FIRST DIVISION

[G.R. No. 150403. January 25, 2007.]

CEBU SALVAGE CORPORATION, petitioner, vs. PHILIPPINE

HOME ASSURANCE CORPORATION, respondent.

DECISION

CORONA, J : p

May a carrier be held liable for the loss of cargo resulting from the sinking of a
ship it does not own?

This is the issue presented for the Court's resolution in this petition for review
on certiorari 1(1) assailing the March 16, 2001 decision 2(2) and September 17, 2001
resolution 3(3) of the Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn
affirmed the December 27, 1989 decision 4(4) of the Regional Trial Court (RTC),
Branch 145, Makati, Metro Manila. 5(5)

The pertinent facts follow.

On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and
Maria Cristina Chemicals Industries, Inc. [MCCII] (as charterer) entered into a
voyage charter 6(6) wherein petitioner was to load 800 to 1,100 metric tons of silica
quartz on board the M/T Espiritu Santo 7(7) at Ayungon, Negros Occidental for
transport to and discharge at Tagoloan, Misamis Oriental to consignee Ferrochrome
Phils., Inc. 8(8)

Pursuant to the contract, on December 23, 1984, petitioner received and loaded
1,100 metric tons of silica quartz on board the M/T Espiritu Santo which left
Ayungon for Tagoloan the next day. 9(9) The shipment never reached its destination,
however, because the M/T Espiritu Santo sank in the afternoon of December 24, 1984
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 off the beach of Opol, Misamis Oriental, resulting in the total loss of the cargo.
10(10)

MCCII filed a claim for the loss of the shipment with its insurer, respondent
Philippine Home Assurance Corporation. 11(11) Respondent paid the claim in the
amount of P211,500 and was subrogated to the rights of MCCII. 12(12) Thereafter, it
filed a case in the RTC 13(13) against petitioner for reimbursement of the amount it
paid MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered

petitioner to pay respondent P211,500 plus legal interest, attorney's fees equivalent to
25% of the award and costs of suit. TCDHaE

On appeal, the CA affirmed the decision of the RTC. Hence, this petition.

Petitioner and MCCII entered into a "voyage charter," also known as a contract
of affreightment wherein the ship was leased for a single voyage for the conveyance
of goods, in consideration of the payment of freight. 14(14) Under a voyage charter,
the shipowner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of freight. 15(15) An owner who retains possession of the ship remains
liable as carrier and must answer for loss or non-delivery of the goods received for
transportation. 16(16)

Petitioner argues that the CA erred when it affirmed the RTC finding that the
voyage charter it entered into with MCCII was a contract of carriage. 17(17) It insists
that the agreement was merely a contract of hire wherein MCCII hired the vessel from
its owner, ALS Timber Enterprises (ALS). 18(18) Not being the owner of the M/T
Espiritu Santo, petitioner did not have control and supervision over the vessel, its
master and crew. 19(19) Thus, it could not be held liable for the loss of the shipment
caused by the sinking of a ship it did not own.

We disagree.

Based on the agreement signed by the parties and the testimony of petitioner's
operations manager, it is clear that it was a contract of carriage petitioner signed with
MCCII. It actively negotiated and solicited MCCII's account, offered its services to
ship the silica quartz and proposed to utilize the M/T Espiritu Santo in lieu of the M/T
Seebees or the M/T Shirley (as previously agreed upon in the voyage charter) since
these vessels had broken down. 20(20)

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 There is no dispute that petitioner was a common carrier. At the time of the
loss of the cargo, it was engaged in the business of carrying and transporting goods by
water, for compensation, and offered its services to the public. 21(21)

From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they transport
according to the circumstances of each case. 22(22) In the event of loss of the goods,
common carriers are responsible, unless they can prove that this was brought about by
the causes specified in Article 1734 of the Civil Code. 23(23) In all other cases,
common carriers are presumed to be at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence. 24(24)

Petitioner was the one which contracted with MCCII for the transport of the
cargo. It had control over what vessel it would use. All throughout its dealings with
MCCII, it represented itself as a common carrier. The fact that it did not own the
vessel it decided to use to consummate the contract of carriage did not negate its
character and duties as a common carrier. The MCCII (respondent's subrogor) could
not be reasonably expected to inquire about the ownership of the vessels which
petitioner carrier offered to utilize. As a practical matter, it is very difficult and often
impossible for the general public to enforce its rights of action under a contract of
carriage if it should be required to know who the actual owner of the vessel is. 25(25)
In fact, in this case, the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel. 26(26)

Petitioner next contends that if there was a contract of carriage, then it was
between MCCII and ALS as evidenced by the bill of lading ALS issued. 27(27)

Again, we disagree.

The bill of lading was merely a receipt issued by ALS to evidence the fact that
the goods had been received for transportation. It was not signed by MCCII, as in fact
it was simply signed by the supercargo of ALS. 28(28) This is consistent with the fact
that MCCII did not contract directly with ALS. While it is true that a bill of lading
may serve as the contract of carriage between the parties, 29(29) it cannot prevail
over the express provision of the voyage charter that MCCII and petitioner executed:

[I]n cases where a Bill of Lading has been issued by a carrier covering goods
shipped aboard a vessel under a charter party, and the charterer is also the
holder of the bill of lading, "the bill of lading operates as the receipt for the
goods, and as document of title passing the property of the goods, but not as
varying the contract between the charterer and the shipowner." The Bill of
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 Lading becomes, therefore, only a receipt and not the contract of carriage in a
charter of the entire vessel, for the contract is the Charter Party, and is the law
between the parties who are bound by its terms and condition provided that
these are not contrary to law, morals, good customs, public order and public
policy. 30(30)

Finally, petitioner asserts that MCCII should be held liable for its own loss
since the voyage charter stipulated that cargo insurance was for the charterer's
account. 31(31) This deserves scant consideration. This simply meant that the
charterer would take care of having the goods insured. It could not exculpate the
carrier from liability for the breach of its contract of carriage. The law, in fact,
prohibits it and condemns it as unjust and contrary to public policy. 32(32)

To summarize, a contract of carriage of goods was shown to exist; the cargo

was loaded on board the vessel; loss or non-delivery of the cargo was proven; and
petitioner failed to prove that it exercised extraordinary diligence to prevent such loss
or that it was due to some casualty or force majeure. The voyage charter here being a
contract of affreightment, the carrier was answerable for the loss of the goods
received for transportation. 33(33)

The idea proposed by petitioner is not only preposterous, it is also dangerous.

It says that a carrier that enters into a contract of carriage is not liable to the charterer
or shipper if it does not own the vessel it chooses to use. MCCII never dealt with ALS
and yet petitioner insists that MCCII should sue ALS for reimbursement for its loss.
Certainly, to permit a common carrier to escape its responsibility for the goods it
agreed to transport (by the expedient of alleging non-ownership of the vessel it
employed) would radically derogate from the carrier's duty of extraordinary diligence.
It would also open the door to collusion between the carrier and the supposed owner
and to the possible shifting of liability from the carrier to one without any financial
capability to answer for the resulting damages. 34(34)

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.

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