National Steel Corporation vs. Vlasons Shipping, Inc.

A vessel engaged under a charter party is a private carrier, and the charterer bears the burden of proving the carrier's negligence or unseaworthiness; the presumption of negligence under the Civil Code applies only to common carriers. The Court also held that laytime expressed as "weather working days" is tolled by bad weather that prevents unloading, thereby precluding the accrual of demurrage for such periods.

National Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI) entered into a Contract of Voyage Charter Hire on July 17, 1974, whereby NSC hired VSI's vessel, the MV Vlasons I, to transport steel products from Iligan City to Manila. The contract incorporated the NANYOZAI Charter Party, which stipulated that the owner was not responsible for losses except upon proven willful negligence, and that loading and discharging were on a FIOST (Freight In and Out including Stevedoring and Trading) basis. The vessel arrived in Manila on August 12, 1974. Upon opening the hatches, NSC's cargo of tinplates and hot rolled sheets was found wet and rusty. Unloading was completed on August 24, 1974, delayed by heavy rains. NSC demanded payment for the downgrading of the damaged tinplates, which VSI refused, prompting NSC to file a complaint for damages. VSI counterclaimed for unpaid freight, demurrage, and attorney's fees.

• The Charter Party Contract: On July 17, 1974, NSC chartered VSI's MV Vlasons I for a single voyage from Iligan City to Manila. The contract fixed freight at P30.00/metric ton on a FIOST basis, meaning NSC was responsible for loading, stowing, and discharging the cargo free of risk and expense to the owner. The contract set the loading/discharging rate at 750 tons per WWDSHINC (Weather Working Day of 24 consecutive hours, Sundays and Holidays Included) and demurrage at P8,000.00 per day. It incorporated the NANYOZAI Charter Party, which exempted the owner from liability for cargo loss or damage absent willful negligence or lack of due diligence to make the vessel seaworthy.
• The Voyage and Damage: The vessel loaded 1,769 packages of tinplates and hot rolled sheets on August 6-8, 1974, and arrived in Manila on August 12, 1974. Upon opening the hatches the next day, the cargo was found wet and rusty. Laboratory analysis confirmed the wetting was caused by contact with seawater. VSI's master had filed a Marine Protest noting that the vessel encountered rough seas and strong winds en route, causing seawater to overflow onto the deck and hatch covers, stripping the first layer of canvas while the second, newer canvas held.
• The Unloading Operations: Discharging the cargo took twelve days (August 13-24, 1974), interrupted by heavy rains from a passing typhoon. NSC's stevedores used temporary tent-like canvas covers over the hatch openings during the rain so they could easily resume work when the rain stopped. VSI's officer, Vicente Angliongto, observed that these tents were inadequate and allowed rainwater to seep into the holds. He called the attention of the stevedores and NSC's representative, and later wrote a formal letter to NSC complaining about the improper covering.
• Vessel Seaworthiness: The MV Vlasons I was a tramping vessel that did not offer services to the general public. Before the voyage, the vessel had undergone drydocking in Cebu and was inspected and cleared as seaworthy by the Philippine Coast Guard. This was the vessel's first voyage after drydocking.

• NSC argued that the MV Vlasons I was unseaworthy because it used old and torn tarpaulins to cover the hatches. NSC maintained that the rusting of the tinplates was caused by seawater penetrating these defective covers, not by the inherent nature of the goods or "sweating." NSC contended that its stevedores were not negligent and that VSI should be liable for the cargo damage. NSC further argued that the seaworthiness certificates presented by VSI were inadmissible hearsay, that its failure to insure the cargo should not exempt VSI from liability, and that it should not be held liable for demurrage because the unloading delays were caused by bad weather.
• VSI argued that as a private carrier, the stringent provisions of the Civil Code on common carriers, including the presumption of negligence, did not apply. VSI maintained that the terms and conditions of the Contract of Voyage Charter Hire were valid and binding. VSI contended that it exercised due diligence to make the vessel seaworthy and that the damage was caused by the negligence of NSC's stevedores. VSI also argued that the Court of Appeals erred in reducing the demurrage award and in deleting the award for attorney's fees and litigation expenses.

• VSI (as respondent to NSC's petition) countered that the vessel was seaworthy, as evidenced by its recent drydocking and Coast Guard certification. VSI argued that the damage was due to the inherent character of the goods, force majeure, or the negligence of NSC's stevedores who failed to properly close the hatches during rain. VSI asserted that under the FIOST terms and the charter party, it was not liable for the damage.
• NSC (as respondent to VSI's petition) defended the Court of Appeals' reduction of the demurrage and deletion of attorney's fees, arguing that the delays were due to weather and that VSI was not entitled to attorney's fees because its claim was not pursued in bad faith.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether VSI, operating under a voyage charter party, is a common carrier or a private carrier, and consequently, whether the presumption of negligence under the Civil Code applies.
  • Whether VSI exercised due diligence to make the vessel seaworthy and whether the damage to the cargo was caused by VSI's negligence.
  • Whether NSC's failure to insure the cargo exempts VSI from liability for damage.
  • Whether the seaworthiness certificates presented by VSI are admissible in evidence.
  • Whether NSC is liable for demurrage given the "weather working days" stipulation in the charter party.
  • Whether VSI is entitled to attorney's fees and litigation expenses.

• Procedural: N/A
• Substantive:
  • The Court ruled that VSI was a private carrier. Because the MV Vlasons I rendered tramping service and was available only to specific persons under a charter party, it did not offer its services to the general public. Accordingly, the presumption of negligence under the Civil Code governing common carriers does not apply. The rights and obligations of the parties are governed primarily by the stipulations in their charter party and the Code of Commerce.
  • The Court found that VSI exercised due diligence to make the vessel seaworthy. The vessel had just been drydocked and was cleared by the Philippine Coast Guard. NSC failed to discharge its burden of proving VSI's willful negligence. The damage to the cargo was caused by the negligence of NSC's own stevedores, who used inadequate tent-like covers during the rain, allowing water to seep into the holds. Under the FIOST terms of the charter party, the loading and discharging of the cargo were the sole responsibility of NSC.
  • The Court held that NSC's failure to insure the cargo did not exempt VSI from liability. The obligation to insure is separate and distinct from the carrier's statutory or contractual responsibility for its own negligence. Nothing in the charter party made VSI's liability contingent on NSC obtaining insurance.
  • The Court ruled that most of the seaworthiness certificates were inadmissible. Private documents were not properly authenticated, and photocopies did not meet the best evidence rule. However, Exhibit 11, an original certificate from the Philippine Coast Guard, was admissible as an entry in an official record under Section 44, Rule 130 of the Rules of Court. Regardless, the burden of proving unseaworthiness remained with NSC, which it failed to discharge.
  • The Court held that NSC was not liable for demurrage. The charter party stipulated a laytime of "weather working days" (WWDSHINC). Under this stipulation, laytime ceases to run when bad weather prevents unloading. Because unloading was interrupted by heavy rains for almost the entire period, the four-day laytime never lapsed, and no demurrage could accrue. The Court reversed the Court of Appeals on this point and deleted the demurrage award.
  • The Court affirmed the deletion of attorney's fees. VSI's persistence in litigation did not amount to bad faith; it was merely an erroneous conviction of the righteousness of its cause. Attorney's fees cannot be awarded merely because a party prevailed.

• Private Carrier vs. Common Carrier — A common carrier offers its services to the public, whereas a private carrier does not, engaging only in special agreements with specific persons. A vessel engaged in tramping service under a charter party is a private carrier. The stringent provisions of the Civil Code on common carriers, including the presumption of negligence, do not apply to private carriers. The parties may freely stipulate their duties and obligations, which are binding on them.
• Burden of Proof in Private Carriage — In an action against a private carrier for loss or damage to cargo, the burden is on the plaintiff to prove that the carrier was negligent or unseaworthy. The fact that goods were lost or damaged while in the carrier's custody does not shift the burden of proof to the carrier. Under the Code of Commerce, merchandise is transported at the risk of the shipper unless otherwise stipulated, and the burden of proving that the damage was due to the carrier's negligence rests on the shipper.
• Demurrage and Weather Working Days — Demurrage is compensation for the detention of a vessel beyond the agreed laytime. If laytime is expressed as "weather working days," laytime is tolled when bad weather reasonably prevents the contemplated work. Consequently, a charterer cannot be held liable for demurrage for delays caused by such bad weather.

• "Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common carriers."
• "In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carrier's custody does not put the burden of proof on the carrier."
• "If laytime is expressed in 'running days,' this means days when the ship would be run continuously, and holidays are not excepted. A qualification of 'weather permitting' excepts only those days when bad weather reasonably prevents the work contemplated."

• Valenzuela Hardwood and Industrial Supply, Inc. vs. Court of Appeals and Seven Brothers Shipping Corporation, G.R. No. 102316, June 30, 1997 — Followed. The Court relied on this case to hold that in a contract of private carriage, the parties may freely stipulate their duties and obligations, and the stringent provisions of the Civil Code on common carriers do not apply.
• Mendoza vs. Philippine Airlines, Inc., 90 Phil. 836 (1952) — Followed. Cited for the definition and test of a common carrier as one who offers transportation to the public.
• Magellan Mftg. Marketing Corp. vs. Court of Appeals, 201 SCRA 102 (1991) — Followed. Cited for the definition of demurrage and the rule that laytime expressed as "weather permitting" excepts days when bad weather prevents unloading.
• Servicewide Specialists, Incorporated vs. Court of Appeals, 256 SCRA 649 (1996) — Followed. Cited for the principle that attorney's fees are not awarded when a party's persistence in a case is motivated by an erroneous conviction of the righteousness of his cause, absent bad faith.

• Article 1732, Civil Code — Defines a common carrier as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods for compensation, offering their services to the public. The Court used this provision to determine that VSI did not qualify as a common carrier because it did not offer its services to the general public.
• Articles 361 and 362, Code of Commerce — Provide that merchandise is transported at the risk of the shipper unless otherwise stipulated, and that the carrier is liable for damages if proofs show they occurred on account of its negligence. The Court applied these provisions to place the burden of proving negligence on NSC as the charterer.
• Article 2208, Civil Code — Enumerates the instances when attorney's fees may be awarded. The Court applied this provision to affirm the deletion of attorney's fees, holding that mere persistence in litigation without bad faith does not justify an award.
• Section 44, Rule 130, Rules of Court — Provides the exception to the hearsay rule for entries in official records made in the performance of a duty by a public officer. The Court applied this to admit Exhibit 11, the original certificate of the Philippine Coast Guard attesting to the vessel's seaworthiness.

Narvasa, C.J., Romero, Melo, and Francisco, JJ.