Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court

A common carrier is liable for loss of cargo by fire unless it proves extraordinary diligence under the Civil Code, as fire is not a "natural disaster or calamity" exempting the carrier under Article 1734; the COGSA fire defense likewise fails when actual fault of the carrier is shown, and the $500-per-package limitation is computed by reference to the individual cartons disclosed in the bill of lading, not the containers.

Eastern Shipping Lines, Inc. operated the M/S ASIATICA, a vessel that transported various cargoes from Kobe, Japan to Manila. The consignees insured their respective shipments against marine risk with different insurance companies. When the vessel sank due to fire, the insurers paid the consignees and were subrogated to their rights, thereafter filing separate suits against the carrier to recover the amounts paid. The two cases arose from the same incident but involved different cargoes, consignees, and insurers, and were consolidated for resolution.

Sometime in or prior to June 1977, the M/S ASIATICA, a vessel operated by Eastern Shipping Lines, Inc., loaded at Kobe, Japan for transportation to Manila 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75 consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with Development Insurance and Surety Corporation. During the same period, the same vessel took on board 128 cartons of garment fabrics and accessories in two containers consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for US $46,583.00 by Nisshin Fire & Marine Insurance Co., and the two cases by Dowa Fire & Marine Insurance Co., Ltd. for US $11,385.00.

En route from Kobe, Japan to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective insurers paid the corresponding marine insurance values to the consignees and were thereby subrogated to the rights of the insured. Development Insurance filed suit against Eastern Shipping Lines on May 11, 1978 before the Court of First Instance of Manila, while Nisshin and Dowa filed their suit on June 16, 1978 before the same court.

The carrier denied liability, claiming the loss was due to an extraordinary fortuitous event and that fire was an exempting circumstance under Section 4(2)(b) of the Carriage of Goods by Sea Act. The trial courts in both cases ruled in favor of the insurers, findings affirmed by the Court of Appeals. The trial court found that the cargoes were placed in hatches No. 2 and 3 of the vessel, that smoke was noticed coming from those hatches only when the fire was already large, that the fire must have started twenty-four hours before it was noticed, and that after the cargoes were stored in the hatches no regular inspection was made as to their condition during the voyage. The crew could not even explain what caused the fire. Both the trial court and the Court of Appeals concluded that the carrier failed to satisfactorily show that extraordinary vigilance and care had been exercised to prevent the occurrence of the fire.

• Fortuitous Event / Natural Disaster: Petitioner Carrier argued that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity" in Article 1734 of the Civil Code, as fire should be considered an extraordinary fortuitous event.
• COGSA Fire Exemption: Petitioner Carrier contended that fire is an exempting circumstance under Section 4(2)(b) of the Carriage of Goods by Sea Act, and that when loss by fire is established, the burden of proving negligence shifts to the cargo shipper.
• Burden of Proof: Petitioner Carrier maintained that the burden of proving negligence of the vessel rests on the cargo shipper or its subrogee.
• Not the Operator: Petitioner Carrier claimed it was not the operator of the M/S ASIATICA but merely a charterer thereof.
• Per Package Limitation: Petitioner Carrier averred that its liability, if any, should not exceed US $500 per package as provided in Section 4(5) of COGSA.
• Denial of Due Process (G.R. No. 69044 only): Petitioner Carrier claimed the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan by written interrogatories.
• Attorney's Fees: Petitioner Carrier questioned the award of attorney's fees in both cases.

• Unseaworthiness and Negligence: Respondents Nisshin and Dowa imputed unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier as the basis for liability.

• Applicable Law: Whether the Civil Code provisions on common carriers or the Carriage of Goods by Sea Act should govern the liability of the carrier for loss of cargo by fire.
• Burden of Proof: Whether the burden of proving negligence of the carrier rests on the cargo shipper or on the carrier to prove extraordinary diligence.
• Fire as Natural Disaster: Whether fire may be considered a "natural disaster or calamity" under Article 1734 of the Civil Code so as to exempt the carrier from liability.
• COGSA Fire Exemption: Whether the COGSA fire exemption under Section 4(2)(b) shields the carrier from liability.
• Per Package Limitation: Whether the carrier's liability should be limited to US $500 per package under COGSA Section 4(5), and whether the 128 cartons or the two containers should be considered as the "package" for purposes of the limitation.
• Due Process (G.R. No. 69044): Whether the Trial Court denied petitioner Carrier due process by not giving it sufficient time to take depositions of its witnesses in Japan.
• Attorney's Fees: Whether the award of attorney's fees was proper.

• Applicable Law: The Civil Code governs, with COGSA applying suppletorily. The law of the country of destination governs the liability of the common carrier for loss, destruction, or deterioration of goods.
• Burden of Proof: No. The burden rests on the carrier to prove extraordinary diligence, not on the cargo shipper to prove negligence. Under Article 1735, the carrier is presumed at fault or negligent unless it proves extraordinary diligence.
• Fire as Natural Disaster: No. Fire is not a "natural disaster or calamity" under Article 1734, 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.
• COGSA Fire Exemption: No. The COGSA fire defense is unavailing because actual fault of the carrier was established by the finding that no regular inspection was made during the voyage and the fire had been burning for twenty-four hours before discovery.
• Per Package Limitation: Yes. The carrier's liability is limited to US $500 per package under COGSA Section 4(5), and the 128 cartons—not the two containers—constitute the "packages" because the bill of lading disclosed the number of cartons within the containers.
• Due Process: No. Petitioner Carrier was afforded ample time to present its evidence but failed to do so; due process requires only opportunity to be heard, not indefinite postponement.
• Attorney's Fees: The award was modified in G.R. No. 69044 from P35,000 to P5,000 as more reasonable; the P5,000 award in G.R. No. 71478 was affirmed.

• Applicable Law: Under Article 1753 of the Civil Code, the law of the country to which the goods are to be transported governs the liability of the common carrier in case of loss, destruction, or deterioration. Since the cargoes were transported from Japan to the Philippines, Philippine law—primarily the Civil Code—governs. Article 1766 provides that in all matters not regulated by the Civil Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and special laws. COGSA, as a special law, is suppletory to the Civil Code. The carrier's own admission in G.R. No. 69044 that it was the operator of the vessel was binding upon it, as facts alleged in a party's pleading are deemed admissions.

• Burden of Proof: Under Article 1733 of the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over goods. Article 1734 enumerates the causes that exempt a carrier from liability—flood, storm, earthquake, lightning, or other natural disaster or calamity, among others. Fire is not among those enumerated. Under Article 1735, in all cases other than those mentioned in Article 1734, the common carrier is presumed to have been at fault or negligent unless it proves extraordinary diligence. The insurers, as subrogees, proved the goods were lost; the carrier proved the loss was caused by fire. Since fire is not an exempting cause under Article 1734, the burden shifted to the carrier to prove extraordinary diligence—a burden it failed to discharge. The trial court found that no regular inspection of the cargo was made during the voyage, and the crew could not even explain the cause of the fire.

• Fire as Natural Disaster: Fire may not be considered a "natural disaster or calamity" because it arises almost invariably from some act of man or human means. It does not fall within the category of an act of God unless caused by lightning or other natural disaster or calamity. It may even be caused by the actual fault or privity of the carrier. Article 1680, which treats fire as an extraordinary fortuitous event, refers specifically to leases of rural lands and adopts a protection policy towards agriculture; it has no application to common carrier liability. Even if fire were considered a natural disaster, Article 1739 requires that the natural disaster be the "proximate and only cause" of the loss and that the carrier exercised due diligence to prevent or minimize the loss—requirements the carrier also failed to establish.

• COGSA Fire Exemption: Section 4(2)(b) of COGSA exempts the carrier from liability for loss by fire "unless caused by the actual fault or privity of the carrier." Both the trial court and the Court of Appeals found actual fault of the carrier, shown by lack of diligence: the fire had been burning for twenty-four hours before it was noticed, and no regular inspection of the cargo was made during the voyage. These circumstances sufficed to show that the carrier or its servants were negligent in connection with the fire, rendering the COGSA fire defense unavailing.

• Per Package Limitation: The Civil Code does not itself limit carrier liability to a fixed amount per package, though Article 1749 permits stipulations limiting liability to the value appearing in the bill of lading unless a greater value is declared. COGSA, as a suppletory law, establishes the statutory US $500 per package limitation in the absence of a declaration of higher value. Applying the rule from Mitsui & Co., Ltd. vs. American Export Lines, Inc. and Smithgreyhound vs. M/V Eurygenes, when individual cartons prepared by the shipper are placed inside carrier-furnished containers and the number of cartons is disclosed in the bill of lading, each carton—not the container—constitutes the "package" for COGSA limitation purposes. The bill of lading in this case disclosed "2 Containers (128 Cartons)," so the 128 cartons were the shipping units. The limitation was computed as 128 × $500 = $64,000, which exceeded the actual insured value of $46,583, so the full insured value was upheld. For the 7 cases of spare parts in G.R. No. 69044, 7 × $500 at the exchange rate of P20.44 = P71,540, which was less than the actual value of P92,361.75, so the limited amount governed. Any ambiguity in the bill of lading was construed against the carrier, which caused the obscurity, especially in a contract of adhesion.

• Due Process: The trial court found that the carrier had more than nine months to prepare its evidence, from November 6, 1978 to August 27, 1979, yet served its belated notice to take depositions only two days before the scheduled hearing. The carrier's own delay was solely to blame. Due process abhors only the absolute lack of opportunity to be heard, not the consequences of a party's own dilatoriness.

• Attorney's Fees: Courts are vested with discretion in fixing attorney's fees. The amount of P5,000 was deemed more reasonable in G.R. No. 69044, while the P5,000 award in G.R. No. 71478 was affirmed as proper.

• Extraordinary Diligence of Common Carriers — Under Article 1733 of the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over goods, by reason of the nature of their business and public policy. The carrier is presumed at fault or negligent for loss, destruction, or deterioration of goods unless it proves it observed extraordinary diligence (Article 1735). In this case, the carrier failed to prove extraordinary diligence, as no regular inspection of cargo was made during the voyage and the fire went undetected for twenty-four hours.

• Fire as Not a Natural Disaster or Calamity — Fire is not a "natural disaster or calamity" within the meaning of Article 1734 of the Civil Code, because it arises almost invariably from some act of man or human means. It qualifies as an act of God only when caused by lightning or other natural disaster. The Court applied this rule to reject the carrier's claim of exemption from liability.

• Destination Law Rule — Under Article 1753 of the Civil Code, the law of the country to which goods are to be transported governs the liability of the common carrier for loss, destruction, or deterioration. Since the cargoes were destined for the Philippines, the Civil Code governed primarily, with COGSA applying suppletorily pursuant to Article 1766.

• COGSA as Suppletory Law — The Carriage of Goods by Sea Act, as a special law, is suppletory to the Civil Code provisions on common carriers. Its provisions on limited liability are as much a part of a bill of lading as though physically incorporated therein, and it establishes the statutory US $500 per package limitation in the absence of a declaration of higher value by the shipper.

• Package Limitation for Containerized Shipments — When individual cartons or units prepared by the shipper are placed inside containers and the number of such units is disclosed in the bill of lading, each unit—not the container—constitutes the "package" for purposes of the COGSA $500 per package limitation. This follows the rule in Mitsui & Co., Ltd. vs. American Export Lines, Inc. and Smithgreyhound vs. M/V Eurygenes. If the bill of lading fails to disclose the number of units, or if the parties clearly agree to treat the container as the package, the container may be treated as the package.

• Contra Proferentem in Contracts of Adhesion — Any ambiguity in a contract of adhesion, such as a bill of lading drawn up by the carrier, is construed against the party who caused the obscurity, pursuant to Article 1377 of the Civil Code.

• "Fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means." — This passage articulates the ratio decidendi on why fire does not qualify as an exempting "natural disaster or calamity" under Article 1734, a ruling central to the carrier's liability.

• "The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration." — This states the destination law rule under Article 1753, determining that the Civil Code governs the carrier's liability for shipments destined for the Philippines.

• "When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package' referred to in liability limitation provision of Carriage of Goods by Sea Act." — This quotation from Mitsui & Co., Ltd. vs. American Export Lines, Inc., adopted by the Court, defines the controlling test for determining the "package" in containerized shipments under COGSA Section 4(5).

• "What due process abhors is absolute lack of opportunity to be heard." — This formulation clarifies the scope of due process in procedural settings, distinguishing genuine deprivation from self-inflicted prejudice caused by a party's own dilatoriness.

• Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529 (1984) — Cited for the proposition that the Civil Code governs the liability of a common carrier for goods transported to the Philippines.
• American President Lines vs. Klepper, 110 Phil. 243 (1960) — Cited for the principle that COGSA is suppletory to the Civil Code provisions on common carriers.
• Africa vs. Caltex Phil., 16 SCRA 448 (1966) — Cited for the proposition that fire arises almost invariably from some act of man and is not a natural disaster or calamity.
• Phoenix Assurance Company vs. Macondray, 64 SCRA 15 (1975) — Cited for the principle that COGSA's limited liability provisions are as much a part of a bill of lading as though physically incorporated therein.
• Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F.2d 807 (1981) — U.S. Court of Appeals decision followed as the controlling test for determining that individual cartons inside carrier-furnished containers with disclosed contents constitute the "packages" for COGSA limitation purposes.
• Smithgreyhound vs. M/V Eurygenes, 666 F.2d 746 (1981) — Followed the Mitsui test, further clarifying that a carrier may limit liability to $500 per container only if the bill of lading fails to disclose the number of cartons or if the parties clearly agree to treat the container as the package.
• Qua Chee Gan vs. Law Union & Rock Ins. Co., Ltd., 98 Phil. 85 (1956) — Cited for the principle that ambiguities in contracts of adhesion are construed against the party who caused the obscurity.
• Tajonera vs. Lamaroza, 110 SCRA 438 (1981) — Cited for the principle that due process abhors only the absolute lack of opportunity to be heard.

• Article 1733, Civil Code — Requires common carriers to observe extraordinary diligence in the vigilance over goods. Applied as the baseline standard against which the carrier's conduct was measured; the carrier failed to meet it.
• Article 1734, Civil Code — Enumerates the causes that exempt a common carrier from liability for loss, destruction, or deterioration of goods (flood, storm, earthquake, lightning, or other natural disaster or calamity, among others). Fire was held not to fall within this enumeration.
• Article 1735, Civil Code — Provides that in all cases other than those enumerated in Article 1734, the common carrier is presumed at fault or negligent unless it proves extraordinary diligence. Applied to shift the burden to the carrier.
• Article 1739, Civil Code — Requires that a natural disaster be the "proximate and only cause" of the loss and that the carrier exercised due diligence to prevent or minimize the loss. Applied as an alternative ground for rejecting the carrier's defense.
• Article 1749, Civil Code — Allows stipulations limiting the carrier's liability to the value appearing in the bill of lading unless the shipper declares a greater value. Applied in conjunction with COGSA's per package limitation.
• Article 1753, Civil Code — Provides that the law of the country of destination governs the carrier's liability. Applied to determine that Philippine law governs.
• Article 1766, Civil Code — Provides that matters not regulated by the Civil Code are governed by the Code of Commerce and special laws. Applied to make COGSA suppletory.
• Article 1377, Civil Code — Provides that obscure stipulations in contracts are construed against the party who caused the obscurity. Applied to construe the bill of lading against the carrier.
• Section 4(2)(b), Carriage of Goods by Sea Act — Exempts the carrier from liability for loss by fire unless caused by the actual fault or privity of the carrier. Applied; the defense failed because actual fault was established.
• Section 4(5), Carriage of Goods by Sea Act — Limits carrier liability to US $500 per package or per customary freight unit unless the shipper declares a higher value. Applied to cap the carrier's liability, with cartons treated as the packages.

Narvasa, Cruz, Feliciano, and Gancayco, JJ., concurred in the majority opinion.

• Yap, J. (concurring and dissenting, with Sarmiento, J. concurring) — Justice Yap concurred with the entire decision except on the package limitation issue in G.R. No. 71478. He disagreed with applying the Mitsui and Eurygenes rule for two reasons: (1) the facts differed materially because there was no evidence that the containers were carrier-supplied—the bill of lading bore the stamp "Shipper's Load, Count and Seal Said to Contain," indicating the shipper loaded and sealed the containers; and (2) the Mitsui rule is not settled doctrine, as the interpretation of COGSA's package limitation remains in a state of flux. He argued that under the circumstances, the container should be regarded as the shipping unit or "package," or alternatively, the $500 limitation should be based on the "customary freight unit" (cubic meters), which would yield $21,950 for the 43.9 cubic meter shipment. He emphasized the need to balance the interests of shipper and carrier, noting that the shipper paid freight based on container volume, not on the number of cartons, and did not declare the value of the shipment to avoid higher freight charges, instead protecting itself through insurance.