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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-18965 October 30, 1964

COMPAIA MARITIMA, petitioner,vs.INSURANCE COMPANY OF NORTH AMERICA, respondent.

Rafael Dinglasan for petitioner.Ozaeta Gibbs & Ozaeta for respondent.

BAUTISTA ANGELO, J.:

Sometime in October, 1952, Macleod and Company of the Philippines contracted bytelephone the services of the Compaia Maritima, a shipping corporation, for theshipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City toManila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. onboard the S.S. Steel Navigator. This oral contract was later on confirmed by a formaland written booking issued by Macleod's branch office in Sasa and handcarried toCompaia Maritima's branch office in Davao in compliance with which the latter sent toMacleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hempwas completed on October 29, 1952. These two lighters were manned each by apatron and an assistant patron. The patrons of both barges issued the correspondingcarrier'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 fromMACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment atManila 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. OnOctober 30, 1952, Macleod promptly notified the carrier's main office in Manila and itsbranch in Davao advising it of its liability. The damaged hemp was brought to OdellPlantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying.During the period from November 1-15, 1952, the carrier's trucks and lighters hauledfrom Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out

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of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of116,835.00. After reclassification, the value of the reconditioned hemp was reduced toP84,887.28, or a loss in value of P31,947.72. Adding to this last amount the sum ofP8,863.30 representing Macleod's expenses in checking, grading, rebating, and otherfees for washing, cleaning and redrying in the amount of P19.610.00, the total lossadds up to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCTNo. 1025, were insured with the Insurance Company of North America against alllosses and damages. In due time, Macleod filed a claim for the loss it suffered asabove 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 asidefrom being a receipt of the amount paid, was a subrogation agreement betweenMacleod and the insurance company wherein the former assigned to the latter its rightsover the insured and damaged cargo. Having failed to recover from the carrier the sumof 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 renderedjudgment 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 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 thecarrier and the shipper even if the loss occurred when the hemp was loaded on abarge owned by the carrier which was loaded free of charge and was not actuallyloaded 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 sinkingof the barge where it was loaded due to a fortuitous event, storm or natural disasterthat would exempt the carrier from liability?; (3) Can respondent insurance companysue the carrier under its insurance contract as assignee of Macleod in spite of the factthat the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Hasthe Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by thecarrier of the correctness and sufficiency of the shipper's statement of accountscontrary to the burden of proof rule?; and (5) Can the insurance company maintain thissuit 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 thehemp in question from the former's private pier at Sasa, Davao City, to Manila, to besubsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract waslater 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 theservice. It also appears that the patrons of said lighters were employees of the carrierwith due authority to undertake the transportation and to sign the documents that may

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be necessary therefor so much so that the patron of LCT No. 1025 signed the receiptcovering the cargo of hemp loaded therein as follows: .

Received in behalf of S.S. Bowline Knot in good order and condition fromMACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment atManila 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'swharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in anyway impair the contract of carriage already entered into between the carrier and theshipper, for that preparatory step is but part and parcel of said contract of carriage. Thelighters were merely employed as the first step of the voyage, but once that step wastaken and the hemp delivered to the carrier's employees, the rights and obligations ofthe parties attached thereby subjecting them to the principles and usages of themaritime law. In other words, here we have a complete contract of carriage theconsummation of which has already begun: the shipper delivering the cargo to thecarrier, and the latter taking possession thereof by placing it on a lighter manned by itsauthorized employees, under which Macleod became entitled to the privilege securedto him by law for its safe transportation and delivery, and the carrier to the full paymentof its freight upon completion of the voyage.

The receipt of goods by the carrier has been said to lie at the foundation of thecontract to carry and deliver, and if actually no goods are received there can beno such contract. The liability and responsibility of the carrier under a contract for

the carriage of goods commence on theiractual delivery to, orreceipt by, thecarrier oran authorized agent. ... and delivery to a lighter in charge of a vesselfor shipment on the vessel, where it is the custom to deliver in that way, is a gooddelivery and binds the vessel receiving the freight, the liability commencing at thetime of delivery to the lighter. ... and, similarly, where there is a contract to carrygoods from one port to another, and they cannot be loaded directly on the vesseland lighters are sent by the vessel to bring the goods to it, the lighters are for thetime its substitutes, so that the bill of landing is applicable to the goods as soonas they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied)

... The test as to whether the relation of shipper and carrier had been establishedis, Had the control and possession of the cotton been completely surrendered bythe shipper to the railroad company? Whenever the control and possession ofgoods passes to the carrier and nothing remains to be done by the shipper, thenit can be said with certainty that the relation of shipper and carrier has beenestablished. 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).

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The claim that there can be no contract of affreightment because the hemp was notactually loaded on the ship that was to take it from Davao City to Manila is of nomoment, for, as already stated, the delivery of the hemp to the carrier's lighter is in linewith the contract. In fact, the receipt signed by the patron of the lighter that carried thehemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in goodorder and condition." On the other hand, the authorities are to the effect that a bill oflading 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 abill of lading, although article 350 of the Code of Commerce provides that "theshipper as well as the carrier of merchandise or goods may mutua-lly demandthat a bill of lading is not indispensable. As regards the form of the contract ofcarriage it can be said that provided that there is a meeting of the minds and fromsuch meeting arise rights and obligations, there should be no limitations as toform." The bill of lading is not essential to the contract, although it may becomeobligatory 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 oflading is juridically a documentary proof of the stipulations and conditions agreedupon 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 thecontract of transportation, the delivery of the bill of lading to the shipper, but givesright to both the carrier and the shipper to mutually demand of each other thedelivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, PhilippineCommercial Laws, Vol. II, Revised Edition, pp. 12-13)

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 orbill of lading; the issuance of a bill of lading is not necessary to complete deliveryand acceptance. Even where it is provided by statute that liability commenceswith the issuance of the bill of lading, actual delivery and acceptance aresufficient to bind the carrier. (13 C.J.S., p. 288)

2. Petitioner disclaims responsibility for the damage of the cargo in question shieldingitself behind the claim offorce majeure or storm which occurred on the night of October29, 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 forcemajeure, but to lack of adequate precautions or measures taken by the carrier toprevent 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-fatedbarge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admittedsea water in the same manner as rain entered "thru tank man-holes", accordingto the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that thebarge was not seaworthy it should be noted that on the night of the nautical

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accident there was no storm, flood, or other natural disaster or calamity.Certainly, winds of 11 miles per hour, although stronger than the average 4.6miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot beclassified as storm. For according to Beaufort's wind scale, a storm has windvelocities of from 64 to 75 miles per hour; and by Philippine Weather Bureaustandards winds should have a velocity of from 55 to 74 miles per hour in orderto be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore

Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).

The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marinesurveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions ofvarious buoyancy compartments' (exh. JJJ); and this report finds confirmation on theabove-mentioned admission of two witnesses for appellant concerning the cracks ofthe lighter's bottom and the entrance of the rain water 'thru manholes'." We are notprepared to dispute this finding of the Court of Appeals.

3. There can also be no doubt that the insurance company can recover from the carrieras assignee of the owner of the cargo for the insurance amount it paid to the latterunder the insurance contract. And this is so because since the cargo that wasdamaged was insured with respondent company and the latter paid the amountrepresented by the loss, it is but fair that it be given the right to recover from the partyresponsible for the loss. The instant case, therefore, is not one between the insuredand the insurer, but one between the shipper and the carrier, because the insurancecompany merely stepped into the shoes of the shipper. And since the shipper has adirect cause of action against the carrier on account of the damage of the cargo, novalid 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 anydefect in the insurance policy not only because it is not a privy to it but also because itcannot avoid its liability to the shipper under the contract of carriage which binds it topay any loss that may be caused to the cargo involved therein. Thus, we find fitting thefollowing comments of the Court of Appeals:

It was not imperative and necessary for the trial court to pass upon the questionof whether or not the disputed abaca cargo was covered by Marine Open CargoPolicy No. MK-134 isued by appellee. Appellant was neither a party nor privy tothis insurance contract, and therefore cannot avail itself of any defect in thepolicy which may constitute a valid reason for appellee, as the insurer, to rejectthe claim of Macleod, as the insured. Anyway, whatever defect the policycontained, if any, is deemed to have been waived by the subsequent payment ofMacleod's claim by appellee. Besides, appellant is herein sued in its capacity asa common carrier, and appellee is suing as the assignee of the shipper pursuantto exhibit MM. Since, as above demonstrated, appellant is liable to Macleod andCompany of the Philippines for the los or damage to the 1,162 bales of hempafter these were received in good order and condition by the patron of appellant'sLCT No. 1025, it necessarily follows that appellant is likewise liable to appellee

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who, as assignee of Macleod, merely stepped into the shoes of and substi-tutedthe latter in demanding from appellant the payment for the loss and damageaforecited.

4. It should be recalled in connection with this issue that during the trial of this case thecarrier asked the lower court to order the production of the books of accounts of theOdell 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 findstheir production no longer necessary. This desistance notwithstanding, the shipperhowever pre-sented other documents to prove the damage it suffered in connectionwith the cargo and on the strength thereof the court a quo ordered the carrier to paythe sum of P60,421.02. And after the Court of Appeals affirmed this award upon thetheory that the desistance of the carrier from producing the books of accounts of OdellPlantation implies an admission of the correctness of the statements of accountscontained therein, petitioner now contends that the Court of Appeals erred in basingthe affirmance of the award on such erroneous interpretation.

There is reason to believe that the act of petitioner in waiving its right to have thebooks of accounts of Odell Plantation presented in court is tantamount to an admissionthat the statements contained therein are correct and their verification not necessarybecause its main defense here, as well as below, was that it is not liable for the lossbecause there was no contract of carriage between it and the shipper and the losscaused, if any, was due to a fortuitous event. Hence, under the carrier's theory, thecorrectness of the account representing the loss was not so material as wouldnecessitate the presentation of the books in question. At any rate, even if the books ofaccounts 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 bookswere based which were presented by the shipper as part of its evidence. Andaccording to the Court of Appeals, these documents alone sufficiently establish theaward of P60,412.02 made in favor of respondent.

5. Finally, with regard to the question concerning the personality of the insurancecompany to maintain this action, we find the same of no importance, for the attorneyhimself of the carrier admitted in open court that it is a foreign corporation doingbusiness in the Philippines with a personality to file the present action.

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


Manila

EN BANC

G.R. No. L-9840 April 22, 1957

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LU DO & LU YM CORPORATION, petitioner-defendant,vs.I. V. BINAMIRA, respondent-plaintiff.

Ross, Selph, Carrascoso and Janda for petitioner.I. V. Binamira in his own behalf.

BAUTISTA ANGELO, J.:

On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu againstdefendant to recover the sum of P324.63 as value of certain missing shipment, P150as actual and compensatory damages, and P600 as moral and pecuniary damages.

After trial, the court rendered judgment ordering defendant to pay plaintiff the sum ofP216.84, 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 on board

the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographicsupplies consigned to the order of respondent I. V. Binamira. For this shipment, Bill ofLading No. 29 was issued. The ship arrived at the port of Cebu on September 23, 1951and discharged her cargo on September 23, and 24, 1951, including the shipment inquestion, 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 unloadits 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 byPascual Villamor, checker of the stevedoring company. All the cargo unloaded wasreceived at the pier by the Visayan Cebu Terminal Company Inc, arrastre operator ofthe port. This terminal company had also its own checker, Romeo Quijano, who alsorecorded 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 itwas 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. Thesurveyors examined the cases and made a physical count of their contents in thepresence of representatives of petitioner, respondent and the stevedoring company.The surveyors examined the cases and made a physical count of their contents in thepresence of representatives of petitioner, respondent and the stevedoring company.The finding of the surveyors showed that some films and photographic supplies weremissing valued at P324.63.

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It appears from the evidence that the six cases of films and photographic supplies weredischarged from the ship at the port of Cebu by the stevedoring company hired bypetitioner as agent of the carrier. All the unloaded cargo, including the shipment inquestion, was received by the Visayan Cebu Terminal Company Inc., the arrastreoperator appointed by the Bureau of Customs. It also appears that during thedischarge, the cargo was checked both by the stevedoring company hired by petitioneras 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 after it wasdelivered to respondent three days later, the same was examined by a marinesurveyor 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 lossconsidering that the same occurred after the shipment was discharged from the shipand placed in the possession and custody of the customs authorities?

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

In this jurisdiction, a common carrier has the legal duty to deliver goods to aconsignee in the same condition in which it received them. Except where theloss, destruction or deterioration of the merchandise was due to any of the casesenumerated in Article 1734 of the new Civil Code, a carrier is presumed to havebeen at fault and to have acted negligently, unless it could prove that it observedextraordinary diligence in the care and handling of the goods (Article1735, supra). Such presumption and the liability of the carrier attach until thegoods 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 tothe customs authorities is not the delivery contemplated by Article 1736, supra, inconnection with second paragraph of Article 1498,supra, because, in such acase, the goods are then still in the hands of the Government and their ownercould not exercise dominion whatever over them until the duties are paid. In thecase at bar, the presumption against the carrier, represented appellant as itsagent, has not been successfully rebutted.

It is now contended that the Court of Appeals erred in its finding not only because itmade 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 theresponsibility of the carrier is limited only to losses that may occur while the cargo isstill under its custody and control.

We believe this contention is well taken. It is true that, as a rule, a common carrier isresponsible for the loss, destruction or deterioration of the goods it assumes to carryfrom one place to another unless the same is due to any to any of the causesmentioned 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

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is presumed to have been at fault or to have acted negligently, unless it proves that ithas observed extraordinary diligence in their care (Article 1735, Idem.), and that thisextraordinary liability lasts from the time the goods are placed in the possession of thecarrier until they are delivered to the consignee, or "to the person who has the right toreceive 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 thecarrier, 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 protectingthem from damage, and if loss occurs, the law presumes that it was due to its fault ornegligence. This is necessary to protect the interest the interest of the owner who is atits 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 theconsignee, or to the person who has a right to receive them", contemplated in Article1736, because in such case the goods are still in the hands of the Government and theowner 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 throughthe inspection of the customs authorities before they are actually turned over to theconsignee. This is a situation where we may say that the carrier losses control of thegoods because of a custom regulation and it is unfair that it be made responsible forwhat may happen during the interregnum. And this is precisely what was done by theparties 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 thecarrier 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 thegoods are not in the actual custody of the Carrier. . . . (Emphasis ours.)

(Paragraph 1, Exhibit "1")

2. . . . The responsibility of the Carrier in any capacity shall altogether cease andthe goods shall be considered to be delivered and at their own risk and expensein every respect when taken into the custody of customs or other authorities. TheCarrier shall not be required to give any notification of disposition of the goods. . .

. (Emphasis ours.)


3. Any provisions herein to the contrary notwithstanding, goods may be . . . byCarrier at ship's tackle . . . and delivery beyond ship's tackle shall been tirely atthe option of the Carrier and solely at the expense of the shipper or consignee.


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It therefore appears clear that the carrier does not assume liability for any loss ordamage to the goods once they have been "taken into the custody of customs or otherauthorities", or when they have been delivered at ship's tackle. These stipulations areclear. They have been adopted precisely to mitigate the responsibility of the carrierconsidering the present law on the matter, and we find nothing therein that is contraryto morals or public policy that may justify their nullification. We are therefore persuadedto 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 tocosts.

Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L.Endencia and Felix, JJ., concur.

FIRST DIVISION[G.R. No. L-15671. November 29, 1960.]

AMERICAN PRESIDENT LINES, LTD., petitioner, vs. RICHARD A. KLEPPER, ET AL., respondents.Ross, Selph & Carrascoso for petitioner.Ozaeta, Gibbs & Ozaeta for respondent.J. A. Wolfson as amicus curiae.SYLLABUS1. COMMON CARRIERS; NATURE AND EXTENT OF RESPONSIBILITY. The responsibility ofa common carrier is extraordinary and lasts from the time the goods are placed in its possession untilthey are delivered, actually or constructively, to the consignee or to the person who has a right toreceive them. It can only be exempt therefrom for causes enumerated in Article 1734 of the New CivilCode.2. ID.; BILL OF LADING; WHEN BINDING UPON CONSIGNEE ALTHOUGH NOT SIGNED BY

HIM OR BY HIS AGENT. Where the bill of lading provides that a shipper or consignee whoaccepts the bill becomes bound by all the stipulations contained therein, the said shipper orconsignee cannot elude its provisions simply because they prejudice him and take advantage ofthose that are beneficial to him. In the case at bar, the fact that the shipper and consignee paid thecorresponding freight on his goods, shows that he impliedly accepted the bill of lading which wasissued in connection with his shipment. Hence, the same is binding upon him as if it had beenactually signed by him or by any person in his behalf.3. ID.; ID PROVISION IN CARRIAGE OF GOODS BY SEA ACT LIMITING CARRIER'S LIABILITYTO $500.00. Article 1753 of the Civil Code provides that the law of the country to which the goodsare to be transported shall govern the liability of the common carrier in case of loss, destruction ordeterioration. This means the law of the Philippines, or the Civil Code. Under Article 1766, "In all

matters not regulated by this Code, the rights and obligations of common carriers shall be governedby the Code of Commerce and by special laws," and in the Civil Code there are provisions thatgovern 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 be liable in an amount exceeding$500.00 per package unless the value of the goods had been declared by the shipper and inserted inthe bill of lading, said section is merely suppletory to the provisions of the Civil Code.D E C I S I O NBAUTISTA ANGELO, J p:Richard A. Klepper brought this action before the Court of First Instance of Manila to recover the sumof P6,729.50 as damages allegedly sustained by his goods contained in a lift van which fell to theground while being unloaded from a ship owned and operated by the American President Lines, Ltd.

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to the pier, plus the sum of P2,000.00 as sentimental value of the damaged goods and attorney'sfees.It appears that on February 17, 1955, Klepper shipped on board the S.S. President Cleveland atYokohama, Japan one life van under bill of lading No, 82, containing personal and household effects.The ship arrived in the port of Manila on February 22, 1995 and while the lift van was being unloadedby the Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and its contents werespilled and scattered. A survey was made and the result was that Klepper suffered damages totallingP6,729.50 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 payplaintiff 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. Thecourt ordered that, once the judgment is satisfied, co-defendant Delgado Brothers, Inc. should paythe shipping company the same amounts by way of reimbursement. Both defendants appealed to theCourt of Appeals which affirmed in toto the decision of the trial court. The shipping companyinterposed the present petition for review.

Anent the liability of petitioner relative to the damage caused to the goods in question, the Court ofAppeals made the following comment: "At the outset, it may be well to state that the party primarilyliable to plaintiff is appellant American President Lines, Ltd., the carrier whose duty it was to deliverthe 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 goodswas due to negligence."To this we agree. And we may add that, regardless of its negligence, the shipping company's liabilitywould attach because being a common carrier its responsibility is extraordinary and lasts from thetime the goods are placed in its possession until they are delivered, actually or constructively, to theconsignee or to the person who has a right to receive them (Article 1736, Idem.) It can only beexempt therefrom for causes enumerated in Article 1734.But, while petitioner does not dispute its liability as common carrier, it however contends that thesame cannot exceed $500.00 invoking in its favor the bill of lading Exhibit A and Section 4(5) of theCarriage 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 goods exceeding in actual value $500lawful money of the United States, per package, . . . the value of the goods shall be deemed to be$500 per package . . . on which basis the freight is adjusted and the Carrier's liability, if any, shall bedetermined on the basis of a value of $500 per package . . . or pro rata in case of partial loss ordamage, unless the nature of the goods and a valuation higher than $500 shall have been declared inwriting by the shipper upon delivery to the Carrier and inserted in this bill of lading and extra freightpaid if required and in such case if the actual value of the goods per package . . . shall exceed suchdeclared value, the value shall nevertheless be deemed to be the declared value and the Carrier'sliability, if any, shall not exceed the declared value and any partial loss or damage shall be adjustedpro rata on the basis of such declared value."While it is apparent from the above that the carrier has expressly agreed that in case of any loss or

damage to the goods in question exceeding the sum of $500.00 per package the extent of its liabilityshall be deemed to be merely $500.00 per package, and not more, the Court of Appeals ruled out theabove 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 thisposture 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 clauseprinted in red ink that appears on the very face of the bill of lading: "IN ACCEPTING THIS BILL OFLADING the shipper, consignee and owner of the goods agree to be bound by all its stipulations,

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exceptions, and conditions whether written, printed, or stamped on the front or back hereof, any localcustoms or privileges to the contrary notwithstanding." This clause is very revealing. It says that ashipper or consignee who accepts the bill of lading becomes bound by all stipulations containedtherein whether on the front or back thereof. Respondent cannot elude its provisions simply becausethey prejudice him and take advantage of those that are beneficial. Secondly, the fact that respondentshipped his goods on board the ship of petitioner and paid the corresponding freight thereon showsthat he impliedly accepted the bill of lading which was issued in connection with the shipment inquestion, 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 andthe consignee of the goods in question. These circumstances take this case out of our ruling in theMirasol case (invoked by the Court of Appeals) and places it within our doctrine in the case ofMendoza vs. Philippines Air Lines, Inc., (90 Phil., 836), where we said:". . . Later, as already said, he says that he was never a party to the contract of transportation andwas a complete stranger to it, and that he is now suing on a tort or a violation of his rights as astranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with thedefendant company, then he would hardly have any leg to stand on. His right to prompt delivery of thecan 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 orignore 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 notvested with the right to prompt delivery, unless such common carriers previously assume theobligation. Said rights and obligations are created by a specific contract entered into by the parties.xxx xxx xxx"Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains thestipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to himat the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery inhis favor contained in the contract of carriage, such demand being one for the fulfillment of thecontract of carriage and delivery. In this case he also made himself a party to the contract, or at leasthas come to court to enforce it. His cause of action must necessarily be founded on its breach."With regard to the contention that 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 tobe transported shall govern the liability of the common carrier in case of loss, destruction ordeterioration. This means the law of the Philippines, or our new Civil Code. Under Article 1766, "In allmatters not regulated by this Code, the rights and obligations of common carriers shall be governedby the Code of Commerce and by special laws," and here we have provisions that govern said rightsand obligations (Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of the Carriage ofGoods by Sea Act states that the carrier shall not be liable in an amount exceeding $500.00 perpackage unless the value of the goods had been declared by the shipper and inserted in the bill oflading, said section is merely suppletory to the provisions of the Civil Code. In this respect, we agreeto the opinion of the Court of Appeals.On the strength of the opinion we have above expressed, we 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 theconclusion reached by the Court of Appeals.Wherefore, with the modification that petitioner shipping company should only pay to respondent thesum of $500.00 as value of the goods damaged, the decision appealed from should be affirmed in allother respects, without pronouncement as to costs.Paras, C.J., Bengzon, Padilla, Labrador, Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.Separate OpinionsREYES, J. B. L., J., concurring.I concur specifically in view of the difference in requisites between Article 1744 and Article 1749 of theCivil Code of the Philippines.

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Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,vs.HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J .:

The issues, albeitnot completely novel, are: (a) whether or not a claim for damagesustained on a shipment of goods can be a solidary, or joint and several, liability of thecommon carrier, the arrastre operator and the customs broker; (b) whether thepayment 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%) orsix percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedentand undisputed facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operatorand broker-forwarder for damages sustained by a shipment while indefendants' custody, filed by the insurer-subrogee who paid the consigneethe value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped fromYokohama, Japan for delivery vessel "SS EASTERN COMET" owned bydefendant Eastern Shipping Lines under Bill of LadingNo. YMA-8 (Exh. B). The shipment was insured under plaintiff's MarineInsurance Policy No. 81/01177 for P36,382,466.38.

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Upon arrival of the shipment in Manila on December 12, 1981, it wasdischarged unto the custody of defendant Metro Port Service, Inc. Thelatter excepted to one drum, said to be in bad order, which damage wasunknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received theshipment 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 madedeliveries of the shipment to the consignee's warehouse. The latterexcepted to one drum which contained spillages, while the rest of thecontents 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 andnegligence of defendants. Claims were presented against defendants whofailed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to paythe consignee P19,032.95 under the aforestated marine insurance policy,so that it became subrogated to all the rights of action of said consigneeagainst defendants (per "Form of Subrogation", "Release" and Philbankingcheck, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, theappellate court said:

Defendants filed their respective answers, traversing the materialallegations of the complaint contending that: As for defendant EasternShipping it alleged that the shipment was discharged in good order fromthe vessel unto the custody of Metro Port Service so that anydamage/losses incurred after the shipment was incurred after the shipmentwas 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, nothaving negligent or at fault for the shipment was already in damage andbad order condition when received by it, but nonetheless, it still exercisedextra ordinary care and diligence in the handling/delivery of the cargo toconsignee in the same condition shipment was received by it.

From the evidence the court found the following:

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The issues are:

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

2. Whether or not these losses/damages were sustained whilein the custody of defendants (in whose respective custody, ifdeterminable);

3. Whether or not defendant(s) should be held liable for thelosses/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 shipmentsustained losses/damages. The two drums were shipped ingood order and condition, as clearly shown by the Bill of Ladingand Commercial Invoice which do not indicate any damagesdrum that was shipped (Exhs. B and C). But when on

December 12, 1981 the shipment was delivered to defendantMetro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that thelosses/damages were sustained while in the respective and/orsuccessive custody and possession of defendants carrier(Eastern), arrastre operator (Metro Port) and broker (AlliedBrokerage). This becomes evident when the Marine CargoSurvey Report (Exh. G), with its "Additional Survey Notes", are

considered. In the latter notes, it is stated that when theshipment was "landed on vessel" to dock of Pier # 15, SouthHarbor, Manila on December 12, 1981, it was observed that"one (1) fiber drum (was) in damaged condition, covered by thevessel's Agent's Bad Order Tally Sheet No. 86427." The reportfurther states that when defendant Allied Brokerage withdrewthe shipment from defendant arrastre operator's custody onJanuary 7, 1982, one drum was found opened without seal,cello bag partly torn but contents intact. Net unrecoveredspillages was

15 kgs. The report went on to state that when the drumsreached the consignee, one drum was found withadulterated/faked contents. It is obvious, therefore, that theselosses/damages occurred before the shipment reached theconsignee while under the successive custodies of defendants.Under Art. 1737 of the New Civil Code, the common carrier'sduty to observe extraordinary diligence in the vigilance of goodsremains in full force and effect even if the goods are temporarilyunloaded and stored in transit in the warehouse of the carrier at

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the place of destination, until the consignee has been advisedand has had reasonable opportunity to remove or dispose ofthe goods (Art. 1738, NCC). Defendant Eastern Shipping's ownexhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum wasfound "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is herebyrendered:

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

1. The amount of P19,032.95, with the present legal interest of12% per annum from October 1, 1982, the date of filing of thiscomplaints, until fully paid (the liability of defendant Eastern

Shipping, Inc. shall not exceed US$500 per case or the CIFvalue of the loss, whichever is lesser, while the liability ofdefendant Metro Port Service, Inc. shall be to the extent of theactual invoice value of each package, crate box or container inno case to exceed P5,000.00 each, pursuant to Section 6.01 ofthe Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim ofdefendant/cross-claimant Allied BrokerageCorporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that theconclusion drawn therefrom is correct. As there is sufficient evidence thatthe shipment sustained damage while in the successive possession ofappellants, and therefore they are liable to the appellee, as subrogee forthe amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the courta quo.

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In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error andgrave abuse of discretion on the part of the appellate court when

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLEWITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THECLAIM OF PRIVATE RESPONDENT AS GRANTED IN THEQUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OFPRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OFTHE FILING OF THE COMPLAINT AT THE RATE OF TWELVEPERCENT PER ANNUMINSTEAD OF FROM THE DATE OF THEDECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIXPERCENT 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 carrierare not all that novel. Indeed, we do have a fairly good number of previous decisionsthis Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goodslasts from the time the articles are surrendered to or unconditionally placed in thepossession of, and received by, the carrier for transportation until delivered to, or untilthe 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; KuiBai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lostor arrive in damaged condition, a presumption arises against the carrier of its failure toobserve that diligence, and there need not be an express finding of negligence to holdit liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, ofcourse, exceptional cases when such presumption of fault is not observed but thesecases, enumerated in Article 1734 1of the Civil Code, are exclusive, not one of whichcan be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligationof properly delivering the goods to the consignee has, too, been passed upon by theCourt. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we haveexplained, in holding the carrier and the arrastre operator liable in solidum,thus:

The legal relationship between the consignee and the arrastre operator isakin to that of a depositor and warehouseman (Lua Kian v. Manila RailroadCo., 19 SCRA 5 [1967]. The relationship between the consignee and thecommon carrier is similar to that of the consignee and the arrastre operator

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(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it isthe duty of the ARRASTRE to take good care of the goods that are in itscustody and to deliver them in good condition to the consignee, suchresponsibility also devolves upon the CARRIER. Both the ARRASTRE andthe CARRIER are therefore charged with the obligation to deliver the goodsin good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operatorand the customs broker are themselves always and necessarily liable solidarily withthe carrier, orvice-versa, nor that attendant facts in a given case may not vary the rule.The instant petition has been brought solely by Eastern Shipping Lines, which, beingthe 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 theappellate court, we take note, is that "there is sufficient evidence that the shipmentsustained damage while in the successive possession of appellants" (the hereinpetitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines,

Inc., the sole petitioner in this case, is inevitable regardless of whether there are otherssolidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves morethan 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 PortService, 2decided 3on 15 May 1969, involved a suit forrecovery of money arising out of

short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (theplaintiff in the lower court) averred in its complaint that the total amount of its claim forthe 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 offacts later entered into by the parties, in lieu of proof, the amount of P1,447.51 wasagreed upon. The trial court rendered judgment ordering the appellants (defendants)Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurancethe sum of P1,447.51 with legal interest thereon from the date the complaint was filedon 28 December 1962 until full payment thereof. The appellants then assailed, interalia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent astipulation, is the legal rate. Such interest normally is allowable from thedate of demand, judicial or extrajudicial. The trial court opted for judicialdemand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot berecovered upon unliquidated claims or damages, except when the demand can beestablished with reasonable certainty." And as was held by this Court in Riveravs. Perez, 4L-6998, February 29, 1956, if the suit were for damages, "unliquidated and

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not known until definitely ascertained, assessed and determined by the courts afterproof (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." (Emphasissupplied)

The case ofReformina vs. Tomol, 5rendered on 11 October 1985, was for "Recoveryof 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 andthird party defendants and against the defendants and third party plaintiffsas follows:

Ordering defendants and third party plaintiffs Shell and Michael,Incorporated to pay jointly and severally the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum ofP131,084.00 which is the value of the boat F B Pacita III together with itsaccessories, fishing gear and equipment minus P80,000.00 which is thevalue of the insurance recovered and the amount of P10,000.00 a monthas the estimated monthly loss suffered by them as a result of the fire ofMay 6, 1969 up to the time they are actually paid or already the total sum ofP370,000.00 as of June 4, 1972 with legal interest from the filing of thecomplaint until paidand to pay attorney's fees of P5,000.00 with costsagainst defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damagesawarded but sustained the trial court in adjudging legal interest from the filing ofthe 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 thetrial court issued its assailed resolution which applied the 6% interestperannum prescribed in Article 2209 of the Civil Code. In their petition for reviewon certiorari, the petitioners contended that Central Bank CircularNo. 416, providing thus

By virtue of the authority granted to it under Section 1 of Act 2655, asamended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,has prescribed that the rate of interest for the loan, or forbearance of anymoney, goods, or credits and the rate allowed in judgments, in the absenceof express contract as to such rate of interest, shall be twelve (12%)percentper annum. This Circular shall take effect immediately. (Emphasisfound in the text)

should have, instead, been applied. This Court 6ruled:

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The judgments spoken of and referred to are judgments in litigationsinvolving loans or forbearance of any money, goods or credits. Any otherkind of monetary judgment which has nothing to do with, nor involvingloans or forbearance of any money, goods or credits does not fall within thecoverage of the said law for it is not within the ambit of the authoritygranted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed isone rendered in an Action for Damages for injury to persons and loss ofproperty and does not involve any loan, much less forbearances of anymoney, goods or credits. As correctly argued by the private respondents,the law applicable to the said case is Article 2209 of the New Civil Codewhich reads

Art. 2209. If the obligation consists in the payment of a sumof money, and the debtor incurs in delay, the indemnity fordamages, there being no stipulation to the contrary, shall be thepayment of interest agreed upon, and in the absence ofstipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,v. Cruz, 7promulgated on 28 July 1986. The case was for damages occasioned by aninjury to person and loss of property. The trial court awarded private respondent PedroManabat actual and compensatory damages in the amount of P72,500.00 with legal

interest thereon from the filing of the complaint until fully paid. Relying onthe Reformina v. Tomolcase, this Court 8modified the interest award from 12% to 6%interest per annum but sustained the time computation thereof, i.e., from the filing ofthe complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9the trial court, in an action for the recovery ofdamages 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 fromNovember 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 Appealssustained the trial court's decision. When taken to this Court for review, the case, on 03October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED andconsidering the special and environmental circumstances of this case, wedeem it reasonable to render a decision imposing, as We do herebyimpose, upon the defendant and the third-party defendants (with theexception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

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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 toattorney's fees) occasioned by the loss of the building (including interestcharges 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 suchfinality, twelve (12%) per cent interest per annum shall be imposed upon

aforementioned amounts from finality until paid. Solidary costs against thedefendant and third-party defendants (Except Roman Ozaeta). (Emphasissupplied)

A motion for reconsideration was filed by United Construction, contending that"the interest of twelve (12%) per cent per annum imposed on the total amount ofthe monetary award was in contravention of law." The Court 10ruled out theapplicability of the Reformina and Philippine Rabbit Bus Lines cases and, in itsresolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant toCentral 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 judgmentsinvolving loans or forbearance of any money, goods or credits. (PhilippineRabbit 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 isneither 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 judgment. It is delay in the payment of such final judgment, that willcause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest isimposed on the total sum, from the filing of the complaint until paid; in otherwords, as part of the judgment for damages. Clearly, they are notapplicable to the instant case. (Emphasis supplied.)

The subsequent case ofAmerican Express International, Inc., vs. IntermediateAppellate Court11was a petition for review on certiorarifrom the decision, dated 27

February 1985, of the then Intermediate Appellate Court reducing the amount of moraland 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 damagesawarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 asexemplary 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, whilerecognizing 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 beinconceivably large. The Court 12thus set aside the decision of the appellate court and

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rendered a new one, "ordering the petitioner to pay private respondent the sum of OneHundred Thousand (P100,000.00) Pesos as moral damages, withsix (6%) percent interest thereon computed from the finality of this decision until paid.(Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case ofFlorendov. Ruiz13which arose from a breach of employment contract. For having been illegally

dismissed, the petitioner was awarded by the trial court moral and exemplary damageswithout, however, providing any legal interest thereon. When the decision wasappealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI ofNegros Oriental dated October 31, 1972 is affirmed in all respects, with themodification that defendants-appellants, except defendant-appellant MertonMunn, are ordered to pay, jointly and severally, the amounts stated in thedispositive portion of the decision, including the sum of P1,400.00 inconcept of compensatory damages, with interest at the legal rate from thedate of the filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupontransmitted to the trial court, and an entry of judgment was made. The writ ofexecution issued by the trial court directed that only compensatory damagesshould 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 petitionforcertiorariassailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment ofinterest "at the legal rate"from the time of the filing of the complaint. . . Saidcircular [Central Bank Circular No. 416] does not apply to actions based ona breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should becomputed 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 PowerCorporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain

parcels of land. After conducting a hearing on the complaints foreminent domain, thetrial court ordered the petitioner to pay the private respondents certain sums of moneyas just compensation for their lands so expropriated "with legal interest thereon . .. until fully paid." Again, in applying the 6% legal interest per annum under the CivilCode, the Court 15declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance ofmoney, goods or credits but expropriation of certain parcels of land for apublic purpose, the payment of which is without stipulation regarding

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interest, and the interest adjudged by the trial court is in the nature ofindemnity for damages. The legal interest required to be paid on theamount of just compensation for the properties expropriated is manifestly inthe form of indemnity for damages for the delay in the payment thereof.Therefore, since the kind of interest involved in the joint judgment of thelower court sought to be enforced in this case is interest by way ofdamages, 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 canperhaps be classified into two groups according to the similarity of the issues involvedand the corresponding rulings rendered by the court. The "first group" would consist ofthe cases ofReformina v. Tomol(1985), Philippine Rabbit Bus Lines v. Cruz(1986),Florendo v. Ruiz(1989)and National Power Corporation v. Angas (1992). In the "second group" wouldbe Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons

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

In the "first group", the basic issue focuses on the application of either the 6% (underthe Civil Code) or 12% (under the Central Bank Circular) interestper annum. It is easilydiscernible in these cases that there has been a consistent holding that the CentralBank Circular imposing the 12% interest per annum applies only to loans orforbearance 16of money, goods or credits, as well as to judgments involving such loanor forbearance of money, goods or credits, and that the 6% interest under the CivilCode governs when the transaction involves the payment of indemnities in the concept

of damage arising from the breach or a delay in the performance of obligations ingeneral. Observe, too, that in these cases, a common time frame in the computation ofthe 6% interest per annum has been applied, i.e., from the time the complaint is fileduntil the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or12% interest per annum, 17depending on whether or not the amount involved is a loanor 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 runningof 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 thedecision of the court a quo,explaining that "if the suit were for damages, 'unliquidatedand not known until definitely ascertained, assessed and determined by the courtsafter proof,' then, interest 'should be from the date of the decision.'"American ExpressInternational v. IAC, introduced a different time frame for reckoning the 6% interest byordering it to be "computed from the finality of (the) decision until paid." The Nakpil and

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Sons case ruled that 12% interest per annum should be imposed from the finality of thedecision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may havecalled for different applications, guided by the rule that the courts are vested withdiscretion, 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 18is breached, the contravenor can be held liable fordamages. 19The provisions under Title XVIII on "Damages" of the Civil Code govern indetermining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual andcompensatory 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 ofmoney, i.e., a loan or forbearance of money, the interest due should be that which mayhave been stipulated in writing. 21Furthermore, the interest due shall itself earn legalinterest from the time it is judicially demanded. 22In the absence of stipulation, the rateof interest shall be 12% per annum to be computed from default, i.e., from judicial orextrajudicial demand under and subject to the provisions of Article 1169 23of the CivilCode.

2. When an obligation, not constituting a loan or forbearance of money, is breached, aninterest on the amount of damages awarded may be imposed at the discretion of thecourt24at the rate of 6% per annum. 25No interest, however, shall be adjudged onunliquidated claims or damages except when or until the demand can be establishedwith reasonable certainty. 26Accordingly, where the demand is established withreasonable 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 soreasonably established at the time the demand is made, the interest shall begin to runonly from the date the judgment of the court is made (at which time the quantification ofdamages 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 andexecutory, the rate of legal interest, whether the case falls under paragraph 1 orparagraph 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.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMEDwith the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on

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the amount due computed from the decision, dated03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu ofSIX PERCENT (6%), shall be imposed on such amount upon finality of this decisionuntil the payment thereof.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.

Mendoza, J., took no part.


Manila

EN BANC

G.R. No. L-16598 October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant,vs.MACONDRAY & COMPANY, INC., defendant-appellant.

Fisher & DeWitt for plaintiff-appellant.Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

JOHNSON, J.:

This action was commenced in the Court of First Instance of the City of Manila torecover the sum of P240 together with interest thereon. The facts are stipulated by theparties, and are, briefly, as follows:

(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered onboard of steamship Bolton Castle, then in the harbor of New York, four cases of

merchandise one of which contained twelve (12) 8-day Edmond clocks properlyboxed and marked for transportation to Manila, and paid freight on said clocksfrom New York to Manila in advance. The said steampship arrived in the port ofManila on or about the 10th day of September, 1919, consigned to the defendantherein as agent and representative of said vessel in said port. Neither the masterof said vessel nor the defendant herein, as its agent, delivered to the plaintiff theaforesaid twelve 8-day Edmond clocks, although demand was made upon themfor their delivery.

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(2) The invoice value of the said twelve 8-day Edmond clocks in the city of NewYork was P22 and the market value of the same in the City of Manila at the timewhen they should have been delivered to the plaintiff was P420.

(3) The bill of lading issued and delivered to the plaintiff by the master of the saidsteamship Bolton Castlecontained, among others, the following clauses:

1. It is mutually agreedthat the value of the goods receipted forabove does not exceed $500 per freight ton, or, in proportion for any part ofa ton, unless the value be expressly stated herein and ad valorem freightpaid thereon.

9.Also, that in the event of claims for short delivery of, or damage to,cargo being made, the carrier shall not be liable for more than the netinvoice price plus freight and insurance less all charges saved, and anyloss or damage for which the carrier may be liable shall be adjusted prorata on the said basis.

(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3cubic feet, and the freight ton value thereof was $1,480, U. S. currency.

(5) No greater value than $500, U. S. currency, per freight ton was declared bythe plaintiff on the aforesaid clocks, and no ad valorem freight was paid thereon.

(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36,the proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks,in payment of plaintiff's claim, which tender plaintiff rejected.

The lower court, in accordance with clause 9 of the bill of lading above quoted,rendered judgment in favor of the plaintiff against the defendant for the sum ofP226.02, this being the invoice value of the clocks in question plus the freight andinsurance thereon, with legal interest thereon from November 20, 1919, the date of thecomplaint, together with costs. From that judgment both parties appealed to this court.

The plaintiff-appellant insists that it is entitled to recover from the defendant themarket value of the clocks in question, to wit: the sum of P420. The defendant-

appellant, on the other hand, contends that, in accordance with clause 1 of the bill oflading, the plaintiff is entitled to recover only the sum of P76.36, the proportionatefreight ton value of the said clocks. The claim of the plaintiff is based upon theargument that the two clause in the bill of lading above quoted, limiting the liability ofthe carrier, are contrary to public order and, therefore, null and void. The defendant, onthe other hand, contends that both of said clauses are valid, and the clause 1 shouldhave been applied by the lower court instead of clause 9.

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I. The appeal of the plaintiff presents this question; May a common carrier, bystipulations inserted in the bill of lading, limit its liability for the loss of or damage to thecargo to an agreed valuation of the latter? 1awph!l.net

Three kinds of stipulations have often been made in a bill of lading. The firstisone exempting the carrier from any and all liability for loss or damage occasioned by itsown negligence. The secondis one providing for an unqualified limitation of such

liability to an agreed valuation. And the thirdis one limiting the liability of the carrier toan agreed valuation unless the shipper declares a higher value and pays a higher rateof freight. According to an almost uniform weight of authority, the first and second kindsof stipulations are invalid as being contrary to public policy, but the third is valid andenforceable.

The authorities relied upon by the plaintiff-appellant (the Harter Act [Act ofCongress of February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; andGalt vs. Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742) support the propositionthat the first and second stipulations in a bill of lading are invalid which either exemptthe carrier from liability for loss or damage occasioned by its negligence, or provide foran unqualified limitation of such liability to an agreed valuation.

A reading of clauses 1 and 9 of the bill of lading here in question, however,clearly shows that the present case falls within the third stipulation, to wit: That aclause in a bill of lading limiting the liability of the carrier to a certain amount unless theshipper declares a higher value and pays a higher rate of freight, is valid andenforceable. This proposition is supported by a uniform lien of decisions of theSupreme Court of the United States rendered both prior and subsequent to the

passage of the Harter Act, from the case of Hart vs.Pennsylvania R. R. Co. (decidedNov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke(decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).

In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where acontract of carriage, signed by the shipper, is fairly made with a railroad company,agreeing on a valuation of the property carried, with the rate of freight based on thecondition that the carrier assumes liability only to the extent of the agreed valuation,even in case of loss or damage by the negligence of the carrier, the contract will beupheld as proper and lawful mode of securing a due proportion between the amount

for which the carrier may be responsible and the freight he receives, and protectinghimself against extravagant and fanciful valuations."

In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "Inmany cases, from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L.ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper(246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decidedin 1918), it has been declared to be the settled Federal law that if a common carriergives to a shipper the choice of two rates, the lower of the conditioned upon his

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agreeing to a stipulated valuation of his property in case of loss, even by the carrier'snegligence, if the shipper makes such a choice, understandingly and freely, and nameshis valuation, he cannot thereafter recover more than the value which he thus placesupon his property. As a matter of legal distinction, estoppel is made the basis of thisruling, that, having accepted the benefit of the lower rate, in common honesty theshipper may not repudiate the conditions on which it was obtained, but the rule andthe effect of it are clearly established."

The syllabus of the same case reads as follows: "A carrier may not, by avaluation agreement with a shipper, limit its liability in case of the loss by negligence ofan interstate shipment to less than the real value thereof, unless the shipper is given achoice of rates, based on valuation."

A limitation of liability based upon an agreed value to obtain a lower ratedoes not conflict with any sound principle of public policy; and it is notconformable to plain principles of justice that a shipper may understate value inorder to reduce the rate and then recover a larger value in case of loss. (AdamsExpress Co. vs. Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C.C. A., 285); Jennings vs.Smith (45 C. C. A., 249); George N. PierceCo. vs. Wells, Fargo and Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).

It seems clear from the foregoing authorities that the clauses (1 and 9) of the billof lading here in question are not contrary to public order. Article 1255 of the Civil Codeprovides that "the contracting parties may establish any agreements, terms andconditions they may deem advisable, provided they are not contrary to law, morals or

public order." Said clauses of the bill of lading are, therefore, valid and binding uponthe parties thereto.

II. The question presented by the appeal of the defendant is whether clause 1 orclause 9 of the bill of lading here in question is to be adopted as the measure ofdefendant's liability. Clause 1 provides as follows:

1. It is mutually agreedthat the value of the goods receipted for abovedoes not exceed $500 per freight ton, or, in proportion for any part of a ton,unless the value be expressly stated herein and ad valorem freight paid thereon.

Clause 9 provides:

9.Also, that in the even of claims for short delivery of, or damage to, cargobeing made, the carrier shall not be liable for more than the net invoice price plusfreight and insurance less all charges saved, and any loss or damage for whichthe carrier may be liable shall be adjusted pro rata on the said basis.

The defendant-appellant contends that these two clauses, if construed together,mean that the shipper and the carrier stipulate and agree that the value of the goods

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receipted for does not exceed $500 per freight ton, but should the invoice value of thegoods be less than $500 per freight ton, then the invoice value governs; that since inthis case the invoice value is more than $500 per freight ton, the latter valuation shouldbe adopted and that according to that valuation, the proportionate value of the clocks inquestion is only P76.36 which the defendant is ready and willing to pay to the plaintiff.

It will be noted, however, that whereas clause 1 contains only

an impliedundertaking to settle in case of loss on the basis of not exceeding $500 perfreight ton, clause 9 contains an express undertaking to settle on the basis of the netinvoice price plus freight and insurance less all charges saved. "Any loss or damagefor which the carrier may be liable shallbe adjusted pro rata on the said basis," clause9 expressly provides. It seems to us that there is an irreconcilable conflict between thetwo clauses with regard to the measure of defendant's liability. It is difficult to reconcilethem without doing violence to the language used and reading exceptions andconditions into the undertaking contained in clause 9 that are not there. This being thecase, the bill of lading in question should be interpreted against the defendant carrier,

which drew said contract. "A written contract should, in case of doubt, be interpretedagainst the party who has drawn the contract." (6 R. C. L. 854.) It is a well-knownprinciple of construction that ambiguity or uncertainty in an agreement must beconstrued most strongly against the party causing it. (6 R. C. L., 855.) These rules asapplicable to contracts contained in bills of lading. "In construing a bill of lading givenby the carrier for the safe transportation and delivery of goods shipped by a consignor,the contract will be construed most strongly against the carrier, and favorably to theconsignor, in case of doubt in any matter of construction." (Alabama, etc. R. R.Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)

It follows from all of the foregoing that the judgment appealed from should beaffirmed, without any finding as to costs. So ordered.

Araullo, street, Avancea and Villamor, JJ., concur.


Manila

EN BANC

G.R. No. L-20099 July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee,vs.PHILIPPINE AIR LINES, INC., defendant and appellant.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.Climaco and Associates for plaintiff and appellee.

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ZALDIVAR, J .:

Before the municipal court of Zamboanga City, plaintiff-appellee ParmanandShewaram instituted an action to recover damages suffered by him due to the allegedfailure of defendant-appellant Philippines Air Lines, Inc. to observe extraordinarydiligence in the vigilance and carriage of his luggage. After trial the municipal court ofZamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as

actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and thecosts of the action.

Appellant Philippine Air Lines appealed to the Court of First Instance of ZamboangaCity. 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 thesum of P373.00 as actual damages, with legal interest from May 6, 1960 and the sumof P150.00 as attorney's fees, eliminating the award of exemplary damages.

From the decision of the Court of First Instance of Zamboanga City, appellant appealsto this Court on a question of law, assigning two errors allegedly committed by thelower court a quo, to wit:

1. The lower court erred in not holding that plaintiff-appellee was bound by theprovisions of the tariff regulations filed by defendant-appellant with the civilaeronautics board and the conditions of carriage printed at the back of the planeticket stub.

2. The lower court erred in not dismissing this case or limiting the liability of the

defendant-appellant to P100.00.

The facts of this case, as found by the trial court, quoted from the decision appealedfrom, are as follows:

That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, apaying passenger with ticket No. 4-30976, on defendant's aircraft flight No.976/910 from Zamboanga City bound for Manila; that defendant is a commoncarrier engaged in air line transportation in the Philippines, offering its services tothe 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) otherpieces; that the suitcase was mistagged by defendant's personnel in ZamboangaCity, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (forManila). When plaintiff Parmanand Shewaram arrived in Manila on the date ofNovember 23, 1959, his suitcase did not arrive with his flight because it was sentto Iligan. So, he made a claim with defendant's personnel in Manila airport andanother suitcase similar to his own which was the only baggage left for that flight,the rest having been claimed and released to the other passengers of said flight,

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was given to the plaintiff for him to take delivery but he did not and refused totake delivery of the same on the ground that it was not his, alleging that all hisclothes were white and the National transistor 7 and a Rollflex camera were notfound inside the suitcase, and moreover, it contained a pistol which he did nothave nor placed inside his suitcase; that after inquiries made by defendant'spersonnel in Manila from different airports where the suitcase in question musthave been sent, it was found to have reached Iligan and the station agent of the

PAL in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaramand which suitcase belonging to the plaintiff herein arrived in Manila airport onNovember 24, 1959; that it was also found out that the suitcase shown to andgiven to the plaintiff for delivery which he refused to take delivery belonged to acertain 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 onNovember 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the actingstation agent of the Manila airport of the arrival of his suitcase but of courseminus his Transistor Radio 7 and the Rollflex Camera; that Shewaram made

demand for these tw

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