Oriental Assurance Corporation vs. Ong

A consignee’s claim letter received by the arrastre operator within the thirty-day period to request a certificate of loss, damage, or injury constitutes substantial compliance with the time limitations for filing claims under the arrastre Gate Pass and Management Contract. The arrastre operator’s liability for damage to cargo is limited to ₱5,000.00 per package under the Management Contract unless the value of the shipment was specified or manifested in writing to the operator prior to discharge from the vessel.

JEA Steel Industries, Inc. imported 72 aluminum-zinc-alloy-coated steel sheets in coils from South Korea. The coils were discharged at Manila South Harbor into the custody of arrastre contractor Asian Terminals, Inc., then loaded onto trucks operated by Manuel Ong and delivered to the consignee’s plant in Cavite on June 14 and 17, 2002. Eleven coils were found dented or deformed. The consignee claimed against its insurer, Oriental Assurance Corporation, under a marine insurance policy. Oriental paid ₱521,530.16 and, as subrogee, sought indemnity from Ong and Asian Terminals. Asian Terminals defended on the ground that the claim was filed beyond the fifteen-day period in the Gate Pass and Management Contract, and invoked the ₱5,000.00 per package liability limitation.

• Importation and Handling: JEA Steel Industries, Inc. imported from South Korea 72 aluminum-zinc-alloy-coated steel sheets in coils. The coils were transported to Manila aboard M/V Dooyang Glory, discharged at Manila South Harbor on June 10, 2002, and stored under the custody of arrastre contractor Asian Terminals, Inc.
• Delivery and Damage: The coils were loaded onto trucks operated by Manuel Ong and delivered to JEA Steel’s plant in Trece Martirez, Cavite on June 14 and 17, 2002. Eleven coils were found dented or deformed, no longer in their normal round shape.
• Insurance Claim: JEA Steel filed a claim with its insurer, Oriental Assurance Corporation, under Marine Insurance Policy No. OAC/M-12292. Oriental paid ₱521,530.16 and thereby became subrogated to the consignee’s rights.
• Demand and Denial: Oriental demanded indemnity from Ong and Asian Terminals; both refused to pay.
• Gate Pass and Management Contract Provisions: The dorsal side of the Gate Pass signed by the consignee’s representative stated that the delivery was subject to the Management Contract between the Philippine Ports Authority and Asian Terminals. It required a formal claim with annexes to be filed within fifteen days from the date of issuance by the contractor of a certificate of loss, damage, or non-delivery, and limited the contractor’s liability to ₱5,000 per package unless the value was otherwise declared before discharge. Section 7.01 of the Management Contract similarly provided that the contractor’s liability per package would not exceed ₱5,000.00, that a formal claim must be filed within fifteen days from issuance of a certificate of non-delivery, and that the consignee had thirty days from delivery to request such a certificate.
• Consignee’s Claim Letter: The consignee’s claim letter was dated July 2, 2002 and was received by Asian Terminals on July 4, 2002—seventeen days after the last delivery of the coils on June 17, 2002. No prior request for a certificate of loss or bad order survey had been made by the consignee.
• Surveys by Ultraphil Marine and Cargo Survey Corporation: At Asian Terminals’ request, Ultraphil conducted two surveys: the first on June 17, 2002 at Pier 9, where eleven coils were observed damaged before loading onto Ong’s trucks; the second on June 27, 2002 at the consignee’s warehouse, confirming the same quantity of damaged coils. The surveyor’s Final Report, dated June 29, 2002, was submitted to Asian Terminals. Asian Terminals had no representative present during the inspections.

• Propriety of Reviewing Prescription: Petitioner argued that the Court of Appeals gravely erred in deciding the issue of prescription because it was neither included in the assignment of errors nor properly argued by any party in the appellate briefs.
• Binding Effect of Gate Pass and Management Contract: Petitioner maintained that it was not a party to the Gate Pass or the Management Contract, was not aware of their provisions, and could not be bound by the stipulation limiting Asian Terminals’ liability or prescribing the period for filing claims.
• Reckoning of the Prescriptive Period: Petitioner contended that the fifteen-day period under the Gate Pass runs from the “date of issuance by the contractor’s certificate of loss, damage, injury or certificate of non-delivery.” Since Asian Terminals never issued any certificate of damage, the period never began to run and the claim could not have prescribed.
• Enforceability of Pro-Forma Gate Pass: Petitioner asserted that the Gate Pass was pro forma and that it was never given notice of the Management Contract’s terms, precluding enforcement of the fifteen-day prescriptive period against it.
• Liability of Manuel Ong: Petitioner submitted that Ong should be held solidarily liable with Asian Terminals for acting in bad faith by failing to apprise the consignee or Asian Terminals about the damaged coils.

• Court of Appeals’ Authority to Rule on Prescription: Asian Terminals countered that the Court of Appeals properly reviewed the issue of prescription because it was closely related to the assigned error on liability, was raised (though not resolved) in the trial court, and was necessary for a complete resolution of the case.
• Binding Effect on Insurer-Subrogee: Asian Terminals argued that the provisions of the Management Contract and Gate Pass are binding on Oriental as insurer-subrogee, which merely stepped into the shoes of the consignee and is subject to the same conditions precedent.
• Reckoning and Prescription of Claim: Asian Terminals posited that the fifteen-day limit should be counted from the date the consignee obtained knowledge of the loss or damage. Since delivery was completed on June 17, 2002, the consignee is presumed to have learned of the damage on that date, giving it until July 2, 2002 to file a claim. Oriental’s claim was received only on July 4, 2002 and was therefore barred. The issuance of a certificate of loss is not an indispensable condition for the period to run.
• Limitation of Liability: Asian Terminals maintained that, in any event, its liability should not exceed ₱5,000.00 per package under Section 7.01 of the Management Contract, as the value of the cargo had not been declared.
• Non-Liability of Manuel Ong: Ong denied responsibility, asserting that the eleven coils were already damaged when loaded onto his trucks and that loading and unloading were undertaken by Asian Terminals and the consignee, respectively.

• Propriety of Reviewing Prescription Unassigned: Whether the Court of Appeals gravely erred in passing upon the issue of prescription even though it was not an assigned error in the appeal.
• Prescription of Claim: Whether the claim against respondent Asian Terminals, Inc. is barred by prescription under the Gate Pass and Management Contract.
• Liability of Manuel Ong: Whether respondent Manuel Ong is liable for the damage to the cargo.

• Propriety of Reviewing Prescription Unassigned: The Court of Appeals properly passed upon the issue of prescription. Under Rule 51, Section 8 of the Rules of Court, an appellate court may consider errors not assigned if they are closely related to an assigned error or were raised in the trial court and are matters of record bearing on the submitted issue. The issue of prescription was raised in the RTC, evidence was presented, and it was closely related to—and determinative of—the assigned error of whether respondents were liable for the damaged coils. The liberal construction of procedural rules to secure a just, speedy, and inexpensive disposition of every case supported review of this issue.
• Prescription of Claim: The claim was not barred by prescription. The Gate Pass and Management Contract are binding on the insurer-subrogee; by accepting delivery under the Gate Pass, the consignee—and thus its subrogee—tacitly accepted all terms, including the claim-filing period. The fifteen-day prescriptive period for filing a formal claim does not run from mere knowledge of damage but from the issuance (actual or constructive) of a certificate of loss. Under Section 7.01, the consignee had thirty days from the last delivery to request a certificate of loss. The claim letter received on July 4, 2002 fell within that thirty-day window and substantially complied with the claim requirement because it adequately apprised Asian Terminals of the damage and gave it an opportunity to investigate. The purpose of the time limitation—to allow the arrastre operator to verify claims while facts are fresh—was served. Moreover, Asian Terminals itself had requested two cargo surveys, the first even before the coils were loaded onto Ong’s trucks, and the surveyor’s Final Report was submitted to it. Asian Terminals thus had actual knowledge of the damage and had verified its nature and extent within the relevant periods.
• Liability of Manuel Ong: Ong was not liable. Both the RTC and the Court of Appeals found that the coils were already damaged before being loaded onto Ong’s trucks. The argument that Ong acted in bad faith by not informing the consignee or Asian Terminals about the damage was raised for the first time on appeal and could not be considered. Even if considered, there was no proof of bad faith. The loading was done by Asian Terminals, and the unloading by the consignee at its warehouse; Ong’s role as trucker did not obligate him to give notice of damage that the other parties had already observed or verified.

• Binding Effect of Arrastre Management Contract on Insurer-Subrogee — An insurer, upon paying the insurance claim, is subrogated to the rights of the insured consignee and is bound by the provisions of the Gate Pass and the arrastre Management Contract, including the time limitations for filing claims and the limitation of liability. The consignee, by taking delivery under the Gate Pass, tacitly accepts all its terms. (Citing Government Service Insurance System v. Manila Railroad Company, Summa Insurance Corporation v. Court of Appeals)
• Subrogation under Article 2207 of the Civil Code — Payment by the insurer to the assured operates as an equitable assignment to the insurer of all remedies the assured may have against the third party whose negligence or wrongful act caused the loss. The insurer may recover only the amount recoverable by the assured and is subject to the same defenses and conditions precedent.
• Substantial Compliance with Claim-Filing Period in Arrastre Contracts — The purpose of the time limitation for filing claims is to apprise the arrastre operator of the existence of a claim and to allow it to check the validity of the demand while the facts are fresh and documents are available. A consignee’s request for a bad order survey, or a claim letter received within the prescribed period, may constitute substantial compliance if it serves the same purpose as a formal claim. The arrastre operator is not prejudiced by the lack of literal compliance where it already had knowledge of the damage and an opportunity to verify it.
• Liberal Construction of Provisions Limiting Liability of Public Utilities — Provisions limiting the liability of a public utility operator through multiple prescriptive periods must be carefully scrutinized and reasonably construed to protect the legitimate interest of the public the utility must serve. (Citing New Zealand Insurance Co., Ltd. v. Navarro)
• Limitation of Arrastre Operator’s Liability to ₱5,000 per Package — Under the standard Management Contract, the arrastre operator’s liability for loss, damage, or non-delivery of cargo is limited to ₱5,000.00 per package unless the value of the shipment is specified, manifested, or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list before the discharge of the goods and the corresponding arrastre charges have been paid.
• Change of Theory on Appeal — A party cannot change its theory of the case on appeal. Points of law, theories, issues, and arguments not raised in the lower court will not be considered by a reviewing court, as this would offend basic rules of due process and fair play.

• “The consignee’s claim letter is regarded as substantial compliance with the condition precedent set forth in the Management Contract to hold the arrastre operator liable. … [W]hether the consignee files a claim letter or requests for a certificate of loss or bad order examination, the effect would be the same, in that either would afford the arrastre contractor knowledge that the shipment has been damaged and an opportunity to examine the nature and extent of the injury.”
• “[A]n arrastre operator … is a public utility, discharging functions which are heavily invested with public interest. Provisions limiting the liability of a public utility operator through the imposition of multiple prescriptive periods for the filing of claims by members of the general public who must deal with the public utility operator, must be carefully scrutinized and reasonably construed so as to protect the legitimate interest of the public which the utility must serve.”
• “[U]pon taking delivery of the cargo, a consignee (and necessarily its successor-in-interest) tacitly accepts the provisions of the management contract, including those which are intended to limit the liability of one of the contracting parties, the arrastre operator.”

• Government Service Insurance System v. Manila Railroad Company, 111 Phil. 154 (1961) — Followed: holds that the insurer-subrogee is bound by the stipulations in the arrastre management contract, including the requirement that a claim be filed within fifteen days.
• Summa Insurance Corporation v. Court of Appeals, 323 Phil. 214 (1996) — Followed: reiterates that the management contract, incorporated in the gate pass, is binding on the consignee and its subrogee as a stipulation pour autrui.
• New Zealand Insurance Co., Ltd. v. Navarro, 258-A Phil. 56 (1989) — Applied: recognizes that a request for a bad order survey and the resulting examination report can substantially comply with the formal claim requirement, as they serve the purpose of notifying the arrastre operator and allowing verification of liability.
• Insurance Co. of North America v. Asian Terminals, Inc., 682 Phil. 213 (2012) — Applied: holds that a Request for Bad Order Survey and the corresponding examination report satisfied the purpose of a formal claim.
• Mendoza v. Bautista, 493 Phil. 804 (2005) — Applied: enumerates the instances when an appellate court may review rulings not assigned as errors, including when the matter is raised in the trial court and is closely related to an assigned error.
• Pan Malayan Insurance Corp. v. Court of Appeals, 262 Phil. 919 (1990) — Followed: explains the principle of subrogation and that the insurer can recover only the amount recoverable by the assured.

• Article 2207, Civil Code — The insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract upon payment of the indemnity. Applied: Upon paying JEA Steel, Oriental was subrogated to the consignee’s rights and was bound by the same contractual limitations.
• Rule 51, Section 8, Rules of Court — Allows appellate courts to consider questions not assigned as errors if they affect jurisdiction or the validity of the judgment, or if they are closely related to an assigned error and properly argued. Applied: The Court of Appeals properly considered prescription because it was raised in the trial court and was determinative of the assigned error on liability.
• Section 7.01, Contract for Cargo Handling Services (Management Contract) — Limits the arrastre contractor’s liability to ₱5,000.00 per package unless the value is declared before discharge; requires a formal claim within fifteen days from issuance of a certificate of non-delivery; and gives the consignee thirty days from delivery to request such certificate. Applied: The liability of Asian Terminals was capped at ₱5,000.00 per coil, and the consignee’s claim letter, received within the thirty-day period, substantially complied with the claim-filing requirement.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Samuel R. Martires, Alexander G. Gesmundo. (Justice Velasco, Jr. attested that the conclusions were reached in consultation before the case was assigned to the writer of the opinion.)