Compañia Maritima vs. Insurance Company of North America

A contract of carriage is perfected upon actual delivery of goods to the carrier or its authorized agent — including delivery to a lighter sent by the vessel to fetch the cargo — and the issuance of a bill of lading is not indispensable to the creation of such contract. A common carrier cannot exempt itself from liability for loss or damage to cargo by invoking force majeure where the mishap is due to its own lack of due diligence, such as the unseaworthy condition of its equipment.

Compañia Maritima is a shipping corporation engaged in the carriage of goods by sea. Macleod and Company of the Philippines was a shipper of abaca (hemp) operating from a private pier at Sasa, Davao City. All abaca shipments of Macleod were insured with the Insurance Company of North America against all losses and damages under a Marine Open Cargo Policy. The arrangement at issue involved the transport of hemp from Davao to Manila, with subsequent transhipment to Boston, Massachusetts, U.S.A., aboard the S.S. Steel Navigator — a multi-leg voyage requiring the carrier to first move the cargo by lighter from the shipper's private wharf to the ocean-going vessel.

Sometime in October 1952, Macleod and Company of the Philippines contracted by telephone the services of Compañia Maritima for the shipment of 2,645 bales of hemp from Macleod's Sasa private pier at Davao City to Manila, and for their subsequent transhipment to Boston, Massachusetts, U.S.A., on board the S.S. Steel Navigator. This oral contract was later confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to Compañia Maritima's branch office in Davao. In compliance with the booking, the carrier sent two of its lighters — LCT Nos. 1023 and 1025 — to Macleod's private wharf, where loading of the hemp was completed on October 29, 1952. Each lighter was manned by a patron and an assistant patron, who were employees of the carrier with authority to undertake the transportation and sign the necessary documents. The patron of LCT No. 1025 issued a carrier's receipt stating that the cargo was received "in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator," with the final destination noted as Boston.

Thereafter, the two loaded barges left Macleod's wharf and proceeded to the government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot, on which the hemp was to be loaded for the voyage to Manila. During the night of October 29, 1952, or in the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in Davao, advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. From November 1 to 15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original 1,162 bales weighing 2,324 piculs, which had a total value of P116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, yielding a loss in value of P31,947.72. Adding to this the sum of P8,863.30 representing Macleod's expenses in checking, grading, rebating, and other fees for washing, cleaning, and redrying in the amount of P19,610.00, the total loss amounted to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on LCT No. 1025, were insured with the Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss with the insurance company, and after processing, the sum of P64,018.55 was paid. This payment was documented in a receipt that also served as a subrogation agreement, whereby Macleod assigned to the insurer its rights over the insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02 — the only amount supported by receipts — the insurance company instituted the present action on October 28, 1953. The court a quo rendered judgment ordering the carrier to pay the insurance company P60,421.02, with legal interest from the date of filing of the complaint until fully paid, and costs. The Court of Appeals affirmed this judgment on December 14, 1960. The carrier's own witness admitted that the ill-fated barge had cracks on its bottom, and the patron of LCT No. 1023 testified that rain entered through tank man-holes — conclusively showing that the barge was not seaworthy. A marine surveyor's report attributed the sinking to the "non-water-tight conditions of various buoyancy compartments," and the Court of Appeals found that on the night of the accident there was no storm, flood, or other natural disaster, the wind velocity being only 11 miles per hour, far below the 55 to 74 miles per hour threshold for classification as a storm under Philippine Weather Bureau standards.

• No Contract of Carriage: Petitioner disclaimed responsibility on the ground that no contract of carriage existed because the hemp was loaded on a barge free of charge and was not actually loaded on the S.S. Bowline Knot, and no bill of lading was issued for the lighter transport.
• Force Majeure: Petitioner shielded itself behind the claim of force majeure or storm, asserting that the sinking of LCT No. 1025 on the night of October 29, 1952 was caused by a natural disaster that should exempt the carrier from liability.
• Insurer's Cause of Action: Petitioner contended that the insurance company could not sue the carrier under its insurance contract as assignee of Macleod, given that the liability of the carrier as insurer is not recognized in this jurisdiction.
• Erroneous Admission: Petitioner argued that the Court of Appeals erred in treating its desistance from producing the books of accounts of Odell Plantation as an implied admission of the correctness and sufficiency of the shipper's statement of accounts, contrary to the burden of proof rule.
• Capacity to Sue: Petitioner questioned the insurance company's personality to maintain the suit without proof of its authority to do business in the Philippines.

• Subrogation and Standing: Respondent countered that, as insurer that had paid the shipper's claim, it stepped into the shoes of the shipper under the subrogation agreement and could assert the shipper's direct cause of action against the carrier for damage to the cargo.
• Non-Privity to Insurance Policy: Respondent argued that the carrier was neither a party nor privy to the insurance contract and therefore could not avail itself of any defect in the policy; any such defect was deemed waived by the insurer's subsequent payment of Macleod's claim.
• Carrier's Liability: Respondent maintained that the carrier was liable as a common carrier for the loss or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of the carrier's LCT No. 1025.

• Existence of Contract of Carriage: Whether there was a contract of carriage between the carrier and the shipper even if the loss occurred while the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not actually loaded on the S.S. Bowline Knot, and no bill of lading was issued.
• Force Majeure Defense: Whether the damage to the cargo or the sinking of the barge was due to a fortuitous event, storm, or natural disaster that would exempt the carrier from liability.
• Subrogee's Right to Sue: Whether the insurance company can sue the carrier under its insurance contract as assignee of Macleod, notwithstanding that the liability of the carrier as insurer is not recognized in this jurisdiction.
• Implied Admission by Desistance: Whether the Court of Appeals erred in regarding the carrier's desistance from producing the books of accounts of Odell Plantation as an implied admission of the correctness and sufficiency of the shipper's statement of accounts.
• Capacity to Sue: Whether the insurance company can maintain the suit without proof of its personality to do so.

• Existence of Contract of Carriage: Yes. A contract of carriage was perfected upon actual delivery of the hemp to the carrier's lighters, which were manned by the carrier's authorized employees; the issuance of a bill of lading is not indispensable to the creation of a contract of carriage.
• Force Majeure Defense: No. The sinking was not due to force majeure or storm but to the unseaworthy condition of the barge, which had cracks on its bottom and non-water-tight buoyancy compartments, and the wind velocity of 11 miles per hour did not constitute a storm.
• Subrogee's Right to Sue: Yes. The insurer, having paid the insured's claim, was subrogated to the shipper's rights and could maintain an action against the carrier, which could not set up any defect in the insurance policy as a defense since it was not a privy to it.
• Implied Admission by Desistance: No error. The carrier's waiver of its right to have the books of accounts produced was tantamount to an admission of the correctness of the statements therein, and the award was independently supported by original documents presented by the shipper.
• Capacity to Sue: Yes. The carrier's own attorney admitted in open court that the insurance company was a foreign corporation doing business in the Philippines with personality to file the present action.

• Existence of Contract of Carriage: The Court found that Macleod contracted by telephone for the carrier's services, which oral contract was confirmed by a written booking, in compliance with which the carrier sent two lighters to Macleod's wharf. The patrons of the lighters were the carrier's employees with authority to undertake transportation and sign documents. The fact that the lighters were sent free of charge did not impair the contract, as that preparatory step was part and parcel of the contract of carriage. Once the hemp was delivered to the carrier's employees on the lighter, the rights and obligations of the parties attached under maritime law. Citing 80 C.J.S. at page 901, the Court held that delivery to a lighter in charge of a vessel for shipment, where it is the custom to deliver in that way, is a good delivery binding the vessel, and the bill of lading is applicable to goods as soon as they are placed on the lighters. The test is whether control and possession of the goods has completely passed from the shipper to the carrier. The Court further held, citing Martin's Philippine Commercial Laws and 13 C.J.S. at page 288, that a bill of lading is not indispensable to a contract of carriage; it is merely documentary proof of the stipulations agreed upon, and the carrier's liability begins with actual delivery of goods for transportation, not with the formal execution of a receipt or bill of lading.

• Force Majeure Defense: The Court deferred to the factual findings of the Court of Appeals, which established that the ill-fated barge had cracks on its bottom admitting sea water, that rain entered through tank man-holes, and that a marine surveyor's report attributed the sinking to the "non-water-tight conditions of various buoyancy compartments" — conclusively showing the barge was not seaworthy. On the night of the accident there was no storm, flood, or other natural disaster; the wind velocity of 11 miles per hour, while stronger than the average 4.6 miles per hour prevailing in Davao on that date, could not be classified as a storm, which under Beaufort's wind scale requires velocities of 64 to 75 miles per hour and under Philippine Weather Bureau standards 55 to 74 miles per hour. The mishap was thus attributable to the carrier's lack of adequate precautions rather than to force majeure.

• Subrogee's Right to Sue: The Court held that the insurer could recover from the carrier as assignee of the shipper because the insurer, having paid the loss, fairly acquired the right to recover from the party responsible. The action was not between insured and insurer but between shipper and carrier, the insurer merely having stepped into the shoes of the shipper. Since the shipper had a direct cause of action against the carrier for cargo damage, the insurer as subrogee could assert that action. The carrier could not set up any defect in the insurance policy as a defense because it was not a privy to the insurance contract, and any defect was deemed waived by the insurer's subsequent payment. The Court adopted the Court of Appeals' reasoning that the carrier was sued in its capacity as a common carrier, and the insurer was suing as assignee of the shipper pursuant to the subrogation agreement.

• Implied Admission by Desistance: The Court found that the carrier's waiver of its right to have the Odell Plantation books produced was tantamount to an admission that the statements contained therein were correct and their verification unnecessary, because the carrier's main defense was that it was not liable for the loss — making the correctness of the accounts not material under its own theory. At any rate, even without the books, the correctness of the accounts was supported by the original documents on which the entries were based, which the shipper presented as part of its evidence. The Court of Appeals found these documents alone sufficient to establish the award of P60,421.02.

• Capacity to Sue: The Court found this issue of no importance, as the carrier's own attorney admitted in open court that the insurance company was a foreign corporation doing business in the Philippines with personality to file the present action.

• Perfection of Contract of Carriage Upon Delivery to Carrier's Agent or Lighter — The liability and responsibility of a common carrier under a contract for the carriage of goods commence upon actual delivery to, or receipt by, the carrier or an authorized agent. Delivery to a lighter sent by the vessel to fetch the goods is a good delivery that binds the carrier, the lighters being for the time the vessel's substitutes. The test is whether control and possession of the goods has completely passed from the shipper to the carrier. In this case, the contract of carriage was perfected when the hemp was loaded onto the carrier's lighters manned by its authorized employees, even though the cargo had not yet been loaded onto the ocean-going vessel.

• Bill of Lading Not Indispensable to Contract of Carriage — A bill of lading is not essential to the creation of a contract of carriage; it is merely documentary proof of the stipulations and conditions agreed upon by the parties. The carrier's liability begins with actual delivery and acceptance of goods for transportation, not with the formal execution of a receipt or bill of lading. While Article 350 of the Code of Commerce gives both carrier and shipper the right to mutually demand a bill of lading, it does not make the bill a necessary requisite for the contract of transportation.

• Force Majeure as a Defense Requires Proof of Natural Disaster or Calamity — A carrier cannot claim exemption from liability under force majeure where the evidence shows the mishap was due to its own lack of due diligence rather than to a natural disaster. Wind velocities of 11 miles per hour do not constitute a storm, which requires 55 to 74 miles per hour under Philippine Weather Bureau standards. Unseaworthiness of the carrier's equipment — such as cracks on the barge's bottom and non-water-tight buoyancy compartments — negates a force majeure defense.

• Subrogation Permits Insurer to Sue Third-Party Tortfeasor or Debtor — An insurer that has paid the insured's claim is subrogated to the rights of the insured and may maintain an action against the party responsible for the loss. The action is treated as one between the shipper and the carrier, the insurer merely stepping into the shoes of the shipper. The carrier cannot set up defects in the insurance policy as a defense because it is not a privy to the insurance contract.

• "The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage." — This passage articulates the ratio decidendi on the first issue, establishing that preparatory transport by lighter is integrated into the overarching contract of carriage and triggers carrier liability.

• "The bill of lading is not indispensable to the contract, although it may become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties." — This formulation, quoted from Del Viso and adopted by the Court, defines the juridical nature of a bill of lading and is frequently cited in subsequent jurisprudence on contracts of carriage.

• "The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper." — This passage defines the nature of the subrogee's action against a third party and clarifies that the carrier cannot invoke policy defects as a defense.

• Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959 — Cited for the Philippine Weather Bureau standard that wind velocities of 55 to 74 miles per hour are required to classify winds as a storm, supporting the finding that the 11 miles per hour winds on the night of the sinking did not constitute force majeure.

• Robles vs. Santos, 44 O.G. 2268 — Cited for the proposition that a bill of lading is not indispensable to a contract of carriage, supporting the holding that the contract was perfected upon delivery to the carrier's lighter.

• Railroad Co. vs. Murphy, 60 Ark. 333, 30 S.W. 419 — Cited through W.F. Bogart & Co. vs. Wade for the test that the relation of shipper and carrier is established when control and possession of goods passes completely to the carrier.

• Article 350, Code of Commerce — Provides that the shipper as well as the carrier of merchandise or goods may mutually demand a bill of lading. The Court interpreted this provision as giving both parties the right to demand a bill of lading but not making it a necessary requisite for the contract of transportation, thus supporting the holding that the contract of carriage was perfected without issuance of a bill of lading.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concurred.