HOME INSURANCE COMPANY, PLAINTIFF-APPELLEE, VS. AMERICAN STEAMSHIP AGEN­CIES, INC. AND LUZON STE­VEDORING CORPORATION, DEFENDANTS, AMERICAN STEAMSHIP AGEN­CIES, INC., DEFENDANT-…

Home Insurance versus American Steamship Agencies

The Case

This is a civil action for reimbursement. Home Insurance Company, having paid its insured for a cargo shortage, sued as subrogee to recover what it paid from the two parties it believed were responsible: American Steamship Agencies, the owner and operator of the vessel that carried the cargo, and Luzon Stevedoring Corporation, the arrastre operator that discharged it. The case matters because it draws the line between a common carrier and a private carrier, and it tells us when a stipulation in a charter party exempting the shipowner from liability for the negligence of its captain and crew will be upheld rather than struck down as contrary to public policy.

Procedural History

Home Insurance Company filed its complaint before the Court of First Instance of Manila. After trial, that court absolved Luzon Stevedoring Corporation, finding that it had delivered what it received from the carrier in the same condition and quality. It ordered American Steamship Agencies to pay the plaintiff the amount claimed, with legal interest and attorney's fees, reasoning that the ship agent is civilly liable under Article 587 of the Code of Commerce, that the exemption stipulation is against public policy under Article 1744 of the Civil Code, that common carriers are presumed at fault under Article 1735 of the Civil Code unless they prove extraordinary diligence, and that a carrier receiving goods in good order and delivering them in bad order is prima facie liable. American Steamship Agencies appealed directly to the Supreme Court, which resolved the single legal issue of whether the stipulation of non-liability in the charter party is valid so as to absolve it from liability for the loss.

Facts

Consorcio Pesquero del Peru of South America shipped freight prepaid at Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through the vessel Crowborough, covered by clean bills of lading numbered one and two, both dated January 17, 1963. The cargo was consigned to San Miguel Brewery, Inc., now San Miguel Corporation, and was insured by Home Insurance Company. It arrived in Manila on March 7, 1963, and was discharged into the lighters of Luzon Stevedoring Company.

When the cargo was delivered to the consignee, there were shortages amounting to 12,033 pesos and 85 centavos. The consignee laid claims against Luzon Stevedoring Corporation, Home Insurance Company, and American Steamship Agencies. Because the others denied liability, Home Insurance Company paid the consignee 14,870 pesos and 71 centavos, the insurance value of the loss, as full settlement. Having been refused reimbursement by both the stevedoring company and the steamship agency, Home Insurance Company, as subrogee to the consignee, filed its complaint for recovery.

In its answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the same quantity and quality it had received, and claimed that the claim had prescribed under Article 366 of the Code of Commerce, which requires the claim to be made within twenty four hours from receipt of the cargo. American Steamship Agencies denied liability, alleging that under the charter party referred to in the bills of lading the charterer, not the shipowner, was responsible for any loss or damage to the cargo, that it had exercised due diligence in stowing the goods, and that as a mere forwarding agent it was not responsible for losses or damages to the cargo.

Issues

• Whether or not the stipulation in the charter party exempting the shipowner from liability for loss or damage arising from the neglect or fault of the captain or crew is valid so as to absolve American Steamship Agencies from liability.
• Whether or not the provisions of the Civil Code on common carriers apply to a vessel chartered to its full and complete capacity for the use of a single party.
• Whether or not the consignees under the bills of lading are bound by the terms of the charter party to which the bills expressly referred.

Applicable Provisions

Article 587 of the Code of Commerce, cited by the trial court, provides:

The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel.

The trial court used this provision to hold the ship agent liable, but the Supreme Court found it inapplicable because the vessel was not acting as a common carrier.

Article 1744 of the Civil Code, also cited by the trial court, provides:

A stipulation between the common carrier and the shipper or owner limiting the liability of the former for the loss or destruction of, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it be reasonable, just and not contrary to public policy.

The trial court struck down the exemption as unreasonable and contrary to public policy, but the Supreme Court held that this policy has no force where the public at large is not involved.

Article 1735 of the Civil Code, invoked by the trial court, provides:

In all cases, the common carrier shall be presumed at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

This presumption governs common carriers, and the Court held it does not reach a carrier acting as a private carrier.

Ruling

On the first issue, the Court held the stipulation valid. The bills of lading provided at the back that they shall be governed by and subject to the terms and conditions of the charter party, and on their face were stamped that the shipment was subject to all terms, conditions and exceptions of a charter party dated London, December 13, 1962. Examining that charter party, the Court found that while possession and control of the ship were not entirely transferred to the charterer, the vessel was chartered to its full and complete capacity, and the charterer had the option to go north or south, loading, stowing and discharging at its risk and expense. The contract was therefore one of affrrightment over the whole vessel rather than a demise. Section 2, paragraph 2 of the charter party made the owner liable for loss or damage caused by personal want of due diligence on its part or its manager to make the vessel seaworthy and properly manned, equipped and supplied, or by the personal act or default of the owner or its manager, but exempted the owner from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or crew.

On the second issue, the Court held that the Civil Code provisions on common carriers, taken from Anglo-American law, should not be applied where the carrier is not acting as such but as a private carrier. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy and is deemed valid. The Court put the rule this way:

The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

On the third issue, the Court held that in a charter of the entire vessel, the bill of lading issued by the master to the charterer as shipper is in fact and legal contemplation merely a receipt and a document of title, not a contract, for the contract is the charter party. The consignee may not claim ignorance of the charter party because the bills of lading expressly referred to it, and the consignees under the bills must likewise abide by its terms. Recovery cannot be had against the shipowners for loss or damage to the cargo unless the same is due to personal acts or negligence of the owner or its manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence was proved.

Doctrine

A common carrier undertaking to carry a special cargo, or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy and is valid, because the strict policy governing common carriers has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. In a charter of the entire vessel, the bill of lading issued by the master to the charterer as shipper is merely a receipt and a document of title, not a contract, for the contract is the charter party, and consignees who take under bills of lading that expressly refer to the charter party are bound by its terms. Recovery against the shipowner lies only for the personal acts or negligence of the owner or its manager, as distinguished from its other agents or employees.

Disposition

The Supreme Court reversed the judgment appealed from and absolved American Steamship Agencies from liability to the plaintiff, with no costs.

Remember This

Memorize the line that a ship totally chartered for the use of a single party makes the carrier a private carrier, so that a stipulation exempting the owner from liability for the negligence of its agent is valid and not against public policy. Examiners use this case to test the common carrier and private carrier distinction, the effect of a charter party incorporated by reference in a bill of lading, and the limits of the extraordinary diligence regime under the Civil Code.