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809 Phil. 736


[ G.R. No. 185565, April 26, 2017 ]




This resolves the Motion for Reconsideration[1] of the Decision[2] dated November 26, 2014 of the Court in the above-captioned case filed by respondent Malayan Insurance Company, Incorporated (Malayan). Malayan alleges that in ruling in favor of Loadstar Shipping Company, Incorporated and Loadstar International Shipping Company, Incorporated (petitioners), the Court disregarded the conclusion of the Court of Appeals that the petitioners acted as a common carrier; that there was a breach of the contract of affreightment; and that the petitioners failed to produce evidence of a calamity to be exculpated from liability.[3]

In their Comment,[4] the petitioners contend that the grounds raised by Malayan are no longer relevant because as found by the Court, Malayan did not adduce proof of pecuniary loss to the insured Philippine Associated Smelting and Refining Corporation (PASAR).[5] PASAR has not established by an iota of evidence the amount of loss or actual damage it suffered by reason of seawater wettage of the 777.29 metric tons of copper concentrates. In spite of no proof of loss, Malayan, with seeming hastiness paid the claim of PASAR in the amount of P33,934,948.75.[6] According to the petitioners, Malayan cannot make them answerable for its mistake in indemnifying PASAR.[7]

On June 10, 2015, Malayan filed a Motion to Refer the Case to the Court en banc[8] alleging that the Decision dated November 26, 2014 of the Third Division deviated from the doctrine enunciated in Delsan Transport Lines, Inc., v. CA.[9] Malayan contends that in Delsan, the Court held that upon payment by the insurance company of the insurance claim, the insurance company should be subrogated to the rights of the insured; it is not even necessary to present the insurance policy because subrogation is a matter of equity.[10]

Ruling of the Court

The Court shall resolve the issues seriatim.

Delsan involved the sinking of a vessel which took down with it the entire cargo of fuel it was carrying. Hence, the fact of total loss was completely and undisputedly established. The burden of proof was upon the common carrier to prove that it was not liable for the loss, which it failed to discharge. It was only but logical for the Court to hold the common carrier liable to the insurance company that paid the insured owner of the lost cargo as the latter's subrogee.

In comparison with Delsan, the facts of the instant case are not as straightforward. Here, the copper concentrates were delivered by the petitioners to the consignee PASAR although part thereof was contaminated with seawater. To be clear, PASAR did not simply reject the contaminated goods (on the basis that these were no longer fit for the intended purpose), claim the value thereof from Malayan and leave things at that - it bought back the goods which it had already rejected. Meanwhile, Malayan opted to cash in the situation by selling the contaminated copper concentrates to the very same consignee who already rejected the goods as total loss. After denying the petitioners of opportunity to participate in the disposal or sale of the goods,[11] Malayan sought to recover the total value of the wet copper concentrates from them. Malayan and PASAR's extraneous actuations are inconsistent with the alleged fact of total loss. Verily, Delsan cannot be applied given the contradistinctive circumstances obtaining in this case.

Next, Malayan argues that since the petitioners and PASAR agreed in their Contract of Affreightment that copper concentrates are easily contaminated with seawater, the contaminated parts should be considered as totally damaged;[12] and that when the petitioners failed to provide a seaworthy ship under 25 years of age as agreed upon, they should be held liable for damages.[13]

Again, the Court declares that it is iniquitous to consider the value of the contaminated copper concentrates as the amount of damages sustained by PASAR when there is no evidence to that effect. Notably, PASAR and Malayan were even able to come up and agree on a residual value. Needless to say, the mere fact that there was a residual value negates the verity of total loss sustained by PASAR. It is also inequitable to consider the purchase price of US$90,000.00 as the actual residual value of the copper concentrates since there is no showing that PASAR and Malayan objectively arrived at this amount. There is no explanation why Article 364 of the Code of Commerce which calls for the valuation of experts was not observed by Malayan and PASAR in fixing the residual value of the copper concentrates.

Neither can Malayan anchor its claim on the Evaluation Report presented by Elite Adjusters and Surveyors, Inc., assessing the loss as total in the amount of P32,351,102.32. Verily, Malayan paid PASAR using the said Evaluation Report as its basis, but ironically disputed this very same report in fixing a residual value with PASAR. True, if the subject copper concentrates were indeed not contaminated, Malayan and PASAR would not have fixed the residual value at only US$90,000.00. However, it does not escape the Court's notice that this price was derived through the exclusion of the petitioners in the valuation and sale of the wet copper concentrates, despite their manifestation of willingness to participate thereto.

At the pain of being repetitive, the Court reiterates the principle that actual damages are not presumed; it cannot be anchored on mere surmises, speculations or conjectures.[14] As the Court discussed in the Decision dated November 26, 2014, Malayan was not able to prove the pecuniary loss suffered by PASAR for which the latter was indemnified. This is in line with the principle that a subrogee steps into the shoes of the insured and can recover only if the insured likewise could have recovered.[15]

Nonetheless, the Court notes that the petitioners failed to comply with some of the terms of their contract of affreightment with PASAR. It was stipulated that the vessel to be used must not exceed 25 years of age, yet the vessel, MV Bobcat, was more than that age when the subject copper concentrates were transported. Additionally, the petitioners failed to keep the cargo holds and hatches of MV Bobcat clean and fully secured as agreed upon, which resulted in the wettage of the cargo.

As common carriers, the petitioners are bound to observe extraordinary diligence in their vigilance over the goods they transport, as required by the nature of their business and for reasons of public policy.[16] "Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property or rights."[17] When the copper concentrates delivered were contaminated with seawater, the petitioners have failed to exercise extraordinary diligence in the carriage thereof.

In view of the foregoing, the Court deems it proper to award nominal damages to Malayan. This is in recognition of the breach of contract committed by the petitioners. "So long as there is a violation of the right of the plaintiff—whether based on law, contract or other sources of obligations—an award of nominal damages is proper."[18] Articles 2221 and 2222 of the Civil Code provide:

Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

Article 2222. The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded.

"Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown."[19] "The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances."[20] To the mind of the Court, the amount of P1,769,374.725, which is equivalent to six percent (6%) of the sum being claimed by Malayan less the residual value of the copper concentrates, is sufficient as damages. Thus, the amount of nominal damages is computed as follows:

  (amount claimed by Malayan)
  (US$90,000 residual value x 49.393[21])
x 6%

Finally, the Court also takes the opportunity to make it clear that this disposition does not in any way undermine the principle of subrogation; rather, the Court takes into consideration all the circumstances in this case, inasmuch as Malayan and PASAR's dealings post-delivery of the copper concentrates were unwarranted. While the breach of contract committed by the petitioners should not be tolerated, the undue haste, as well as the other doubtful circumstances under which the sale of the wet copper concentrates was made, is not lost on the Court.

WHEREFORE, the motion for reconsideration is PARTLY GRANTED. The Decision dated November 26, 2014 of the Court is hereby MODIFIED in that nominal damages in the amount of P1,769,374.725 is awarded to Malayan Insurance Company, Incorporated, with legal interest at the rate of six percent (6%) per annum from the finality of this Resolution until fully paid.


Velasco, (Chairperson), Jardeleza, and Caguioa, JJ., concur.
Peralta, J., see concurring and dissenting opinion.

June 15, 2017


Sirs / Mesdames:

Please take notice that on April 26, 2017 a Resolution, copy attached hereto, was rendered by the Supreme Court in the above-entitled case, the original of which was received by this Office on June 15, 2017 at 2:00 p.m.


Very truly yours,

Division Clerk of Court

[1] Rollo, pp. 586-597.

[2] Id. at 573-584.

[3] Id. at 587-588.

[4] Id. at 607-615.

[5] Id. at 609.

[6] The amount of P32,351,102.32 was indicated in the petitioners' Comment (id. at 611). However, Malayan paid PASAR the total amount of P33,934,948.75; id at 213

[7] Id. at 611.

[8] Id. at 616-622.

[9] 420 Phil. 824 (2001).

[10] Rollo, p. 617.

[11] Id. at 241-242.

[12] Id. at 590.

[13] Id. at 592.

[14] Id. at 582.

[15] Lorenzo Shipping Corp. v. Chubb and Sons, Inc., 475 Phil. 169, 182 (2004).

[16] Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., 508 Phil. 656, 664 (2005).

[17] National Trucking and Forwarding Corp. v. Lorenzo Shipping Corp., 491 Phil. 151, 156 (2005).

[18] Pryce Properties Corporation v. Spouses Sotore Octobre, Jr. and Henrissa A. Octobre and China Banking Corporation, G.R. No. 186976, December 7, 2016. (Citations omitted)

[19] Cathay Pacific Airways v. Reyes, et al., 712 Phil. 398, 418 (2013).

[20] Savellano v. Northwest Airlines, 453 Phil. 342, 360 (2003).

[21] Exchange rate of US Dollar to Philippine Peso as of November 29, 2000 (when the sale was made, rollo, p. 78) based on the Bangko Sentral ng Pilipinas Treasury Department Reference Exchange Rate Bulletin < > visited last March 13, 2017.



Respondent has filed the instant Motion for Reconsideration of the Decision dated November 26, 2014, granting the petition, on the following grounds, to wit:

The conclusion of the Court of Appeals that Petitioners Loadstar was acting as a common carrier has been ignored

The factual finding of the Court of Appeals that there was a breach of the Contract of Affreightment was ignored.

The factual finding of the Court of Appeals that Petitioners Loadstar failed to produce evidence of a calamity was ignored.[1]

In essence, respondent posits the view that petitioners should be made liable to pay it (respondent) the actual damages it seeks to recover as subrogee to the rights of the insured, PASAR.

With due respect to the majority, it is my considered view that the Court should take a more prudent look at the facts and circumstances obtaining herein and grant the instant Motion for Reconsideration.

The ponencia found that: (1) the amount of P32,351,102.32 paid by respondent to PASAR covers the latter's claim for damages to the cargo and that based on the computation of Elite Adjustors and Surveyors; (2) the sum of P32,315,312.32 represents damages for the total loss of that portion of the cargo, equivalent to 777.290 wet metric tons, or 696.336 dry metric tons, which were contaminated with seawater and not merely the depreciation in its value; (3) after claiming damages for the total loss of that portion, PASAR bought back the contaminated copper concentrates from respondent at the price of US$90,000.00. The ponencia proceeds to hold that the fact of repurchase is enough to conclude that the contamination of the copper concentrates cannot be considered as total loss on the part of PASAR, and that there was no sufficient proof of the actual amount of loss to PASAR for which it was indemnified by respondent. Thus, the ponencia concludes that respondent, as subrogee to the rights of PASAR, is not entitled to the amount of actual damages it claims.

I beg to differ.

While it is true that the contamination of the copper concentrates cannot be considered as total loss on the part of PASAR, this does not exclude the fact that the subject cargo obtained damage. On the contrary, the copper concentrates, in fact, obtained damage and that the only remaining value which was salvaged from the contaminated portion amounted only to US$90,000.00. This is precisely the reason why from the insured value of P32,315,312.32, as computed by Elite, PASAR only paid US$90,000.00 when it bought back the contaminated copper concentrates from respondent. In the same vein, this is also the reason why the CA subtracted US$90,000.00, which it considered as the residual value of the contaminated copper concentrates, from the amount of P33,934,948.74 which respondent seeks to recover from petitioner.

As held by the ponencia, "[i]t is not disputed that the copper concentrates carried by M/V Bobcat from Poro Point, La Union to Isabel, Leyte were indeed contaminated with seawater. The issue lies on whether such contamination resulted to damage, and the costs thereof, if any, incurred by the insured PASAR."[2]

The ponencia holds that respondent failed to prove that the subject copper concentrates are rendered useless or unfit for the purpose intended by PASAR due to contamination with seawater. However, logic dictates that if the contaminated copper concentrates indeed retained their usability and did not greatly diminish in value, why should respondent agree to pay its insured value and to subsequently sell the same to PASAR only for a relatively small amount of US$90,000.00 (which was roughly equivalent to P4,500,000.00)[3] when its insured value amounted to more than P32,000,000.00. This only shows that the subject copper concentrates were greatly damaged and there was considerable depreciation in their value.

The question, then, is who will bear the burden of such loss or diminution in value. I submit that the CA did not err in ruling that petitioners should bear the burden of such loss and pay respondent the actual damages it seeks to recover, subject to adjustment as determined by the appellate court.

Petitioners are common carriers. Common carriers are defined, under Article 1732 of the Civil Code, as persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. As such, they are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the same Code. Furthermore, Article 1735 of the Civil Code provides that, in all cases other than those mentioned under Article 1734 thereof, if the goods are lost destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. There being no dispute that the subject cargo sustained damage, the presumption is that it was caused by reason of petitioners' negligence. Thus, it is incumbent upon petitioners to prove that they exercised extraordinary diligence in the vigilance over such goods it contracted for carriage. As held by the CA, petitioners failed in this regard. Thus, the CA held that:

In this case, the lower court found that the crack that caused seawater to seep into the cargo hold - in turn contaminating part of the cargo of copper concentrates - was caused by a "natural disaster or calamity that wrecked [the] Bobcat while on its way to Isabel, Leyte." However, the record is bereft of any showing that [herein petitioners] were able to prove that a natural disaster occurred while the vessel was en route to its destination save for the allegation that MV "Bobcat" encountered "very heavy weather." None of the crew was presented by [petitioners] during the trial of the case and no witness testified that there was a storm or other calamity which could exculpate [petitioners] from liability. Therefore, under the law, MV "Bobcat" was unseaworthy at the time she undertook the voyage on September 10, 2000.[4]

As to petitioners' breach of its Contract of Affreightment with respondent, it is submitted that the CA also correctly held that:

x x x [petitioners] were well aware that the cargo of copper concentrates was easily contaminated by seawater, as Item II of the Contract of Affreightment ("NATURE AND QUANTITY OF CARGO") provides:

3. Copper concentrates are easily contaminated by seawater. Loadstar shall ensure that cargo holds and hatches are clean, fully secured and devoid of contamination prior to loading.

[Respondent] further argues that [petitioners] also violated Item III [4] of the Contract of Affreightment, which provides for a limitation in the age of the vessel to be assigned to PASAR. Under said provision, the vessel "must not exceed fifteen (15) years of age unless the vessel has maintained seaworthiness... but in no case to exceed 25 years of age." At the time the incident occurred, MV "Bobcat" was already 30 years of age, and thus, [petitioners] breached the aforementioned provisions.[5]

Under Article 1170 of the Civil Code, those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. In explaining the import of this provision, this Court in Spouses Guanio v. Makati Shangri-La Hotel and Resort, Inc.,[6] held that:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his expectation interest, which is his interest in having the benefit of his bargain by being put in. as good a position as he would have been in had the contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability, (emphasis and underscoring in the original; capitalization supplied)[7]

Thus, Article 2201 of the Civil Code provides that:

In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

In the present case, I concur with the majority in finding that petitioners failed to exercise extraordinary diligence in the vigilance over the goods they contracted for carriage. Indeed, petitioners' wanton attitude was shown by the fact that they deployed a clearly over-aged ship and that they failed to make sure that the ship's hatches were watertight or properly secured during voyage. The resulting contamination and the subsequent rejection of the subject copper concentrates can be reasonably attributed to petitioners' non-performance of their obligation to observe extraordinary diligence over the goods they are transporting. In other words, they are guilty of breach of their contract of affreightment with PASAR. Thus, petitioners should be made liable, not only for nominal damages as ruled upon by the majority, but for the entire damage caused to the subject cargo.

Lastly, in regard to petitioners' liability for actual damages, the ponencia's ruling is anchored on the argument that respondent failed to present evidence to prove that the contamination resulted in actual damage to the cargo and the cost of such damage, if any.

I take exception to the above ruling.

In the case of Insurance Company of North America v. Asian Terminals, Inc.,[8] this Court, in computing the amount of actual damages due to the petitioner insurance company in the said case, relied on the Evaluation Report of the independent adjuster engaged by the said insurance company. In the instant case, it is well to note that part of the evidence presented by respondent is the final adjustment report dated November 16, 2000, made by Elite Adjusters and Surveyors, Inc. (Elite), an independent company engaged by respondent to assess the damage caused to the subject cargo and the possible consequent liability of respondent as the insurer. In the said report, which was addressed to respondent, Elite found that 777.29 wet metric tons, or 696.336 dry metric tons, had high chlorine and moisture content. Thus, Elite made the following findings and conclusions:

Comparability Aspect. We are satisfied from our own investigation of the claim that the total quantity of 777.290 Wet Metric Tons equivalent to 696.336 dry metric tons were damaged due to contamination and wetting with sea water, occurring during the voyage from Poro Point to Isabel, Leyte, or perils insured under the policy. We believe therefore that the claim is compensable, subject to adjustment.

x x x x

Recommendation. Subject to your agreement with and approval of our findings and adjustment, payment to assured of the amount of P32,351,102.32 as adjusted is hereby recommended.


As of the present, we doubt that there is any salvage value on the damaged cargo as we are not aware of anyone interested in purchasing the same or of any use thereof.[9]

As earlier mentioned, respondent agreed to pay PASAR the insured value of the contaminated or damaged copper concentrates on the basis of the abovequoted findings. Again, why should respondent agree to pay P32,351,102.32 if such report is not a competent evidence of such damage? Thus, it is my considered view that the above findings of the independent adjuster is a competent and sufficient evidence of the value of the actual damage sustained by the subject cargo of copper concentrates.

Accordingly, I vote to GRANT the Motion for Reconsideration.

[1] Rollo, pp. 587-588.

[2] Emphasis supplied.

[3] Based on the records of the Bangko Sentral ng Pilipinas, the monthly average Philippine Peso exchange rate for US$1 in November 2000 was 49.7537. Thus, in November 2000, US$90,000.00 was equivalent only to P4,477,833.

[4] Rollo, p. 19.

[5] Id. at 19-20.

[6] 656 Phil. 608 (2011).

[7] Guanio v. Makati Shangri-La Hotel and Resort, Inc., supra, at 615, citing RCPI v. Verchez, et al., 516 Phil. 725, 735 (2006).

[8] 682 Phil. 213 (2012).

[9] Rollo, pp. 434-435. (Emphasis in the original)

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