Ace Navigation Co., Inc. vs. FGU Insurance Corporation and Pioneer Insurance and Surety Corporation

A person who merely informs the consignee of a vessel's arrival and assumes responsibility over cargo upon unloading is a mere agent of the shipper, not a ship agent under Article 586 of the Code of Commerce, and cannot be held personally liable for cargo damage where the agent did not exceed its authority, did not expressly bind itself, and its principal was not impleaded in the suit.

The case arose from a marine cargo insurance claim. Respondents FGU Insurance Corp. and Pioneer Insurance and Surety Corp. were co-insurers of a shipment of Grey Portland Cement under Marine Open Policy No. 062890275. The shipment was consigned to Heindrich Trading Corp. and was carried on board the vessel M/V Pakarti Tiga, which was owned by P.T. Pakarti Tata and chartered through a chain of charter parties involving Shinwa Kaiun Kaisha Ltd., Kee Yeh Maritime Co., and Regency Express Lines S.A. The petitioner, Ace Navigation Co., Inc., was the agent of the shipper, Cardia Limited.

On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti Tiga at Shanghai Port, China, 8,260 metric tons or 165,200 bags of Grey Portland Cement, to be discharged at the Port of Manila and delivered to its consignee, Heindrich Trading Corp. (HEINDRICH). The shipment was insured with respondents FGU Insurance Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER) against all risks under Marine Open Policy No. 062890275 for the amount of P18,048,421.00. The vessel was owned by P.T. Pakarti Tata (PAKARTI), which chartered it to Shinwa Kaiun Kaisha Ltd. (SHINWA). Representing itself as owner of the vessel, SHINWA entered into a charter party contract with Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE YEH), which further chartered it to Regency Express Lines S.A. (REGENCY). It was REGENCY that directly dealt with consignee HEINDRICH and issued Clean Bill of Lading No. SM-1.

On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged. Upon inspection by HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV), agent of CARDIA, it was found that out of the 165,200 bags of cement, 43,905 bags were in bad order and condition. Unable to collect the sustained damages in the amount of P1,423,454.60 from the shipper CARDIA and the charterer REGENCY, the respondents, as co-insurers of the cargo, each paid the consignee HEINDRICH the amounts of P427,036.40 and P284,690.94, respectively, and consequently became subrogated to all the rights and causes of action accruing to HEINDRICH.

In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits against them could not prosper because they were not named as parties in the bill of lading. ACENAV claimed that, not being privy to the bill of lading, it was not a real party-in-interest from whom the respondents could demand compensation. It further denied being the local ship agent of the vessel or REGENCY and claimed to be the agent of the shipper, CARDIA. SKY denied having acted as agent of the charterer KEE YEH and averred that it could not be sued as an agent without impleading its alleged principal.

The CA found that the parties entered into a time charter party, not a demise or bareboat charter, and held PAKARTI, SHINWA, KEE YEH, and SKY solidarily liable for 70% of the damages for failure to prove extraordinary diligence. The CA passed on the remaining 30% of the claim to the shipper CARDIA and its agent ACENAV, upon a finding that the damage was partly due to the cargo's inferior packing. With respect to REGENCY, the CA affirmed the RTC's finding that it did not acquire jurisdiction over its person for defective service of summons.

• Not a Party to the Bill of Lading: ACENAV asserted that it cannot be held liable for the damages sought to be collected by the respondents because it was not a party to the bill of lading.
• Principal Not Impleaded: ACENAV alleged that since its principal, CARDIA, was not impleaded as a party-defendant/respondent in the instant suit, no liability can attach to it as a mere agent.
• Lack of Evidence on Defective Packing: ACENAV argued that there is a dearth of evidence showing that it was responsible for the supposed defective packing of the goods upon which the award was based.

• ACENAV as Ship Agent: The respondents maintained that ACENAV is a ship agent and not a mere agent of CARDIA, as found by both the CA and the RTC.

• Liability of ACENAV: Whether ACENAV may be held liable to the respondents for 30% of their claim as a ship agent or as a mere agent of the shipper CARDIA.

• Liability of ACENAV: No. ACENAV was a mere agent of the shipper CARDIA, not a ship agent under Article 586 of the Code of Commerce, and cannot be held liable for the damages. The CA erred in ordering ACENAV jointly and severally liable with CARDIA to pay 30% of the respondents' claim.

• Liability of ACENAV: The Court defined a bill of lading as an instrument in writing, signed by a carrier or his agent, describing the freight, stating the name of the consignor, the terms of the contract for carriage, and agreeing to deliver the freight to the order or assigns of a specified person at a specified place. It operates both as a receipt and as a contract, and shall only be binding upon the parties who make them, their assigns and heirs. The original parties to the bill of lading were the shipper CARDIA, the carrier PAKARTI, and the consignee HEINDRICH. By virtue of their relationship with PAKARTI under separate charter arrangements, SHINWA, KEE YEH, and its agent SKY likewise became parties to the bill of lading. In the same vein, ACENAV, as admitted agent of CARDIA, also became a party to the said contract of carriage.

The Court disagreed with the respondents' contention that ACENAV was a ship agent. Article 586 of the Code of Commerce provides that the shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was invested therein. By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be found. Records showed that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the arrival of the vessel in order for the latter to immediately take possession of the goods. No evidence was offered to establish that ACENAV had a hand in the provisioning of the vessel or that it represented the carrier, its charterers, or the vessel at any time during the unloading of the goods. Clearly, ACENAV's participation was simply to assume responsibility over the cargo when they were unloaded from the vessel. Hence, no reversible error was committed by the courts a quo in holding that ACENAV was not a ship agent within the meaning and context of Article 586 of the Code of Commerce, but a mere agent of CARDIA, the shipper.

Under Article 1868 of the Civil Code, by the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. Both exceptions did not obtain in this case. Records were bereft of any showing that ACENAV exceeded its authority in the discharge of its duties as a mere agent of CARDIA. Neither was it alleged, much less proved, that ACENAV's limited obligation as agent of the shipper, CARDIA, was not known to HEINDRICH. Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability attributed upon it by the CA on the basis of its finding that the damage sustained by the cargo was due to improper packing cannot be borne by ACENAV. As mere agent, ACENAV cannot be made responsible or held accountable for the damage supposedly caused by its principal.

• Ship Agent under Article 586 of the Code of Commerce — A ship agent is the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be found. The Court applied this definition to distinguish a ship agent from a mere agent of the shipper, holding that ACENAV, whose obligation was limited to informing the consignee of the vessel's arrival and assuming responsibility over the cargo upon unloading, was not a ship agent.
• Bill of Lading as a Contract — A bill of lading operates both as a receipt and as a contract, and shall only be binding upon the parties who make them, their assigns and heirs. The Court applied this principle to determine who were the parties bound by the contract of carriage.
• Agent's Personal Liability under Article 1897 of the Civil Code — An agent is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. The Court applied this rule to absolve ACENAV from liability, finding that neither exception obtained in this case.

• "By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be found." — This passage defines the statutory meaning of "ship agent" under Article 586 of the Code of Commerce, which the Court used to distinguish ACENAV's role from that of a ship agent.
• "Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the arrival of the vessel in order for the latter to immediately take possession of the goods." — This factual finding was the basis for the Court's conclusion that ACENAV was a mere agent of the shipper, not a ship agent.
• "As mere agent, ACENAV cannot be made responsible or held accountable for the damage supposedly caused by its principal." — This statement articulates the core ratio decidendi: an agent cannot be held liable for damages caused by its principal, especially where the principal was not impleaded in the suit.

• Iron Bulk Shipping Phil., Co., Ltd. vs. Remington Industrial Sales Corp., G.R. No. 136960, December 8, 2003, 417 SCRA 229, 234-235 — Cited for the definition of a bill of lading as an instrument that operates both as a receipt and as a contract.
• Maritime Agencies & Services, Inc. vs. Court of Appeals, G.R. Nos. 77638 and 77674, July 12, 1990, 187 SCRA 346, 355 — Cited for the principle that an agent cannot be made responsible or held accountable for damage caused by its principal.

• Article 586, Code of Commerce — Defines the shipowner and ship agent's civil liability for the acts of the captain and for obligations contracted to repair, equip, and provision the vessel, and defines "ship agent" as the person entrusted with the provisioning of a vessel or who represents her in the port in which she may be found. The Court applied this provision to determine that ACENAV was not a ship agent.
• Article 1868, Civil Code — Defines the contract of agency as a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The Court applied this to characterize ACENAV's relationship with CARDIA.
• Article 1897, Civil Code — Provides that an agent is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. The Court applied this to absolve ACENAV from personal liability.
• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns and heirs. The Court applied this to determine who were bound by the bill of lading.

• Peralta, J. (Acting Chairperson)
• Abad, J.
• Villarama, Jr., J.
• Reyes, J.