Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc.

A common carrier is presumed at fault or negligent for any loss or damage to goods it transports, and this presumption can be rebutted only by proof that it observed extraordinary diligence or that the loss was caused by a fortuitous event that was the sole and proximate cause of the loss, with the carrier having exercised due diligence to prevent or minimize the loss before, during, and after the occurrence.

Lea Mer Industries, Inc. is a common carrier engaged in the business of transporting goods by water, offering its services to the public for compensation. Malayan Insurance Co., Inc. is an insurer that, after indemnifying the consignee Vulcan Industrial and Mining Corporation for the value of lost cargo, stepped into the consignee's shoes through subrogation to recover from the carrier. The dispute is governed by Articles 1732 to 1739 of the Civil Code, which impose on common carriers the duty of extraordinary diligence and presume them at fault or negligent for any loss or damage to goods transported, subject to enumerated exemptions.

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc. for the shipment of 900 metric tons of silica sand valued at ₱565,000, consigned to Vulcan Industrial and Mining Corporation, to be transported from Palawan to Manila. On October 25, 1991, the silica sand was loaded on board Judy VII, a non-propelled barge leased by Lea Mer, which could operate only through towing by petitioner's tugboat M/T Ayalit. Petitioner's own crew manned the tugboat and controlled the barge. During the voyage, the barge sank, resulting in the total loss of the cargo.

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. Exercising its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply. Consequently, Malayan filed a complaint for collection of ₱565,000 with the RTC of Manila on September 4, 1992, docketed as Civil Case No. 92-63159 and raffled to Branch 42.

Lea Mer defended on the ground that the loss was caused by a fortuitous event — bad weather brought about by Typhoon Trining. Evidence was presented that petitioner had not been informed of the incoming typhoon and that the Philippine Coast Guard had given clearance to begin the voyage. On October 25, 1991, the date the voyage commenced and the barge sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was only Signal No. 1. Petitioner's witness Domingo A. Luna testified that the barge was in "tip-top" or excellent condition but admitted he had not personally inspected it when it left Palawan. Another witness, Joey A. Draper, the quarter master in charge of steering the tugboat, testified that when water started entering the barge, he could no longer remember whether any precautionary measures had been taken by the officers and crew to prevent the sinking, because the incident had happened a long time ago.

Respondent countered with evidence that the barge was not seaworthy when it sailed, proving through the testimony of its witnesses and documentary evidence that there were holes in the hull of the barge that might have caused or aggravated the sinking. Federico S. Manlapig, a cargo marine surveyor and vice-president of Toplis and Harding Company, testified that he prepared an Adjustment Report after taking into account the findings of cargo surveyor Jesus Cortez's Survey Report, as well as pictures and sketches of the place where the sinking occurred, showing the barge was not seaworthy due to the existence of holes. Cortez, however, had migrated to Australia and could not testify at trial. The trial court correctly refused to admit Cortez's affidavit as evidence because he was not presented as a witness.

The RTC found the loss was caused by a fortuitous event and dismissed the complaint. The CA reversed, holding the vessel was not seaworthy when it sailed and the loss was occasioned by petitioner's fault, not a fortuitous event.

• Admissibility of the Survey Report: Petitioner argued that the survey report prepared by cargo surveyor Jesus Cortez, who had not been presented as a witness during trial, should not be admitted in evidence to prove the alleged facts cited in the report.
• Fortuitous Event: Petitioner maintained that the CA erred in reversing the RTC's factual finding that the loss of the cargo was caused by a fortuitous event for which petitioner could not be held liable.
• Seaworthiness and Weather Conditions: Petitioner argued that the CA committed serious error and grave abuse of discretion in disregarding the testimony of MARINA witness Engr. Jacinto Lazo y Villegal that the vessel Judy VII was seaworthy at the time of the incident, and in disregarding the testimony of PAG-ASA weather specialist Ms. Rosa Barba y Saliente that Typhoon Trining did not hit Metro Manila or Palawan.

• Liability for Loss of Cargo: Whether petitioner is liable for the loss of the cargo.
• Admissibility of the Survey Report: Whether the survey report of Jesus Cortez is admissible in evidence.

• Liability for Loss of Cargo: Yes. Petitioner is liable as a common carrier that failed to overcome the presumption of negligence under Article 1735 of the Civil Code, having neither proved extraordinary diligence nor established that a fortuitous event was the sole and proximate cause of the loss.
• Admissibility of the Survey Report: Partly. The Survey Report was inadmissible as hearsay to prove the truth of its contents because Cortez did not testify, but it was admissible as an independently relevant statement to prove its tenor and existence as part of the testimonies of respondent's witnesses.

• Liability for Loss of Cargo: The resolution hinged on whether the loss was due to a fortuitous event — a question of fact that the Court reviewed because the RTC and CA findings diverged. Petitioner was a common carrier under Article 1732, offering to the public its service of transporting goods through its vessels. The contract was one of affreightment, not demise, because petitioner's own crew manned the tugboat and controlled the barge; thus the law on common carriers governed. Under Articles 1733 and 1735, common carriers are bound to observe extraordinary diligence and are presumed at fault or negligent for any loss or damage to goods transported. This presumption can be rebutted only by proof of extraordinary diligence or that the loss fell under one of the exempting causes in Article 1734, including flood, storm, or other natural disaster. Petitioner invoked Typhoon Trining as a fortuitous event under Article 1174, but its evidence was insufficient. First, petitioner presented no evidence that it attempted to minimize or prevent the loss before, during, or after the event, as required by Article 1739; its witness Draper could not recall any precautionary measures taken. Second, the alleged fortuitous event was not the sole and proximate cause: respondent proved by a preponderance of evidence that the barge had holes in its hull that might have caused or aggravated the sinking, indicating unseaworthiness. Petitioner offered no evidence to rebut the existence of the holes; its witness Luna testified the barge was in excellent condition but had not personally inspected it before departure. The Philippine Coast Guard Certificate of Inspection did not conclusively prove seaworthiness at the time of the voyage, its regularity being only disputably presumed and contradicted by competent evidence. Because the presumption of negligence applied and petitioner failed to overcome it, liability was established.
• Admissibility of the Survey Report: Under Section 36 of Rule 130, a witness can testify only to facts within personal knowledge; an affidavit is hearsay unless the affiant is presented as a witness. Because Cortez did not testify, his Survey Report was hearsay and inadmissible to prove the truth of its contents. The Court agreed with petitioner on this point. However, the Survey Report was not the sole evidence of unseaworthiness. The existence of the holes was proved by the testimonies of respondent's witnesses Charlie M. Soriano and Federico S. Manlapig, who testified that the Survey Report had been used in preparing the final Adjustment Report, which showed the barge was not seaworthy. Under the doctrine of independently relevant statements, a report is admissible if intended to prove the tenor — not the truth — of the statements therein; the fact that the statement was made is itself relevant, and the hearsay rule does not apply. The Survey Report was admitted only as part of the testimonies of respondent's witnesses, to prove its existence and tenor in relation to Manlapig's Adjustment Report. At any rate, even without the Survey Report, petitioner had already failed to overcome the presumption of fault applicable to common carriers.

• Presumption of Negligence for Common Carriers — Under Article 1735 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently for any loss or damage to the goods they transport. This presumption can be rebutted only by proof that the carrier observed extraordinary diligence or that the loss was occasioned by any of the causes enumerated in Article 1734: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) act of the public enemy in war; (3) act or omission of the shipper or owner of the goods; (4) character of the goods or defects in the packing or containers; (5) order or act of competent public authority. The Court applied this doctrine by placing the burden on petitioner to prove extraordinary diligence or an exempting cause, and found petitioner's evidence sorely insufficient.
• Extraordinary Diligence — Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of public policy. Extraordinary diligence requires rendering service with the greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery. The Court held that petitioner failed to meet this standard, having presented no evidence of measures taken to prevent or minimize the loss.
• Fortuitous Event (Caso Fortuito) — The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence must have been independent of human will; (b) the event must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have rendered it impossible for the debtor to fulfill the obligation in a normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor. To excuse a common carrier fully, the fortuitous event must have been the proximate and only cause of the loss, and the carrier must have exercised due diligence to prevent or minimize the loss before, during, and after the occurrence. The Court found that Typhoon Trining was not the sole and proximate cause because unseaworthiness due to holes in the hull contributed to the sinking, and petitioner exercised no diligence to prevent or minimize the loss.
• Distinction Between Demise (Bareboat) Charter and Affreightment — Under a demise or bareboat charter, the charterer mans the vessel with his own people and becomes owner pro hac vice, indicating a private undertaking governed by the parties' stipulations. Under a contract of affreightment (time or voyage charter), the owner retains possession, command, and navigation, and the law on common carriers applies. The Court classified the contract as one of affreightment because petitioner's own crew manned the tugboat and controlled the barge, confirming petitioner's status as a common carrier.
• Independently Relevant Statements — A report made by a person is admissible if intended to prove the tenor, not the truth, of the statements therein. Independent of the truth or falsity of the statement, the fact that it has been made is relevant, and the hearsay rule does not apply. The Court applied this doctrine to admit Cortez's Survey Report as part of the testimonies of respondent's witnesses, to prove its existence and tenor in relation to the Adjustment Report, not to prove the truth of its contents.

• "Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of public policy." — This passage states the foundational duty of common carriers under Article 1733 of the Civil Code, the breach of which gives rise to the presumption of negligence.
• "The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As required by the pertinent law, it was not enough for the common carrier to show that there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault — a fact it miserably failed to prove." — This passage articulates the ratio decidendi: the insufficiency of petitioner's evidence to overcome the presumption of negligence, establishing that a carrier invoking fortuitous event must prove freedom from fault.
• "A report made by a person is admissible if it is intended to prove the tenor, not the truth, of the statements. Independent of the truth or the falsity of the statement given in the report, the fact that it has been made is relevant. Here, the hearsay rule does not apply." — This passage defines the doctrine of independently relevant statements, an exception to the hearsay rule, and explains why the Survey Report was admissible despite the preparer's failure to testify.

• Puromines, Inc. vs. Court of Appeals, 220 SCRA 281 (1991) — Cited for the distinction between demise (bareboat) charter and affreightment, which determines whether the law on common carriers or private carriage governs the parties' rights and obligations.
• Philippine American General Insurance Company vs. PKS Shipping Company, 401 SCRA 222 (2003) — Followed for the propositions that a demise charter indicates a private business undertaking and that questions of fact may be reviewed when the RTC and CA findings diverge.
• Calvo vs. UCPB General Insurance Co., Inc., 429 Phil. 244 (2002) — Cited for the definition of extraordinary diligence as rendering service with the greatest skill and foresight to avoid damage to goods entrusted for carriage.
• Delsan Transport Lines, Inc. vs. Court of Appeals, 420 Phil. 824 (2001) — Cited for the principle that a Coast Guard Certificate of Inspection does not necessarily account for the actual condition of the vessel at the time of the voyage's commencement.
• Country Bankers Insurance vs. Lianga Bay and Community Multi-purpose Cooperative, 425 Phil. 511 (2002) — Cited for the doctrine of independently relevant statements as an exception to the hearsay rule.

• Article 1732, Civil Code — Defines common carriers as persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods by land, water, or air, when the service is offered to the public for compensation. Applied to classify petitioner as a common carrier.
• Article 1733, Civil Code — Requires common carriers to observe extraordinary diligence in vigilance over goods and safety of passengers, as required by the nature of their business and for reasons of public policy. Applied as the standard against which petitioner's conduct was measured.
• Article 1734, Civil Code — Enumerates the causes that exempt a common carrier from liability for loss or damage to goods: natural disaster, act of the public enemy, act or omission of the shipper, character of the goods or defects in packing, and order or act of competent public authority. Petitioner invoked the first cause (storm) but failed to prove it as the sole and proximate cause.
• Article 1735, Civil Code — Establishes the presumption that common carriers are at fault or negligent for any loss or damage to goods transported. Applied to place the burden of proof on petitioner.
• Article 1739, Civil Code — Provides that to excuse the common carrier fully, the fortuitous event must have been the proximate and only cause of the loss, and that the carrier must have exercised due diligence to prevent or minimize the loss before, during, and after the occurrence. Applied to find petitioner's defense deficient on both counts.
• Article 1174, Civil Code — Defines fortuitous event as one that could not be foreseen or, though foreseen, was inevitable. Applied in conjunction with the four-element test for caso fortuito drawn from jurisprudence.
• Section 36, Rule 130, Rules of Court — Provides that a witness can testify only to facts within personal knowledge and excludes hearsay. Applied to hold Cortez's Survey Report inadmissible to prove the truth of its contents.
• Section 1, Rule 45, Rules of Court — Provides that only questions of law may be raised in a petition for review. Noted as the general rule, with the present case as an exception due to conflicting RTC and CA factual findings.

Justice Angelina Sandoval-Gutierrez, Justice Renato C. Corona, Justice Conchita Carpio Morales, and Justice Cancio C. Garcia concurred.