Mindanao Terminal and Brokerage Service, Inc. vs. Phoenix Assurance Company of New York/McGee & Co., Inc.

A stevedoring company, distinct from an arrastre operator, is not a common carrier or warehouseman; therefore, it is not legally required to observe extraordinary diligence in the custody and handling of goods but only ordinary diligence (that of a good father of a family) as provided in Article 1173 of the Civil Code. The distinction lies in the fact that a stevedore's responsibility is limited to loading and stowing cargo in the vessel's holds and ends once the cargo is loaded, whereas an arrastre operator acts as a custodian of goods discharged from the vessel until delivery to the consignee.

The case involves the shipment of fresh produce (bananas and pineapples) from Davao City, Philippines to Inchon, Korea aboard the vessel M/V Mistrau. The cargo was insured under an open cargo policy, and upon arrival at the destination, significant damage was discovered. The insurance companies paid the claim and sought recovery from the stevedoring company contracted to load the cargo, raising questions regarding the applicable standard of care for stevedores and the existence of a cause of action in quasi-delict in the absence of a contractual relationship.

• Del Monte Philippines, Inc. contracted Mindanao Terminal, a stevedoring company, to load and stow 146,288 cartons of fresh green bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) aboard the vessel M/V Mistrau docked at Davao City, for transport to Inchon, Korea.
• Del Monte Produce insured the shipment under an open cargo policy with Phoenix Assurance Company of New York and its underwriting manager McGee & Co., Inc.
• The vessel arrived at Inchon, Korea, where surveyor Byeong Yong Ahn of Incok Loss and Average Adjuster of Korea discovered that 16,069 cartons of bananas and 2,185 cartons of pineapples were damaged and without commercial value.
• Del Monte Produce filed a claim under the insurance policy, and Phoenix and McGee paid $210,266.43, obtaining a subrogation receipt from Del Monte Produce.
• The materials used for lashing and rigging the cargoes, including ropes, pallets, and cardboards, were provided by M/V Mistrau and met industry standards.
• Mindanao Terminal loaded and stowed the cargoes in accordance with a stowage plan prepared by Del Monte Produce and the ship's officers, under the direction and supervision of the vessel's officers.
• The Chief Officer of M/V Mistrau signed the foreman's report after inspection, confirming the cargoes were properly arranged and secured to withstand the voyage.
• The survey report attributed the damage to heavy rolling and pitching of the vessel under boisterous weather caused by Typhoon Seth encountered during the voyage from October 7 to October 12, 1994.

• Mindanao Terminal argued that it only participated in loading the cargoes under the direction and supervision of the ship's officers, who would not have accepted the cargoes unless properly secured.
• It contended that there was no contractual relationship between itself and Del Monte Produce, as its contract was with Del Monte Philippines, Inc., a distinct corporation.
• It maintained that the damage was caused by a typhoon encountered during the voyage, not by negligence in loading or stowage.
• It asserted that as a stevedoring company, it is not a common carrier or warehouseman and is therefore only required to exercise ordinary diligence, not extraordinary diligence.
• It argued that the Court of Appeals erred in applying the standard for arrastre operators (as held in Summa Insurance Corporation v. CA) to a stevedoring company.

• Phoenix and McGee argued that Mindanao Terminal was careless and negligent in the loading and stowage of the cargoes, making it liable for the damage.
• They contended that Mindanao Terminal, as the stevedore, should be held to the same standard of extraordinary diligence required of common carriers and warehousemen, citing Summa Insurance Corporation v. CA.
• They asserted that the damage was the result of improper stowage, specifically the arrangement of cartons without spaces between them, the use of cardboards as support, and the use of small ropes.
• They argued that they had a cause of action against Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict, even in the absence of a contractual relationship, because the act that breaks the contract may also be a tort.

• Procedural:
  • N/A
• Substantive Issues:
  • Whether Phoenix and McGee have a cause of action against Mindanao Terminal despite the absence of a contractual relationship between Mindanao Terminal and Del Monte Produce.
  • Whether Mindanao Terminal, as a stevedoring company, is obligated to observe extraordinary diligence (as required for common carriers and warehousemen) or only ordinary diligence in the performance of its obligations.
  • Whether Mindanao Terminal exercised the degree of diligence required by law and whether it was negligent in loading and stowing the cargoes.

• Procedural:
  • N/A
• Substantive:
  • Cause of Action: The Court held that Phoenix and McGee have a cause of action against Mindanao Terminal based on quasi-delict under Article 2176 of the Civil Code. Citing the principle that "the act that breaks the contract may be also a tort," the Court ruled that a liability for tort may arise even under a contract, where the tort is that which breaches the contract. Despite the absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the allegation of negligence on the part of the defendant is sufficient to establish a cause of action arising from quasi-delict.
  • Standard of Diligence: The Court held that Mindanao Terminal, as a stevedoring company, is only required to observe ordinary diligence (that of a good father of a family) under Article 1173 of the Civil Code, not extraordinary diligence. The Court distinguished between an arrastre operator and a stevedore: an arrastre operator, who has custody of goods discharged from a vessel until delivery to the consignee, must observe extraordinary diligence like a common carrier or warehouseman; a stevedore, whose responsibility is limited to loading and stowing cargo in the vessel's holds and ends once the cargo is loaded, is not a common carrier (as it does not transport goods) nor a warehouseman (as it does not store goods for profit). The public policy considerations for imposing higher diligence on common carriers and warehousemen do not apply to stevedoring outfits which merely provide labor.
  • Presence of Negligence: The Court held that Phoenix and McGee failed to prove by preponderance of evidence that Mindanao Terminal acted negligently. Adopting the findings of the RTC which were not disputed by the respondents, the Court noted that the loading was done under the supervision of the ship's officers who provided the materials and approved the stowage; the damage was caused by Typhoon Seth and the heavy rolling and pitching of the vessel, not by improper stowage. Where the evidence is in equipoise or doubt exists, the party with the burden of proof fails.
  • Awards: The Court set aside the awards for attorney's fees and actual damages granted by the RTC to Mindanao Terminal, finding no basis under Article 2208 of the Civil Code and no showing that Phoenix and McGee made a false claim necessitating the expenses.

• Act that breaks the contract may be a tort — A liability for tort may arise even under a contract, where the tort is that which breaches the contract. This principle allows a party to sue for quasi-delict even when the negligent act occurred in the context of a contractual relationship involving a third party.
• Distinction between Arrastre and Stevedore — Arrastre involves the handling of cargo on the wharf or between the establishment of the consignee/shipper and the ship's tackle, with responsibility lasting until delivery to the consignee, requiring extraordinary diligence. Stevedoring involves handling cargo in the holds of the vessel or between the ship's tackle and the holds, with responsibility ending upon the loading and stowing of the cargo, requiring only ordinary diligence.
• Standard of Diligence for Stevedores — Under Article 1173 of the Civil Code, if the law or contract does not state the degree of diligence required, that which is expected of a good father of a family (ordinary diligence) shall be required. Stevedores are not common carriers or warehousemen and are therefore not subject to the extraordinary diligence requirements of Article 1733 (common carriers) or Section 3(b) of the Warehouse Receipts Law.
• Burden of Proof in Civil Cases — The party having the burden of proof must establish facts by preponderance of evidence; where the evidence is equally balanced or leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must fail.

• "In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract."
• "There is a distinction between an arrastre and a stevedore."
• "A stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it does not store goods for profit."
• "The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients."
• "Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence preponderates the party having the burden of proof fails upon that issue."

• Summa Insurance Corporation v. Court of Appeals and Port Service Inc. — Distinguished; the case involved an arrastre operator who acts as custodian of discharged goods, thus requiring extraordinary diligence, unlike a stevedore who only loads and stows cargo.
• Air France v. Carrascoso — Cited for the principle that the act breaking the contract may also be a tort.
• PSBA v. Court of Appeals — Cited for the same principle regarding tort liability arising from contractual breach.
• Malayan Insurance Co. Inc. v. Manila Port Service — Cited in Summa regarding the duties of arrastre operators.
• Compañia Maritima v. Allied Free Workers Union — Cited for the distinction between arrastre and stevedoring functions.

• Article 1173, Civil Code — Provides that ordinary diligence (that of a good father of a family) is required when the law or contract does not specify the degree of diligence to be observed.
• Article 1733, Civil Code — Requires common carriers to observe extraordinary diligence in the vigilance over goods transported.
• Article 2176, Civil Code — Defines quasi-delict and establishes liability for damages caused by fault or negligence without pre-existing contractual relation.
• Article 2208, Civil Code — Enumerates the instances where attorney's fees may be awarded; applied by the Court to deny the award of attorney's fees to the petitioner.
• Section 3(b), Act 2137 (Warehouse Receipts Law) — Requires warehousemen to exercise extraordinary diligence; cited to contrast with the standard for stevedores.