Cokaliong Shipping Lines, Inc. vs. UCPB General Insurance Company, Inc.

A stipulation in the bill of lading limiting the common carrier's liability to the value of the goods as declared by the shipper is valid and binding under Articles 1749 and 1750 of the Civil Code, and the subrogated insurer cannot recover more than the declared value even if it paid the insured a higher amount based on the actual insured value of the goods.

Edgar Cokaliong Shipping Lines, Inc. is a family corporation engaged in maritime transport, operating the vessel M/V Tandag. UCPB General Insurance Company, Inc. is an insurer that issued marine risk notes covering goods owned by Feliciana Legaspi, which were shipped aboard the M/V Tandag and consigned to Nestor Angelia and Zosimo Mercado. The goods were insured "against all risks" under an open policy. The dispute arose after the vessel caught fire and sank, resulting in the total loss of the cargo, prompting the insurer to pay the insured and then seek subrogated recovery from the carrier.

On December 11, 1991, Nestor Angelia delivered to Edgar Cokaliong Shipping Lines, Inc. a cargo consisting of one carton of Christmas décor and two sacks of plastic toys for transport aboard the M/V Tandag on Voyage No. T-189, scheduled to depart from Cebu City to Tandag, Surigao del Sur. Petitioner issued Bill of Lading No. 58, freight prepaid, covering the cargo, with Angelia as both shipper and consignee and the goods valued on the face of the bill at ₱6,500. Zosimo Mercado likewise delivered cargo — two cartons of plastic toys and Christmas décor, one roll of floor mat, and one bundle of assorted goods — for the same voyage, and petitioner issued Bill of Lading No. 59, with Mercado as both shipper and consignee and the goods valued at ₱14,000.

On December 12, 1991, Feliciana Legaspi insured the cargo covered by Bill of Lading No. 59 with UCPB General Insurance Company, Inc. for ₱100,000 "against all risks" under Open Policy No. 002/9 1/254, for which respondent issued Marine Risk Note No. 18409. She also insured the cargo covered by Bill of Lading No. 58 for ₱50,000 under the same open policy, for which respondent issued Marine Risk Note No. 18410. When the M/V Tandag left port with thirty-four passengers and assorted cargo on board, fire broke out in the engine room after the vessel passed the Mandaue-Mactan Bridge. Despite the crew's efforts, the fire engulfed and destroyed the entire vessel, resulting in the loss of the vessel and all cargo. The Captain filed the required Marine Protest.

Shortly thereafter, Feliciana Legaspi filed claims with respondent for the value of the insured cargo. She submitted a receipt and order slips purportedly signed by Zosimo Mercado for goods valued at ₱110,056, and respondent approved her claim, issuing UCPB Check No. 612939 dated March 9, 1992 in the net amount of ₱99,000, after which she executed a Subrogation Receipt/Deed in favor of respondent. She likewise submitted a receipt and order slips purportedly signed by Nestor Angelia for goods valued at ₱60,338, and respondent remitted to her the net amount of ₱49,500, after which she signed another Subrogation Receipt/Deed dated March 9, 1992. On July 14, 1992, respondent, as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against petitioner before the RTC of Makati City, seeking actual damages of ₱148,500 plus interest, attorney's fees of ₱10,000, and costs of suit.

In its answer, petitioner alleged that it had been cleared by the Board of Marine Inquiry of any negligence in the burning of the vessel, that the complaint stated no cause of action, and that the shippers/consignees had already been paid the value of the goods as stated in the bills of lading. Through depositions, petitioner's Vice-President Chester Cokaliong testified that the Board of Marine Inquiry had absolved petitioner of responsibility for the fire, that Legaspi Marketing had filed claims for the values of the goods under both bills of lading, and that petitioner had paid ₱14,000 for the cargo under Bill of Lading No. 59 and had set off the ₱6,500 claim under Bill of Lading No. 58 against Nestor Angelia's outstanding account with Chester Marketing, Inc. Petitioner did not know, until served with the summons and complaint on October 8, 1992, that the cargo had been insured with respondent or that respondent had paid Feliciana Legaspi a total of ₱148,500. The RTC dismissed the complaint for lack of merit, but the CA reversed, holding that petitioner had failed to prove the fire was caused by something other than its own negligence, that payment to Legaspi Marketing did not extinguish petitioner's obligation because there was no evidence that Feliciana Legaspi was the owner of Legaspi Marketing, and that respondent was not bound by the valuations in the bills of lading.

• Extent of Liability: Petitioner argued that, granting arguendo it was liable, its liability should be based on the valuation declared by the shipper/consignee in the bill of lading, not on the actual insured value of the goods.
• Force Majeure: Petitioner maintained that the loss of the cargo was due to force majeure and that it had exercised due diligence prior to, during, and immediately after the fire, as evidenced by the findings of the Philippine Coast Guard, which the trial court had sustained.
• Cause of Action: Petitioner contended that respondent had no cause of action against it, since the shippers/consignees had already been paid the value of the goods as stated in the bills of lading.

• Actual Insured Value: Respondent contended that petitioner's liability should be based on the actual insured value of the goods, not the valuation declared in the bills of lading, because the goods were insured for a total of ₱150,000, which amount could be considered the face value of the goods.
• Invalidity of Payment to Legaspi Marketing: Respondent argued that petitioner's payment of ₱14,000 to Legaspi Marketing did not extinguish petitioner's obligation, because there was no evidence that Feliciana Legaspi was the owner or proprietor of Legaspi Marketing.
• Impropriety of Setoff: Respondent maintained that the setoff of the ₱6,500 claim under Bill of Lading No. 58 against Nestor Angelia's account with Chester Marketing, Inc. was improper.

• Liability for Loss: Whether petitioner is liable for the loss of the goods, notwithstanding its defense of force majeure and the findings of the Philippine Coast Guard.
• Extent of Liability: If liable, whether petitioner's liability should be limited to the value declared in the bills of lading or should extend to the actual insured value paid by respondent to the insured.
• Cause of Action: Whether respondent, as subrogee, has a cause of action against petitioner.

• Liability for Loss: Yes. The fire originated from an unchecked crack in the auxiliary engine fuel oil service tank, which could not be attributed to force majeure but to the carrier's negligence in failing to ensure the seaworthiness of the vessel.
• Extent of Liability: Limited to the declared values. The stipulation in the bills of lading limiting the carrier's liability to the value of the goods as declared by the shipper is valid under Articles 1749 and 1750 of the Civil Code, and the subrogated insurer cannot recover more than the declared amounts.
• Cause of Action: Yes. Respondent, as subrogee of Feliciana Legaspi — the proven owner of the goods — had a valid cause of action, and petitioner's payment to Legaspi Marketing did not extinguish its obligation to the true owner.

• Liability for Loss: Fire is not considered a natural disaster or calamity within the concept of force majeure, as it arises almost invariably from some act of man or human means and does not fall within the category of an act of God unless caused by lightning or other natural disaster. The uncontroverted findings of the Philippine Coast Guard showed that the M/V Tandag sank due to a fire resulting from a crack in the auxiliary engine fuel oil service tank, from which fuel spurted and dripped onto the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the fuel oil tank with a mere two-inch gap from the engine room walling, precluding constant inspection and care by the crew. Petitioner failed to present sufficient evidence of measures undertaken to ensure seaworthiness — it did not show when the last inspection of the auxiliary engine fuel oil service tank was made, what the normal maintenance practice was, or any other evidence of extraordinary diligence. It merely stated that constant inspection was not possible and that the vessel was last dry-docked in November 1990. Pursuant to Article 1735 of the Civil Code, in all cases other than those enumerated in Article 1734, the common carrier is presumed to have been at fault or to have acted negligently unless it proves extraordinary diligence. The carrier failed to rebut this presumption.

• Extent of Liability: The bills of lading contained a stipulation that in case of claim for loss or damage, the liability of the common carrier shall not exceed the value of the goods as appearing in the bill of lading. A stipulation limiting liability is valid as long as it is not against public policy. Articles 1749 and 1750 of the Civil Code expressly sanction such stipulations, provided they are reasonable and just and have been freely and fairly agreed upon. The just and reasonable character of the stipulation is evident because the shippers could have recovered the full value of the goods by the simple expedient of declaring the true value in the bill of lading, with only the payment of higher freight as a consequence. Instead, Zosimo Mercado and Nestor Angelia deliberately undervalued the goods, thereby committing fraud against the carrier and depriving it of proper transport fare. The insurer, having assumed the higher risk, was paid the correct higher premium by Feliciana Legaspi, while petitioner was paid a fee lower than what it was entitled to. Between them, the insurer should bear the loss in excess of the declared value. Following Aboitiz Shipping Corporation vs. Court of Appeals, where the declared value in the bill of lading was made the basis of the carrier's liability, petitioner should not be held liable for more than what was declared.

• Cause of Action: The CA's finding that Feliciana Legaspi was the owner of the goods was not disturbed. The goods were merely consigned to Nestor Angelia and Zosimo Mercado, and thus Feliciana Legaspi or her subrogee was entitled to the goods or compensation for their loss. Petitioner's payment of ₱14,000 to Legaspi Marketing did not extinguish its obligation, because nothing in the records showed that Legaspi Marketing was the owner of the goods. Petitioner does not even claim to have paid Feliciana Legaspi. With regard to the ₱6,500 claim under Bill of Lading No. 58, the CA's ruling that compensation could not validly take place was upheld, as the setoff against Nestor Angelia's account with Chester Marketing, Inc. was improper.

• Limited-Liability Stipulation in Bill of Lading — A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of cargo to the value declared by the shipper, unless the shipper declares a greater value, is valid and binding under Articles 1749 and 1750 of the Civil Code, provided it is reasonable and just and has been freely and fairly agreed upon. The shipper has the option to declare a higher value and pay a higher freight to avoid the limitation. A shipper who deliberately undervalues the goods commits fraud against the carrier and cannot later hold the carrier liable for more than the declared amount.

• Force Majeure in Common Carrier Liability — Fire is not considered force majeure or an act of God unless caused by lightning or other natural disaster or calamity, because it arises almost invariably from some act of man or human means. Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently enough to discover cracked parts, the loss is attributable to negligence, not force majeure. Under Article 1735 of the Civil Code, a common carrier is presumed to have been at fault or negligent for loss of goods in all cases other than those enumerated in Article 1734, unless it proves extraordinary diligence.

• Extraordinary Diligence and Seaworthiness — A common carrier is required to exercise extraordinary diligence in the vigilance over the goods it transports. Ensuring the seaworthiness of the vessel is the first step in exercising this required vigilance. Failure to present evidence of measures undertaken to ensure seaworthiness — such as records of inspections, maintenance practices, and dry-docking — results in the carrier being held liable under the presumption of negligence in Article 1735.

• "The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the insurance policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of lading." — This is the opening pronouncement of the decision, framing the dual nature of the dispute: the carrier's limited liability versus the insurer's claim based on the insured value.

• "Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials." — This passage articulates the ratio decidendi on the first issue, establishing that the fire's origin in an unchecked crack negates the defense of force majeure and establishes carrier negligence.

• "Between the two of them, the insurer should bear the loss in excess of the value declared in the Bills of Lading. This is the just and equitable solution." — This passage captures the equitable rationale for limiting the carrier's liability to the declared value, placing the excess loss on the insurer who charged and received the correct higher premium.

• "A shipper/consignee that undervalues the real worth of the goods it seeks to transport does not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it declared in the bill of lading." — This defines the fraudulent character of deliberate undervaluation by shippers, reinforcing the validity of limited-liability stipulations and the equitable basis for capping recovery at the declared value.

• Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, 150 SCRA 463 (1987) — Cited for the proposition that fire is not a natural disaster or calamity and does not fall within the category of an act of God unless caused by lightning or other natural disaster, and that Article 1735 presumes negligence on the part of the common carrier unless extraordinary diligence is proved. Followed.

• Everett Steamship Corporation vs. Court of Appeals, 358 SCRA 129 (1998) — Cited as controlling authority for the validity of limited-liability stipulations in bills of lading under Articles 1749 and 1750 of the Civil Code, and for the principle that the shipper's failure to declare a higher value bars recovery beyond the stipulated limit. Followed.

• Aboitiz Shipping Corporation vs. Court of Appeals, 188 SCRA 387 (1990) — Cited for the rule that the declared value of goods in the bill of lading serves as the basis of the carrier's liability. Followed.

• Sea-Land Service, Inc. vs. Intermediate Appellate Court — Cited within the Everett Steamship quotation for the principle that the validity of liability limitation clauses is sustainable on the basis of the Civil Code provisions alone, and that the just and reasonable character of such stipulations is implicit in giving the shipper the option to declare a higher value. Followed.

• Pons y Compañia vs. La Compañia Maritima, 9 Phil. 125 (1907) — Cited for the general definition of force majeure as applicable to natural accidents such as lightning, earthquake, tempest, or public enemy. Followed.

• Article 1734, Civil Code — Enumerates the instances where a common carrier is not responsible for loss, destruction, or deterioration of goods (flood, storm, earthquake, lightning, or other natural disaster; act of the public enemy in war; act or omission of the shipper; character of the goods or defects in packing; order or act of competent public authority). Fire is not among the enumerated exceptions.

• Article 1735, Civil Code — Provides that in all cases other than those mentioned in Article 1734, common carriers are presumed to have been at fault or negligent unless they prove extraordinary diligence. Applied to hold petitioner liable, as fire is not among the Article 1734 exceptions and petitioner failed to prove extraordinary diligence.

• Article 1749, Civil Code — Provides that a stipulation limiting the common carrier's liability to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Applied to uphold the limited-liability stipulation in the bills of lading.

• Article 1750, Civil Code — Provides that a contract fixing the sum recoverable for loss, destruction, or deterioration of goods is valid if it is reasonable and just and has been freely and fairly agreed upon. Applied to validate the stipulation capping the carrier's liability at the declared values.

• Article 1680, Civil Code — Refers to fire as an extraordinary fortuitous event in the context of leases of rural lands, and was distinguished as inapplicable to common carrier liability.

Puno (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concurred.