SULPICIO LINES, INC. PETITIONER, VS. FIRST LEPANTO-TAISHO INSURANCE CORPORATION, RESPONDENTS.

Sulpicio Lines versus First Lepanto-Taisho Insurance

The Case

This is a petition for review on certiorari brought by Sulpicio Lines, Incorporated, a common carrier, against First Lepanto-Taisho Insurance Corporation, a marine insurer that had paid its assured and stepped into the assured's shoes. The insurer sued the carrier and the freight forwarder for damages after a crate of goods fell during unloading at the Manila pier and the shipment was rejected as unfit for carriage to Singapore. The case matters because it gathers in one decision the extraordinary diligence owed by common carriers over goods, the presumption of negligence that arises when cargo is lost, destroyed, or deteriorated, and the rule that a subrogated insurer can recover no more than its assured could have recovered.

Procedural History

The insurer filed a complaint for damages with the Regional Trial Court of Manila against Delbros, Incorporated and Sulpicio Lines, Incorporated. After trial, the Regional Trial Court dismissed the complaint, dismissed Sulpicio Lines' counterclaim, and dismissed Delbros' cross-claim, holding that the plaintiff had failed to prove its case by a preponderance of evidence. The insurer moved for reconsideration, which was denied. The insurer then appealed to the Court of Appeals, which reversed the trial court and ordered Delbros and Sulpicio Lines to pay, jointly and severally, the amount of 194,220 pesos and 31 centavos as actual damages, plus legal interest from the filing of the complaint. Sulpicio Lines moved for reconsideration, which the Court of Appeals denied. Sulpicio Lines then came to the Supreme Court by petition for review on certiorari. Meanwhile, Delbros' own appeal was dismissed for having been filed out of time, and Delbros paid the judgment in full.

Facts

On 25 February 1992, Taiyo Yuden Philippines, Incorporated, the owner of the goods, engaged Delbros, Incorporated as shipper to transport three wooden crates containing one hundred thirty-six cartons of inductors and LC compound from Cebu City to Singapore, under a bill of lading issued in favor of the owner. For the leg from Cebu City to Manila, Delbros engaged the vessel M/V Philippine Princess, owned and operated by Sulpicio Lines. The vessel arrived at the North Harbor in Manila on 24 February 1992.

While the shipment was being unloaded, one crate containing forty-two cartons dropped from the cargo hatch to the pier apron. The owner examined the dropped cargo and, on the alleged finding that the contents were no longer usable for their intended purpose, rejected it as a total loss and returned it to Cebu City. The owner claimed the value from Sulpicio Lines, which refused. The owner then claimed under its marine insurance policy with First Lepanto-Taisho Insurance Corporation, which paid the claim less thirty-five percent salvage value, or 194,220 pesos and 31 centavos.

By that payment the insurer was subrogated to the owner's rights against Delbros and Sulpicio Lines. Its claims for reimbursement were denied, so on 4 November 1992 it sued both for damages. Sulpicio Lines answered, asserting that it had observed extraordinary diligence and that a subsequent survey by Manila Adjusters and Surveyors Company showed the contents of the fallen crate to be in apparent sound condition, except that two cello bags of fifty pieces each of ferri inductors were unaccounted for and missing. The surveyor who testified admitted that two cartons were torn at the sides with their top flaps open, but that he merely looked at them and did not inspect the contents.

Issues

• Whether or not the Court of Appeals should have dismissed the insurer's appeal for failure to attach a copy of the trial court's decision to its appellant's brief.
• Whether or not the owner of the goods incurred damages, and if so, whether or not Sulpicio Lines is liable for them.
• Whether or not Sulpicio Lines may still be ordered to pay the insurer after Delbros had already paid the judgment in full.

Applicable Provisions

Article 1733 of the Civil Code provides:

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 the passengers transported by them, according to all circumstance of each case.

This is the standard of care against which Sulpicio Lines' handling of the fallen crate is measured.

Article 1735 of the Civil Code provides:

In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.

This raises the presumption of fault that Sulpicio Lines had to rebut, and failed to rebut.

Article 1752 of the Civil Code provides:

Even when there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of loss, destruction or deterioration.

This confirms that the presumption of negligence operates even where liability is limited by agreement.

Ruling

On the procedural issue, the Court held that there was no error in the Court of Appeals giving due course to the appeal. The records showed that the appellate court had required the insurer to submit copies of the questioned decision, and the insurer complied, albeit belatedly. The Court restated the rule that the right to appeal is statutory and must be exercised in the manner the rules prescribe, but that subsequent and substantial compliance may call for relaxation of the rules where strict application would impair the proper administration of justice.

On the substantive issue, the Court held that the shipment did sustain damage while in the carrier's custody. It rejected the argument that damage to packaging is not damage to cargo, reasoning that the damage to the packaging rendered the goods unfit for transport to Singapore, and that the failure to ship them to their final destination because of the ruined packaging resulted in damages to the owner. The falling of the crate during unloading was itself evidence of negligence in handling, and as a common carrier Sulpicio Lines was expected to observe extraordinary diligence, a standard more demanding than the diligence of a good father of a family. The Court quoted the measure of that duty:

as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all circumstances.

Because the carrier failed to adduce any evidence of extraordinary diligence, it could not overcome the presumption of fault under Articles 1735 and 1752. The Court also upheld the insurer's subrogation: upon payment, the insurer is subrogated to the insured's right of action against the carrier, but the subrogee succeeds only to the rights the insured had, and can recover only if the insured could have recovered.

On the extent of liability, the Court held that since Delbros had already paid the insurer the full amount awarded, it would amount to unjust enrichment for the insurer to recover the same damages again from Sulpicio Lines. On Delbros' prayer for reimbursement, contribution, or indemnity, the Court declined to pass upon it because Delbros was not a party to the case before it, without prejudice to any action Delbros may bring against Sulpicio Lines.

Doctrine

• A common carrier is bound to observe extraordinary diligence in the vigilance over goods, a standard more demanding than the diligence of a good father of a family, measured by the utmost diligence of a very cautious person with due regard to all circumstances.
• Under Article 1735, when goods are lost, destroyed, or deteriorated, the common carrier is presumed at fault or negligent unless it proves it observed extraordinary diligence under Article 1733; the presumption is not overcome by mere denial.
• Damage to the packaging of cargo that renders the goods unfit for carriage to their destination is damage to the cargo itself, and the resulting failure to deliver is a loss for which the carrier is liable.
• An insurer that pays its assured is subrogated to the assured's rights against the carrier, but the subrogee steps into the shoes of the insured and can recover only what the insured could have recovered; it cannot recover twice for the same loss, as that would be unjust enrichment.
• Substantial and subsequent compliance with the rules on appeal may justify relaxing strict procedural requirements in the interest of the proper administration of justice.

Disposition

The Supreme Court affirmed the decision and resolution of the Court of Appeals, with no pronouncement as to costs, and Sulpicio Lines was held liable, subject to the rule that the insurer may not recover the same damages twice.

Remember This

Memorize the line that the falling of the crate was itself evidence of negligence, and that the carrier's failure to prove extraordinary diligence under Article 1735 sealed its liability. Examiners use this case to test the presumption of negligence against common carriers, the treatment of packaging damage as cargo damage, and the limits of an insurer's subrogation.