoes of the shipper. And since the shipper has a direct cause of

action against the carrier on account of the damage of the cargo, no valid

reason is seen why such action cannot be asserted or availed of by the

insurance company as a subrogee of the shipper. Nor can the carrier set up

as a defense any defect in the insurance policy not only because it is not a

privy to it but also because it cannot avoid its liability to the shipper under

the contract of carriage which binds it to pay any loss that may be caused to

the cargo involved therein. Thus, we find fitting the following comments ofthe Court of Appeals:

It was not imperative and necessary for the trial court to pass upon the question of

whether or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-

134 isued by appellee. Appellant was neither a party nor privy to this insurance contract,

and therefore cannot avail itself of any defect in the policy which may constitute a valid

reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway,

whatever defect the policy contained, if any, is deemed to have been waived by the

subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in

its capacity as a common carrier, and appellee is suing as the assignee of the shipperpursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and

Company of the Philippines for the los or damage to the 1,162 bales of hemp after these

were received in good order and condition by the patron of appellant's LCT No. 1025, it

necessarily follows that appellant is likewise liable to appellee who, as assignee of

Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from

appellant the payment for the loss and damage aforecited.

4. It should be recalled in connection with this issue that during the trial of

this case the carrier asked the lower court to order the production of the

books of accounts of the Odell Plantation containing the charges it made for

the loss of the damaged hemp for verification of its accountants, but later it

desisted therefrom on the claim that it finds their production no longer

necessary. This desistance notwithstanding, the shipper however pre-sented

other documents to prove the damage it suffered in connection with the

cargo and on the strength thereof the court a quo ordered the carrier to pay

the sum of P60,421.02. And after the Court of Appeals affirmed this award


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upon the theory that the desistance of the carrier from producing the books

of accounts of Odell Plantation implies an admission of the correctness of

the statements of accounts contained therein, petitioner now contends that

the Court of Appeals erred in basing the affirmance of the award on such

erroneous interpretation.

There is reason to believe that the act of petitioner in waiving its right to

have the books of accounts of Odell Plantation presented in court is

tantamount to an admission that the statements contained therein are

correct and their verification not necessary because its main defense here,

as well as below, was that it is not liable for the loss because there was no

contract of carriage between it and the shipper and the loss caused, if any,

was due to a fortuitous event. Hence, under the carrier's theory, the

correctness of the account representing the loss was not so material as

would necessitate the presentation of the books in question. At any rate,

even if the books of accounts were not produced, the correctness of the

accounts cannot now be disputed for the same is supported by the original

documents on which the entries in said books were based which were

presented by the shipper as part of its evidence. And according to the Court

of Appeals, these documents alone sufficiently establish the award of

P60,412.02 made in favor of respondent.

5. Finally, with regard to the question concerning the personality of the

insurance company to maintain this action, we find the same of no

importance, for the attorney himself of the carrier admitted in open court

that it is a foreign corporation doing business in the Philippines with a

personality to file the present action.

WHEREFORE, the decision appealed from is affirmed, with costs against

petitioner.

LU DO vs. I. V. BINAMIRA

On April 4, 1954, plaintiff filed an action in the Court of First Instance of

Cebu against defendant to recover the sum of P324.63 as value of certain

missing shipment, P150 as actual and compensatory damages, and P600 as

moral and pecuniary damages. After trial, the court rendered judgment

ordering defendant to pay plaintiff the sum of P216.84, with legal interest.

On appeal, the Court of Appeals affirmed the judgment, hence the present

petition for review.

On August 10, 1951, the Delta Photo Supply Company of New York shipped


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on board the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or

photographic supplies consigned to the order of respondent I. V. Binamira.

For this shipment, Bill of Lading No. 29 was issued. The ship arrived at the

port of Cebu on September 23, 1951 and discharged her cargo on

September 23, and 24, 1951, including the shipment in question, placing it

in the possession and custody of the arrastre operator of said port, the

Visayan Cebu Terminal Company, Inc.

Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc.

to unload its cargo. During the discharge, good order cargo was separated

from the bad order cargo on board the ship, and a separate list of bad order

cargo was prepared by Pascual Villamor, checker of the stevedoring

company. All the cargo unloaded was received at the pier by the Visayan

Cebu Terminal Company Inc, arrastre operator of the port. This terminal

company had also its own checker, Romeo Quijano, who also recorded and

noted down the good cargo from the bad one. The shipment in question,

was not included in the report of bad order cargo of both checkers,

indicating that it was discharged from the, ship in good order and condition.

On September 26, 1951, three days after the goods were unloaded from the

ship, respondent took delivery of his six cases of photographic supplies from

the arrastre operator. He discovered that the cases showed signs of

pilferage and, consequently, he hired marine surveyors, R. J. del Pan &

Company, Inc., to examine them. The surveyors examined the cases and

made a physical count of their contents in the presence of representatives

of petitioner, respondent and the stevedoring company. The surveyors

examined the cases and made a physical count of their contents in the

presence of representatives of petitioner, respondent and the stevedoring

company. The finding of the surveyors showed that some films and

photographic supplies were missing valued at P324.63.

It appears from the evidence that the six cases of films and photographic

supplies were discharged from the ship at the port of Cebu by thestevedoring company hired by petitioner as agent of the carrier. All the

unloaded cargo, including the shipment in question, was received by the

Visayan Cebu Terminal Company Inc., the arrastre operator appointed by

the Bureau of Customs. It also appears that during the discharge, the cargo

was checked both by the stevedoring company hired by petitioner as well as

by the arrastre operator of the port, and the shipment in question, when

discharged from the ship, was found to be in good order and condition. But


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after it was delivered to respondent three days later, the same was

examined by a marine surveyor who found that some films and supplies

were missing valued at P324.63.

The question now to be considered is: Is the carrier responsible for the loss

considering that the same occurred after the shipment was discharged from

the ship and placed in the possession and custody of the customs

authorities?

The Court of Appeals found for the affirmative, making on this point the

following comment:

In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in

the same condition in which it received them. Except where the loss, destruction or

deterioration of the merchandise was due to any of the cases enumerated in Article 1734

of the new Civil Code, a carrier is presumed to have been at fault and to have acted

negligently, unless it could prove that it observed extraordinary diligence in the care and

handling of the goods (Article 1735, supra). Such presumption and the liability of thecarrier attach until the goods are delivered actually or constructively, to the consignee, or

to the person who has a right to receive them (Article 1736, supra), and we believe

delivery to the customs authorities is not the delivery contemplated by Article 1736, supra,

in connection with second paragraph of Article 1498, supra, because, in such a case, the

goods are then still in the hands of the Government and their owner could not exercise

dominion whatever over them until the duties are paid. In the case at bar, the presumption

against the carrier, represented appellant as its agent, has not been successfully rebutted.

It is now contended that the Court of Appeals erred in its finding not only

because it made wrong interpretation of the law on the matter, but also

because it ignored the provisions of the bill of lading covering the shipment

wherein it was stipulated that the responsibility of the carrier is limited only

to losses that may occur while the cargo is still under its custody and

control.

We believe this contention is well taken. It is true that, as a rule, a common

carrier is responsible for the loss, destruction or deterioration of the goods it

assumes to carry from one place to another unless the same is due to any

to any of the causes mentioned in Article 1734 on the new Civil Code, and

that, if the goods are lost, destroyed or deteriorated, for causes other that

those mentioned, the common carrier is presumed to have been at fault or

to have acted negligently, unless it proves that it has observed

extraordinary diligence in their care (Article 1735, Idem.), and that this

extraordinary liability lasts from the time the goods are placed in the

possession of the carrier until they are delivered to the consignee, or "to the


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person who has the right to receive them" (Article 1736, Idem.), but these

provisions only apply when the loss, destruction or deterioration takes place

while the goods are in the possession of the carrier, and not after it has lost

control of them. The reason is obvious. While the goods are in its

possession, it is but fair that it exercise extraordinary diligence in protecting

them from damage, and if loss occurs, the law presumes that it was due to

its fault or negligence. This is necessary to protect the interest the interestof the owner who is at its mercy. The situation changes after the goods are

delivered to the consignee.

While we agree with the Court of Appeals that while delivery of the cargo to

the consignee, or to the person who has a right to receive them",

contemplated in Article 1736, because in such case the goods are still in the

hands of the Government and the owner cannot exercise dominion over

them, we believe however that the parties may agree to limit the liability of

the carrier considering that the goods have still to through the inspection of

the customs authorities before they are actually turned over to the

consignee. This is a situation where we may say that the carrier losses

control of the goods because of a custom regulation and it is unfair that it

be made responsible for what may happen during the interregnum. And this

is precisely what was done by the parties herein. In the bill of lading that

was issued covering the shipment in question, both the carrier and the

consignee have stipulated to limit the responsibility of the carrier for the

loss or damage that may because to the goods before they are actuallydelivered by insert in therein the following provisions:

1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery

or misdelivery, or loss of or damage to the goods occurring while the goods are not in the

actual custody of the Carrier. . . .

2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the goods

shall be considered to be delivered and at their own risk and expense in every respect

when taken into the custody of customs or other authorities. The Carrier shall not be

required to give any notification of disposition of the goods. . . .3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at

ship's tackle . . . and delivery beyond ship's tackle shall been tirely at the option of the

Carrier and solely at the expense of the shipper or consignee.

It therefore appears clear that the carrier does not assume liability for any

loss or damage to the goods once they have been "taken into the custody of

customs or other authorities", or when they have been delivered at ship's

tackle. These stipulations are clear. They have been adopted precisely to


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mitigate the responsibility of the carrier considering the present law on the

matter, and we find nothing therein that is contrary to morals or public

policy that may justify their nullification. We are therefore persuaded to

conclude that the carrier is not responsible for the loss in question, it

appearing that the same happened after the shipment had been delivered

to the customs authorities.

Wherefore, the decision appealed from is reversed, without pronouncement

as to costs.

AMERICAN PRESIDENT VS. RICHARD A. KLEPPER

Richard A. Klepper brought this action before the Court of First Instance of

Manila to recover the sum of P6,729.50 as damages allegedly sustained by

his goods contained in a lift van which fell to the ground while being

unloaded from a ship owned and operated by the American President Lines,Ltd. to the pier, plus the sum of P2,000.00 as sentimental value of the

damaged goods and attorney's fees.

It appears that on February 17, 1955, Klepper shipped on board the S. S.

President Cleveland at Yokohama, Japan one lift van under bill of lading No.

82, containing personal and household effects. The ship arrived in the port

of Manila on February 22, 1955 and while the lift van was being unloaded by

the Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and

its contents were spilled and scattered. A survey was made and the result

was that Klepper suffered damages totalling P6,729.50 arising out of the

breakage, denting and smashing of the goods.

The trial court, on November 5, 1957, rendered decision ordering the

shipping company to pay plaintiff the sum of P6,729.50, value of the goods

damaged, plus P500.00 as their sentimental, value, with legal interest from

the filing of the complaint, and the sum of P1,000.00 as attorney's fees. The

court ordered that, once the judgment is satisfied, co-defendant DeJgado

Brothers, Inc. should pay the shipping company the same amounts by way

of reimbursement. Both defendants appealed to the Court of Appeals which

affirmed in toto the decision of the trial court. The shipping company

interposed the present petition for review.

Anent the liability of petitioner relative to the damage caused to the goods

in question, the Court of Appeals made the following comment: "At the

outset, it may be well to state that the party primarily liable to plaintiff ia


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appellant American President Lines, Ltd., the carrier whose,duty it, was to

deliver the cargo in good order to the consignee. Articles 1734, 1736, Civil

Code; Articles 355, 363, Code of Commerce. This appellant does not

question the finding below that the damage to plaintiff's goods was due to

negligence."

To this we agree. And we may add that, regardless of its negligence, the

shipping company's liability would attach because being a common carrier

its responsibility is extra-ordinary and lasts from the time the goods are

placed in its possession until they are delivered, actually or constructively,

to the consignee or to the person who has a right to receive them (Article

1736, Idem.) It can only be exempt therefrom for causes enumerated in

Article 1734.

But, while petitioner does not dispute its liability as common carrier, it

however contends that the same cannot exceed $500.00 invoking in itsfavor the bill of lading Exhibit A and Section 4(5) of the Carriage of Goods by

Sea Act (Commonwealth Act No. 65).

The pertinent provision of the bill of lading alluded to is clause 17 which in

part provides:

"17. In case of any loss or damage to or in connection with goorls exceeding in actual

value $500 lawful money of the United State, per package. * * * the value of the

goods shall be deemed to be SoOil per package * * * on which basis the freight is

adjusted and the Carrier's liability, if any, shall be determined on the basis of a valutaof $500 per package * * * or pro rata in case of partial" loss or damage, unless the

nature of the goods and a valuation higher tlian $500 shall have been declared in

writing by the shipper upon delivery to the Carrier and inserted in this bill of lading

and extra freight paid if required and in such case if the actual value of the goods per

package * * * shall exceed such declared value, the value shall nevertheless be

deemed to be the declared value and the Carrier's liability, if any, shall not exceed the

declared value and any partia loss or damage shall be adjusted pro rata on the basis

of such declared valued."

While it is apparent from the above that the carrier has expressly agreedthat in case of any loss or damage to the goods in question exceeding the

sum of $500.00 per package the extent of its liability shall be deemed to be

merely $500.00 per package, and not more, the Court of Appeals ruled out

the above stipulation, holding that the same is not binding upon the shipper.

Its reasoning follows: "Neither plaintiff nor any agent of his signed the bill of

lading; neither has agreed to the two clauses just recited. In fact, plaintiff

received the bill of lading only after, he had arrived at Manila. In this posture


14/99

and lifting from the decision of the Supreme Court in Mirasol vs. Robert

Dollar Co., 53 Phil., 124, 128, we hold that plaintiff 'was not legally bound by

the clause which purports to limit defendants' liability' ". Petitioner now

assigns this finding as an error.

We are inclined to agree to this contention. Firstly, we cannot but take note

of the following clause printed in red ink that appears on the very face of

the bill of lading: "in accepting this bill of lading the shipper, consignee and

owner of the goods agree to be bound by all its stipulations, exceptions, and

conditions whether written, printed, or stamped on the front or back hereof,

any local customs or privileges to the contrary notwithstanding." This clause

is very revealing. It says that a shipper or consignee who accepts the bill of

lading becomes bound by all stipulations contained therein whether on the

front or back thereof. Respondent cannot elude its provisions simply

because they prejudice him and take advantage of those that are beneficial.

Secondly, the fact that respondent shipped his goods on board the ship of

petitioner and paid the corresponding freight thereon shows that he im-

pliedly accepted the bill of ladingwhich was issued in connection with the

shipment in question, and so it may be said that the same is binding upon

him as if it has been actually signed by him or by any other person in his

behalf. This is more so where respondent is both the shipper and the

consignee of the goods in question. These circumstances take this case out

of our ruling in the Mirasol case (invoked by the Court of Appeals) and

places it within our doctrine in the case of Mendoza vs. Philippine Air Lines,Inc., (90 Phil., 836), where we said:

"* * * Later, as already said, he says that he was never a party to he contract of

transportation and was a complete stranger to it, that he is now suing on a tort or a

violation of his rights as stranger (culpa aquiliana). If he does not invoke the contract

of carriage entered into with the defendant company, then he would ftsrdly have any

leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems

and is derived from the contract of carriage under which contract, the PAL undertook

to carry the can of film safely and to deliver it to him promptly. Take away or ignore

that contract and the obligation to carry and to deliver the right to prompt delivery

disappear. Common carriers are not obligated by law to carry and to deliver

merchandise, and persons are not vested with the Tight to prompt delivery, unless

such common carriers previously assume the1' obligation. Said rights and obligations

are created by a specific contract entered into by the parties.

"Here, the contract of carriage between the LVN Pictures Inc. and the defendant

carrier contains the stipulations of delivery to Mendoza as consignee. His demand for

the delivery of the can of film to him at the Pili Air Port may be regarded as a notice of


15/99

his acceptance of the stipulation of the delivery in his favor contained in the contract

of carriage, such demand being one for the fulfillment of the contract of carriage and

delivery. In this case he also made himself a party to the contract, or at least has

come to court to enforce it. His cause of action must necessarily be founded on its

breach."

With regard to the contention tKat the Carriage of Goods by Sea Act should

also control this case, the same is of no moment. Article 1753[1] provides

that the law of the country to which the goods are to be transported shall

govern the liability of the common carrier in case of loss, destruction or

deterioration. This means the law of the Philippines, or our new Civil Code.

Under Article 1766, "In all matters not regulated by this Code, the rights and

obligations of common carriers shall be governed by the Code of Commerce

and by special laws," and here we have provisions that govern said rights

and obligations (Articles 1736, 1737, and 1738). Therefore, although Section

4(5) of the Carriage of Goods by Sea Act states that the carrier shall not beliable in an amount exceeding $ 500.00 pet package unless the value of the

goods had been declared by the shipper and inserted in the bill of lading,

said section is merely Wppletory to the provisions of the Civil Code. In this

respect, we agree to the opinion of the Court of Appeals.

On the strength of the opinion we have above expressed, sve are

constrained to rule that the liability of the carrier with regard to the damage

of the goods should only be limited to $500.00 contrary to the conclusion

reached by the Court of Appeals.

Wherefore, with the modification that petitioner shipping company should

only pay to respondent the sum of $500.00 as value of the goods damaged,

the decision appealed from should be affirmed in all other respects, without

pronouncement as to costs.

EASTERN SHIPPING vs.HON. COURT OF APPEALS

The issues, albeitnot completely novel, are: (a) whether or not a claim for

damage sustained on a shipment of goods can be a solidary, or joint andseveral, liability of the common carrier, the arrastre operator and the

customs broker; (b) whether the payment of legal interest on an award for

loss or damage is to be computed from the time the complaint is filed or

from the date the decision appealed from is rendered; and (c) whether the

applicable rate of interest, referred to above, is twelve percent (12%) or six

percent (6%).


16/99

The findings of the court a quo, adopted by the Court of Appeals, on the

antecedent and undisputed facts that have led to the controversy are

hereunder reproduced:

This is an action against defendants shipping company, arrastre operator

and broker-forwarder for damages sustained by a shipment while in

defendants' custody, filed by the insurer-subrogee who paid the consignee

the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from

Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by

defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B).

The shipment was insured under plaintiff's Marine Insurance Policy No.

81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was

discharged unto the custody of defendant Metro Port Service, Inc. The latterexcepted to one drum, said to be in bad order, which damage was unknown

to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the

shipment from defendant Metro Port Service, Inc., one drum opened and

without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made

deliveries of the shipment to the consignee's warehouse. The latter

excepted to one drum which contained spillages, while the rest of the

contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum,

the consignee suffered losses totaling P19,032.95, due to the fault and

negligence of defendants. Claims were presented against defendants who

failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the

consignee P19,032.95 under the aforestated marine insurance policy, sothat it became subrogated to all the rights of action of said consignee

against defendants (per "Form of Subrogation", "Release" and Philbanking

check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts.

Here, the appellate court said:

Defendants filed their respective answers, traversing the material


17/99

allegations ofthe complaint contending that: As for defendant Eastern Shipping italleged that the shipment was discharged in good order from the vessel unto the custody

of Metro Port Service so that any damage/losses incurred after the shipment was incurred

after the shipment was turned over to the latter, is no longer its liability (p. 17, Record);

Metroport averred that although subject shipment was discharged unto its custody, portion

of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff

has no cause of action against it, not having negligent or at fault for the shipment was

already in damage and bad order condition when received by it, but nonetheless, it still

exercised extra ordinary care and diligence in the handling/delivery of the cargo to

consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants

(in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's

pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages.

The two drums were shipped in good order and condition, as clearly shown by the Bill of

Lading and Commercial Invoice which do not indicate any damages drum that was shipped

(Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant

Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained

while in the respective and/or successive custody and possession of defendants carrier(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes

evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes",

are considered. In the latter notes, it is stated that when the shipment was "landed on

vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed

that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad

Order Tally Sheet No. 86427." The report further states that when defendant Allied

Brokerage withdrew the shipment from defendant arrastre operator's custody on January

7, 1982, one drum was found opened without seal, cello bag partly torn but contents

intact. Net unrecovered spillages was

15 kgs. The report went on to state that when the drums reached the consignee, one drum

was found with adulterated/faked contents. It is obvious, therefore, that these

losses/damages occurred before the shipment reached the consignee while under the

successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common

carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full

force and effect even if the goods are temporarily unloaded and stored in transit in the

warehouse of the carrier at the place of destination, until the consignee has been advised

and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).

Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes"


18/99

(Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12%per annum from

October 1, 1982, the date of filing of this complaints, until fully paid (the liability of

defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the

loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to

the extent of the actual invoice value of each package, crate box or container in no case to

exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied

Brokerage Corporation.

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn

therefrom is correct. As there is sufficient evidence that the shipment sustained damage

while in the successive possession of appellants, and therefore they are liable to the

appellee, as subrogee for the amount it paid to the consignee.

The Court of Appeals thus affirmed in toto the judgment of the court

a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes

error and grave abuse of discretion on the part of the appellate court when

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE

ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE

RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE

RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE

COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF

FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE

RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEINGINDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by

petitioner carrier are not all that novel. Indeed, we do have a fairly good

number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the


19/99

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 (Arts. 1736-1738,

Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar

Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or

arrive in damaged condition, a presumption arises against the carrier of itsfailure to observe that diligence, and there need not be an express finding

of negligence to hold it liable (Art. 1735, Civil Code; Philippine National

Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of

Appeals, 131 SCRA 365). There are, of course, exceptional cases when such

presumption of fault is not observed but these cases, enumerated in Article

17341of the Civil Code, are exclusive, not one of which can be applied to

this case.

The question of charging both the carrier and the arrastre operator with the

obligation of properly delivering the goods to the consignee has, too, been

passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port

Services (182 SCRA 455), we have explained, in holding the carrier and the

arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a

depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The

relationship between the consignee and the common carrier is similar to that of the

consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.

253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are

in its custody and to deliver them in good condition to the consignee, such responsibility

also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore

charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre

operator and the customs broker are themselves always and necessarily

liable solidarily with the carrier, or vice-versa, nor that attendant facts in a

given case may not vary the rule. The instant petition has been broughtsolely by Eastern Shipping Lines, which, being the carrier and not having

been able to rebut the presumption of fault, is, in any event, to be held

liable in this particular case. A factual finding of both the court a quo and

the appellate court, we take note, is that "there is sufficient evidence that

the shipment sustained damage while in the successive possession of

appellants" (the herein petitioner among them). Accordingly, the liability

imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is


20/99

inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that

deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case ofMalayan Insurance Co., Inc., vs. Manila Port

Service,2decided3on 15 May 1969, involved a suit for recovery of money

arising out of short deliveries and pilferage of goods. In this case, appellee

Malayan Insurance (the plaintiff in the lower court) averred in its complaint

that the total amount of its claim for the value of the undelivered goods

amounted to P3,947.20. This demand, however, was neither established in

its totality nor definitely ascertained. In the stipulation of facts later entered

into by the parties, in lieu of proof, the amount of P1,447.51 was agreed

upon. The trial court rendered judgment ordering the appellants

(defendants) Manila Port Service and Manila Railroad Company to pay

appellee Malayan Insurance the sum of P1,447.51 with legal interest

thereon from the date the complaint was filed on 28 December 1962 until

full payment thereof. The appellants then assailed, inter alia, the award of

legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is

the legal rate. Such interest normally is allowable from the date of demand, judicial or

extrajudicial. The trial court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be

recovered upon unliquidated claims or damages, except when the demand can be

established with reasonable certainty." And as was held by this Court in Rivera vs. Perez,4

L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until

definitely ascertained, assessed and determined by the courts after proof (Montilla c.

Corporacion de P.P.Agustinos, 25 Phil. 447; Lichauco v. Guzman,

38 Phil. 302)," then, interest"should be from the date of the decision." (Emphasis

supplied)

The case ofReformina vs. Tomol,5rendered on 11 October 1985, was for"Recovery of Damages for Injury to Person and Loss of Property." After trial,

the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party

defendants and against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly

and severally the following persons:

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is


21/99

the value of the boat F B Pacita III together with its accessories, fishing gear and

equipment minus P80,000.00 which is the value of the insurance recovered and the

amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result

of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of

P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until

paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party

plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded

but sustained the trial court in adjudging legal interest from the filing of the complaint

until fully paid. When the appellate court's decision became final, the case was remanded

to the lower court for execution, and this was when the trial court issued its assailed

resolution which applied the 6% interestper annum prescribed in Article 2209 of the Civil

Code. In their petition for review on certiorari, the petitioners contended that Central Bank

Circular

No. 416, providing thus

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary

Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of

interest for the loan, or forbearance of any money, goods, or credits and the rate allowed

in judgments, in the absence of express contract as to such rate of interest, shall be twelve

(12%) percentper annum. This Circular shall take effect immediately. (Emphasis found in

the text)

should have, instead, been applied. This Court6ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or

forbearance of any money, goods or credits. Any other kind of monetary judgment which

has nothing to do with, nor involving loans or forbearance of any money, goods or creditsdoes not fall within the coverage of the said law for it is not within the ambit of the

authority granted to the Central Bank.

Coming to the case at bar, the decision herein sought to be executed is one rendered in an

Action for Damages for injury to persons and loss of property and does not involve any

loan, much less forbearances of any money, goods or credits. As correctly argued by the

private respondents, the law applicable to the said case is Article 2209 of the New Civil

Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor

incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall

be the payment of interest agreed upon, and in the absence of stipulation, the legal

interest which is six percentper annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7

promulgated on 28 July 1986. The case was for damages occasioned by an

injury to person and loss of property. The trial court awarded private

respondent Pedro Manabat actual and compensatory damages in the


22/99

amount of P72,500.00 with legal interest thereon from the filing of the

complaint until fully paid. Relying on the Reformina v. Tomol case, this Court

8modified the interest award from 12% to 6% interest per annum but

sustained the time computation thereof, i.e., from the filing of the complaint

until fully paid.

In Nakpil and Sons vs. Court of Appeals,9the trial court, in an action for therecovery of damages arising from the collapse of a building, ordered,

inter alia, the "defendant United Construction Co., Inc. (one of the

petitioners)

. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the

legal rate from November 29, 1968, the date of the filing of the complaint

until full payment. . . ." Save from the modification of the amount granted

by the lower court, the Court of Appeals sustained the trial court's decision.

When taken to this Court for review, the case, on 03 October 1986, wasdecided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special

and environmental circumstances of this case, we deem it reasonable to render a decision

imposing, as We do hereby impose, upon the defendant and the third-party defendants

(with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)

Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss

of the building (including interest charges and lost rentals) and an additional ONE

HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum beingpayable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%)

per cent interest per annum shall be imposed upon aforementioned amounts from finality

until paid. Solidary costs against the defendant and third-party defendants (Except Roman

Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the

interest of twelve (12%) per centper annum imposed on the total amount of the monetary

award was in contravention of law." The Court10ruled out the applicability of the

Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it

explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank

Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any

money, goods or credit; and

(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or

forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143

SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the

instant case, there is neither a loan or a forbearance, but then no interest is actually

imposed provided the sums referred to in the judgment are paid upon the finality of the


23/99

judgment. It is delay in the payment of such final judgment, that will cause the imposition

of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the

total sum, from the filing of the complaint until paid; in other words, aspart of the

judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis

supplied.)

The subsequent case ofAmerican Express International, Inc., vs.

Intermediate Appellate Court11was a petition for review on certiorari from

the decision, dated 27 February 1985, of the then Intermediate Appellate

Court reducing the amount of moral and exemplary damages awarded by

the trial court, to P240,000.00 and P100,000.00, respectively, and its

resolution, dated 29 April 1985, restoring the amount of damages awarded

by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as

exemplary damages with interest thereon at 12% per annum from notice of

judgment, plus costs of suit. In a decision of 09 November 1988, this Court,while recognizing the right of the private respondent to recover damages,

held the award, however, for moral damages by the trial court, later

sustained by the IAC, to be inconceivably large. The Court12thus set aside

the decision of the appellate court and rendered a new one, "ordering the

petitioner to pay private respondent the sum of One Hundred Thousand

(P100,000.00) Pesos as moral damages, with

six (6%) percent interest thereon computed from the finality of this decision

until paid.

Reformina came into fore again in the 21 February 1989 case ofFlorendo v.

Ruiz13which arose from a breach of employment contract. For having

been illegally dismissed, the petitioner was awarded by the trial court moral

and exemplary damages without, however, providing any legal interest

thereon. When the decision was appealed to the Court of Appeals, the latter

held:

WHEREFORE, except as modified hereinabove the decision of theCFI of Negros Oriental dated October 31, 1972 is affirmed in all

respects, with the modification that defendants-appellants, except

defendant-appellant Merton Munn, are ordered to pay, jointly and

severally, the amounts stated in the dispositive portion of the

decision, including the sum of P1,400.00 in concept of

compensatory damages, with interest at the legal rate from the

date of the filing of the complaint until fully paid (Emphasis


24/99

supplied.)

The petition for review to this Court was denied. The records were

thereupon transmitted to the trial court, and an entry of judgment was

made. The writ of execution issued by the trial court directed that only

compensatory damages should earn interest at 6%per annum from

the date of the filing of the complaint. Ascribing grave abuse of

discretion on the part of the trial judge, a petition for certiorari assailed

the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the

payment of interest "at the legal rate" from the time of the filing

of the complaint. . . Said circular [Central Bank Circular No. 416]

does not apply to actions based on a breach of employment

contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interestper annum on the damagesshould be computed from the time the complaint was filed until the

amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter.

National Power Corporation vs.Angas,14decided on 08 May 1992, involved

the expropriation of certain parcels of land. After conducting a hearing on

the complaints for eminent domain, the trial court ordered the petitioner to

pay the private respondents certain sums of money as just compensation

for their lands so expropriated "with legal interest thereon . . . until fully

paid." Again, in applying the 6% legal interestper annum under the Civil

Code, the Court15declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or

credits but expropriation of certain parcels of land for a public purpose, the payment of

which is without stipulation regarding interest, and the interest adjudged by the trial court

is in the nature of indemnity for damages. The legal interest required to be paid on the

amount of just compensation for the properties expropriated is manifestly in the form of

indemnity for damages for the delay in the payment thereof. Therefore, since the kind ofinterest involved in the joint judgment of the lower court sought to be enforced in this case

is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the

Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The

cases can perhaps be classified into two groups according to the similarity

of the issues involved and the corresponding rulings rendered by the court.

The "first group" would consist of the cases ofReformina v. Tomol (1985),


25/99

Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz(1989)

and National Power Corporation v.Angas (1992). In the "second group"

would be Malayan Insurance Company v. Manila Port Service (1969), Nakpil

and Sons v. Court of Appeals (1988), andAmerican Express International v.

Intermediate Appellate Court(1988).

In the "first group", the basic issue focuses on the application of either the

6% (under the Civil Code) or 12% (under the Central Bank Circular) interest

per annum. It is easily discernible in these cases that there has been a

consistent holding that the Central Bank Circular imposing the 12% interest

per annum applies only to loans or forbearance16of money, goods or

credits, as well as to judgments involving such loan or forbearance of

money, goods or credits, and that the 6% interest under the Civil Code

governs when the transaction involves the payment of indemnities in the

concept of damage arising from the breach or a delay in the performance ofobligations in general. Observe, too, that in these cases, a common time

frame in the computation of the 6% interestper annum has been applied,

i.e., from the time the complaint is filed until the adjudged amount is fully

paid.

The "second group", did not alter the pronounced rule on the application of

the 6% or 12% interestper annum,17depending on whether or not the

amount involved is a loan or forbearance, on the one hand, or one of

indemnity for damage, on the other hand. Unlike, however, the "first group"which remained consistent in holding that the running of the legal interest

should be from the time of the filing of the complaint until fully paid, the

"second group" varied on the commencement of the running of the legal

interest.

Malayan held that the amount awarded should bear legal interest from the

date of the decision of the court a quo, explaining that "if the suit were for

damages, 'unliquidated and not known until definitely ascertained, assessed

and determined by the courts after proof,' then, interest 'should be from thedate of the decision.'"American Express International v. IAC, introduced a

different time frame for reckoning the 6% interest by ordering it to be

"computed from the finality of (the) decision until paid." The Nakpil and

Sons case ruled that 12% interestper annum should be imposed from the

finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances


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may have called for different applications, guided by the rule that the courts

are vested with discretion, depending on the equities of each case, on the

award of interest. Nonetheless, it may not be unwise, by way of clarification

and reconciliation, to suggest the following rules of thumb for future

guidance.

I. 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 damages.The provisions under Title XVIII on "Damages" of the

Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual

and compensatory damages, the rate of interest, as well as the accrual

thereof, is imposed, as follows:

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 bethat 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 courtat 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 beenreasonably 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


27/99

an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is

AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX

PERCENT (6%) on the amount due computed from the decision, dated 03

February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu

of SIX PERCENT (6%), shall be imposed on such amount upon finality of this

decision until the payment thereof.

SHEWARAM VPHILIPPINE AIR LINES

Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand

Shewaram instituted an action to recover damages suffered by him due to

the alleged failure of defendant-appellant Philippines Air Lines, Inc. to ob-

serve extraordinary diligence in the vigilance and carriage of his luggage.

After trial the municipal court of Zamboanga City rendered judgment order-

ing the appellant to pay appellee P373.00 as actual damages, P100.00 as

exemplary damages, P150.00 as attorney's fees, and the costs of the action.

Appellant Philippine Air Lines appealed to the Court of First Instance of Zam-

boanga City. After hearing the Court of First Instance of Zamboanga City

modified the judgment of the inferior court by ordering the appellant to pay

the appellee only the sum of P373.00 as actual damages, with legal interest

from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating

the award of exemplary damages.

From the decision of the Court of First Instance of Zamboanga City, appel-

lant appeals to this Court on a question of law, assigning two errors alleged-

ly committed by the lower court a quo, to wit:

1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions

of the tariff regulations filed by defendant-appellant with the civil aeronautics board and

the conditions of carriage printed at the back of the plane ticket stub.

2. The lower court erred in not dismissing this case or limiting the liability of the defen-dant-appellant to P100.00.

The facts of this case, as found by the trial court, quoted from the decision

appealed from, are as follows:

That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959,

a paying passenger with ticket No. 4-30976, on defendant's aircraft flight

No. 976/910 from Zamboanga City bound for Manila; that defendant is a


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common carrier engaged in air line transportation in the Philippines, offering

its services to the public to carry and transport passengers and cargoes

from and to different points in the Philippines; that on the above-mentioned

date of November 23, 1959, he checked in three (3) pieces of baggages a

suitcase and two (2) other pieces; that the suitcase was mistagged by de-

fendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim

check No. B-3883, instead of MNL (for Manila). When plaintiff ParmanandShewaram arrived in Manila on the date of November 23, 1959, his suitcase

did not arrive with his flight because it was sent to Iligan. So, he made a

claim with defendant's personnel in Manila airport and another suitcase sim-

ilar to his own which was the only baggage left for that flight, the rest hav-

ing been claimed and released to the other passengers of said flight, was

given to the plaintiff for him to take delivery but he did not and refused to

take delivery of the same on the ground that it was not his, alleging that all

his clothes were white and the National transistor 7 and a Rollflex camerawere not found inside the suitcase, and moreover, it contained a pistol

which he did not have nor placed inside his suitcase; that after inquiries

made by defendant's personnel in Manila from different airports where the

suitcase in question must have been sent, it was found to have reached Ili-

gan and the station agent of the PAL in Iligan caused the same to be sent to

Manila for delivery to Mr. Shewaram and which suitcase belonging to the

plaintiff herein arrived in Manila airport on November 24, 1959; that it was

also found out that the suitcase shown to and given to the plaintiff for deliv-ery which he refused to take delivery belonged to a certain Del Rosario who

was bound for Iligan in the same flight with Mr. Shewaram; that when the

plaintiff's suitcase arrived in Manila as stated above on November 24, 1959,

he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the

Manila airport of the arrival of his suitcase but of course minus his Transistor

Radio 7 and the Rollflex Camera; that Shewaram made demand for these

two (2) items or for the value thereof but the same was not complied with

by defendant.It is admitted by defendant that there was mistake in tagging the suitcase of

plaintiff as IGN. The tampering of the suitcase is more apparent when on

November 24, 1959, when the suitcase arrived in Manila, defendant's per-

sonnel could open the same in spite of the fact that plaintiff had it under

key when he delivered the suitcase to defendant's personnel in Zamboanga

City. Moreover, it was established during the hearing that there was space in

the suitcase where the two items in question could have been placed. It was


29/99

also shown that as early as November 24, 1959, when plaintiff was notified

by phone of the arrival of the suitcase, plaintiff asked that check of the

things inside his suitcase be made and defendant admitted that the two

items could not be found inside the suitcase. There was no evidence on

record sufficient to show that plaintiff's suitcase was never opened during

the time it was placed in defendant's possession and prior to its recovery by

the plaintiff. However, defendant had presented evidence that it had author-ity to open passengers' baggage to verify and find its ownership or identity.

Exhibit "1" of the defendant would show that the baggage that was offered

to plaintiff as his own was opened and the plaintiff denied ownership of the

contents of the baggage. This proven fact that baggage may and could be

opened without the necessary authorization and presence of its owner, ap-

plied too, to the suitcase of plaintiff which was mis-sent to Iligan City be-

cause of mistagging. The possibility of what happened in the baggage of Mr.

Del Rosario at the Manila Airport in his absence could have also happenedto plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the

Court believes that these two items were really in plaintiff's suitcase and de-

fendant should be held liable for the same by virtue of its contract of car-

riage.

It is clear from the above-quoted portions of the decision of the trial court

that said court had found that the suitcase of the appellee was tampered,

and the transistor radio and the camera contained therein were lost, and

that the loss of those articles was due to the negligence of the employees of

the appellant. The evidence shows that the transistor radio cost P197.00

and the camera cost P176.00, so the total value of the two articles was

P373.00.

There is no question that the appellant is a common carrier.1 As such com-

mon carrier the appellant, from the nature of its business and for reasons of

public policy, is bound to observe extraordinary diligence in the vigilance

over the goods and for the safety of the passengers transported by it ac-cording to the circumstances of each case. 2 It having been shown that the

loss of the transistor radio and the camera of the appellee, costing P373.00,

was due to the negligence of the employees of the appellant, it is clear that

the appellant should be held liable for the payment of said loss.3

It is, however, contended by the appellant that its liability should be limited

to the amount stated in the conditions of carriage printed at the back of the

plane ticket stub which was issued to the appellee, which conditions are em-


30/99

bodied in Domestic Tariff Regulations No. 2 which was filed with the Civil

Aeronautics Board. One of those conditions, which is pertinent to the issue

raised by the appellant in this case provides as follows:

The liability, if any, for loss or damage to checked baggage or for delay in the delivery

thereof is limited to its value and, unless the passenger declares in advance a higher valu-

ation and pay an additional charge therefor, the value shall be conclusively deemed not to

exceed P100.00 for each ticket.

The appellant maintains that in view of the failure of the appellee to declare

a higher value for his luggage, and pay the freight on the basis of said de-

clared value when he checked such luggage at the Zamboanga City airport,

pursuant to the abovequoted condition, appellee can not demand payment

from the appellant of an amount in excess of P100.00.

The law that may be invoked, in this connection is Article 1750 of the New

Civil Code which provides as follows:

A contract fixing the sum that may be recovered by the owner or shipper for the loss, de-

struction, or deterioration of the goods is valid, if it is reasonable and just under the cir-

cumstances, and has been fairly and freely agreed upon.

In accordance with the above-quoted provision of Article 1750 of the New

Civil Code, the pecuniary liability of a common carrier may, by contract, be

limited to a fixed amount. It is required, however, that the contract must be

"reasonable and just under the circumstances and has been fairly and freely

agreed upon."

The requirements provided in Article 1750 of the New Civil Code must be

complied with before a common carrier can claim a limitation of its pecu-

niary liability in case of loss, destruction or deterioration of the goods it has

undertaken to transport. In the case before us We believe that the require-

ments of said article have not been met. It can not be said that the appellee

had actually entered into a contract with the appellant, embodying the con-

ditions as printed at the back of the ticket stub that was issued by the ap-pellant to the appellee. The fact that those conditions are printed at the

back of the ticket stub in letters so small that they are hard to read would

not warrant the presumption that the appellee was aware of those condi-

tions such that he had "fairly and freely agreed" to those conditions. The tri-

al court has categorically stated in its decision that the "Defendant admits

that passengers do not sign the ticket, much less did plaintiff herein sign his

ticket when he made the flight on November 23, 1959." We hold, therefore,


31/99

that the appellee is not, and can not be, bound by the conditions of carriage

found at the back of the ticket stub issued to him when he made the flight

on appellant's plane on November 23, 1959.

The liability of the appellant in the present case should be governed by the

provisions of Articles 1734 and 1735 of the New Civil Code, which We quote

as follows:ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the

goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, 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.1wph1.t

ART. 1735. In all cases other than those mentioned in Nos. 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 ex-

traordinary diligence as required in Article 1733.

It having been clearly found by the trial court that the transistor radio and

the camera of the appellee were lost as a result of the negligence of the ap-

pellant as a common carrier, the liability of the appellant is clear it mustpay the appellee the value of those two articles.

In the case ofYsmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court

in support of its decision, this Court had laid down the rule that the carrier

can not limit its liability for injury to or loss of goods shipped where such in-

jury or loss was caused by its own negligence.

Corpus Juris, volume 10, p. 154, says:

"Par. 194, 6. Reasonableness of Limitations. The validity of stipulations limiting the car-

rier's liability is to be determined by their reasonable

transpo july 23 cases

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