Facts:
On June 20, 1996, the
Philippine Home Assurance Corporation (PHAC), as subrogee of the consignees, filed a complaint before the Regional Trial Court of Manila, Branch 39, against
Eastern Shipping Lines, Inc. (ESLI) to recover amounts it paid under protest for additional freight and salvage charges arising from a fire aboard
SS Eastern Explorer. The shipment—freight pre-paid and supposedly loaded in good order and condition—consisted of two boxes of internal combustion engine parts consigned to
William Lines, Inc. under Bill of Lading No. 042283; ten metric tons (334 bags) of ammonium chloride consigned to
Orca’s Company under Bill of Lading No. KCE-12; two hundred bags of
Glue 300 consigned to
Pan Oriental Match Company under Bill of Lading No. KCE-8; and garments consigned to
Ding Velayo under Bills of Lading Nos. KMA-73 and KMA-74. While the vessel was off Okinawa, Japan, a small flame was detected on an acetylene cylinder located in the accommodation area near the engine room. When the crew attempted to extinguish the fire, the acetylene cylinder exploded, sending flames through the accommodation area, causing deaths and severe injuries to crew members, and instantly setting fire to the entire superstructure of the vessel. The incident compelled the master and crew to abandon the ship, which was later found to be a
constructive total loss and whose voyage was declared abandoned. Several hours later, a tugboat under the control of
Fukuda Salvage Co. arrived and commenced towing the vessel to Naha, Japan, where fire-fighting operations were again conducted. After the fire was extinguished, the cargoes that were saved were loaded onto another vessel for delivery to their original ports of destination. ESLI charged the consignees additional freight and
salvage charges, and PHAC paid these charges under protest on behalf of the consignees:
P1,927.65 for salvage charges for goods under Bill of Lading No. 042283; for the goods under Bill of Lading No. KCE-12,
P2,980.64 for additional freight and
P826.14 for salvage charges; for the goods under Bill of Lading No. KCE-8,
P3,292.26 for additional freight and
P4,130.68 for salvage charges; and for the goods under Bills of Lading Nos. KMA-73 and KMA-74,
P8,337.06 for salvage charges. In the trial court, PHAC alleged that the amounts paid were actually damages directly brought about by ESLI’s fault, negligence, illegal act, and/or breach of contract. ESLI, in turn, claimed it exercised the diligence required by law; that the fire resulted from an unforeseen event; that the additional freight charges were demandable under the bills of lading; and that salvage charges were properly collectible under
Act No. 2616 (Salvage Law). The trial court dismissed the complaint, holding that the vessel was seaworthy, that the acetylene cylinder was tested and certified before loading, that the crew promptly attempted to extinguish the fire, and that the explosion and burning were a natural disaster beyond ESLI’s fault. The trial court further ruled that the salvage operations were a legal basis for salvage claims and that additional freight charges were proper due to physical impossibility of delivering the goods as contracted and due to the bills of lading stipulations on storage, transshipment, forwarding, or other disposition at a port of distress. On appeal, the
Court of Appeals affirmed. PHAC then sought review before the Supreme Court, challenging the CA’s acceptance of the findings that the fire was a calamity, that ESLI was not at fault, that ESLI exercised extraordinary diligence, the admissibility of certain documents as evidence, and the legal characterization of salvage-related expenses and additional freight charges.
Issues:
Whether ESLI was liable to refund to PHAC the amounts it paid under protest for additional freight and salvage charges, considering (a) whether the fire and loss of the voyage were due to ESLI’s fault or a natural calamity; (b) whether the Statement of Facts and Marine Note of Protest were admissible; (c) whether expenses incurred in saving the cargo constituted
general average under the Code of Commerce; and (d) whether the consignees could be made liable for additional freight and salvage charges.
Ruling:
Ratio:
Doctrine: