Central Shipping Company, Inc.

vs Insurance Company of the North America

Issue:

(1) whether the carrier is liable for the loss of the cargo; and (2) whether
the doctrine of limited liability is applicable.

Facts:

On July 25, 1990 at Puerto Princesa, Palawan, Central Shipping Company

(CENTRAL) received on board its vessel, the M/V Central Bohol, 376 pieces of
Philippine Apitong Round Logs and undertook to transport said shipment to
Manila for delivery to Alaska Lumber Co., Inc. (CONSIGNEE) The cargo was insured
for P3,000,000.00 against total loss under Insurance Company of North America’s
(INSURANCE CO) Marine Cargo Policy No. MCPB-00170.

On July 25, 1990, upon completion of loading of the cargo, the vessel left
Palawan and commenced the voyage to Manila. At about 0125 hours on July 26,
1990, while enroute to Manila, the vessel listed about 10 degrees starboard side,
due to the shifting of logs in the hold. At about 0128 hours, after the listing of the
vessel had increased to 15 degrees, the ship captain ordered his men to abandon
ship and at about 0130 hours of the same day the vessel completely sank. Due to
the sinking of the vessel, the cargo was totally lost. The CONSIGNEE presented to
CENTRAL a claim for the value of the shipment but the latter refused to settle the
claim. INSURANCE CO being the insurer paid said claim and now seeks to be
subrogated to all the rights and actions of the CONSIGNEE against CENTRAL.

CENTRAL, while admitting the sinking of the vessel, interposed the defense
that the vessel was fully manned, fully equipped and in all respects seaworthy;
that all the logs were properly loaded and secured; that the vessels master
exercised due diligence to prevent or minimize the loss before, during and after
the occurrence of the storm. It raised as its main defense that the proximate and
only cause of the sinking of its vessel and the loss of its cargo was a natural
disaster, a tropical storm which neither CENTRAL nor the captain of its vessel
could have foreseen.
 The RTC was not convinced that the sinking of M/V Central Bohol had been
caused by the weather or any other caso fortuito. It noted that monsoons, which
were common occurrences during the months of July to December, could have
been foreseen and provided for by an ocean-going vessel. Applying the rule of
presumptive fault or negligence against the carrier, the trial court held petitioner
liable for the loss of the cargo.

The CA affirmed the trial courts finding that the southwestern monsoon
encountered by the vessel was not unforeseeable. Given the season of rains and
monsoons, the ship captain and his crew should have anticipated the perils of the
sea. The appellate court further held that the weather disturbance was not the
sole and proximate cause of the sinking of the vessel, which was also due to the
concurrent shifting of the logs in the hold that could have resulted only from
improper stowage. Thus, the carrier was held responsible for the consequent loss
of or damage to the cargo, because its own negligence had contributed thereto.

CENTRAL disclaims responsibility for the loss of the cargo by claiming the
occurrence of a storm under Article 1734 par 1. It attributes the sinking of its
vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and
1:25 a.m. on July 26, 1990.

“ Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

All evidence pointed out that there was no typhoon during that period when the
ship sank. Even if the weather encountered by the ship is to be deemed a natural
disaster under Article 1739 of the Civil Code, petitioner failed to show that such
natural disaster or calamity was the proximate and only cause of the loss. Human
agency must be entirely excluded from the cause of injury or loss. In other words,
the damaging effects blamed on the event or phenomenon must not have been
caused, contributed to, or worsened by the presence of human participation. The
defense of fortuitous event or natural disaster cannot be successfully made when
the injury could have been avoided by human precaution. Hence, if a common
carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss
before, during and after the occurrence of the natural disaster, the carrier shall be
deemed to have been negligent. The loss or injury is not, in a legal sense, due to a
natural disaster under Article 1734(1)

SC ruled that the doctrine of limited liability under Article 587 of the Code of
Commerce is not applicable to the present case. This rule does not apply to
situations in which the loss or the injury is due to the concurrent negligence of the
shipowner and the captain. It has already been established that the sinking of
M/V Central Bohol had been caused by the fault or negligence of the ship captain
and the crew, as shown by the improper stowage of the cargo of logs. Closer
supervision on the part of the shipowner could have prevented this fatal
miscalculation. As such, the shipowner was equally negligent. It cannot escape
liability by virtue of the limited liability rule.

FGU INSURANCE CORPORATION vs. THE COURT OF APPEALS

ANCO Enterprises Company was engaged in shipping business. It owned the M/T
ANCO tugboat and D/B Lucio barge which had to be towed by a tugboat for it to
move from one place to another.

On September 23, 19789, San Miguel Corporation (SMC) shipped from Mandaue
City, on board D/B Lucio, for towage by M/T ANCO. About 1pm on September 30,
the vessels arrived at San jose Antique. The tugboat M/T Anco left the barge
immediately after reaching San Jose. During that time, the clouds were already
hovering dark and the swell of the waters were already big. SMC's District
Supervisor requested ANCO representative to transfer the barge to a safer place
because the vessel might not be able to withstand the big waves. Anco
representative did not heed the request saying that he was confident that the
barge could withstand the waves. This, notwithstanding that it was the only vessel
left in the wharf because all the other vessels left to move to a safer place
considering the weather. The waves were getter bigger and only a portion of the
cargo was unloaded. At around midnight, the barge run aground and was broken
and the cargoes of beer on the barge were swept away. SMC sued for Breach of
Contract of Carriage and damages against ANCO. The latter denied liability on
the ground zof fortuitous event and that there existed an agreement that
SMCinsure the cargoes in order to recover indemnity in case of loss. In pursuance
of said agreement, the cargoes were insured with FGU Insurance. There was a
third party complaint filed by ANCO alleging that there was an insurance
coverage from FGU and that therefore the latter is liable under the terms of the
insurance.

ISSUE: Considering the presence of a fortuitous event, is Anco Enterprises free

from liability? Who is liable?

RTC found that while the cargoes were indeed due to fortuitous event, there was
failure on ANCO's part , through their representatives, to observe the diligence
required that would exonerate them from liability. RTC also held that FGU was
liable for 53% of the amount of lost cargo saying that "evidence is to the effect
that the D/B Lucio, on which the cargo insured, run aground and was broken and
the beer cargoes on the said barge were swept away. It is the sense of this court
that the risk insured against was the cause of the loss. CA affirmed RTC ruling.

SC ruled to exonerate FGU of liability. The explaination being:

One o the purpose for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is basic rule in
insurance that the carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer. This rule however presupposes
that the loss has occurred due to causes which could not have been prevented by
the insured, despite due diligence. The ordinary negligence of the insured and his
agents has long held as a part of the risk which the insurer takes upom himself,
and the existence of which, where it is the proximate cause of the loss, does not
absolve the insurermfrom liability. But willful exposure, gross negligence,
negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.

In the case at bar, both the trial court and the appellate court had concluded from
the evidence that the crewmembers of both the D/B Lucio and the M/T Anco
were blatantly negligent. The Anco representative had failed to exercise ordinary
diligence required of common carriers in the shipment SMC cargoes. Such blatant
negligence being the proximate cause of the loss of the cargoes amounting to
Php1,346,197.00. This means that the negligence is gross in character, hence FGU
is absolved of liability.

LEA MER INDUSTRIES, INC. VS MALAYAN INSURANCE CO., INC.

Ilian Silica Mining entered into contract of carriqge with Lea Me Industries, Icn.,
for shipment of silica to consignee Vulcan Industrial and Mining. from Palawan to
Manila. During voyage, the vessel sank, resulting in the loss of the fargo. Malayan
Insutance, as insurer paid the cost of cargo. Malayan, in exercise of its right to
subrogation, then demanded reimbursement from Lea Mer, which refusedmto
comply. The former then instituted a complaint with RTC. RTC dismissed
complaint upon finding that the lost was due to a fortuitous event. RTC noted
that there had been a typhoon during the time of voyage of the vessel in this
controvery and that the captain had no advanced knowledge of the empending
typhoon before theynleft as they were cleared by the Coast Guard to travel from
Palawan to Manila. CA reveresed RTC ruling saying that it was not fortuitous
event but that the ship was not seaworthy making the loss, the fault of Lea Mer.
Lea Mer conotended that Judy vii became a private carrier when it was chartered
by Vulcan and thus is not liable . SC said that it was still a common carrier.
Common carriers are persons, corporations, firmsor associations engaged in the
business of carrying or transporting passengers or goods, or both -- by land,
water, or air -- when this service is offered to the public for compensation. The
Court explainrd that under the demise or bareboat charter of vessel, the
charterer will generally be considered as owner for the voyage or service
stipulated. The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a bareboat charter, the owner of the vessel must
completely and exclusively relinquish possession, command and navigation
thereof to the charterer; anything short of such a complete transfer is a contract
affreightment or not a charter party at all. In the case at bar, the charter was one
of an affreightment contract. And as a common carrier, it is bound to observe
extraordinary diligence and in their vigilance over the goods and the safety of the
passengers they transport, as required by the nature of their business and for
reasons of public policy. Extra diligence reauires rendering service with the
greatest skill and foresight to avoid damage and destruction of goods entrusted
for carriage and delivery. Common carriers are presumed to have been at fault or
to have acted negligently for loss or damage to goods that they have transported.
This presumption can be rebutted only by proof that they observed extraordinary
diligence, or that the loss or damage was occassioned by any of the ff:

1 flood,storm, earthquake, or other natural calamity

2 act of public enemy in war, whether national or civil

3act or omissio of the shipper or owner of goods

4 the charter of the goods or defects in packaging or in the containers

5 order or act of competent public authority.

Under Art 1174 of the Civili Code, no person shall be responsible for a fortuitous
event which could not be foreseen, or which, though foreseen, was inevitable.
Thus, if the loss or damage was due to such an event, a common carrier is exempt
from liability. Jurisprudence defines the element of a fortuitous event as follows:
(a) the cause of the unforeseen and unexpected occurance, or failure of the
debtor to comply with the obligations must have been independent of human
will; (b) the event that constitute fortuitous event must have been i possible to
foresee or, if foreseeable, impossi le to avoid; (c) the occurence must have been
such as to render it imppossible for the debtors to fulfill their obligstion in ormal
manner; and (d) the obligor must have been free from any participation in the
aggravation of the of the resulting injury to the creditor. To excuse the common
carrier fully of any liability, the fortuitous event must have been the proximate
and only cause ofnthe loss.