CITADEL LINES, INC., PETITIONER, VS. COURT OF APPEALS AND MANILA WINE MERCHANTS, INC., RESPONDENTS.

Citadel Lines versus Court of Appeals and Manila Wine Merchants

The Case

This is a petition for review brought by Citadel Lines, Incorporated, the general agent of the vessel that carried a shipment of British manufactured cigarettes from England to Manila, against the decision of the Court of Appeals which affirmed the trial court's judgment holding it liable to the consignee, Manila Wine Merchants, Incorporated, for the value of ninety cases of cigarettes lost while in its custody. The case matters because it gathers in one place the extraordinary diligence of common carriers, the presumption of fault that shifts the burden of proof to the carrier, the period during which that responsibility lasts, and the validity of a stipulation in the bill of lading limiting the carrier's liability where no greater value was declared by the shipper.

Procedural History

Manila Wine Merchants filed a complaint for recovery of the value of the lost shipment against Citadel Lines and E. Razon, Incorporated, the arrastre operator, before the Regional Trial Court of Manila, Branch 27. After trial, the lower court rendered its decision on August 30, 1985, exonerating the arrastre operator on the ground that the container van was never formally turned over to its custody, and adjudging Citadel Lines liable for the principal amount representing the market value of the lost shipment, plus attorney's fees and costs of suit. Citadel Lines appealed to the Court of Appeals, which on December 20, 1988 affirmed the decision of the trial court but deleted the award of attorney's fees and costs of suit. Citadel Lines then came to the Supreme Court through a petition for review.

Facts

On or about March 17, 1979, the vessel Cardigan Bay, also referred to as Strait Enterprise, loaded at Southampton, England, for carriage to Manila, one hundred eighty cartons of mixed British manufactured cigarettes called Dunhill International Filter and Dunhill International Menthol, covered by two bills of lading. The shipment arrived at the Port of Manila, Pier 13, on April 18, 1979, in a container van, and the container was received by E. Razon, Incorporated, the arrastre operator, under a cargo receipt of the same date.

On April 30, 1979, the container van, which held two shipments, was stripped. One shipment was delivered, and the other, consisting of the imported cigarettes, was palletized. Because of lack of space at the Special Cargo Coral, the cigarettes were placed in two containers, with two pallets in the original container and four pallets in another container, both containers duly padlocked and sealed by the representative of the carrier.

In the morning of May 1, 1979, the carrier's head checker discovered that the second container had a different padlock and that its seal had been tampered with. The matter was reported to the Pier Superintendent, and upon verification it was found that ninety cases of imported British manufactured cigarettes were missing. Investigation by the arrastre operator revealed that the cargo in question was not formally turned over to it by the carrier but was kept inside the container van padlocked and sealed by the carrier's representatives, without any participation of the arrastre operator. The consignee filed a formal claim with the carrier for the market value of the missing cargoes; the carrier admitted the loss but alleged that it occurred at Pier 13, an area absolutely under the control of the arrastre operator. The consignee then filed a claim with the arrastre operator, which was denied.

Issues

• Whether or not the loss occurred while the cargo in question was in the custody of E. Razon, Incorporated or of Citadel Lines, Incorporated.
• Whether or not the stipulation limiting the liability of the carrier contained in the bill of lading is binding on the consignee.

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 the circumstances of each case.

This is the standard of care against which the carrier's conduct is measured, and the loss of the goods raises the presumption that this standard was not met.

Article 1735 of the Civil Code provides:

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 shifts the burden of proof to the carrier once the consignee shows that the goods were lost.

Article 1736 of the Civil Code provides:

The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee or to the person who has the right to receive them.

This fixes the period of responsibility and resolves the question of custody, since the goods had not yet been actually or constructively delivered when they were lost.

Article 1749 of the Civil Code provides:

A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.

This makes the limitation clause in the bill of lading binding where no greater value was declared.

Article 1750 of the Civil Code provides:

A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.

This supplies the test of validity for the limitation clause, which the Court found to be satisfied.

Ruling

On the first issue, the Court held that the loss occurred while the cargo was still in the custody of Citadel Lines. The Court of Appeals had declared that the cargo placed in a container van padlocked and sealed by the carrier's representative was still in its possession and control when the loss occurred, there having been no formal turnover to the arrastre operator, and two witnesses of the carrier itself had admitted that for lack of space the containers were not turned over to the arrastre operator. The carrier was therefore estopped from claiming otherwise. Since the goods were lost while in its custody and it failed to prove that the loss was occasioned by an excepted cause, the carrier was negligent and liable.

On the second issue, the Court held that the stipulation limiting liability to two dollars per kilo was binding. The consignee itself admitted that the value of the goods shipped did not appear in the bills of lading, so the stipulation applied, and the Court found it just and reasonable under the circumstances and fairly and freely agreed upon. The Court explained that the stipulation is just and reasonable because it echoes the law itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading, and because it gives the shipper the option of avoiding the limitation by the simple expedient of declaring the nature and value of the shipment in the bill of lading. The award based on market value was therefore erroneous, and the carrier's liability was reduced to the stipulated rate.

Doctrine

A common carrier is bound to observe extraordinary diligence over the goods it transports, and once the consignee proves that the goods were lost, the burden shifts to the carrier to prove that it observed that diligence, failing which it is presumed at fault under Articles 1733 and 1735 of the Civil Code. That responsibility lasts from the time the goods are unconditionally placed in the carrier's possession until they are delivered, actually or constructively, to the consignee or to the person entitled to receive them, under Article 1736; hence, goods still padlocked and sealed by the carrier and never formally turned over to the arrastre operator remain in the carrier's custody. A stipulation in the bill of lading limiting the carrier's liability to the value of the goods appearing therein, unless the shipper or owner declares a greater value, is binding under Article 1749, and a contract fixing the sum recoverable for loss is valid if reasonable and just under the circumstances and fairly and freely agreed upon under Article 1750.

Disposition

The Court modified the judgment of the Court of Appeals and ordered Citadel Lines to pay Manila Wine Merchants the sum of four thousand four hundred sixty five dollars and sixty cents, or its equivalent in Philippine currency at the exchange rate obtaining at the time of payment, and affirmed the judgment in all other respects.

Remember This

Memorize this line: the carrier's extraordinary responsibility continues until actual or constructive delivery, and a bill of lading limitation clause is binding where the shipper declared no greater value. Examiners use this case to test the presumption of fault against the carrier, the cutoff point of custody before turnover to the arrastre operator, and the application of Articles 1749 and 1750 on limited liability.