,

JOSEPHINE R. LOGROÑO

American Home Assurance v. Court of Appeals

G.R. No. 94149 May 5, 1992

FACTS:

Mayleen Paper, Inc. contracted the services of the National Marine Corporation (NMC) to
transport 5,000 bales of paper from Taiwan to the Philippines. Upon arrival in Manila, it
was discovered that 122 bales were lost. Mayleen demanded payment of losses from
NMC but NMC did not respond. As the papers were insured by the American Home
Assurance Company (AHAC), Mayleen recovered insurance from AHAC which AHAC
promptly paid. AHAC then filed suit for recovery against NMC. NMC filed a motion to
dismiss claiming lack of cause of action on the part of AHAC. NMC argued that under the
Code of Commerce, claims for general averages cannot be granted if the claim does not
exceed 5% of the total value of the cargo. Accordingly, 122 bales is just amounting to
0.18% worth of damage. AHAC argued that the Code of Commerce is not applicable but
rather it is the Civil Code.
ISSUE:
Whether or not the applicable rule is the Code of Commerce.
HELD:

No. The National Marine Corporation being a common carrier, in conducting its business
is regulated by the Civil Code primarily and suppletorily by the Code of Commerce. For
cargoes transported to the Philippines as in the case at bar, the liability of the carrier is
governed primarily by the Civil Code and in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce
and by special laws (Article 1766, Civil Code). Corollary thereto, under Article 1733 of the
Civil Code, common carriers from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of passengers transported by them according to all circumstances of each
case. Thus, under Article 1735 of the same Code, in all cases other than those mentioned
in Article 1734 thereof, the common carrier will be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law.
JOSEPHINE R. LOGROÑO

Philippine Home Assurance Corporation v CA

G.R. No. 106999. June 20, 1996

FACTS:

Eastern Shipping Lines loaded the following to boat SS Eastern Explorer in Kobe, Japan
for shipping to Manila and Cebu, (all with their corresponding Bills of lading):

2 boxes internal combustion engine parts, consigned to William Lines

10 tons (or 334 bags) ammonium chloride, consigned to Orca's Company
200 bags of Glue 300, consigned to Pan Oriental Match Company
Some garments, consigned to Ding Velayo

While the boat was in Okinawa, a small flame started on the “acetylene cylinder” in the
accommodation area near the engine room. As the crew tried to extinguish the fire, the
“acetylene cylinder” suddenly exploded, causing fire in the accommodation area. Death
and severe injuries happened. The whole boat was on fire. This forced the master and
the crew to abandon ship. Thereafter, the boat was found to be a constructive total loss
and its voyage was declared abandoned. After several hours, a tugboat arrived near the
boat and towed the boat for the port of Naha, Japan. Fire fighting operations were again
conducted at the port. After the fire was put out, the cargos which were saved were loaded
to another boat for delivery to Manila and/or Cebu.

Eastern Shipping charged the consignees some amounts corresponding to additional

freight and salvage charges, the charges were all paid by Philippine Home Assurance
Corp under protest. Phil Assurance, as subrogee of the consignees, filed a complaint in
RTC-Manila against Eastern Shipping to recover the sum paid under protest.

Phil Assurance says that the charges were actually damages directly brought about by
the fault and/or breach of contract of Eastern Shipping. Eastern Shipping says that it
exercised the diligence required by law in the handling of the shipment. That the fire was
caused by an unforeseen event. That the additional freight charges are due and
demandable pursuant to the Bill of Lading. That salvage charges are properly collectible
under the Salvage Law.

RTC dismissed Phil Assurance’s complaint. CA affirmed. In the SC, Phil Assurance
questions the finding of the RTC and CA that the fire was a natural disaster.

ISSUE:

Is Phil Assurance entitled to recover what it had paid?

HELD:

The goods were not lost or damaged by the fire. The goods were all delivered to the
consignees, even if the transshipment took longer. What is at issue, therefore, is NOT
whether or not the carrier is liable for the loss, damage, or deterioration of the goods but
WHO, among the carrier, consignee or insurer of the goods, is liable for the additional
charges incurred by the owner of the ship in the salvage operations and in the
transshipment of the goods via a different carrier.
CA affirmed RTC ruling that the fire was a natural disaster or calamity. Phil Assurance
questions this, and SC agrees with Phil Assurance. In Phil jurisprudence, fire may not be
considered a natural disaster since it almost always arises from some act of man. It
cannot be an act of God unless caused by lightning or a natural disaster or casualty not
attributable to human agency.

In this case, there was no showing, and none was alleged by the parties, that the fire was
caused by a natural. Actually, there is strong evidence indicating that the “acetylene
cylinder” caught fire because of the negligence of Eastern Shipping, its captain, and its
crew.

First, the “acetylene cylinder” should not have been stored in the accommodation area
near the engine room where the heat generated could cause the cylinder to explode by
spontaneous combustion. Eastern Shipping should have foreseen that since the cylinder
contained highly flammable material it was in danger of exploding, being close to the
engine room.

Second, Eastern Shipping should have known that by storing the cylinder in the
accommodation area for passengers, it unnecessarily exposed its passengers to grave
danger. Curious passengers, ignorant might have handled the cylinder or could have
smoked cigarettes while in the accommodation area.

Third, the fact that the cylinder was examined and certified as having complied with the
safety measures by qualified experts before it was loaded in the boat only shows that
negligence was present in the handling of the cylinder AFTER it was loaded and WHILE
it was on board the ship.

Regarding whether or not expenses incurred in saving the cargo are considered general
average, SC says yes. As a rule, general or gross averages include all damages and
expenses which are deliberately caused in order to save the vessel, its cargo, or both at
the same time, from a real and known risk. While this case may technically fall within
general averages, the formalities prescribed under Article 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. In conclusion: Cargo consignees cannot be made liable to Eastern Shipping for
additional freight and salvage charges. Eastern Shipping must refund to the insurer, Phil
Assurance, the amount it paid under protest Judgment reversed.