FACTS:

Valenzuela Hardwood and Industrial Supply, Inc. entered into an agreement with Seven Brothers Shipping Corporation wherein the latter agreed to load Valenzuela's lauan round logs on board its vessel M/V Seven Ambassador for shipment to Manila. Valenzuela insured the logs against loss and/or damage with South Sea Surety and Insurance Co., Inc. On January 25, 1984, the vessel sank, resulting in the loss of the insured logs. Valenzuela demanded payment from South Sea under the insurance policy, but the latter denied liability. Valenzuela also filed a claim with Seven Brothers, but the claim was likewise denied. The trial court ruled in favor of Valenzuela and ordered South Sea to pay the value of the lost logs. However, the Court of Appeals modified the judgment and held that Seven Brothers was not liable for the lost cargo, citing a stipulation in the charter party exempting the owners from liability. Valenzuela filed a petition for review before the Supreme Court challenging the Court of Appeals' decision.

ISSUES:

1. Whether the stipulation in the charter party absolving the shipowner from liability for loss or damage to the cargo is valid.

2. Whether the provisions of the Civil Code on common carriers are applicable to a contract of private carriage.

3. Whether the rule in Home Insurance Co. v. American Steamship Agencies, Inc. is applicable to the present case.

4. Whether the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce.

5. Whether the stipulation subject of the controversy is void for being contrary to Articles 1170 and 1173 of the Civil Code.

6. Whether the second paragraph of Article 1173 of the Civil Code, which prescribes the standard of diligence to be observed in the event the law or the contract is silent, is applicable.

7. Whether the public policy considerations in the cases of Shewaram vs. Philippine Airlines, Inc. and Juan Ysmael & Co. vs. Gabino Barreto & Co. should be applied to this case.

8. Whether the exemption from liability for damages due to negligence should be strictly construed against the party claiming its benefit.

9. Whether the shipowner can be held liable for damages even if there is a stipulation in the charter party expressly exempting the shipowner from responsibility.

RULING:

1. The stipulation in the charter party absolving the shipowner from liability for loss or damage to the cargo is valid. In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer, exempting the shipowner from liability for loss or damage caused, even by the negligence of the ship captain. Such stipulation is not contrary to law, morals, good customs, public order, or public policy as long as it is freely entered into by the parties.

2. The provisions of the Civil Code on common carriers are not applicable to a contract of private carriage. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Therefore, 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. Stipulations in a charter party that lessen or remove the protection given by law in contracts involving common carriers do not contravene public policy.

3. Yes, the rule in Home Insurance Co. v. American Steamship Agencies, Inc. is applicable to the present case. The court held that the rule in Home Insurance Co. applies to any stipulation exempting a private carrier from liability even for the negligence of its employee or servant. The Court stated that the distinction raised by the petitioner between the exemption of a carrier from the negligence of its agent and the negligence of its employee does not have any substantive difference.

4. No, the charter party stipulation is not contrary to Articles 586 and 587 of the Code of Commerce. The court held that the petitioner's rights under Articles 586 and 587 were waived when it entered into the charter party. The court stated that patrimonial rights may be waived, and in this case, the petitioner waived its right to recover damages from the shipowner and ship agent for the acts or conduct of the captain by acceding to the contractual stipulation.

5. No, the stipulation subject of the controversy is not void for being contrary to Articles 1170 and 1173 of the Civil Code. The court held that these articles are applicable only to the obligor or the one with an obligation to perform, and in this case, the private respondent is not the obligor in respect to the cargo as the responsibility for the loss was shifted to the petitioner by virtue of the charter party.

6. The second paragraph of Article 1173 of the Civil Code is not applicable to the present case. The standard of diligence to be observed is provided under Article 362 of the Code of Commerce, which may be modified in a contract of private carriage as done in the charter party between the petitioner and private respondent.

7. The public policy considerations in the cases of Shewaram vs. Philippine Airlines, Inc. and Juan Ysmael & Co. vs. Gabino Barreto & Co. are not applicable to this case because they involve common carriers, while the present case involves a private carrier. The exemption from liability for damages due to negligence should not be strictly construed against the party claiming its benefit.

8. The shipowner cannot be held liable for damages even if there is a stipulation in the charter party expressly exempting the shipowner from responsibility.

PRINCIPLES:

• In a contract of private carriage, the parties may freely stipulate their duties and obligations, which perforce would be binding on them.

• The provisions of the Civil Code on common carriers do not apply to a contract of private carriage unless expressly stipulated by the parties.

• Stipulations in a charter party absolving the shipowner from liability for loss or damage to the cargo are valid in a contract of private carriage and are not contrary to public policy.

• The rule in Home Insurance Co. applies to any stipulation exempting a private carrier from liability even for the negligence of its employee or servant.

• Patrimonial rights may be waived as opposed to rights to personality and family rights which may not be made the subject of waiver.

• Articles 1170 and 1173 of the Civil Code are applicable only to the obligor or the one with an obligation to perform.

• The standard of diligence in the carriage of goods by a private carrier is provided under Article 362 of the Code of Commerce and may be modified in a contract of private carriage.

• Public policy considerations behind the treatment of common carriers are not applicable to private carriers.

• Exemptions from liability for damages due to negligence should not be strictly construed against the party claiming its benefit.

• Stipulations in a charter party exempting the shipowner from responsibility for any damage to the cargo are valid and enforceable.