NATIONAL DEVELOPMENT COMPANY, PETITIONER-APPELLANT, VS. THE COURT OF APPEALS AND DEVELOPMENT INSURANCE & SURETY CORPORATION, RESPONDENTS-APPELLEES.

National Development Company versus Development Insurance and Surety Corporation

The Case

This is a consolidated appeal by certiorari brought by the National Development Company, which owned the vessel Dona Nati, and by the Maritime Company of the Philippines, which managed and operated her, against the Development Insurance and Surety Corporation. The insurer had paid the cargo consignees for goods lost and damaged when the Dona Nati collided with a Japanese vessel in Ise Bay, Japan, and then sued the owner and the ship agent to recover what it had paid. The case matters because it settles, for Philippine bar purposes, three things at once: which law governs the liability of a common carrier for cargo lost in foreign waters, who may be held liable for a collision, and when the one-year prescriptive period for such a suit begins to run.

Procedural History

The Development Insurance and Surety Corporation filed a complaint for recovery of the amount it had paid as insurer, plus attorney's fees, before the then Court of First Instance of Manila. The Maritime Company of the Philippines moved to dismiss on the grounds that the complaint stated no cause of action and that the action had prescribed; the trial court deferred resolution of the motion until after trial on the merits. The National Development Company's answer was stricken from the record for its failure to answer written interrogatories and to comply with an order allowing inspection of its memorandum agreement with the Maritime Company, and it was declared in default. After the insurer and the Maritime Company presented their evidence, the trial court rendered judgment ordering both defendants to pay the insurer jointly and severally, and granting the Maritime Company's cross-claim against the National Development Company. Both defendants appealed to the Court of Appeals, which affirmed the trial court in full. The matter then came to the Supreme Court by appeal by certiorari, and the two appeals were consolidated.

Facts

By a memorandum agreement dated September 13, 1962, the National Development Company, as first preferred mortgagee of three ocean-going vessels including the Dona Nati, appointed the Maritime Company of the Philippines as its agent to manage and operate the vessel for and in its behalf and account.

In February 1964, the Dona Nati loaded at San Francisco, California, one thousand two hundred bales of American raw cotton consigned to the order of the Manila Banking Corporation and the People's Bank and Trust Company for the Pan Asiatic Commercial Company, representing the Riverside Mills Corporation. At Tokyo, Japan, she also loaded two hundred cartons of sodium lauryl sulfate and ten cases of aluminium foil consigned to the order of the Manila Banking Corporation for Guilcon of Manila.

En route to Manila, at about six in the morning of April 15, 1964, the Dona Nati collided with the Japanese vessel Yasushima Maru at Ise Bay, Japan. Five hundred fifty bales of cotton were lost or destroyed; five hundred thirty-five damaged bales were landed and sold on the authority of the general average surveyor, and fifteen bales were deemed lost. The cotton loss was worth three hundred forty-four thousand nine hundred seventy-seven pesos and eighty-six centavos, and the Tokyo shipment was a total loss of nineteen thousand nine hundred thirty-eight pesos. As insurer, the Development Insurance and Surety Corporation paid the consignees or their successors in interest a total of three hundred sixty-four thousand nine hundred fifteen pesos and eighty-six centavos, and then sued the owner and the ship agent to recover that amount.

Issues

• Whether or not the Carriage of Goods by Sea Act, rather than the Civil Code and the Code of Commerce, governs the liability of the carrier for cargo lost when the collision occurred outside Philippine waters.
• Whether or not the insurer has a cause of action against the ship agent, having paid the holders of the duly endorsed bills of lading.
• Whether or not the Maritime Company of the Philippines, as manager and operator, is a ship agent liable solidarily with the owner.
• Whether or not the liability of the carrier is limited to two hundred pesos per bale under the bills of lading, and whether the law on averages applies.
• Whether or not the insurer's action has prescribed.

Applicable Provisions

Article 1753 of the Civil Code provides:

The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration.

This fixes Philippine law as the governing law, since the cargo was destined for the Philippines, regardless of where the collision happened.

Article 1766 of the Civil Code provides:

In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws.

This makes the Carriage of Goods by Sea Act merely suppletory, and leaves collision to the Code of Commerce.

Article 827 of the Code of Commerce provides:

If the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

This is the provision under which both the owner and the agent were held solidarily liable to the insurer.

Section 1 of the Carriage of Goods by Sea Act provides:

Nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application.

This shows that the special law neither repealed nor limited the Code of Commerce on collision.

Ruling

On the first issue, the Court held that the law of the country of destination governs, so Philippine law applies and it is immaterial that the collision occurred in foreign waters. The Civil Code governs primarily; the Code of Commerce and special laws govern matters not regulated by it; and the Carriage of Goods by Sea Act is merely suppletory. Collision is not specifically regulated by the Civil Code, so the Code of Commerce articles on collision properly applied.

On the second issue, the Court held that the insurer had a cause of action. The Riverside Mills Corporation and Guilcon were the holders of the duly endorsed bills of lading and the actual consignees, as the ship agent itself certified, and the insurer had paid them the full amount.

On the third issue, the Court held that the term agent in the memorandum agreement was broad enough to include ship agent, and the Maritime Company had even been given all the powers of the owner. Both owner and agent of the offending vessel are liable when both are impleaded, and both are civilly responsible for the acts of the captain.

On the fourth issue, the Court rejected the two-hundred-peso limit, since the declared value appeared in the bills of lading and was corroborated by the invoices, and a common carrier cannot limit its liability for loss caused by its own negligence. The law on averages did not apply because the cargo was not jettisoned to save the vessel and the rest of the cargo.

On the fifth issue, the Court held that the action had not prescribed. The bills of lading allowed trans-shipment, so the stated arrival date was merely tentative; the cargo actually arrived only in June and July 1964, and the complaint was filed on April 22, 1965, within one year from the date the cargo should have been delivered.

Doctrine

First, under Article 1753 of the Civil Code, the law of the country of destination governs the liability of the common carrier for loss, destruction, or deterioration of goods, even if the loss occurs in foreign waters. Second, under Article 1766, the Civil Code governs primarily, the Code of Commerce and special laws suppletorily, and the Carriage of Goods by Sea Act is merely suppletory. Third, under Article 827 of the Code of Commerce, where a collision is imputable to both vessels, each suffers its own damages and both are solidarily liable for the losses of their cargoes. Fourth, both the owner and the ship agent of the offending vessel are solidarily liable when both are impleaded. Fifth, a common carrier cannot limit its liability for loss caused by its own negligence, and the one-year prescriptive period runs from the date the cargo should have been delivered.

Disposition

The Supreme Court denied both petitions for lack of merit and affirmed the decision of the Court of Appeals in full, holding the National Development Company and the Maritime Company of the Philippines solidarily liable to the insurer.

Remember This

Memorize the rule that the law of the country of destination governs the carrier's liability, with the Carriage of Goods by Sea Act merely suppletory to the Civil Code and the Code of Commerce. Examiners use this case to test Article 1753 and Article 1766 of the Civil Code, the solidary liability of owner and ship agent under Article 827 of the Code of Commerce, and the reckoning of the one-year prescriptive period from the date the cargo should have been delivered.