Philippine Home Assurance Corporation vs. Eastern Shipping Lines, Inc.

Fire caused by human negligence is not a natural disaster or calamity; a common carrier whose fault causes a fire aboard the vessel cannot pass salvage charges or additional freight to the cargo interests, and general average does not arise where the formalities mandated by Articles 813 and 814 of the Code of Commerce are not observed.

Eastern Shipping Lines, Inc. (ESLI) loaded various shipments on board SS Eastern Explorer in Kobe, Japan, for carriage to Manila and Cebu under several bills of lading. While the vessel was off Okinawa, a flame was detected on an acetylene cylinder stored in the accommodation area near the engine room. The crew’s attempt to extinguish the fire failed when the cylinder exploded, engulfing the superstructure in flames, killing and injuring crew members, and forcing the master and crew to abandon ship. The vessel was declared a constructive total loss, and the voyage was abandoned. A tugboat from Fukuda Salvage Co. later towed the vessel to Naha, Japan, where the fire was extinguished and the saved cargo was transshipped to its original destinations. ESLI thereupon charged the consignees additional freight and salvage charges. Philippine Home Assurance Corporation (PHAC), as subrogee of the consignees, paid those charges under protest and then sued ESLI for recovery on the ground that the fire was caused by the carrier’s fault and negligence.

• Nature of the Action: PHAC, as subrogee of various consignees, filed suit against ESLI to recover sums paid under protest for additional freight and salvage charges assessed after a fire-aboard forced the transshipment of the cargo.

• Shipments and the Fire: ESLI loaded several consignments in good order and condition on board SS Eastern Explorer in Kobe, Japan, covered by Bills of Lading Nos. 042283, KCE-12, KCE-8, KMA-73, and KMA-74. While the vessel was off Okinawa, a small flame was detected on an acetylene cylinder stored in the accommodation area near the engine room on the main deck level. As the crew tried to extinguish the fire, the cylinder suddenly exploded, sending a flash of flame through the accommodation area, killing and severely injuring crew members, and instantly setting fire to the entire superstructure. The master and crew abandoned the ship. The vessel was subsequently declared a constructive total loss and the voyage abandoned.

• Salvage and Transshipment: A tugboat under the control of Fukuda Salvage Co. arrived several hours later and towed the vessel to Naha, Japan. After fire-fighting operations, the cargo that had been saved was loaded onto another vessel for delivery to the original ports of destination. ESLI assessed the consignees additional freight and salvage charges as follows: under Bill of Lading No. 042283 — P1,927.65 salvage charges; under Bill of Lading No. KCE-12 — P2,980.64 additional freight and P826.14 salvage charges; under Bill of Lading No. KCE-8 — P3,292.26 additional freight and P4,130.68 salvage charges; under Bills of Lading Nos. KMA-73 and KMA-74 — P8,337.06 salvage charges.

• Payment Under Protest and ESLI’s Defense: PHAC paid all the charges under protest for and in behalf of the consignees. ESLI contended in its answer that it had exercised the diligence required by law, that the fire was an unforeseen event, that additional freight was demandable pursuant to the bill of lading (paragraph 12, allowing charges upon forced interruption or abandonment of the voyage) and Article 844 of the Code of Commerce, and that salvage charges were properly collectible under Act No. 2616 (the Salvage Law). ESLI presented evidence that the vessel was seaworthy and that the acetylene cylinder had been tested, checked, and certified as complying with safety measures and standards before loading. The trial court found that the fire was “not the fault or negligence of defendant but a natural disaster or calamity,” that the salvage charges were legitimate under the Salvage Law, and that the additional freight was valid under Article 844 of the Code of Commerce as well as the bill of lading’s terms. The Court of Appeals adopted these findings.

• Negligence and Nature of Fire: Petitioner argued that the fire was not a natural disaster or calamity but the direct result of ESLI’s fault and negligence in stowing a fully loaded acetylene cylinder in the accommodation area near the engine room, contrary to settled jurisprudence that fire is not an act of God unless caused by lightning or a natural event not attributable to human agency.

• Hearsay Evidence: Petitioner objected to the admissibility of the Marine Note of Protest and Statement of Facts (Exhibits “4” and “5”) issued by the vessel’s master, Captain Licaylicay. Because the master was never presented in court, the documents were hearsay, and petitioner was deprived of the right to cross-examine the author.

• Absence of General Average: Petitioner maintained that the trial and appellate courts erred in treating the salvage expenses as general average because the mandatory formalities prescribed by Articles 813 and 814 of the Code of Commerce had not been complied with.

• No Liability for Charges: Petitioner contended that the consignees should not bear the additional freight and salvage charges, as those expenses were necessitated solely by the carrier’s own negligence; thus, the amounts paid under protest should be refunded.

• Exercise of Due Diligence: Respondent ESLI maintained that it exercised the diligence required by law over the shipment, that the vessel was seaworthy, and that the acetylene cylinder had been tested and certified compliant with safety standards before loading. The explosion was an unforeseen event that could not be attributed to its fault.

• Fortuitous Event and Extinguishment of Obligation: Respondent argued that the fire was a natural disaster or calamity that rendered the prestation physically impossible without its fault, extinguishing its obligation under Article 1266 of the Civil Code and absolving it from liability under Article 1174.

• Validity of Charges: Respondent asserted that additional freight was validly demandable under paragraph 12 of the bill of lading and Article 844 of the Code of Commerce, which permits a captain to transship goods saved from a wreck and to charge the cargo owners the expenses of arrival and freight. The salvage charges, in turn, were properly collectible under Act No. 2616 because the three elements of a valid salvage claim — marine peril, service voluntarily rendered when not required as an existing duty, and success in whole or in part — were all present.

• Negligence: Whether the fire that destroyed the vessel was a natural disaster or calamity, or was caused by the fault or negligence of respondent ESLI.
• Extraordinary Diligence: Whether respondent ESLI exercised the extraordinary diligence required of a common carrier over the goods.
• Hearsay: Whether the Marine Note of Protest and Statement of Facts executed by the vessel’s master, who was not presented in court, were admissible evidence or constituted hearsay.
• General Average: Whether the expenses incurred in saving the cargo qualified as general average that could be charged to the consignees.
• Liability for Additional Freight and Salvage: Whether the consignees, and petitioner as their subrogee, were liable to ESLI for additional freight and salvage charges under the bill of lading, the Code of Commerce, and the Salvage Law.

• Negligence: The fire was not a natural disaster or calamity; rather, it was caused by the fault and negligence of respondent ESLI. Fire almost always arises from some act of man or by human means and cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. ESLI stored a fully loaded acetylene cylinder — a highly inflammable material — in the accommodation area near the engine room, where heat generated could lead to spontaneous combustion or explosion. Such stowage was plainly negligent. The fact that the cylinder had been certified safe before loading only underscores that negligence occurred in its handling while on board the vessel.

• Extraordinary Diligence: Respondent ESLI failed to exercise the extraordinary diligence required of a common carrier. The negligent placement of a dangerous item in an area close to the engine room and accessible to passengers exposed the vessel and its cargo to a foreseeable risk of explosion. That failure constituted a breach of the carrier’s duty of vigilance over the goods.

• Hearsay: The Marine Note of Protest and Statement of Facts were hearsay and bereft of probative value. Captain Licaylicay, who issued them, never testified; instead, respondent presented Junpei Maeda, its Branch Manager in Tokyo and Yokohama, who had no personal knowledge of the facts stated. Under Section 36, Rule 130 of the Rules of Court, evidence whose probative value rests on the knowledge of a person not on the witness stand is hearsay and, whether objected to or not, has no probative value unless falling within a recognized exception. The adverse party was denied the right to cross-examine the author.

• General Average: The salvage expenses did not constitute general average that could be shifted to the consignees. While Article 811 of the Code of Commerce defines general average to include damages and expenses deliberately caused to save the vessel, its cargo, or both from a real and known risk, the strict formalities prescribed under Articles 813 and 814 were not observed. Article 813 requires a resolution of the captain after deliberation with the sailing mate and other officers and after hearing the persons interested in the cargo who may be present; Article 814 requires entry of the resolution in the logbook, stating motives and reasons, signatures of those present, and delivery of a copy to the maritime judicial authority of the first port within twenty-four hours, followed by ratification under oath. Non-compliance defeated the claim for contribution from the cargo owners.

• Liability for Additional Freight and Salvage: The consignees were not liable for the additional freight and salvage charges. Because the fire and the consequent necessity for salvage and transshipment were caused by respondent ESLI’s own negligence, the carrier could not pass those costs to the cargo interests either under the bill of lading or under the Salvage Law. Respondent ESLI was therefore ordered to refund to petitioner PHAC the amounts paid under protest.

• Fire as not a natural disaster/act of God — Under Philippine jurisprudence, fire is not considered a natural disaster or calamity; it nearly always originates from human acts. It may be deemed an act of God only when caused by lightning or a natural disaster or casualty that is not attributable to human agency. The doctrine was applied here because the acetylene cylinder explosion resulted from negligent stowage — a human act — and not from a natural event.

• Hearsay rule and probative value — Under Section 36, Rule 130 of the Rules of Court, any evidence, whether oral or documentary, is hearsay if its probative value depends on the knowledge of a person other than the witness testifying. Hearsay evidence, even if not objected to, carries no probative value unless the proponent demonstrates that it falls within a recognized exception to the hearsay rule. The marine protest and statement of facts were excluded because the master who prepared them did not testify, and the substitute witness lacked personal knowledge, depriving the opposing party of cross-examination.

• Requisites of general average under the Code of Commerce — For general average to be properly constituted and give rise to a claim for contribution from cargo interests, the formalities under Articles 813 and 814 of the Code of Commerce must be strictly satisfied:

  • Article 813: there must be a resolution of the captain adopted after deliberation with the sailing mate and other officers of the vessel, and after hearing the persons interested in the cargo who may be present. If cargo interests are not heard, they shall not contribute to the gross average, unless urgency prevented prior deliberation.
  • Article 814: the resolution must be entered in the logbook, stating the motives and reasons, with the signature of all persons present who could sign before taking action, if possible, or at the first opportunity. A copy must be delivered to the maritime judicial authority of the first port within twenty-four hours after arrival and ratified under oath. Failure to comply with these formalities renders the carrier’s claim for contribution void.

• Carrier’s liability for expenses arising from its own negligence — When a common carrier’s fault or negligence causes the peril that necessitates salvage and transshipment, the carrier cannot transfer the resulting expenses to the cargo owners by invoking the Salvage Law, the bill of lading, or the provisions of the Code of Commerce on freight. The expenses must be borne by the carrier.

• “In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means. It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency.” — This passage defines the legal character of fire in the context of fortuitous events and carrier liability.

• “It is clear from Section 36, Rule 130 of the Rules of Court that any evidence, whether oral or documentary, is hearsay if its probative value is not based on the personal knowledge of the witness but on the knowledge of some other person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule.” — This excerpt reaffirms the strict exclusionary rule on hearsay and its consequence on probative weight.

• “While the instant case may technically fall within the purview of the said provision, the formalities prescribed under Articles 813 and 814 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to gross average were not complied with. Consequently, respondent ESLI's claim for contribution from the consignees of the cargo at the time of the occurrence of the average turns to naught.” — The Court identifies the fatal procedural omission that precluded recovery on a general average theory.

• Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463 (1987) — Followed as authority that fire is not a natural disaster or calamity unless caused by lightning or an event not attributable to human agency.
• Africa v. Caltex, 16 SCRA 448 (1966) — Followed as further support for the same principle regarding fire and act of God.
• Baguio v. Court of Appeals, 226 SCRA 366 (1993) — Followed for the rule that hearsay evidence has no probative value whether objected to or not, unless falling within a recognized exception.
• Geronimo v. Court of Appeals, 224 SCRA 494 (1993) — Cited for the exceptions to the general rule that only questions of law may be raised under Rule 45, justifying review of the factual findings.
• Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178 — Mentioned by the trial court for the elements of a valid salvage claim; the salvage law’s application was ultimately defeated not by those elements but by the carrier’s antecedent negligence.
• Manila Railroad Co. v. Macondray Co., 37 Phil. 583 and Atlantic Gulf and Pacific Co. v. Uchida Kisen Kaisha, 42 Phil. 321 — Cited by the trial court on apportionment of salvage; not directly material to the Supreme Court’s reversal.

• Article 1174, Civil Code — Fortuitous event exemption; invoked by ESLI but inapplicable because the fire was caused by the carrier’s negligence.
• Article 1266, Civil Code — Extinguishment of obligation when prestation becomes physically impossible without fault of the obligor; inapplicable because the impossibility resulted from ESLI’s own fault.
• Article 844, Code of Commerce — Allows a captain who saves goods from a wreck to charge cargo owners expenses of arrival and freight as fixed by agreement or judicial decision; did not protect ESLI because the wreck was caused by its own negligence.
• Articles 811, 813, and 814, Code of Commerce — Define general average and prescribe the strict formalities (captain’s resolution, deliberation with officers, hearing of cargo interests, logbook entry, signatures, and delivery to maritime authority) necessary to claim contribution; non-compliance rendered the claim invalid.
• Section 1 and 13, Act No. 2616 (Salvage Law) — Provide for salvage rewards and make salvage expenses a charge on the things saved; their invocation did not relieve the carrier of liability when the peril was created by its own fault.
• Section 36, Rule 130, Rules of Court — Hearsay rule; excluded the Marine Note of Protest and Statement of Facts because the declarant was not presented and the testifying witness lacked personal knowledge.
• Paragraph 12 of the Bill of Lading — Stipulated that charges resulting from forced interruption or abandonment of the voyage would be for the account of the cargo owners; the clause did not shield the carrier from the consequences of its own negligence.

Justices Padilla, Bellosillo, Vitug, and Hermosisima, Jr. concurred.