Philippine Charter Insurance Corporation vs. Unknown Owner of the Vessel M/V "National Honor"

A common carrier is exempt from liability for damage to cargo when the loss is caused by defects in the packing or containers under Article 1734(4) of the Civil Code, provided the carrier proves such defect by a preponderance of evidence; the carrier is not obligated to place sling cables on portions of a crate not marked with arrows indicating where slings should be attached.

Philippine Charter Insurance Corporation (PCIC) is an insurance company that issued Marine Risk Note No. 68043 covering a shipment of machinery consigned to Blue Mono International Company, Inc. (BMICI). National Shipping Corporation of the Philippines (NSCP) acted as agent for the vessel M/V "National Honor," which carried the shipment from Pusan, Korea to Manila. International Container Terminal Services, Inc. (ICTSI) was the exclusive arrastre operator at the Manila International Container Terminal (MICT), responsible for discharging cargo from vessels. After PCIC paid the consignee's claim, it was subrogated to the consignee's rights and filed a complaint for damages against the carrier and arrastre operator as subrogee.

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts and accessories at the port of Pusan, Korea, on board the vessel M/V "National Honor," represented in the Philippines by its agent, NSCP. Freight forwarder Samhwa Inter-Trans Co., Ltd. issued Bill of Lading No. SH9410306 in the name of the shipper, consigned to the order of Metropolitan Bank and Trust Company, with arrival notice in Manila to ultimate consignee Blue Mono International Company, Inc. (BMICI) in Binondo, Manila. NSCP, for its part, issued Bill of Lading No. NSGPBSML512565 in the name of the freight forwarder as shipper, consigned to the order of Stamm International Inc., Makati. Under the bill of lading, the shipper represented and warranted that the goods were properly described, marked, secured, and packed, and guaranteed the correctness of the particulars, weight, and description of the goods.

The shipment was contained in two wooden crates, Crate No. 1 and Crate No. 2, complete and in good order condition, covered by Commercial Invoice No. YJ-73564 and a Packing List. There were no markings on the outer portion of the crates except the name of the consignee. Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs., containing one unit Lathe Machine, one unit Surface Grinder, and one unit Milling Machine, each complete with parts and accessories. On the flooring of the crate were three wooden battens placed side by side to support the weight of the cargo. Crate No. 2 measured 10 cubic meters and weighed 2,060 kgs. The shipment had a total invoice value of US$90,000.00 C&F Manila and was insured for ₱2,547,270.00 with PCIC under Marine Risk Note No. 68043 dated October 24, 1994.

The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on November 14, 1995. ICTSI, the exclusive arrastre operator of MICT, was furnished with a copy of the crate cargo list and bill of lading and knew the contents of the crate. The following day, the vessel began discharging its cargoes using its winch crane, operated by Olegario Balsa, a winchman from ICTSI. Denasto Dauz, Jr., checker-inspector of NSCP, along with the crew and surveyor of ICTSI, inspected the cargo and found it in apparent good condition. Claudio Cansino, an ICTSI stevedore, placed two sling cables on each end of Crate No. 1. No sling cable was fastened on the mid-portion of the crate, which Dauz considered a normal procedure.

As the crate was being hoisted from the vessel's hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet above the vessel's twin deck, sending all contents crashing down and resulting in extensive damage. BMICI's customs broker took delivery of the cargo in such damaged condition, and BMICI found it could no longer be used for its intended purpose. A survey conducted by Mariners' Adjustment Corporation, hired by PCIC, declared the packing insufficient and opined that three to four cable or wire rope slings held in equal settings, never bypassing the center of the crate, should have been used given the heavy machinery inside. BMICI filed separate claims against NSCP, ICTSI, and PCIC for US$61,500.00. When the other companies denied liability, PCIC paid the claim in the amount of ₱1,740,634.50 and was issued a Subrogation Receipt.

PCIC, as subrogee, filed a Complaint for Damages against the unknown owner of the vessel, NSCP, and ICTSI, alleging that the loss was due to the fault and negligence of the defendants. ICTSI filed an Answer with Counterclaim and Cross-claim against NSCP, claiming the damage was caused exclusively by defective materials, insufficient packing, or acts of the shipper. At trial, ICTSI's safety inspector Anthony Abarquez testified that the wooden battens were of good material but not strong enough to support the weight of the machines, and that stevedores placed sling cables only where arrow signs were marked on the crate. The trial court found that the middle wooden batten had a knot hole (bukong-bukong) that considerably weakened its strength, causing it to give way under the enormous weight of the machinery, and that ICTSI had no role in the choice of materials used in fabricating the crate. The Court of Appeals affirmed this finding in toto.

• Common Carrier Liability: Petitioner asserted that mere proof of receipt of the shipment by the common carrier in good order and its arrival at the destination in bad order makes out a prima facie case against the carrier, which is liable absent a satisfactory explanation of extraordinary diligence. Petitioner maintained that the shipment was sufficiently packed, as evidenced by its acceptance on board the vessel and safe arrival in Manila, and that respondents did not contest the contents of the bill of lading.
• Statutory Presumption of Negligence: Petitioner argued that the statutory presumption of fault and negligence under Article 1735 of the Civil Code should have been applied, and that respondents failed to overcome it by proving extraordinary diligence.
• Mishandling by Arrastre: Petitioner posited that the loss was caused by the mishandling of the shipment by ICTSI, not by defective packing, and that a simple look at the manifest and bill of lading would have alerted respondents of the nature of the heavy machinery cargo, requiring extra care and additional slings.
• Solidary Liability: Petitioner argued, citing Eastern Shipping Lines, Inc. vs. Court of Appeals, that respondents are liable in solidum, both being charged with the obligation to deliver the goods in good condition to the consignee.

• NSCP — No Solidary Liability: Respondent NSCP countered that if ICTSI is adjudged liable, NSCP is not solidarily liable with it, because cargo discharging is the monopoly of the arrastre operator and was ICTSI's exclusive responsibility. NSCP also argued that petitioner was raising questions of fact, improper in a petition for review on certiorari.
• ICTSI — Factual Issues Improper Under Rule 45: Respondent ICTSI averred that the issues raised are factual and therefore improper under Rule 45 of the Rules of Court.
• ICTSI — Not a Common Carrier: ICTSI claimed that it is merely a depository and not a common carrier, and thus is not obliged to exercise extraordinary diligence.
• ICTSI — Defective Packing: ICTSI reiterated that the loss was caused by the shipper's failure to place signs on the sides and middle portion of the crate indicating that extra care should be employed, and that the middle wooden batten had a hole. It argued that the testimony of Anthony Abarquez, who investigated at the site, should prevail.
• ICTSI — Limited Liability: As an alternative, ICTSI argued that if adjudged liable, its liability is limited only to ₱3,500.00 as expressed in the liability clause of Gate Pass CFS-BR-GP No. 319773.

• Common Carrier Liability: Whether the respondent common carrier is liable for the damage sustained by the shipment while in the possession of the arrastre operator.
• Statutory Presumption of Negligence: Whether the statutory presumption of fault and negligence under Article 1735 of the Civil Code should apply in this case.
• Cause of Damage: Whether the damage to the shipment was due to defective packing or to the fault and negligence of the respondents.

• Common Carrier Liability: No. The carrier and arrastre operator are not liable because the damage was caused by defects in the packing, which falls under Article 1734(4) of the Civil Code, an excepted cause that rebuts the presumption of negligence.
• Statutory Presumption of Negligence: No. The presumption of negligence under Article 1735 does not apply when the loss is caused by any of the excepted causes enumerated in Article 1734, which the carrier proved by a preponderance of evidence.
• Cause of Damage: The damage was due to defective packing, not to the fault or negligence of the respondents. The middle wooden batten had a knot hole (bukong-bukong) that weakened it, and the shipper failed to mark the crate for additional sling placement.

• Common Carrier Liability: While common carriers are mandated to observe extraordinary diligence in the vigilance over goods, and a presumption of negligence arises when goods are lost or arrive damaged, Article 1734 of the Civil Code provides a closed list of excepted causes that exempt the carrier from liability. Among these is "the character of the goods or defects in the packing or in the containers." The trial court found, and the appellate court affirmed, that the breakage of Crate No. 1 was due to the inherent defect and weakness of the materials used in its fabrication — specifically, the middle wooden batten had a knot hole (bukong-bukong) that considerably reduced its strength. ICTSI had no role in the choice of materials for the crate, which was provided by the shipper in Seoul, Korea. Because the carrier proved the excepted cause by a preponderance of evidence, the presumption of negligence was rebutted and the burden shifted back to the shipper to prove carrier negligence, which petitioner failed to do.

• Statutory Presumption of Negligence: The presumption of negligence under Article 1735 does not apply to any of the causes enumerated in Article 1734, which is a closed list. The Court distinguished "defect" from "inferiority," noting that a thing may be of inferior quality but not necessarily defective; however, the hole in the middle wooden batten constituted a genuine defect — the want or absence of something necessary for completeness or perfection. The shipper, under the bill of lading, represented and warranted that the goods were properly packed and disclosed any condition that may cause damage. Absent any signs on the shipment requiring placement of a sling cable in the mid-portion, ICTSI was not obliged to do so. The statement in the bill of lading that the shipment was in apparent good condition creates a prima facie presumption only as to the external condition, not as to matters not open to inspection.

• Cause of Damage: The factual findings of both the RTC and CA, supported by substantial evidence, established that the damage was caused by the defective middle wooden batten and the shipper's failure to indicate arrow signs on the mid-portion of the crate. The stevedore testified that slings are placed only where arrows are marked, and no arrows were present in the middle. The crate fell from only about five feet high, and would not have so easily collapsed had the cargo been properly packed. The petitioner failed to adduce any evidence to counter ICTSI's evidence, including the testimony that the crates were sealed and their contents could not be seen from the outside. The Court found no exception to the general rule that only questions of law may be entertained in a petition for review on certiorari, and no justification to depart from the factual findings of the lower courts.

• Extraordinary Diligence in the Vigilance over Goods — Defined as requiring the common carrier to know and follow the required precaution for avoiding damage to or destruction of goods entrusted to it, to render service with the greatest skill and foresight, and to use all reasonable means to ascertain the nature and characteristics of goods tendered for shipment and to exercise due care in handling and stowage. The Court applied this doctrine but found that the respondents had satisfied their duty under the circumstances, as the damage was caused by an internal defect in the crate not visible from the outside and not indicated by any marking.

• Presumption of Negligence Against Common Carriers (Article 1735) — When goods shipped are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe extraordinary diligence, without need for an express finding of negligence. To overcome this presumption, the carrier must prove that it exercised extraordinary diligence or that the loss falls under one of the excepted causes in Article 1734. The Court held that the presumption was rebutted because the damage fell under Article 1734(4) — defects in the packing or containers.

• Closed List of Excepted Causes (Article 1734) — The enumeration in Article 1734 of causes exempting the common carrier from liability is a closed list: (1) natural disaster or calamity; (2) act of the public enemy in war; (3) act or omission of the shipper or owner; (4) character of the goods or defects in packing or containers; and (5) order or act of competent public authority. The Court applied paragraph (4) to exculpate the carrier and arrastre operator.

• Distinction Between "Defect" and "Inferiority" — A defect is the want or absence of something necessary for completeness or perfection; inferiority means poor quality, mediocre, or second rate. A thing may be of inferior quality but not necessarily defective. The Court used this distinction to confirm that the hole (bukong-bukong) in the middle wooden batten constituted a genuine defect, not merely inferior quality, thereby bringing the case within Article 1734(4).

• Prima Facie Evidence of External Condition Only — The statement in a bill of lading that a shipment is in apparent good order and condition creates a prima facie presumption only as to the external condition of the goods and not as to matters not open to inspection. The Court relied on this principle to hold that the bill of lading's representation of good condition did not extend to the internal wooden battens, which were not visible from outside the sealed crate.

• "The enumeration in Article 1734 of the New Civil Code which exempts the common carrier for the loss or damage to the cargo is a closed list." — This passage establishes the controlling principle that the exceptions to carrier liability under Article 1734 are exclusive and cannot be expanded, a point frequently cited in transportation law jurisprudence.

• "A thing may be of inferior quality but not necessarily defective. In other words, 'defectiveness' is not synonymous with 'inferiority.' — This passage defines the critical distinction between defect and inferiority, which determined whether the damage fell within the Article 1734(4) exception.

• "The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that such statement will create a prima facie presumption only as to the external condition and not to that not open to inspection." — This passage articulates the principle that a bill of lading's representation of good condition is limited to externally observable matters, which was decisive in rejecting petitioner's argument that the carrier knew or should have known of the internal defect.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78 — Cited by petitioner for the proposition that the carrier and arrastre operator are solidarily liable. The Court did not apply this case favorably to petitioner, as the petition was denied.
• Calvo vs. UCPB General Insurance Co., Inc., G.R. No. 148496, 19 March 2002, 379 SCRA 510 — Cited for the definition of extraordinary diligence in the vigilance over goods, which the Court adopted in its analysis.
• De Guzman vs. Court of Appeals, G.R. No. L-47822, 22 December 1988, 168 SCRA 612 — Cited for the proposition that the enumeration in Article 1734 is a closed list of excepted causes.
• Insular Life Assurance Company, Ltd. vs. Court of Appeals, G.R. No. 126850, 28 April 2004, 428 SCRA 79 — Cited for the enumeration of exceptions to the general rule that only questions of law may be raised in a petition for review on certiorari under Rule 45.
• Ynchausti Steamship Co. vs. Dexter and Unison, 41 Phil. 289 (1920); Mirasol vs. Robot Dollar Co., 53 Phil. 125 (1929) — Cited for the principle that once the carrier proves an excepted cause under Article 1734, the burden of evidence shifts to the shipper to prove carrier negligence.

• Article 1733, New Civil Code — Requires common carriers to observe extraordinary diligence in the vigilance over goods, according to all circumstances of each case. The Court acknowledged this obligation but found it satisfied or rendered inapplicable due to the excepted cause.
• Article 1734, New Civil Code — Enumerates the excepted causes that exempt the common carrier from liability for loss or damage to cargo, including paragraph (4): "the character of the goods or defects in the packing or in the containers." The Court applied paragraph (4) to exculpate the respondents.
• Article 1735, New Civil Code — Establishes the presumption of negligence against the common carrier when goods are lost or arrive damaged. The Court held this presumption was rebutted by proof of the Article 1734(4) exception.
• Articles 1736–1738, New Civil Code — Define the duration of the common carrier's duty to observe diligence, from receipt of goods until delivery. The Court cited these provisions to frame the scope of the carrier's obligation.
• Rule 45, 1997 Revised Rules of Civil Procedure — Governs petitions for review on certiorari, limiting review to questions of law. The Court found no exception warranting review of the factual findings of the lower courts.

Puno (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concurred.