ACE NAVIGATION CO., INC., PETITIONER, VS. FGU INSURANCE CORPORATION AND PIONEER INSURANCE AND SURETY CORPORATION, RESPONDENTS.

Ace Navigation versus FGU Insurance

The Case

This is a petition for review on certiorari brought by Ace Navigation Company, Incorporated against FGU Insurance Corporation and Pioneer Insurance and Surety Corporation. The insurers had paid the consignee of a shipment of cement for cargo that arrived in bad order, and as subrogees they sued the carrier, the charterers, and the shipper's agent to recover what they had paid. The case matters because it fixes the boundary between two kinds of agent a bar candidate must never confuse: the ship agent under the Code of Commerce, who answers for the vessel, and the ordinary agent under the Civil Code, who as a rule does not answer personally for the principal's obligations.

Procedural History

The insurers filed a complaint for damages in the Regional Trial Court against Regency Express Lines and the unknown charterer and owner of the vessel, Sky International, and Ace Navigation. A second complaint by the consignee was later consolidated with it. In its decision of November 26, 2001, the trial court dismissed the complaint, as well as the defendants' counterclaims and cross-claims, for lack of sufficient evidence.

The insurers appealed to the Court of Appeals. That court, in its decision of June 22, 2004, modified the trial court. It held Pakarti, Shinwa, Kee Yeh, and Sky jointly and severally liable for seventy percent of the claims, and held Cardia, the shipper, together with its agent Ace Navigation, jointly and severally liable for the remaining thirty percent, on a finding that the damage was partly due to the cargo's inferior packing. The Court of Appeals affirmed the dismissal as to Regency for defective service of summons. Reconsideration was denied in its resolution of February 17, 2006.

Pakarti, Shinwa, Sky, and Ace Navigation each filed petitions for review, which the Supreme Court consolidated. Sky, and later Pakarti and Shinwa, withdrew their petitions, and judgment was entered against them. Only the petition of Ace Navigation remained, raising the lone issue of whether it may be held liable to the insurers for thirty percent of their claim.

Facts

On July 19, 1990, Cardia Limited shipped on board the vessel Pakarti Tiga at Shanghai, China, 165,200 bags of Grey Portland Cement, to be discharged at the Port of Manila and delivered to the consignee, Heindrich Trading Corporation. The shipment was insured with FGU Insurance and Pioneer Insurance against all risks. The vessel was owned by Pakarti, which chartered it to Shinwa. Shinwa, representing itself as owner, chartered it onward to Sky, the agent of Kee Yeh, which in turn chartered it to Regency. It was Regency that dealt directly with Heindrich and issued the clean bill of lading.

On July 23, 1990, the vessel arrived at Manila and discharged the cargo. Upon inspection by Heindrich and by Ace Navigation, the agent of the shipper Cardia, 43,905 of the 165,200 bags were found in bad order and condition. Unable to collect from Cardia and Regency, the insurers each paid the consignee and became subrogated to its rights.

The insurers then sued. Ace Navigation denied being the local ship agent of the vessel or of Regency, and claimed it was merely the agent of the shipper, Cardia. The trial court dismissed the complaint, but the Court of Appeals held Ace Navigation solidarity liable with Cardia for thirty percent of the claim, attributing part of the damage to inferior packing of the cargo.

Issues

• Whether or not Ace Navigation was a ship agent within the meaning of Article 586 of the Code of Commerce, and not a mere agent of the shipper.
• Whether or not Ace Navigation, as a mere agent, may be held personally and solidarity liable with its principal, Cardia, for the damage attributed to defective packing, when Cardia was never impleaded in the suit.

Applicable Provisions

Article 586 of the Code of Commerce defines the ship agent and provides:

Article 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was invested therein. By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be found.

This is the provision under which the insurers sought to make Ace Navigation answer for the vessel, and it fails because Ace Navigation did neither of the two things the definition requires.

Article 1868 of the Civil Code defines the contract of agency:

Article 1868. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

This is the relationship the Court found to exist between Ace Navigation and Cardia, and it is the premise for the rule on the agent's personal liability.

Article 1897 of the Civil Code limits that personal liability:

Article 1897. An agent is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.

Neither exception was shown, so the agent cannot be made to answer for its principal.

Ruling

On the first issue, the Court held that Ace Navigation was not a ship agent. A bill of lading, the Court explained, operates both as a receipt and as a contract, and is binding only upon the parties who make it, their assigns, and heirs. The original parties were the shipper Cardia, the carrier Pakarti, and the consignee Heindrich, and Ace Navigation became a party only as the admitted agent of Cardia. The records showed that its obligation was limited to informing the consignee of the vessel's arrival so the latter could take possession of the goods. No evidence showed that it had a hand in provisioning the vessel or that it represented the carrier, its charterers, or the vessel at any time during unloading. Its participation was simply to assume responsibility over the cargo once unloaded. Hence, it was not a ship agent within the meaning of Article 586, but a mere agent of the shipper.

On the second issue, the Court applied Article 1897 and held that an agent is not personally liable to the party with whom he contracts unless he expressly binds himself or exceeds the limits of his authority without giving sufficient notice of his powers. Neither exception obtained. There was no showing that Ace Navigation exceeded its authority, and it was never alleged, much less proved, that its limited obligation was unknown to the consignee. Moreover, since Cardia was not impleaded, the liability attributed to it for improper packing cannot be borne by its agent. As a mere agent, Ace Navigation cannot be held accountable for damage supposedly caused by its principal.

Doctrine

Three rules should be written in the answer. First, a ship agent under Article 586 of the Code of Commerce is the person entrusted with the provisioning of a vessel, or who represents her in the port where she may be found; one who merely receives the cargo on unloading and notifies the consignee of the vessel's arrival is not a ship agent. Second, under Article 1868 of the Civil Code, agency arises when a person binds himself to render service in representation or on behalf of another with the latter's consent or authority. Third, under Article 1897, an agent is not personally liable to the party with whom he contracts unless he expressly binds himself or exceeds the limits of his authority without giving sufficient notice of his powers; and where the principal is not impleaded, the agent cannot be made to answer for the principal's own acts.

Disposition

The Court reversed the decision and resolution of the Court of Appeals and dismissed the complaint against Ace Navigation.

Remember This

Memorize the line: a ship agent provisions the vessel or represents her in port, and a mere cargo agent of the shipper is not liable for the principal's acts. Examiners use this case to test the distinction between a ship agent under the Code of Commerce and an ordinary agent under the Civil Code, and the rule that an agent is not personally liable unless he binds himself or exceeds his authority.