Manila Railroad Co. vs. La Compañia Transatlantica

A carrier is liable to the shipper for damage to cargo caused by the negligence of an independent contractor employed to discharge the cargo, because the obligation to carry safely and deliver in proper condition is non-delegable under the contract of transportation; the contractor is in turn liable to the carrier under their service contract, but the shipper cannot sue the contractor directly for breach of that contract due to lack of privity. Furthermore, negligence in the performance of a contractual obligation (culpa contractual) is governed by Articles 1101 and 1104 of the Civil Code, not by Article 1903, which applies only to extra-contractual negligence (culpa aquiliana). Exemption clauses purporting to relieve a party from liability for negligence must be expressed in clear and unequivocal terms and are strictly construed against the party seeking their protection.

In March 1914, the steamship Alicante, owned by the Compañia Transatlantica de Barcelona, arrived at the port of Manila carrying two locomotive boilers consigned to The Manila Railroad Company. The ship's own tackle was inadequate to handle cargo of that weight, requiring the steamship company to procure outside assistance for the discharge operation.

• The Cargo and the Contract of Transportation: The Manila Railroad Company purchased two locomotive boilers in Europe and contracted with the Compañia Transatlantica de Barcelona to transport them to Manila aboard the steamship Alicante. The boilers were received by the carrier in proper condition.

• Engagement of the Independent Contractor: Because the Alicante's own equipment was insufficient to discharge the heavy boilers, the Steamship Company engaged the Atlantic Gulf & Pacific Company, which possessed the best heavy-lifting equipment in Manila, to lift the boilers from the ship's hold and transfer them to a barge. The Railroad Company had been informed before the contract of affreightment was made that a contractor would be needed for the discharge, and it was assumed the Railroad Company assented to this arrangement.

• The First Accident: The Atlantic Company sent its floating crane under the supervision of its foreman, one Leyden. On the first lift, Leyden improperly adjusted the sling near the middle of the boiler, causing it to be hoisted in a nearly horizontal position. The boiler was too long to clear the hatch in that orientation; one end emerged while the other remained caught under the opposite edge of the hatch. As Leyden attempted to force the boiler through the hatch, a rivet near the boiler head caught under the hatch edge, adding an estimated fifteen tons of strain. The sling cable parted, and the boiler fell to the bottom of the hold.

• The Second Accident: Leyden readjusted the sling nearer one end of the boiler, as should have been done originally. The boiler was lifted again, but during the hoist the bolt at the end of the derrick boom broke, and the boiler fell a second time. The bolt failure was attributable to weakening from the shock of the first accident—a condition that, in the Court's view, a person competent to operate such machinery should have anticipated and checked.

• Extent of Damage: The boiler was so badly damaged that it had to be shipped back to England for rebuilding before being returned to Manila. The Railroad Company's total damages—comprising repair costs, expenses, and loss of use—amounted to P23,343.29, an amount that was practically undisputed.

• Negligence Finding: The trial court found, and the Supreme Court affirmed, that the mishaps were due to Leyden's gross negligence. He improperly adjusted the sling, ignored warnings from the stevedore in charge, attempted to force the boiler through the hatch rather than lowering it, and failed to appreciate the likely weakening of the crane after the first fall. The entire operation was under his exclusive control.

• The Atlantic Company's Claimed Exemption: The Atlantic Company asserted that it had stipulated, as part of its engagement, that it would assume no responsibility for any damage that might occur during the discharge, whether to ship, cargo, or persons. The Steamship Company's agent denied any such reservation. The trial evidence showed that the Atlantic Company had a custom of requiring such exemptions and had communicated this to the Steamship Company on prior occasions. Four years earlier, the Steamship Company had rejected the Atlantic Company's services when a similar exemption was proposed.

• The Terms of the Reservation: The vice-president of the Atlantic Company testified that the agreement combined two features: an undertaking to use all due care, and a reservation concerning liability for damage. Correspondence produced in evidence showed various formulations used in other jobs, such as "we cannot assume responsibility for damage which may occur," and "we assume no responsibility from any accident which may happen during our operations." The Court interpreted these consistently to mean that the exemption covered damage from hidden defects in equipment or other unforeseeable occurrences, but not damage resulting from the contractor's own negligence in the lifting operations.

• Liability of the Steamship Company: The Manila Railroad Company argued that the Steamship Company, as carrier, was liable on the contract of transportation for failure to deliver the boilers in proper condition, notwithstanding that the damage was caused by a third-party contractor employed by the carrier.

• Error in Absolving the Steamship Company: The Railroad Company contended that the trial court erred in absolving the carrier and in entering judgment directly against the Atlantic Company, with whom the Railroad Company had no contractual relationship.

• Contractual Exemption from Liability: Respondent Atlantic Gulf & Pacific Company asserted that the express terms of its contract with the Steamship Company relieved it of all responsibility for damage to cargo, ship, or persons arising from any cause whatsoever during the discharge operation. It maintained that this exemption was part of a known and communicated custom of the company.

• Defense under Article 1903: Respondent Atlantic Company argued that, having exercised due diligence in the selection and engagement of its foreman Leyden, it was absolved from liability pursuant to the last paragraph of Article 1903 of the Civil Code.

• Defense of Non-Liability by the Carrier: Respondent Compañia Transatlantica contended that liability should be borne solely by the Atlantic Company, which as an independent contractor had undertaken performance of the discharge and whose negligence directly caused the damage.

• Liability of the Carrier: Whether the Steamship Company was liable to the Railroad Company under the contract of transportation for damage to the boilers caused by the negligence of the independent contractor engaged to discharge them.

• Liability of the Independent Contractor to the Carrier: Whether the Atlantic Company was liable to the Steamship Company for damages the latter might be compelled to pay, considering the claimed contractual exemption from liability and the asserted defense under Article 1903.

• Direct Liability of the Independent Contractor to the Shipper: Whether the Atlantic Company could be held directly liable to the Railroad Company in the absence of any contractual privity between them.

• Liability of the Carrier: The Steamship Company was liable to the Railroad Company for the damage. The obligation to transport the boilers necessarily involved the duty to convey and deliver them in proper condition, conformably with good faith, custom, and law under Article 1258 of the Civil Code. The carrier's duty to carry safely was not extinguished by delegating part of the performance to an independent contractor. A party to a contract cannot escape liability for non-performance by showing that the delinquency was due to the negligence of one to whom performance had been committed. The contract remained the measure of the carrier's obligation to the shipper, and the carrier's liability arose under Articles 1103 and 1104 of the Civil Code for the consequences of omission of the care necessary to proper performance.

• Liability of the Independent Contractor to the Carrier: The Atlantic Company was liable to the Steamship Company. The asserted exemption from liability was strictly construed and held not to extend to damage caused by the Atlantic Company's own negligence. The exemption was properly understood to cover damage from hidden defects in the equipment or other unforeseeable occurrences not traceable to the personal negligence of the party in charge of operations. Any broader interpretation would have produced an inequitable, one-sided arrangement licensing the Atlantic Company to perform its work in any manner without accountability. Exemption clauses covering liability for negligence must be clearly and unequivocally expressed, and contracts against liability for negligence are not favored by law. The defense under the last paragraph of Article 1903 was inapplicable because Article 1903 governs only negligence arising in the absence of agreement (culpa aquiliana, or extra-contractual negligence), not negligence in the performance of a contractual obligation (culpa contractual), which is governed by Articles 1101 et seq. and 1104 of the Civil Code.

• Direct Liability of the Independent Contractor to the Shipper: The Atlantic Company was not directly liable to the Railroad Company. Although the act of taking the boilers into its possession and control gave rise to a quasi-contractual duty to use due care—a duty that would have supported an action by the owner had no express contract existed—that duty was superseded and displaced by the express contract between the Atlantic Company and the Steamship Company. An implied contract cannot arise where an express contract has been made. The express contract determined not only the character and extent of the Atlantic Company's liability but also the person by whom the obligation was exigible. The Railroad Company lacked privity with that contract and could therefore not maintain an action directly against the Atlantic Company for damages constituting a violation of it. The shipper's rights were enforceable only through the carrier with whom the contract of affreightment had been made, pursuant to Article 1257 of the Civil Code.

• Distinction Between Culpa Contractual and Culpa Aquiliana — Negligence in the performance of an existing contractual obligation (culpa contractual) is governed by Articles 1101, 1103, and 1104 of the Civil Code. Negligence as an independent, substantive source of obligation between parties not previously bound (culpa aquiliana, or extra-contractual negligence) is governed by Articles 1902 and 1903. The two forms of liability are distinct and are not interchangeable; the defense of due diligence in selection of employees under the last paragraph of Article 1903 is available only in cases of extra-contractual negligence, not where the obligation arises from contract.

• Non-Delegability of Contractual Obligation — A party to a contract cannot evade liability for non-performance or defective performance by showing that the default was due to the negligence of a third party to whom performance was delegated. The contracting party remains bound to the obligee for the full and proper performance of the obligation under Articles 1103 and 1104 of the Civil Code.

• Strict Construction of Exemption Clauses — Contracts that purport to exempt a party from liability for negligence are not favored and are strictly construed against the party seeking their protection. To be effective, such an exemption must be expressed in terms so clear as to leave no room for the application of ordinary rules of liability. General words of exemption not expressly referring to negligence are construed as limiting only the strict liability of the obligor and not as relieving from the duty to exercise reasonable skill and care.

• Supremacy of Express Contract over Implied Obligation — An implied contract or quasi-contractual obligation does not arise where an express contract has been made governing the same subject matter. The express contract determines not only the nature and extent of liability but also the person or entity by whom the obligation is enforceable. A third party with no privity to the express contract cannot maintain an action based upon it.

• "The obligation to transport the boiler necessarily involves the duty to convey and deliver it in a proper condition according to its nature, and conformably with good faith, custom, and the law (art. 1258, Civ. Code). The contract to convey imports the duty to convey and deliver safely and securely with reference to the degree of care which, under the circumstances, are required by law and custom applicable to the case. The duty to carry and to carry safely is all one."

• "It is a rudimentary principle that the contractor is responsible for the work executed by persons whom he employs in its performance, and this is expressed in the Civil Code in the form of a positive rule of law (art. 1596)."

• "Contracts against liability for negligence are not favored by law. In some instances, such as common carriers, they are prohibited as against public policy. In all cases such contracts should be construed strictly, with every intendment against the party seeking its protection."

• "An exemption in general words not expressly relating to negligence, even though the words are wide enough to include loss by negligence or default of carriers' servants, must be construed as limiting the liability of the carrier as assurer, and not as relieving from the duty of exercising reasonable skill and care." (Quoting Price & Co. vs. Union Lighterage Co., [1903] 1 K.B.D. 750, 754.)

• "The two features of the engagement, namely, the promise to use due care and the exemption from liability for damage should be so construed as to give some legal effect to both. The result is, as already indicated, that the Atlantic Company was bound by its undertaking to use due care and that the exemption was intended to cover accidents due to hidden defects in the apparatus or other unforeseeable occurrences not having their origin in the immediate personal negligence of the party in charge of the operations."

• "The principle that negligence in the performance of a contract is not governed by article 1903 of the Civil Code but rather by article 1104 of the same Code was directly applied by this court in the case of Baer Senior & Co.'s successors vs. Compañia Maritima."

• Rakes vs. Atlantic, Gulf & Pacific Co., 7 Phil. Rep. 359 — Followed for the distinction between culpa contractual and culpa aquiliana, and the inapplicability of Article 1903 to negligence arising in the performance of a contractual obligation.

• Baer Senior & Co.'s successors vs. Compañia Maritima, 6 Phil. Rep. 215 — Applied for the rule that negligence in the performance of a contract is governed by Article 1104 rather than Article 1903 of the Civil Code.

• Bryan vs. Eastern & Australian S.S. Co., 28 Phil. Rep. 310 — Instructive authority on the strict construction of contractual exemptions from liability; general words of exemption do not relieve from liability for negligence of servants absent express and clear language to that effect.

• Coggs vs. Bernard, 2 Ld. Raym. 909 (King's Bench, 1803) — Cited as foundational common-law authority recognizing that one who takes another's property into his custody assumes a duty of care, enforceable even in the absence of an express contract or consideration.

• Price & Co. vs. Union Lighterage Co., [1903] 1 K.B.D. 750 — Cited for the English rule that general exemption clauses not expressly mentioning negligence are construed as limiting strict carrier liability rather than relieving from the duty of reasonable care.

• N. T. Hashim & Co. vs. Rocha & Co., 18 Phil. Rep. 315; Tan Chiong Sian vs. Inchausti & Co., 22 Phil. Rep. 152 — Recognized as impliedly supporting the distinction between contractual and extra-contractual negligence.

• Donaldson, Sim & Co. vs. Smith, Bell & Co., 2 Phil. Rep. 766; Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep. 471 — Cited for the principle under Article 1257 of the Civil Code that contracts take effect only between the parties and cannot be enforced by third persons lacking privity.

• Article 1258, Civil Code — Obligations arising from contracts have legal force between the contracting parties and must be performed in good faith. Applied to establish the carrier's duty to convey and deliver the boilers in proper condition conformably with good faith, custom, and law.

• Articles 1101, 1103, and 1104, Civil Code — Those who in the performance of their obligations are guilty of fraud, negligence, or delay are liable for damages; liability arising from negligence is demandable in the fulfillment of all kinds of obligations; the degree of care required is that of a good father of a family. Applied as the governing provisions for culpa contractual, under which both the Steamship Company and the Atlantic Company were liable.

• Article 1903, Civil Code — Liability of employers for acts of employees ceases when the employer proves that all the diligence of a good father of a family was employed to prevent the damage. Held inapplicable because the obligation arose from contract, not from extra-contractual negligence.

• Article 1596, Civil Code — A contractor is responsible for work executed by persons employed in its performance. Invoked to support the principle that the Atlantic Company was answerable for the negligence of its foreman.

• Article 1255, Civil Code — Contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, or public order. Acknowledged as the general rule, but limited by the strict construction applied to exemptions from negligence liability.

• Article 1257, Civil Code — Contracts take effect only between the parties, their assigns, and heirs. Applied to bar the Railroad Company's direct action against the Atlantic Company for lack of privity.

Arellano, C.J., Torres, Araullo, and Avanceña, JJ., concurred.

• Justice Johnson — Dissented on the ground that the contract between the Atlantic Company and the Steamship Company contained an absolute exemption from all liability for damage from any cause whatsoever, including negligence. He would have held that the evidence preponderantly established such an exemption, that such clauses are valid and not contrary to law, morals, or public order where the contractor is not a common carrier, and that the Steamship Company, having voluntarily accepted that condition with full knowledge of the Atlantic Company's custom, was bound by its terms. He emphasized the principle that what one is free to refuse entirely, one may agree to do upon such conditions as one sees fit, and that courts should not lightly interfere with freedom of contract.