AMERICAN HOME ASSURANCE, COMPANY, PETITIONER, VS. THE COURT OF APPEALS AND NATIONAL MARINE CORPORATION AND/OR NATIONAL MARINE CORPORATION (MANILA), RESPONDENTS.

This is a petition for review on certiorari which seeks to annul and set aside the (a) decision^[1] dated
May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled “American Home Assurance
Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila,
Branch 41 and National Marine Corporation and/or National Marine Corporation
(Manila)”, dismissing petitioner’s petition for certiorari, and (b)
resolution^[2]
dated June 29, 1990 of the Court of Appeals denying petitioner’s motion for
reconsideration.

The undisputed facts of the case are as follows:

Both petitioner American Home Assurance Co. and the respondent
National Marine Corporation are foreign corporations licensed to do business in
the Philippines, the former through its
branch, The American Home Assurance Company (Philippines), Inc. and the
latter through its branch, The National Marine Corporation (Manila) (Rollo, p.
20, Annex L, p. 1).

That on or about June 19, 1988, Cheng Hwa Pulp Corporation
shipped 5,000 bales (1,000 ADMT) of bleached kraft pulp from Haulien, Taiwan on
board “SS Kaunlaran”, which is owned and operated by herein
respondent National Marine Corporation with Registration No. PID-224. The said shipment was consigned to Mayleen Paper, Inc. of Manila, which insured
the shipment with herein petitioner American Home Assurance Co. as evidenced by
Bill of Lading No. HLMN-01.

On June 22, 1988, the shipment arrived in Manila and was
discharged into the custody of the Marina Port Services, Inc., for eventual
delivery to the consignee-assured. However, upon delivery of the shipment to Mayleen Paper, Inc., it was
found that 122 bales had either been damaged or lost. The loss was calculated to be 4,360 kilograms with an estimated
value of P61,263.41.

Mayleen Paper, Inc. then
duly demanded indemnification from respondent National Marine Corporation for
the aforesaid damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).

As the shipment was insured with petitioner in the amount of
US$837,500.00, Mayleen Paper, Inc. sought recovery from the former. Upon demand and submission of proper documentation, American Home
Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to
the rights and interests of Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought suit
against respondent for the recovery of the amount of P31,506.75 and 25% of the
total amount due as attorney’s fees, by filing a complaint for recovery of sum of money
(Petition, p. 4).

Respondent, National Marine Corporation, filed a motion to
dismiss dated August 7, 1989 stating that American Home Assurance Company had
no cause of action based on Article
848 of the Code of Commerce which provides “that claims for averages shall
not be admitted if they do not
exceed 5% of the interest which the claimant may have in the vessel or in the
cargo if it be gross average and 1% of the goods damaged if particular average,
deducting in both cases the expenses of appraisal, unless there is an agreement
to the contrary.” It contended that based on the allegations of the
complaint, the loss sustained in
the case was P35,506.75 which is only .18% of P17,420,000.00, the total value
of the cargo.

On the other hand,
petitioner countered that Article 848 does not apply as it refers to averages
and that a particular average presupposes that the loss or damage is due to an
inherent defect of the goods, an accident of the sea, or a force majeure
or the negligence of the crew of the carrier, while claims for damages due to
the negligence of the common carrier are governed by the Civil Code provisions
on Common Carriers.

In its order dated November 23, 1989, the Regional Trial Court sustained private
respondent’s contention. In part it
stated;

“Before the Court for resolution is a motion for
reconsideration filed by defendant through counsel dated October 6, 1989.

“The record shows that last August 8, 1989, defendant through
counsel filed a motion to
dismiss plaintiff’s complaint.

“Resolving the said motion last September 18, 1989, the court
ruled to defer resolution thereof until after trial on the merits. In the motion now under consideration,
defendant prays for the reconsideration of the order of September 18, 1989 and
in lieu thereof, another order be entered dismissing plaintiff’s complaint.

“There appears to be good reasons for the court to take a second look at the issues
raised by the defendant.

“xxx               xxx                   xxx

“It is not disputed by the defendant that the loss suffered by
the shipment is only .18% or less than 1% of the interest of the consignee on
the cargo. Invoking the provision of
Article 848 of the Code of Commerce which reads:

‘Claims for average shall not be admitted if they do not exceed
five percent of the interest which the claimant may have in the vessel or cargo
if it is gross average, and one percent of the goods
damaged if particular average, deducting in both
cases the expenses of appraisal, unless there is an agreement to the contrary.’
(Underscoring supplied)

defendant claims that plaintiff is barred
from suing for recovery.

“Decisive in this case is whether the loss suffered by the
cargo in question is a ‘particular average’.

‘Particular average is a loss
happening to the ship, freight, or cargo which is not be (sic) shared by
contributing among all those interested, but must be borne by the owner of the
subject to which it occurs. (Black’s
Law Dictionary, Revised Fourth Edition, p. 172, citing Bargett v. Insurance Co.
3 Bosw. [N.Y.] 395).’

as distinguished from
general average which

‘is a contribution by the several interests engaged in the maritime
venture to make good the loss of one of them for the voluntary sacrifice of a part
of the ship or cargo to save the residue of the property and the lives of those
on board, or for extraordinary expenses necessarily incurred for the common
benefit and safety of all (Ibid., citing California Canneries Co. v. Canton
Ins. Office 25 Cal. App. 303, 143 p. 549-553).

“From the foregoing definition, it is clear that the damage on
the cargo in question, is in the nature of the ‘particular average.’ Since the
loss is less than 1% to the value of the cargo and there appears to be no
allegations as to any agreement defendants and the consignee of the goods to
the contrary, by express provision of the law, plaintiff is barred from suing
for recovery.

“WHEREOF, plaintiff’s complaint is hereby dismissed for lack
of cause of action.” (Rollo, p. 27;
Annex A, pp. 3-4).

The petitioner then filed a motion for reconsideration of the
order of dismissal but same was denied by the court in its order dated January
26, 1990 (supra).

Instead of filing an appeal from the order of the court a quo
dismissing the complaint for recovery of a sum of money, American Home
Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders of respondent judge in said court (Rollo,
p. 25).

But the Court of Appeals in its decision dated May 30, 1990,
dismissed the petition as constituting plain errors of law and not grave abuse
of discretion correctible by certiorari (a Special Civil Action). If at all, respondent court ruled that there
are errors of judgment subject to correction by certiorari as a mode of
appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary
Act of 1948 as amended by Republic Act No. 5440. Otherwise stated, respondent Court opined that the proper remedy
is a petition for review on certiorari with the Supreme Court on pure
questions of law (Rollo, p. 30).

Hence this petition.

In a resolution dated December 10, 1990, this Court gave due
course to the petition and required both parties to file their respective
memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari
was the proper remedy in the case before the Court of Appeals.

The Court of Appeals ruled that appeal is the proper remedy, for
aside from the fact that the two orders dismissing the complaint for lack of cause
of action are final orders within the meaning of Rule 41, Section 2 of the
Rules of Court, subject petition raised questions which if at all, constitute
plain errors of law or of judgment not constituting grave abuse of discretion
correctible by certiorari.

Evidently, the Court of Appeals did not err in dismissing the
petition for certiorari for as ruled by this Court, an order of
dismissal whether right or wrong is a final order, hence, a proper subject of
appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 [1990]). However, where the fact remains that
respondent Court of Appeals obviously in the broader interests of justice,
nevertheless proceeded to decide the petition for certiorari and ruled
on specific points raised therein in a manner akin to what would have been done
on assignments of error in a regular appeal, the petition therein was therefore
disposed of on the merits and not on a dismissal due to erroneous choice of
remedies or technicalities (Cruz v. I.A.C., 169 SCRA 14 [1989]). Hence, a review of the decision of the Court
of Appeals on the merits against the petitioner in this case is in order.

On the main controversy, the pivotal issue to be resolved is the
application of the law on averages (Articles 806, 809 and 848 of the Code of
Commerce).

Petitioner avers that respondent court failed to consider that respondent National
Marine Corporation being a common carrier, in conducting its business is regulated by the Civil Code
primarily and suppletorily by the Code of Commerce; and that respondent court refused to consider
the Bill of Lading as the law governing
the parties.

Private respondent countered that in all matters not covered by
the Civil Code, the rights and obligations of the parties shall be governed by
the Code of Commerce and by special laws as provided for in Article 1766 of the
Civil Code: that Articles 806, 809 and 848 of the Code of Commerce should be
applied suppletorily as they provide for the extent of the common carriers’
liability.

This issue has been resolved by this Court in National
Development Co. v. C.A. (164 SCRA 593 [1988]; citing Eastern Shipping Lines,
Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that “the law
of the country to which the goods are to be transported governs the liability of
the common carrier in case of their loss, destruction or deterioration.”
(Article 1753, Civil Code). Thus, for
cargoes transported to the Philippines as in the case at bar, the liability of
the carrier is governed primarily by the Civil Code and in all matters not
regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of Commerce and by special laws (Article 1766, Civil
Code).

Corollary thereto, the Court held further that under Article 1733
of the Civil Code, 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 passengers transported by them
according to all circumstances of each case. Thus, under Article 1735 of the
same Code, in all cases other
than those mentioned in Article 1734 thereof, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary diligence required by law (Ibid.,
p. 595).

But more importantly, the Court ruled that common carriers cannot
limit their liability for injury or loss of goods where such injury or loss was
caused by its own negligence. Otherwise
stated, the law on averages under the Code of Commerce cannot be applied in determining liability where
there is negligence (Ibid., p. 606).

Under the foregoing principle
and in line with the Civil Code’s mandatory requirement of extraordinary
diligence on common carriers in the care of goods placed in their stead, it is but reasonable
to conclude that the issue of negligence must first be addressed before the
proper provisions of the Code of Commerce on the extent of liability may be
applied.

The records show that upon delivery of the shipment in question
at Mayleen’s warehouse in Manila, 122 bales were found to be damaged/lost with
straps cut or loose, calculated by the so-called “percentage method”
at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68). Instead of presenting proof of the exercise
of extraordinary diligence as required by law, National Marine Corporation
(NMC) filed its Motion to Dismiss dated August 7, 1989, hypothetically
admitting the truth of the facts alleged in the complaint to the effect that
the loss or damage to the 122 bales was due to the negligence or fault of NMC
(Rollo, p. 179). As ruled by this
Court, the filing of a motion to dismiss on the ground of lack of cause of
action carries with it the admission of the material facts pleaded in the
complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such being the case, it is evident that the
Code of Commerce provisions on averages cannot apply.

On the other hand, Article 1734 of the Civil Code provides that
common carriers are responsible for loss, destruction or deterioration of the
goods, unless due to any of the causes enumerated therein. It is obvious that the case at bar does not
fall under any of the exceptions. Thus,
American Home Assurance Company is entitled to reimbursement of what it paid to
Mayleen Paper, Inc. as insurer.

Accordingly, it is evident that the findings of respondent Court
of Appeals, affirming the findings and conclusions of the court a quo are not supported by law and jurisprudence.

PREMISES CONSIDERED, (1) the decisions of both the Court
of Appeals and the Regional Trial Court of Manila, Branch 41, appealed from are
REVERSED; and (2) private respondent National Marine Corporation is hereby ordered to reimburse the
subrogee, petitioner American Home Assurance Company, the amount of P31,506.75.

SO ORDERED.

Melencio-Herrera, (Chairman), Padilla, Regalado, and Nocon, JJ., concur.

^[1]
Penned by Associate Justice
Vicente V. Mendoza and concurred in by Associate Justices Segundino G. Chua and
Cezar D. Francisco.

^[2]
Penned by Associate Justice Vicente V. Mendoza and concurred in by Associate
Justices Segundino G. Chua and Cezar D. Francisco.