Home Insurance Co. vs. American Steamship Agencies (GR L-25599, 4 April 1968)
En Banc, Bengzon JP (J): 7 concur

Facts: “Consorcio Pesquero del Peru of South America” shipped freight pre-paid at Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2, both dated 17 January 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on 7 March 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery, Inc., there were shortages amounting to P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies, owner and operator of SS Crowborough. Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 — the insurance value of the loss, as full settlement of the claim.

Having been refused reimbursement by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against them on 6 March 1964 before the CFI Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney’s fees. On 17 November 1965, the CFI, after trial, absolved Luzon Stevedoring Corporation, having found the latter to have merely delivered what it received from the carrier in the same condition and quality, and ordered American Steamship Agencies to pay Home Insurance Co. P14,870.71 with legal interest plus P1,000 attorneys fees.

Disagreeing with such judgment, American Steamship Agencies appealed directly to the Supreme Court. The Supreme Court reversed the judgment appealed from, and absolved the American Steamship Agencies from liability to Home Insurance Co.; without costs.

1.    Contents of the bill lading in the present case
The bills of lading, covering the shipment of Peruvian fish meal provide at the back thereof that the bills of lading shall be governed by and subject to the terms and conditions of the charter party, if any, otherwise, the bills of lading prevail over all the agreements. On the face of the bills are stamped “Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party dated London, Dec. 13, 1962.”

2.    Charter party in instant case is a Contract of Affreightment
A perusal of the charter party referred to shows that while the possession and control of the ship were not entirely transferred to the charterer, the vessel was chartered to its full and complete capacity. Furthermore, the charterer had the option to go north or south or vice-versa, loading, stowing and discharging at its risk and expense. Accordingly, the charter party contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation.

3.    Source of provisions of Civil Code on common carriers
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid. Thus, the Civil Code provisions on common carriers (especially Article 1744) should not be applied where the carrier is not acting as such but as a private carrier. In the case at bar, Section 2, paragraph 2 of the charter party – which provides that the owner is liable for loss or damage to the goods caused by personal want of due diligence on its part or its manager to make the vessel in all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph – is valid. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

4.    Consignee cannot claim ignorance of charter party, as bills of lading expressly referred to the same; Instance for recovery not present in case
In a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title, not a contract, for the contract is the charter party. The consignee may not claim ignorance of said charter party because the bills of lading expressly referred to the same. Accordingly, the consignees under the bills of lading must likewise abide by the terms of the charter party. And as stated recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless the same is due to personal acts or negligence of said owner or its manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence has been proved.

Metro Port Services vs. CA (GR L-57582, 24 August 1984)
First Division, Melencio-Herrera (J): 5 concur

Facts: Sometime in April 1973, Union Sales Marketing Corporation (UNION) ordered from Union Carbide of Antwerp, Belgium, 99,540 kilograms of Low Density Polyethylene, valued at US $.245 per kilogram or a total purchase price of US $24,417.30, at the conversion rate of P6.848 to a US Dollar. The shipment was packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and was loaded at Antwerp, Belgium, in good order condition on board the “S/S Dingalan Bay”, owned and operated by Universal Shipping Lines, Inc. (CARRIER) and consigned to UNION in Manila. The shipment was covered by a Marine Risk Note issued by Charter Insurance Co. (INSURER) for P212,738.17 against all risks. The CARRIER arrived in Manila on 22 June 1973 and arrastre services were handled by E. Razon, Inc. (ARRASTRE), now called Metro Port Service, Inc. Out of the 4,000 bags, 1,050 bags were received by the consignee UNION in bad order condition.  As a consequence of the damage and loss, the INSURER paid UNION the sum of P35,709.11 in full settlement of the claim, and the INSURER became the subrogee of all of UNION’s rights to recover from the parties concerned.

On 1 July 1974, the INSURER sued for damages with the then CFI Manila against the CARRIER and the ARRASTRE in the amount of P35,709.11, in addition to exemplary damages and attorney’s fees. In its Decision, the Trial Court ordered (1) the Universal Shipping Lines, Inc., to pay Charter Insurance Co. the amount of P12,285.94 plus 12% interest per annum from July 1, 1974 until full payment thereof; (2) E. Razon Inc. to pay Charter Insurance Co. the amount of P9,763.94 plus 12% interest per annum from July 1, 1974 until full payment thereof; (3) both Universal Shipping and E. Razon to pay the costs; and (4) both Universal Shipping and E. Razon to pay Charter Insurance, in solidum, P2,000.00 as attorney’s fees.

On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on 23 March 1981, absolved the CARRIER of any and all liability and held the ARRASTRE solely liable. Reconsideration filed by the ARRASTRE was denied by the Appellate Court.

The Supreme Court reversed and set aside the appealed judgment of Court of Appeals, and reinstated that of the CFI Manila, Branch XI; without costs.

1.    Only questions of law may be raised in a Petition for Review on Certiorari, exceptions
Ordinarily, in a Petition for Review on Certiorari, only questions of law may be raised.  The Court has held in a number of cases that findings of fact by the Court of Appeals are, in general, conclusive on the Supreme Court when supported by the evidence on record. The rule is not absolute, however, and allows of exceptions, which the Court finds present in the case at bar in that the appellate court’s findings of facts are contrary to those of the Trial Court and are contradicted by the evidence on record.

2.    Appellate Court’s ruling disregards evidence of the CARRIER and ARRASTRE that 619 bags were discharged in bad order condition
In absolving the CARRIER, the appellate court completely disregards the evidence of the CARRIER and the ARRASTRE that 619 bags were discharged by the CARRIER to the ARRASTRE in bad order condition, as evidenced by the original and duplicate copies of the Cargo Receipts issued by the CARRIER to the ARRASTRE and signed by their respective representatives.  The condition of the 619 bags before the turnover to the ARRASTRE from the CARRIER was loss or spoilage of up to 50%, as reflected in the Survey of Bad Order Cargoes, signed by the CARRIER and ARRASTRE representatives.  Accordingly, the Trial Court held the CARRIER liable only for the value of a total of 443 bags, as this is the “evidence of the plaintiff” (INSURER), at 16.8209 kilograms per bag,  less than the actual weight of 25 kilograms net per bag due to some recovery of spoilage, or a total liability of P12,285.94.   Since 619 bags were discharged from the CARRIER already in bad order condition, it follows that the remaining 431 bags were damaged while in the ARRASTRE’s custody for which it should be held liable.

3.    ARRASTRE’s liability fixed to 351 bags, as INSURER failed to appeal award
However, since the Trial Court computed the liability of the ARRASTRE at 351 bags, notwithstanding the ARRASTRE’s admission that “80 bags were not included in the bad order cargo certificate,”  and the INSURER did not appeal said award by the Trial Court in its desire to have the case terminated soonest, the INSURER may not, in this appeal, have the judgment modified.  The liability of the ARRASTRE for P9,763.94 fixed by the Trial Court is thus in order.

Eastern Shipping Lines vs. CA (GR 97412, 12 July 1994)
En Banc, Vitug (J): 13 concur, 1 took no part

Facts: On 4 December 1981, 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel “SS Eastern Comet” owned by Eastern Shipping Lines under Bill of Lading YMA-8. The shipment was insured under Mercantile Insurance Company’s Marine Insurance Policy 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on 12 December 1981, it was discharged unto the custody of Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to Mercantile Insurance. On 7 January 1982, Allied Brokerage Corporation received the shipment from Metro Port Service, one drum opened and without seal. On January 8 and 14, 1982, Allied Brokerage made deliveries of the shipment to the consignees’ warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. Due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of the shipping company, arrastre operator and broker-forwarder. Claims were presented against them who failed and refused to pay the same. As a consequence of the losses sustained, Mercantile Insurance was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against the shipping company, etc.

After trial, the trial court rendered judgment (1) ordering the shipping company, the arrastre operator and the broker-forwarder to pay Mercantile Insurance, in solidum, 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); P3,000.00 as attorney’s fees, and costs; and dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

Dissatisfied, Eastern Shipping Lines appealed to the Court of Appeals. The Court of Appeal affirmed in toto the judgment of the court a quo.

The Supreme Court partly granted the petition. The Court affirmed the appealed decision with the modification that the legal interest to be paid is 6% on the amount due computed from the decision, dated 3 February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.

1. Duration of common carrier’s duty to observe requisite diligence
The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).

2. Presumption of carrier’s negligence in case of loss, damage of goods; None of the exclusive exceptions can be applied
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (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 1734 1 of the Civil Code, are exclusive, not one of which can be applied to the case at bar.

3. The rationale why the carrier and arrastre operator are made liable in solidum
In Fireman’s Fund Insurance vs. Metro Port Services (182 SCRA 455), the Court has explained in holding the carrier and the arrastre operator liable in solidum, in the manner that “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 goods condition to the consignee.” The pronouncement, however, does not imply 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.

4. First group of cases on variances on the Court’s ruling on legal interest
In the cases of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. angas (1992), the basic issue focus 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 forbearance 16 of 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 of a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

5. Second group of cases on variances on the Court’s ruling on legal interest
The cases of Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988), did not alter the pronounced rule on the application of the 6% or 12% interest per annum, depending 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 the date 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% interest per annum should be imposed from the finality of the decision until the judgment amount is paid.

6. Reason for the variance on the Court’s rulings
The factual circumstances 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.

7. Rules in the determination of legal interests

Sabena Belgian World Airlines vs. CA (GR 104685, 14 March 1996)
First Division: Vitug (J): 4 concur

Facts: On 21 August 1987, Ma. Paula San Agustin was a passenger on board flight SN 284 of Sabena Belgian World Airlines originating from Casablanca to Brussels, Belgium. She was issued Tag 77143 on her valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00 shoes/bag $150; accessories $75; luggage itself $10.00; or a total of $4,265.00. She stayed overnight in Brussels and her luggage was left on board Flight SN 284. When she arrived at Manila International Airport on 2 September 1987 and immediately submitted her Tag to facilitate the release of her luggage but the luggage was missing. She was advised to accomplish and submitted and filed on the same day. She followed up her claim on 14 September 1987 but the luggage remained to be missing. On 15 September 1987, she filed her formal complaint with the office of Ferge Massed, the airlines’s Local Manager, demanding immediate attention.  On 30 September 1987, on the Occasion of San Agustin’s following up her luggage claim, she was furnished copies of the airlines’s telexes with and information that the Brussel’s Office of defendant found the luggage and that they have assured by the airline that it has notified its Manila Office 1987. But unfortunately San Agustin  was informed that the luggage was lost for the second time.

At the time of the filling of the complaint, the luggage was its content has not been found. San Agustin demanded from the defendant the money value of the luggage and its contents amounting to $4,265.00 or its exchange value, but the airline refused to settle the claim. After trial, the trial court rendered judgment ordering Sabena Belgian World Airlines to pay Ma. Paula San Agustin (a) US$4,265.00 or its legal exchange in Philippine pesos; “(b) P30,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P10,000.00. attorney’s fees; and (e) (t)he cost of the suit.

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate court, in its decision of 27 February 1992, affirmed in toto the trial court’s judgment. Hence, the petition for review.

The Supreme Court affirmed the appealed decision, with costs against Sabena Belgian World Airlines.

1.    Fault or negligence; Rule in contracts and common carriers
Fault or negligence consists in the omission of that diligence which is demanded by the nature of an obligation and corresponds with the circumstances of the person, of the time, and of the place. When the source of an obligation is derived from a contract, the mere breach or non-fulfillment of the prestation gives rise to the presumption of fault on the part of the obligor. This rule is not different in the case of common carriers in the carriage of good father of a family but that of “extraordinary” care in the vigilance over the goods.

2.    Extraordinary diligence required on carriers
Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reason of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them. This extraordinary responsibility, according to Art. 1736, lasts from the time the goods are unconditionally placed in the possession of and received by the consignee or person who has the right to receive them. Art 1737 states that the common carrier’s duty to observe extraordinary diligence in the vigilance over the goods transported by them remains in full force and effect even when they are temporarily unloaded or stored in transits.’ And Art. 1735 establishes the presumption that if the goods are lost, destroyed or deteriorate, common carrier are presumed to have been at fault or to have acted negligently, unless they prove that they had observed extraordinary diligence as required in Article 1733.

3.    Exceptions to extraordinary diligence requirement
The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the loss, destruction, or deterioration of the goods is due to any of the following causes:
(1)    Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2)    Act of the public enemy in war, whether international or civil;
(3)    Act or omission of the shipper or owner of the goods;
(4)    The character of the goods or defects in the packing or in the containers;
(5)    Order or act of excepted causes obtains in the case.

4.    Tort doctrine not a defense in failure to observe extraordinary diligence
The rules as to the extraordinary diligence required in carriers remain basically unchanged even when the contract is breached by tort (on the ground that Section 5(c), Article IX, of the General Conditions of Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955, generally observed by International carriers, stating among other things, that: “Passengers shall not include in his checked baggage, and the carrier may refuse to carry as checked baggage, Fragiles or perishable articles, money, jewelry, precious metals, negotiable papers, securities or other valuable”) although noncontradictory principles on quasi-delict may then be assimilated as also forming part of the governing law. The airline company is not thus entirely off track when it has likewise raised in its defense the tort doctrine cannot support its case.

5.    Proximate cause defined
Proximate cause is that which, in natural and continues sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not have occurred.

6.    Proximate legal cause defined
The proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessors, the final event in the chain immediately affecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.

7.    Loss of baggage twice shows gross negligence
It remained undisputed that San Agustin’s luggage was lost while it was in the custody of Sabena Belgian World Airlines. It was supposed to arrive on the same flight that San Agustin took in returning to Manila on 2 September 1987. On 23 October 1987, she was advised that her luggage had finally been found, with its contents intact; only to be told later that her luggage had been lost for the second time. Thus, Sabena Belgian World Airlines is ultimately guilty of “gross negligence” in the handling of San Agustin’s luggage, for the “loss of said baggage not only once by twice underscore the wanton negligence and lack of care ” on the part of the carrier.

8.    Warsaw convention denies the carrier availment of provisions limiting liability if damage is caused by willful misconduct or default
The Warsaw Convention denies to the carrier availment “of the provisions which exclude or limit his liability if the damage is caused by his willful; misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered to be equivalent to willful misconduct,” or “if the damage is (similarly) caused by any agent of the carrier acting within the scope of his employment.” The Hague Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, and declaring the stated limits of liability not applicable “if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result.” The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful misconduct. The Convention does not thus operate as an exclusive enumeration of the instances of an airline’s liability, or as an absolute limit of the extent of that liability. Slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and the carrier’ or misconduct of its employees, or for some Particular or exceptional type of damage. (Alitalia vs. Intermediate Appellate Court)

9.    Philippines is country of destination; No error in application of usual rules on extent of recoverable damages beyond the Warsaw limitations
There is no error in the preponderant application to the case of the usual rules on the extent of recoverable damages beyond the Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country of destination), the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages which can be reasonably attribute, although unforeseen, to the non-performance of the obligation, including moral and exemplary damages.

Arada vs. CA (GR 98243, 1 July 1992)
Second Division, Paras (J):  3 concur

Facts: Alejandro Arada was the proprietor and operator of the firm South Negros Enterprises which has been organized and established for more than 10 years. It is engaged in the business of small scale shipping as a common carrier, servicing the hauling of cargoes of different corporations and companies with the five vessels it was operating. On 24 March 1982, Arada entered into a contract with San Miguel Corporation (SMC) to safely transport as a common carrier, cargoes of the latter from San Carlos City, Negros Occidental to Mandaue City using one of Arada’s vessels, M/L Maya.  On 24 March 1982, Arada thru its crew master, Mr. Vivencio Babao, applied for a clearance with the Philippine Coast Guard for M/L Maya to leave the port of San Carlos City, but due to a typhoon, it was denied clearance by SNI Antonio Prestado PN who was then assigned at San Carlos City Coast Guard Detachment. On 25 March 1982 M/L Maya was given clearance as there was no storm and the sea was calm. Hence, said vessel left for Mandaue City. While it was navigating towards Cebu, a typhoon developed and said vessel was buffeted on all its sides by big waves. Its rudder was destroyed and it drifted for 16 hours although its engine was running. On 27 March 1982 at about 4:00 a.m., the vessel sank with whatever was left of its cargoes. The crew was rescued by a passing pump boat and was brought to Calanggaman Island. Later in the afternoon, they were brought to Palompon, Leyte, where Vivencio Babao filed a marine protest. On the basis of such marine protest, the Board of Marine Inquiry conducted a hearing of the sinking of M/L Maya wherein SMC was duly represented. Said Board made it findings and recommendation dated 7 November 1983, absolving the owner/operator, officers and crew of M/L Maya from any administrative liability. The Board’s report containing its findings and recommendation was then forwarded to the headquarters of the Philippine Coast Guard for appropriate action. On the basis of such report, the Commandant of the Philippine Coast Guard rendered a decision dated 21 December 1984 in SBMI Adm. Case No. 88-82 exonerating the owner/operator officers and crew of the ill-fated M/L Maya from any administrative liability on account of said incident.

On 25 March 1983, SMC filed a complaint in the RTC its first cause of action being for the recovery of the value of the cargoes anchored on breach of contract of carriage. After due hearing, said court rendered a decision dated 18 July 1988, where (1) With respect to the first cause of action, claim of plaintiff is hereby dismissed; (2) Under the second cause of action, defendant must pay plaintiff the sum of P2,000.00; (3) In the third cause of action, the defendant must pay plaintiff the sum of P2,849.20; (4) Since the plaintiff has withheld the payment of P12,997.47 due the defendant, the plaintiff should deduct the amount of P4,849.20 from the P12,997.47 and the balance of P8,148.27 must be paid to the defendant; and (5) Defendant’s counterclaim not having been substantiated by evidence, is likewise dismissed. NO COSTS.” (Orig. Record, pp. 193-195).

Thereafter, SMC appealed the decision to the Court of Appeals (CA-GR CV 20597). In its decision promulgated on 8 April 1991, the Court of Appeals reversed the decision of the lower court, and thereupon ordered Arada to pay unto the SMC the amount of P176,824.80 representing the value of the cargo lost on board the ill-fated vessel, M/L Maya, with interest thereon at the legal rate from date of the filing of the complaint on 25 March 1983, until fully paid, and the costs. Hence, the petition for review on certiorari.

On 20 November 1991, the Supreme Court gave due course to the petition. Finally, it affirmed the appealed decision.

1.    Common carriers defined
Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation offering their services to the public (Art. 1732 of the New Civil Code). In the case at bar, there is no doubt that Arada was exercising its function as a common carrier when it entered into a contract with SMC to carry and transport the latter’s cargoes. This fact is best supported by the admission of petitioner’s son, Mr. Eric Arada, who testified as the officer-in-charge for operations of South Negros Enterprises in Cebu City.

2.    Duty of common carrier to exercise extraordinary diligence; Fortuitous event
A common carrier, both from the nature of its business and for insistent reasons of public policy is burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of passengers, but in caring for the goods transported by it. The loss or destruction or deterioration of goods turned over to the common carrier for the conveyance to a designated destination raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damage arises from extreme circumstances such as a natural disaster or calamity.(Benedicto v. IAC, G.R. No. 70876, July 19, 1990, 187 SCRA 547)

3.    Natural disaster must be the proximate and only cause of the loss to exempt common carrier from liability
In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize the loss before, during and after the occurrence of flood, storm or other natural disaster in order that the common carrier may be exempted from liability for the destruction or deterioration of the goods (Article 1739, New Civil Code).

4.    Failure to ascertain the location and direction of typhoon shows negligence
Vivencio Babao, the ship’s captain, knew of the impending typhoon on 24 March 1982 when the Philippine Coast Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since the time of the denial of said clearance and the time a clearance to sail was finally issued on 25 March 1982. Records will show that Babao did not ascertain where the typhoon was headed by the use of his vessel’s barometer and radio. Neither did the captain of the vessel monitor and record the weather conditions everyday as required by Art. 612 of the Code of Commerce. Had he done so while navigating for 31 hours, he could have anticipated the strong winds and big waves and taken shelter.

5.    PAG-ASA’s records as per March 25-27, 1982 on conditions prevailing in the vicinity of Catmon, Cebu
As per official records of the Climatological Division of the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA) issued by its Chief of Climatological Division, Primitivo G. Ballan, Jr. as to the weather and sea conditions that prevailed in the vicinity of Catmon, Cebu during the period March 25-27, 1982, the sea conditions on March 25, 1982 were slight to rough and the weather conditions then prevailing during those times were cloudy skies with rainshowers and the small waves grew larger and larger.

6.    Circumstances constitute lack of foresight and minimum vigilance over the cargoes
A common carrier is obliged to observe extraordinary diligence and the failure of Babao to ascertain the direction of the storm and the weather condition of the path they would be traversing, constitute lack of foresight and minimum vigilance over its cargoes taking into account the surrounding circumstances of the case.

7.    Carrier’s fault or negligence presumed
While the goods are in the possession of the carrier, it is but fair that it exercises extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the carrier’s fault or negligence; that is necessary to protect the interest of the shipper which is at the mercy of the carrier (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, Aug. 6, 1990, 188 SCRA 387).

8.    Crew of M/L Maya did not have the required qualifications
The records show that the crew of M/L Maya did not have the required qualifications provided for in PD 97 or the Philippine Merchant Marine Officers Law, all of whom were unlicensed. While it is true that they were given special permit to man the vessel, such permit was issued at the risk and responsibility of the owner.

9.    Exoneration from administrative liability does not mean exoneration from liability as common carrier
The exoneration made by the Special Board of Marine Inquiry was but with respect to the administrative liability of the “owner/operator, officers and crew of the ill-fated” vessel. It could not have meant exoneration of Arada from liability as a common carrier for his failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of his employees. Such is the function of the Court, not the Special Board of Marine Inquiry.”

10.    Jurisdiction of the Board of Marine Inquiry and the Special Board of Marine Inquiry
The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled “Marine Investigation and Suspension and Revocation Proceedings” prescribes the Rules governing maritime casualties or accidents, the rules and procedures in administrative investigation of all maritime cases within the jurisdiction or cognizance of the Philippine Coast Guard and the grounds for suspension and revocation of licenses/certificates of marine officers and seamen (1601 — SCOPE); clearly, limiting the jurisdiction of the Board of Marine Inquiry and Special Board of Marine Inquiry to the administrative aspect of marine casualties in so far as it involves the shipowners and officers.

Philippine National Railways (PNR) vs. CA (GR L-55347, 4 October 1985)
Second Division, Escolin (J): 3 concur

Facts: On 10 September 1972, at about 9:00 p.m., Winifredo Tupang, husband of Rosario Tupang, boarded Train 516 of the Philippine National Railways at Libmanan, Camarines Sur, as a paying passenger bound for Manila. Due to some mechanical defect, the train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before the train could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the train resulting in his death. The train did not stop despite the alarm raised by the other passengers that somebody fell from the train. Instead, the train conductor, Perfecto Abrazado, called the station agent at Candelaria, Quezon, and requested for verification of the information. Police authorities of Lucena City were dispatched to the Iyam Bridge where they found the lifeless body of Winifredo Tupang. As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to massive cerebral hemorrhage due to traumatic injury. Tupang was later buried in the public cemetery of Lucena City by the local police authorities.

Upon complaint filed by the deceased’s widow, Rosario Tupang, the then CFI Rizal, after trial, held the PNR liable for damages for breach of contract of carriage and ordered it to pay Rosario Tupang the sum of P12,000.00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his earning capacity, and the further sum of P10,000.00 as moral damages, and P2,000.00 as attorney’s fees, and cost.

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the utmost diligence required by law of a common carrier. It further increased the amount adjudicated by the trial court by ordering PNR to pay the Rosario Tupang an additional sum of P5,000,00 as exemplary damages. Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the doctrine of state immunity from suit. The motion was denied. Hence the petition for review.

The Supreme Court modified the decision of the appellate court by eliminating therefrom the amounts of P10,000.00 and P5,000.00 adjudicated as moral and exemplary damages, respectively; without costs.

1. PNR created under RA 4196; PNR may sue and be sued like any other corporation
The PNR was created under A 4156, as amended. Section 4 of the said Act provides that “the Philippine National Railways shall have the following powers: (a) To do all such other things and to transact all such business directly or indirectly necessary, incidental or conducive to the attainment of the purpose of the corporation; and (b) Generally, to exercise all powers of a corporation under the Corporation Law.” Under the foregoing section, the PNR has all the powers, the characteristics and attributes of a corporation under the Corporation Law. PNR may sue and be sued and may be subjected to court processes just like any other corporation.

2. PNR funds subject to garnishment or execution
In Philippine National Railways v. Union de Maquinistas, et al., then Justice Fernando, later Chief Justice, said that the main issue posed in said proceeding, i.e. “whether or not the funds of the Philippine National Railways could be garnished or levied upon on execution”, was resolved in two recent decisions, the Philippine National Bank v. Court of Industrial Relations [81 SCRA 314] and Philippine National Bank v. Hon. Judge Pabalan [83 SCRA 595], where the Court ruled that there was no legal bar to garnishment or execution. The argument based on non-suability of a state allegedly because the funds are governmental in character was unavailing.

3. Other cases as to garnishment of GOCC funds
a. Philippine National Bank v. Court of Industrial Relations: “The premise that the funds could be spoken of as public in character may be accepted in the sense that the People’s Homesite and Housing Corporation was a government-owned entity. It does not follow though that they were exempt from garnishment. “
b. National Shipyard and Steel Corporation v. Court of Industrial Relations: A government-owned and controlled corporation has a personality of its own, distinct and separate from that of the Government.

4. By engaging in a particular business as a corporation, government divests itself pro hac vice of its sovereign character; Doctrine of non-suability cannot be legally set up
As held in Manila Hotel Employees Association v. Manila Hotel Co., when the government enters into commercial business, it abandons its sovereign capacity and is to be treated like any other corporation. By engaging in a particular business through the instrumentality of a corporation, the government divests itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law governing private corporations. In Prisco v. CIR, it was held that “when the government engages in business, it abdicates part of its sovereign prerogatives and descends to the level of a citizen” In the case at bar, PNR cannot legally set up the doctrine of non-suability as a bar to the Tupang’s suit for damages.

5. PNR has obligation to observe extraordinary diligence in transporting passengers to their destinations
PNR has the obligation to transport its passengers to their destinations and to observe extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that it was negligent in the performance of its obligation under the contract of carriage. PNR failed to overthrow such presumption of negligence with clear and convincing evidence, inasmuch as PNR does not deny, (1) that the train boarded by the deceased Winifredo Tupang was so overcrowded that he and many other passengers had no choice but to sit on the open platforms between the coaches of the train, (2) that the train did not even slow down when it approached the Iyam Bridge which was under repair at the time, and (3) that neither did the train stop, despite the alarm raised by other passengers that a person had fallen off the train at Iyam Bridge.

6. Contributory negligence of Tupang warrants deletion of moral damages
While PNR failed to exercise extraordinary diligence as required by law, it appears that the deceased was chargeable with contributory negligence. Since he opted to sit on the open platform between the coaches of the train, he should have held tightly and tenaciously on the upright metal bar found at the side of said platform to avoid falling off from the speeding train. Such contributory negligence, while not exempting the PNR from liability, nevertheless justified the deletion of the amount adjudicated as moral damages.

7. Award of exemplary damages in the absence of fraud, malice or bad faith
The award of exemplary damages must be set aside. Exemplary damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There being no evidence of fraud, malice or bad faith on the part of PNR, the grant of exemplary damages should be discarded.

First Philippine Industrial Corp. vs. CA (GR 125948, 29 December 1998)
Second Division , Martinez (J): 3 concur

Facts: First Philippine Industrial Corporation (FPIC) is a grantee of a pipeline concession under RA 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992. Sometime in January 1995, FPIC applied for a mayor’s permit with the Office of the Mayor of Batangas City. However, before the mayor’s permit could be issued, the City Treasurer required FPIC to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, FPIC paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993. On 8 March 1994, the City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.

On 15 June 1994, FPIC filed with the RTC Batangas City a complaint for tax refund with prayer for writ of preliminary injunction against the City of Batangas and Adoracion Arellano in her capacity as City Treasurer (Civil Case 4293). On 3 October 1994, the trial court rendered a decision dismissing the complaint.

PFIC assailed the aforesaid decision before the Supreme Court via a petition for review. On 27 February 1995, the Supreme Court referred the case to the Court of Appeals for consideration and adjudication (CA-GR SP 36801). On 29 November 1995, the CA rendered a decision affirming the trial court’s dismissal of petitioner’s complaint. FPIC’s motion for reconsideration was denied on 18 July 1996. Hence, the petition for review on certiorari.

At first, the petition was denied due course in a Resolution dated 11 November 1996. FPIC moved for a reconsideration which was granted by the Supreme Court in a Resolution of 22 January 1997. Thus, the petition was reinstated. Finally, the Supreme Court granted the petition, and thus reversed and set aside the decision of the Court of Appeals.

1. Common Carrier defined (broad definition)
A “common carrier” may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally.

2. Common Carrier defined (Article 1732)
Article 1732 of the Civil Code defines a “common carrier” as “any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.”

3. Test for determining whether a party is a common carrier of goods
a. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;
b. He must undertake to carry goods of the kind to which his business is confined;
c. He must undertake to carry by the method by which his business is conducted and over his established roads; and
d. The transportation must be for hire.

4. FPIC is a common carrier
Based on the definitions and requirements, FPIC is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation.

5. The fact that FPIC has a limited clientele does not exclude it from the definition of a common carrier
Article 1732 of the Civil Code makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a ’sideline’). Article 1732 . . . avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the ‘general public,’ i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1877 deliberately refrained from making such distinctions. (De Guzman vs. CA)

6. Common Carrier under Article 1732 coincides neatly with notion of Public Service
The concept of ‘common carrier’ under Article 1732 may be seen to coincide neatly with the notion of “public service,” under the Public Service Act (Commonwealth Act 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, ‘public service’ includes “every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services.”

7. Oil pipeline operators are common carriers; Motor vehicle not required
The definition of “common carriers” in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers.

8. Pipeline concessionaire as common carrier (RA 387)
Under the Petroleum Act of the Philippines (Republic Act 387), FPIC is considered a “common carrier.” Thus, Article 86 thereof provides that “Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obliged to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to change without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources.”

9. Petroleum operation regarded as public utility (RA 387)
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides “that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility.”

10. Pipeline concessionaire a common carrier (BIR Ruling 069-83)
The Bureau of Internal Revenue likewise considers FPIC a “common carrier.” In BIR Ruling 069-83, it declared that “. . . since (petitioner) is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 . . . Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended.”

11. FPIC is a common carrier and is thus exempt from the business tax provided in Section 133 (j) LGC
FPIC is a “common carrier” and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code. Section 133 (j) provides that “(Common Limitations on the Taxing Powers of Local Government Units) Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx (j.) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.”

12. Non-imposition of business tax against common carriers to prevent duplication of “common carrier’s tax”
The legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called “common carrier’s tax.” The legislature thus provided an exception under Section 125 (now Section 137) that a province may impose this tax at a specific rate. In the case at bar, FPIC is already paying 3% common carrier’s tax on its gross sales/earnings under the National Internal Revenue Code. To tax FPIC again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code.

Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)
First Division, Pardo (J): 3 concur, 1 took no part

Facts: MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, which is engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. On the other hand, the MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week. On 19 December 1987, motor tanker MT Vector left Limay, Bataan, enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by Caltex, by virtue of a charter contract between Vector Shipping and Caltex. The next day, the passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance, but possibly carrying an estimated 4,000 passengers. At about 10:30 p.m. of 20 December 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls. Among those who perished were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved to be on board the vessel. On 22 March 1988, the board of marine inquiry after investigation found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz.

On 13 February 1989, Teresita and Sotera Cañezal, filed with the RTC Manila, a complaint for “Damages Arising from Breach of Contract of Carriage” against Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. On 15 September 1992, the trial court rendered decision dismissing the third party complaint against Caltex.

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc. (CA-GR CV 39626), on 15 April 1997, the Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of the those liable for damages. Hence the petition.

The Supreme Court granted the petition and set aside the decision of the Court of Appeals, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court affirmed the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys’ fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.

1. The respective rights and duties of a carrier depends on the nature of the contract of carriage

The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or similar contract on the other. In the case at bar, Caltex and Vector entered into a contract of affreightment, also known as a voyage charter.

2. Charter party and contract of affreightment defined

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.

3. Kinds of contract of affreightment

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship.

4. Charterer’s liability: Bareboat charter vs. Contract of affreightment

Under a demise or bareboat charter, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.

5. Categories of charter parties

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter.

6. Bareboat, but not voyage charter, transforms common carrier into private carrier

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment (Coastwise Lighterage Corp. vs. CA) A public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. (Planters Products vs. CA). In the case at bar, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

7. Common carrier defined

A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who may choose to employ and to remunerate him. In the case at bar, MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code (Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers for passengers or goods or both, by land, water, or air for compensation, offering their services to the public).

8. Article 1732, Common carrier, construed

Article 1732 makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a sideline”). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such services on a an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the “general public,” i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. Article 1733 deliberately refrained from making such distinctions.

9. Responsibility of carrier before voyage; Seaworthiness

Under Section 3 of the Carriage of Goods by Sea Act, (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; among others. Carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.

10. Article 1173 of the New Civil Code

Article 1173 of the Civil Code provides that “the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply. If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.”

11. Negligence defined

Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do something which ordinarily regulate the conduct of human affairs, would do (Southeastern College vs. CA).

12. Reason for the applicability of Section 3 COGSA, and Article 1755 NCC to carriers, not shipper and passengers; Ordinary diligence required of shippers

The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness. The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in “public service.” The Civil Code demands diligence which is required by the nature of the obligation and that which corresponds with the circumstances of the persons, the time and the place. Because of the implied warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general is concerned. By the same token, passengers cannot be expected to inquire every time they board a common carrier, whether the carrier possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice would be an absurdity in a business where time is always of the essence. Considering the nature of transportation business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its operation. In the case at bar, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

13. Caltex not liable for damages

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher degree of diligence. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner liable for damages.

Cyberterrorism

Cyberterrorism, as a compound word, simply suggests the convergence of cyberspace and terrorism. Cyberspace is the non-physical terrain created by computer systems, ^[1] or that it is the “virtual world,” i.e. the “symbolic – true, false, binary, metaphoric representations of information – that place in which computer programs function and data moves.” ^[2] Terrorism, on the other hand, is the unlawful use or threatened use of force or violence by a person or an organized group against people or property with the intention of intimidating or coercing societies or governments, often for ideological or political reasons, ^[3] or simply as the systematic use of violence as a means to intimidate or coerce societies or governments. ^[4] Construing the term cyberterrorism in a manner similar to the simple arithmetic of one plus one may mislead people to think that making a terrorist organization active on the Internet, through website postings and chatroom recruitments, would already constitute cyberterrorism. The term must be distinguished from mere activism in the manner the latter is being pursued over the Internet.

Cyberterrorism is generally understood as the unlawful attacks and threats of attack against computers, networks, and the information stored therein when done to intimidate or coerce a government or its people in furtherance of political or social objectives. ^[5] Emphasis is made on the phrase “to intimidate or coerce,” a degree further than to merely “influence” a government or its people, however subtle the difference may be in certain cases. This distinction is important in differentiating cyberterrorism from the growing phenomenon of hacktivism.

It has been likewise suggested that the definition of cyberterrorism is that of “the premeditated, politically motivated attack against information, computer systems, computer programs, and data which result in violence against non-combatant targets by sub-national groups or clandestine agents.” ^[6] This narrow definition is premised on the definition of terrorism provided by the United States Department of State, ^[7] and aims to differentiate itself from other computer abuses such as economic espionage and information warfare, which are deemed “legitimate” offensive and defensive functions of governments.

In sum, whether or not governments are excluded from the definition of cyberterrorism, what is apparent is that for an attack to qualify as that pertaining to cyberterrorism, it should result in violence against persons or property, or at least cause enough harm to generate fear. ^[8] Attacks involving computer systems that lead to physical injury or death, massive disruption of public utilities, or severe economic loss would constitute cyberterrorism. On the other hand, expensive nuisance or disruption of non-essential services will not qualify as cyberterrorism.

Who is a terrorist anyway

A terrorist is one that engages in acts or an act of terrorism, ^[9] or a radical who employs terror as a political weapon. ^[10] The term, however, is so indiscriminately used that one who possesses firearms or explosives, and having an adverse political opinion, would easily qualify as a terrorist. The prevalent situation, wherein governments are the ones active in labeling organizations and individuals as terrorists, subtly suggests that governments and their agents are excluded as actors of terrorism, and which, of course, is erroneous as governments themselves are capable of intimidating or coercing societies. ^[11] An accurate definition of terrorism and terrorists has remained debatable, as the circumstances involving it are extremely complex and highly political. It is not unusual thus that, for example, a Palestinian organization such as the Hamas is considered a terrorist organization by Israel and the United States for deploying suicide bombers against the Israeli population, while Palestinians consider Israel as a terrorist state for committing alleged atrocities against their people and assassinating key militant leaders such as the late Hamas leader Abdel Aziz Rantisi. ^[12]

Further, the statement “One man’s terrorist is another man’s freedom fighter” reflects genuine doubt about the contemporary, else the state-suggested, understanding of the term “terrorist.” Strong disagreements, as to the labeling of the Jewish group “Irgun Zeva’i Le’umi” (abbreviated as Etzel; Palestine, 1940s), the Viet Cong (South Vietnam, 1950s), the Provisional IRA (Northern Ireland, 1960s), and the African National Congress (South Africa, 1980s) as terrorist organizations, have been made in the past. As the matter relates to the Philippines, the Abu Sayyaf Group (ASG) and the Communist Party of Philippines/New People’s Army (CPP/NPA) are listed as terrorist organizations by the United States Department of State. ^[13] A Philippine communist guerilla would insist, of course, on the validity of his struggle.

What CyberTerrorism is not

Internet-aided Activism. This is the normal, non-disruptive use of the Internet in support of an agenda or cause, and in fact, utilizes the Internet as a tool to communicate and coordinate action. Activists may be able to locate official policy statements, analyses, discussions, and other documents and items related to their mission. They can publish information, and disinformation, posted in their website or in newsgroups, or distributed in emails. They may participate in dialogue and debate on policy issues through e-mail, newsgroups, web forums, and chat. They may use the Internet to coordinate action among members and with other organizations and individuals. They may also pursue direct lobbying of decision makers. It is, however, observed that the Internet is not currently an adequate tool for public political movement as the more successful organizations are those who utilize traditional advocacy methods, including the use of the more expensive broadcasting media to reach the public.

Terrorists groups likewise pursue the activities of cyberactivism, as their activities are in fact an activism of the extreme kind. They put up their websites to air their propaganda, recruit supporters, communicate and coordinate action. Their use of the Internet is ancillary only to their usual, if not violent, activities. To note:

1. The Hizbullah operates its own website (www.hizbollah.org)
2. In 1996, Bin Laden’s headquarters in Afghanistan was equipped with computers and communication equipment.
3. Hamas activists have been said to use chat rooms and emails to plan operations and coordinate activities.

Hacktivism. It is the marriage of Hacking (or aptly Cracking) and Activism. Hacktivism is, in essence, electronic civil disobedience, which methods includes virtual sit-ins and blockades, automated e-mail bombs, web hacks and computer break-ins, and computer viruses and worms. A virtual sit-in or blockade is made possible by the use of “hacking tools” by a sizable number of individuals against a particular website, such as by saturating the target server with network packets, among others, for the purpose of calling attention to the cause of the protesters by disrupting normal operations and blocking access to facilities. E-mail bombing is done by bombarding a recipient with thousands of messages at once, distributed with the aid of automated tools. Web hacks or Computer break-ins, which are rather common, are done by gaining access to websites and replacing some of the content with their own, or by tampering with the Domain Name Service so that the site’s domain name resolves to the IP address of another site. Lastly, computer viruses and worms have been used to spread protest message and/or cause serious damage to target computer systems.

Hacktivism methods such as web hack and email bombing were used extensively during the Kosovo conflicts by both Serbs and Americans citizens, with Chinese nationals following suit attacking American websites after the accidental bombing of the Chinese embassy in Belgrade at that time. Chinese and Taiwanese hackers exchange web hack attacks in 1999 following Taiwan’s president statement that China must deal with Taiwan on a “state-to-state” basis. The use of hacktivism methods, however, are not exclusive to unarmed individuals and organizations. It must be noted that:

1. In 1998, the ethnic Tamil guerillas swamped Sri Lankan embassies with emails with messages that read “We are the Internet Black Tigers and we’re doing this to disrupt your communications.” The volume of the emails sent was 800 emails a day for a period of two weeks.
2. A file transfer protocol site operated by the Arkansas Highway and Transportation Department was turned into a repository of Osama bin Laden videos, jihadist songs and terrorist incident videos in July 2004. Links to those files then were posted at al Ansar, a radical Islamist Web site.

The Supposed Threat of CyberTerrorism

Some security experts believe that CyberTerrorism is an unsettling reality due to the convergence of the physical world and the virtual world. Barry C. Collin of the institute of Security for Security and Intelligence (Stanford University) outlined the various possibilities in which a cyberterrorist may attack: (1) a cyberterrorist will remotely access the processing control systems of a cereal manufacturer, change the levels of iron supplement, and sicken and kill the children of a nation enjoying their food; (2) a cyberterrorist will place a number of computerized bombs around a city, all simultaneously transmitting unique numeric patterns, each bomb receiving each other’s pattern; (3) a cyberterrorist will disrupt the banks, the international financial transactions, and the stock exchanges; (4) a cyberterrorist will attack the next generation of air traffic control systems, and collide two large civilian aircraft; (5) a cyberterrorist will remotely alter the formulas of medication at pharmaceutical manufacturers; and (6) a cyberterrorist may decide to remotely change the pressure in gas lines, causing a valve failure, and a block of sleepy suburb detonates and burns. ^[14] Mark M. Pollitt of the FBI Laboratory challenges the plausibility of Collin’s scenarios inasmuch as there is sufficient human involvement in the control processes used today. In the cereal plant scenario, the quantity of iron that would be required for the cereals to be toxic is substantial that assembly line workers would notice in as much as the assembly line would run out of iron sooner or later. In the air traffic control scenario, pilots are trained to be aware of the situation and operate even without the assistance of air traffic controllers at all. ^[15] Further, in the computerized bomb scenario, there is doubt for terrorists to deploy sophisticated bombs, which are dependent on complex systems and other technical considerations, to replace crude homemade bombs, which are easier to deploy. On the other hand, the gas lines scenario may be an apparent threat, inasmuch as there are unconfirmed reports of an instance where hackers, in collaboration with an insider, were said to have a used a Trojan horse to gain control of the central switchboard of Gazprom, the Russian state-run gas monopoly and the largest natural gas producer and largest gas supplier to Western Europe, which controls gas flows in pipelines. ^[16] Notwithstanding this isolated instance, most critical utilities and sensitive military systems enjoy the most basic form of Internet security, i.e. that they are “air-gapped” or in other words are not physically connected to the Internet and are therefore inaccessible to outside hackers. It would be a leap of imagination to consider the immediate possibility of a hacker to control computers that would launch nuclear weapons, or to hijack satellite systems or other high-consequence assets. It would also be a leap of imagination to consider the contamination of water supply and explosion of chemical factories, tasks which are harder to do physically, can be made instantly just because of the prominence of the Internet. ^[17]

The bottom line remains that there has been no instance of anyone ever having been killed by a terrorist using a computer. There has been no evidence that any terrorist organization has resorted to direct use of computers and computer networks for any sort of serious destructive activity. At this time, the concept of cyberterrorism as a reality is in the same level of the phantom of weapons of mass destruction that are supposed to be developed and stashed in Iraq. Cyberterrorism is not an immediate reality.

Focusing on the real threats

Dismissing the immediate threat of cyberterrorism, however, does not warrant complacency. Terrorism is as real as computer crimes are. Although they are experienced independently, these problems need to be addressed. Citizens have to be protected, economic loss should be prevented, and negligence should be abated.

The protection of critical utilities or infrastructure – telecommunications, banking and finance, electrical power, oil and gas distribution and storage, water supply and sewage, transportation, emergency services, and government services – for one, must be protected from attacks, whether the source of such attacks has a political agenda or not.

In the past, there have been prominent computer-aided attacks on critical utilities, some of which are:

1. Water supply and sewage. In April 2000, a disgruntled consultant-turned-hacker in Maroochy Shire, Australia compromised a waste management control system and loosed millions of gallons of raw sewage on the town. The former insider tried to unleash the waste in 46 tries, with the personnel managing the infrastructure failing to detect the first 45 tries.
2. Transportation. In 1997, a hacker shut down the control tower services as the Worcester, Massachusetts airport. Although it did not cause any accidents, services were affected.
3. Emergency services. In the United States, in 1997, a Swedish hacker jammed the 911 emergency telephone system throughout west-central Florida. A Louisiana man made a similar act in 2002 by tricking a handful of MSN TV users into running a malicious e-mail attachment that reprogrammed their set-top boxes to dial 911 emergency response. He was arrested February 2004 and was charged with CyberTerrorism.
4. Government services. In 1998, several government and university websites received “denial of service” attacks, preventing servers from answering network connections and crashing computers. This has been a common occurrence in the past years. On the other hand, also in 1998, the US Defense Department’s unclassified networks were penetrated, allowing hackers to access personnel and payroll information.

It is thus necessary that computer asset managers should be aware which systems should be “air-gapped” from other networks to prevent the risk of intrusions by unauthorized personnel, if not crackers, or loosely, hackers. Precaution should be taken as to issues of security vis-à-vis new technology that may deployed, including those pertaining to wireless technology. Public policy should be clear as to the minimum standards required in the maintenance of computer systems in relation with the critical utility that they are designed to support, as a means to minimize negligence on the matter, and prevent potential disasters as a result thereof. Pollitt made an apt reminder on this matter. He said, “As we build more and more technology into our civilization, we must ensure that there is sufficient human oversight and intervention to safeguard those whom technology serves.” ^[18]

On the other hand, critical data must likewise be protected. The Government should provide the ample protection through the enactment of laws for stiffer penalties against e-mail bombing or flooding, denial of service attacks, and computer break-ins. The government and industries must find solutions to increase the quality of system security, mass-market computer products, and emergency technical response. The economic consequence of crashed or unusable systems and corrupted data is clear. In the end, anything that would threaten economic viability may appear to be greater than the threat of physical harm, for eventually what is worse than the death that we fear is the reality of borderline existence that we have to endure.

Endnotes

1. What is Cyber? A word definition from the Webopedia Computer Dictionary. Retrieved 4 May 2004. http://www.webopedia.com/TERM/c/cyber.html. http://www.webopedia.com/. Copyright, 2004 Jupitermedia. All rights reserved. Reprinted with permission from http://www.internet.com. [back]
2. Collin, Barry C., “The Future of CyberTerrorism,” Proceedings of 11th Annual International Symposium on Criminal Justice Issues, The University of Illinois at Chicago, 1996 http://www.acsp.uic.edu/OICJ/CONFS/ terror02.htm [back]
3. The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2000 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. [back]
4. WordNet ® 1.6, © 1997 Princeton University. [back]
5. Denning, Dorothy E.. “Testimony before the Special Oversight Panel on Terrorism Committee on Armed Services US House of Representatives.” Georgetown University, 23 May 2000. Retrieved 4 May 2004. http://www.cs.georgetown.edu/~denning/infosec/cyberterror.html [back]
6. Pollitt, Mark M. “CyberTerrorism: Fact or Fancy?” Retrieved 4 May 2004. http://www.cs.georgetown.edu/~denning/infosec/pollitt.html [back]
7. “The term ‘Terrorism’ means premeditated, politically motivated violence perpetuated against non-combatant targets by sub-national groups or clandestine agents.” United States Department of State, “Patterns of Global Terrorism,” Washington DC, 1996 [back]
8. Denning, Dorothy E. http://www.cs.georgetown.edu/~denning/infosec/cyberterror.html, supra. [back]
9. The American Heritage®, supra. [back]
10. WordNet ® 1.6, supra. [back]
11. The word “terrorism” entered into European languages in the wake of the French revolution of 1789 when the government in Paris tried to impose its radical new order on a reluctant citizenry. As a result, the first meaning of the word “terrorism,” as recorded by the Académie Française in 1798, was “system or rule of terror,” a reminder that terror is often at its bloodiest when used by dictatorial governments against their own citizens. See BBC, History, The Changing Faces of Terrorism. http://www.bbc.co.uk/history/war/sept_11/changing_faces_01.shtml [back]
12. CNN.com – Hamas leader killed in air strike – Apr 17, 2004. Retrieved 4 May 2004. http://edition.cnn.com/2004/WORLD/meast/04/17/mideast.violence/index.html. See also CNN.com - Ambassador: Hamas leader was ‘doctor of death’ – Apr 19, 2004. Retrieved 4 May 2004. http://edition.cnn.com/2004/WORLD/meast/04/19/ un.rantisi/index.html [back]
13. Appendix B - Background Information on Designated Foreign Terrorist Organizations. Retrieved 4 May 2004. http://www.globalsecurity.org/security/library/report/2004/ pgt_2003/pgt_2003_31711pf.htm [back]
14. Collin, Barry C., “11th Annual International Symposium on Criminal Justice: The Future of Cyberterrorism, where the physical and virtual worlds converge.” Retrieved on 4 May 2004. http://afgen.com/terrorism1.html [back]
15. Pollitt, Mark M., “Cyberterrorism: Fact or Fancy?” Retrieved 4 May 2004 http://www.cs.georgetown.edu/~denning/infosec/pollitt.html [back]
16. Denning, Dorothy E. http://www.cs.georgetown.edu/~denning/infosec/cyberterror.html, supra. [back]
17. Green, Joshua. “The Myth of Cyberterrorism.” Retrieved 4 May 2004. http://www.washingtonmonthly.com/features/2001/0211.green.html [back]
18. Pollitt, Mark M., “Cyberterrorism: Fact or Fancy?” supra. [back]