Asian Terminals, Inc. vs. Philam Insurance Co., Inc.

A common carrier and an arrastre operator are concurrently liable for damage to cargo sustained during unloading operations when the carrier exercises supervision and control over the discharge and the arrastre operator’s employees are negligent in the performance of the physical handling. A request for a bad order survey within the period for giving notice of loss or damage satisfies the notice requirement under the Carriage of Goods by Sea Act, and suit brought within one year of delivery is timely. The rate of interest for damages arising from breach of obligation not constituting a loan or forbearance of money is six percent per annum.

Nichimen Corporation shipped 219 packages of brand new Nissan pickup truck parts from Japan to Manila aboard the vessel S/S “Calayan Iris,” owned or operated by Westwind Shipping Corporation. The consignee was Universal Motors Corporation, which procured an all-risk marine insurance policy from Philam Insurance Co., Inc. Upon arrival at the Port of Manila, the cargo was unloaded by stevedores of Asian Terminals, Inc., the arrastre operator. During discharge, a steel case marked 03-245-42K/1 was damaged. A subsequent survey revealed that a Frame Axle Sub without Lower inside the case was dented and deformed. Universal Motors declared the item a total loss and sought recovery. Philam paid the claim and, as subrogee, instituted an action for damages against Westwind, ATI, and the customs broker.

• The Shipment and Insurance: On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation 219 packages of brand new Nissan pickup truck parts (without engine, tires, and batteries) aboard S/S “Calayan Iris” from Japan to Manila. The shipment, with a declared value of US$81,368, was insured with Philam Insurance Co., Inc. against all risks under Marine Policy No. 708-8006717-4.

• Discharge and Initial Damage: The vessel arrived on April 20, 1995. ATI’s stevedores unloaded the cargo. One package — steel case No. 03-245-42K/1 — was found to be in bad order, dented and crumpled. The Turn Over Survey of Bad Order Cargoes dated April 21, 1995 noted that the case was accepted by the arrastre in good order and had not been opened at the time of survey.

• Withdrawal and Final Survey: The goods were stored in the CFS Warehouse, Pier 5, and withdrawn by the consignee’s customs broker beginning May 11, 1995. A request for a Bad Order Survey was filed on May 12, 1995. The survey revealed that one Frame Axle Sub without LWR from Case No. 03-245-42K/1 had a deep dent on the buffle plate, while six Frame Assembly with Bush from Case No. 03-245-51K were deformed and misaligned. The damage to the Frame Axle Sub was deemed a total loss.

• Claim and Subrogation: Universal Motors filed a formal claim for ₱643,963.84 against Westwind, ATI, and the customs broker on August 4, 1995. Philam paid ₱633,957.15 and obtained a Subrogation Receipt dated November 15, 1995.

• Action for Damages: Philam, as subrogee, filed suit on January 18, 1996.

• ATI (G.R. No. 181163): ATI disowned liability, arguing that Westwind was solely negligent in supervising the stevedores; that the damage would not have occurred had Westwind exercised extraordinary diligence. It alternatively maintained that any liability was capped at ₱5,000 per package under Section 7.01 of the Contract for Cargo Handling Services, as it was not notified in advance of the actual value of the cargo.

• Philam (G.R. No. 181262): Philam supported the finding of joint liability but contended that the CA erred in disallowing recovery for the six Chassis Frame Assembly items, which it claimed were also inside Case No. 03-245-42K/1 based on the Chartered Adjusters, Inc. Inspection/Survey Report. Philam argued that the admission of that report, without objection, should be treated as though the claim had been raised in the pleadings, thus warranting reinstatement of the full RTC award.

• Westwind (G.R. No. 181319): Westwind denied liability on the ground that, under the Bill of Lading, its responsibility ceased when the goods were taken into the custody of the arrastre. It asserted that ATI’s stevedores were independent contractors who selected and used the wrong cable sling, and that ATI had accepted the cargo in good order. Westwind further argued that Philam’s cause of action had prescribed because formal claim was made only on August 17, 1995, beyond the period in the Bill of Lading and the Code of Commerce. Finally, Westwind challenged the 12% interest rate as excessive, contending that only 6% may be imposed for non-loan obligations.

N/A — The decision addressed the consolidated petitions directly without separately summarizing the counter-arguments of the respective respondents beyond those already contained in the petitioners’ submissions.

• Prescription: Whether Philam’s action for damages had prescribed under the Carriage of Goods by Sea Act, the Bill of Lading, or the Code of Commerce.

• Liability: Who between Westwind (carrier) and ATI (arrastre operator) should be held liable for the damage to the cargo.

• Extent of Liability: What is the proper measure of damages — whether limited to one piece of Frame Axle Sub without Lower or inclusive of six Frame Assembly with Bush — and whether ATI’s contractual limitation of liability applied. Additionally, what rate of interest should be imposed.

• Prescription: The action was seasonably filed. Under Section 3(6) of the COGSA, suit must be brought within one year after delivery of the goods. Delivery to Universal Motors was completed by May 17, 1995; the complaint was filed on January 18, 1996. The request for a bad order survey made on May 12, 1995, done within the reglementary period for notice, served the purpose of a claim. Failure to give formal written notice did not bar the suit, as the COGSA expressly preserves the right to sue within one year.

• Liability: Westwind and ATI are concurrently liable for the damage to the one piece of Frame Axle Sub without Lower. Under the COGSA and the Civil Code, a common carrier is responsible for the proper discharge of goods; the obligation of extraordinary diligence persists until actual or constructive delivery to the consignee. The presence of Westwind’s duty officer during the entire unloading operation established that the carrier retained supervision and control over the discharge. At the same time, ATI’s stevedores directly operated the ship’s gear and selected the cable sling. The damage resulted from overtightening of the sling — an act of negligence directly attributable to ATI’s employees. Thus, the fault of both parties converged to cause the loss, warranting solidary liability.

• Extent of Liability:

  • Amount of Loss: Recovery was confined to the value of the one Frame Axle Sub without Lower inside Case No. 03-245-42K/1. The complaint specifically alleged that the six Frame Assembly with Bush came from Case No. 03-245-51K; Philam’s later claim that they were also inside Case No. 03-245-42K/1 was not borne out by the evidence and could not modify the pleadings.
  • Limitation Clause Inapplicable: Section 7.01 of ATI’s Contract for Cargo Handling Services limits liability only for cargoes in its custody and control. The damage occurred during discharge, before ATI assumed full custody of the steel case; thus, the ₱5,000-per-package limit did not attach.
  • Interest Rate: The obligation to pay damages for the loss did not constitute a loan or forbearance of money. Therefore, the proper interest rate was 6% per annum from the date of extrajudicial demand until full payment, in accordance with Article 2209 of the Civil Code.

• Subrogation under Article 2207 of the Civil Code — Payment by an insurer to the insured operates as an equitable assignment of all remedies the insured may have against the third party whose negligence caused the loss. The right of subrogation accrues simply upon payment and is not dependent on any privity of contract. (Reaffirmed: Malayan Insurance Co., Inc. v. Alberto, G.R. No. 194320, February 1, 2012.)

• Authentication of Private Documents — A private document must be authenticated by evidence of its due execution and genuineness, either by testimony of a person who saw it executed or written, or by proof of the genuineness of the signature or handwriting (Rule 132, Sec. 20, Rules of Court). Authentication is excused only when the document is an ancient one, its genuineness is admitted or not specifically denied under oath, or it is not offered as genuine. A subrogation receipt may be authenticated by the testimony of the person who witnessed its execution.

• Notice of Loss and Prescription under COGSA Section 3(6) — A request for and the result of a bad order examination, conducted within the reglementary period for giving notice, suffices as a claim. The failure to give the formal written notice does not prejudice the right to bring suit, provided the action is filed within one year after delivery of the goods or the date when they should have been delivered. (Citing Insurance Company of North America v. Asian Terminals, Inc., G.R. No. 180784, February 15, 2012.)

• Joint and Solidary Liability of Carrier and Arrastre Operator — A common carrier and an arrastre operator may be held solidarily liable for damage to cargo sustained during unloading when both are at fault: the carrier, for failing to exercise extraordinary diligence while the goods remain under its supervision and control during discharge; the arrastre operator, for the negligence of its stevedores in the physical handling and selection of equipment. The carrier’s responsibility does not cease merely because the arrastre undertakes the physical unloading; it continues until actual or constructive delivery to the consignee.

• Limited Liability Clause of Arrastre Operator — A contractual limitation on the arrastre’s liability (e.g., ₱5,000 per package) applies only to cargo that is already in the arrastre’s custody and control. It does not cover damage sustained during discharge operations before the arrastre assumes full custody.

• Interest on Damages Not Constituting a Loan — Under Article 2209 of the Civil Code, when an obligation breached does not involve a loan or forbearance of money, the rate of interest on the damages awarded is 6% per annum, imposed from the time of judicial or extrajudicial demand. (Citing Soriamont Steamship Agencies, Inc. v. Sprint Transport Services, Inc., G.R. No. 174610, July 14, 2009; Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994.)

• “The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.” (Quoting Malayan Insurance Co., Inc. v. Alberto)

• “We have held in Insurance Company of North America v. Asian Terminals, Inc. that a request for, and the result of a bad order examination, done within the reglementary period for furnishing notice of loss or damage to the carrier or its agent, serves the purpose of a claim.”

• “It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier.”

• “Since the damage to the cargo was incurred during the discharge of the shipment and while under the supervision of the carrier, the latter is liable for the damage caused to the cargo.”

• Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc., G.R. No. 143133, June 5, 2002 — Followed for the proposition that an action for damages had not prescribed despite absence of a formal notice of claim; also used to reduce the interest rate to 6% per annum.

• Insurance Company of North America v. Asian Terminals, Inc., G.R. No. 180784, February 15, 2012 — Relied upon for the rule that a bad order survey request within the reglementary period serves the purpose of a claim, and for the exceptions allowing Supreme Court review of factual issues.

• Malayan Insurance Co., Inc. v. Alberto, G.R. No. 194320, February 1, 2012 — Applied for the doctrine that subrogation accrues upon payment and does not require privity of contract between the insurer and the wrongdoer.

• Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc., G.R. No. 165647, March 26, 2009 — Cited for the rule that cargo remains under the carrier’s custody during unloading, and for the standard of extraordinary diligence imposed on common carriers and arrastre operators.

• Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994 — Applied for the proper rate of interest on damages for breach of obligation not involving a loan or forbearance of money.

• Article 2207, Civil Code — Governs the right of subrogation of an insurer to the rights of the insured against the wrongdoer. Applied as the legal basis for Philam’s action as subrogee.

• Article 1734, Civil Code — Enumerates the instances where a common carrier is not responsible for loss, destruction, or deterioration of goods; the carrier’s liability was sustained because none of these exceptions applied.

• Article 2209, Civil Code — Prescribes the rate of interest for damages not constituting a loan or forbearance of money. Applied to reduce the interest from 12% to 6% per annum.

• Section 3(6), Carriage of Goods by Sea Act (COGSA) / C.A. No. 65 — Provides for the period for giving notice of loss or damage and the one-year prescriptive period for filing suit. The suit was timely, and the request for bad order survey satisfied the notice requirement.

• Section 2 and Section 3(2), COGSA — Impose upon the carrier the responsibility to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. The carrier’s responsibility continued during the unloading operation.

• Section 20, Rule 132, Rules of Court — Laid down as the rule for authenticating private documents before admission; applied in assessing the admissibility of the marine insurance certificate and the subrogation receipt.

Chief Justice Maria Lourdes P. A. Sereno (Chairperson), and Associate Justices Teresita J. Leonardo-De Castro, Diosdado M. Peralta, and Lucas P. Bersamin concurred.

None. The decision was unanimous.