B.M. No. 139 - IN RE: Abad vs. Abad

On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped three sets of warp yarn from Hong Kong in container No. IEAU-4592750 under Bill of Lading No. HKG-0396180.
The cargo was consigned for delivery to Fukuyama Manufacturing Corporation in Metro Manila and insured by Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the amount of P228,085.
The shipment was part of a larger LCL cargo arrangement handled by respondent Neptune Orient Lines via its agent, Overseas Agency Services, Inc.

During the voyage aboard M/V Baltimar Orion, the container fell overboard as a result of strong winds and heavy seas that caused the vessel to pitch and roll.
After the incident, Fukuyama, having been unable to secure redress from Overseas Agency for the loss, filed a claim with PCIC, which fully satisfied the insured amount.
On February 17, 1994, Fukuyama issued a subrogation receipt to PCIC, thereby transferring its right to seek reimbursement from the respondents.

On March 21, 1994, PCIC initiated an action for damages against the respondents by filing a complaint before the Regional Trial Court (RTC) of Manila, Branch 35.
The respondents countered the complaint with an Answer and lodged a compulsory counterclaim, arguing that the loss resulted from a fortuitous event and invoking the limited liability clause under the applicable bill of lading.
The respondents contended that their liability, if any, was limited to either US$500 per package or its equivalent, based on the stipulations of both the bill of lading and the Carriage of Goods by Sea Act (COGSA).

The RTC found that as a common carrier, the respondents failed to prove that they exercised the required extraordinary diligence in safeguarding the cargo, thus ruling in favor of PCIC for an amount not exceeding the insured value (P228,085.00 or equivalently the Peso equivalent of HK$55,000.00).
The respondents’ motion for reconsideration was denied by the RTC on February 19, 1996.
Upon appeal, the Court of Appeals (CA) initially affirmed the RTC decision with modifications, ordering the respondents to pay P228,085.00.
Later, in a reconsideration resolution dated April 13, 2000, the CA modified its decision by limiting the respondents’ liability to a total of US$1,500.00 (computed at US$500 per package), relying on the stipulation in the bill of lading and the relevant provisions of the COGSA.

PCIC raised a petition for review, arguing that the CA erred in applying the US$500 per package limitation, claiming that the vessel committed a “quasi-deviation” by intentionally jettisoning the container for its own benefit or preservation.
The petitioner maintained that such an act constituted a breach of the contract of carriage, thereby abrogating the respondents’ rights to invoke the limited liability clause.
The evidence presented, including findings from a survey report by Mariner’s Adjustment Corporation, was found insufficient to support the new allegations of intentional misconduct or deviation, as it merely recounted the events under heavy weather conditions.

Whether the respondents, as common carriers, were liable for the loss of the cargo despite invoking the limited liability clause under the bill of lading.
Whether the act described as a “quasi-deviation” by the petitioner negated the contractual limitation of liability provided in the bill of lading.
Whether the factual findings regarding the cause of the loss (i.e., heavy weather conditions leading to the container falling overboard) supported the application of the US$500 per package limitation pursuant to both the Civil Code and the COGSA.
Whether the substituted liability award by the Court of Appeals was error-free in light of the established maritime law principles and the specific provisions governing the contract of carriage.