Title
Asian Terminals, Inc. vs. 1st Lepanto-Taisho Insurance Corp.
Case
G.R. No. 185964
Decision Date
Jun 16, 2014
A shipment of sodium tripolyphosphate was damaged while in ATI's custody. FIRST LEPANTO, subrogated by GASI, sued for reimbursement. The Supreme Court held ATI liable, ruling it failed to prove due diligence, and affirmed FIRST LEPANTO's subrogation rights, awarding damages with interest and attorney's fees.
court of appeals
liability
loss and damage

Case Summary (G.R. No. 185964)

Shipment, Insurance, Loss/Claims, and Subrogation

The undisputed facts showed that on July 6, 1996, 3,000 bags of sodium tripolyphosphate, packed in 100 plain jumbo bags, were loaded on board M/V Da Feng owned by COSCO for delivery to GASI. The shipment was covered by marine insurance through a Certificate of Insurance dated August 24, 1995, under Marine Open Policy No. 0123, insuring the shipment against all risks for P7,959,550.50.

The vessel arrived in Manila on July 18, 1996, and the shipment was discharged into ATI’s possession and custody as arrastre operator. The cargo remained in ATI’s storage area until it was withdrawn by PROVEN on August 8 and 9, 1996 for delivery to GASI.

After withdrawal, GASI inspected the cargo and found shortages of 8,600 kilograms and spillage of 3,315 kg, for a total loss/damage of 11,915 kg, valued at P166,772.41. GASI sought recompense from COSCO, through its Philippine agent SMITH BELL, and from ATI and PROVEN, but was denied. GASI thus pursued indemnification from its insurer.

Following investigation and adjustment, First Lepanto paid GASI P165,772.40 as insurance indemnity. GASI then executed a Release of Claim discharging First Lepanto from further liabilities relating to the shipment, and subrogated First Lepanto to GASI’s rights of recovery and claims against parties responsible for the loss/damage. Acting as subrogee, First Lepanto demanded reimbursement from COSCO’s shipping agency, SMITH BELL, PROVEN, and ATI. Because demands were not heeded, First Lepanto filed a complaint for sum of money.

Trial Court Proceedings Before the MeTC

On May 29, 1997, First Lepanto filed a Complaint for sum of money before the Metropolitan Trial Court (MeTC) of Manila, Branch 3. It sought reimbursement of P166,772.41, twenty-five percent (25%) as attorneys’ fees, and costs of suit.

ATI denied liability and invoked due diligence. It alleged that upon arrival of the shipment, SMITH BELL requested ATI’s inspection and that one jumbo bag was discovered damaged while still under COSCO’s custody, as shown by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6, 1996, jointly executed by ATI and COSCO. ATI added that during withdrawal by PROVEN, the entire shipment was re-examined and found in the same condition as when turned over, with only one damaged jumbo bag. It supported this claim with Request for Bad Order Survey No. 40622 dated August 9, 1996, jointly executed by ATI and PROVEN, and with Cargo Gate Passes indicating that PROVEN withdrew the shipment in good order condition except for the one damaged jumbo bag. ATI also asserted, in the alternative, that under its cargo handling services contract with the Philippine Ports Authority (PPA), its liability was limited to not more than P5,000.00 per package. ATI further counterclaimed P20,000.00 as attorneys’ fees and filed a cross-claim against COSCO and SMITH BELL if ATI were found liable.

PROVEN denied liability and argued that the complaint failed to allege specific acts or omissions attributable to it. It asserted that the damage occurred before withdrawal from ATI’s custody and that ATI left the shipment in an open area exposed to the elements, thieves, and vandals. PROVEN also filed counterclaims for attorneys’ fees and damages.

COSCO and SMITH BELL received summons on December 4, 1996 but failed to answer. First Lepanto moved for their default, but the MeTC denied the motion. It relied on Rule 9, Section 3 of the Rules of Civil Procedure, holding that when a pleading asserts a common cause of action against several defending parties, the court shall try the case against all upon the answers filed, even if some do not answer.

In a Judgment dated May 30, 2006, the MeTC absolved ATI and PROVEN but found COSCO to be at fault and liable. However, it held it lacked jurisdiction over COSCO because the latter was a foreign corporation. It also ruled it could not enforce judgment against SMITH BELL due to lack of evidence establishing SMITH BELL as COSCO’s Philippine agent and lack of evidence of fault attributed to SMITH BELL. Consequently, the MeTC dismissed the complaint for failure of First Lepanto to sufficiently establish its cause of action against ATI, COSCO, SMITH BELL, and PROVEN, and dismissed the counterclaims of ATI and PROVEN for lack of legal basis.

Appellate Review Before the RTC

First Lepanto appealed. The Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 06-116237, reversed the MeTC.

In its Decision dated January 26, 2007, the RTC rejected ATI’s due diligence theory. It noted that ATI’s documents were prepared weeks after arrival: if the jumbo bag had already been in bad order condition when ATI received the shipment on July 18, 1996, then the Request for Bad Order Survey and the Turn Over Survey of Bad Order Cargo—dated August 9, 1996 and August 6, 1996 respectively—appeared inconsistent with ATI’s version. The RTC ruled ATI failed to prove due diligence in its custody and was negligent, and therefore held ATI liable for damages to GASI, with First Lepanto as subrogee having the corresponding right to reimbursement.

The RTC also rejected ATI’s attempt to limit liability to P5,000.00 per package, reasoning that the claimed Management Contract with PPA was not presented in evidence. It further held that First Lepanto or GASI could not be deemed bound by that limitation since they were not parties thereto.

Finally, the RTC dismissed ATI’s prescription defense. It reasoned that GASI failed to file any claim within the fifteen-day period stated in the gate passes; nonetheless, the RTC did not accept the defense and ruled against ATI on that point as well.

The RTC thus ordered ATI to reimburse P165,772.40 with legal interest until fully paid, to pay ten percent (10%) attorneys’ fees, and to pay costs of suit. It dismissed the complaint against COSCO/SMITH BELL and PROVEN for lack of evidence and dismissed ATI’s counterclaim and cross-claim for lack of merit.

The CA Decision and Denial of Reconsideration

ATI sought review with the CA, disputing, among others, the validity of First Lepanto’s subrogation. ATI argued that First Lepanto failed to prove an enforceable marine insurance contract because First Lepanto supposedly only submitted a Certificate of Insurance or Marine Cover Note rather than the actual policy. It relied on Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.

On October 10, 2008, the CA dismissed the appeal and affirmed the RTC. The CA held that the Release of Claim and the Certificate of Insurance established First Lepanto’s relationship with GASI, and that upon proof of payment of GASI’s damages claim, First Lepanto was subrogated to GASI’s rights against those liable. The CA also affirmed that the shipment was damaged while in ATI’s custody.

ATI moved for reconsideration, but the CA denied it in a Resolution dated January 12, 2009.

Issues Raised in the Petition

ATI proceeded to the Supreme Court, presenting arguments that: first, the presentation of the insurance policy was indispensable to establish First Lepanto’s subrogation rights under Wallem; and second, ATI could not be barred from invoking prescription based on the fifteen-day period in the gate passes, relying on International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc.

The Court’s Ruling on Liability: Due Care and Burden of Proof

The Court denied the petition.

The Court held that ATI failed to prove that it exercised due care and diligence while the shipment remained in ATI’s custody, control, and possession as arrastre operator. It emphasized that factual questions regarding ATI’s liability were already settled through uniform findings of the RTC and the CA, both concluding that ATI failed to prove by a preponderance of evidence that it exercised due diligence in handling the shipment. The Court treated those concurrent factual findings as binding and conclusive because a Rule 45 petition is limited to questions of law, absent recognized exceptions.

The Court then confirmed from the records that ATI was liable. It explained that the relationship between consignee and arrastre operator is comparable to that between consignee and common carrier, or depositor and warehouseman. Thus, the arrastre operator must observe the same degree of diligence as required of a common carrier and warehouseman. As custodian of goods discharged from a vessel, ATI’s duty was to take good care of the cargo and to turn it over to the party entitled to possession.

In a loss claim filed by the consignee or insurer, the Court ruled that the burden of proof shifts to the arrastre operator to show compliance with its delivery obligation. Since ATI was responsible for safekeeping, it had to prove that the losses were not due to its negligence or that of its employees. To avoid liability, ATI needed to establish due diligence in handling the shipment.

The Court found ATI failed to do so. ATI’s defense relied mainly on the asserted evidence of pre-existing damage while the shipment was under COSCO’s custody, as reflected in the Request for Bad Order Survey dated August 9, 1996. The Court sustained the RTC and CA’s view that the contention was improbable and illogical because the document’s date was too remote from July 18, 1996, the date ATI received the shipment from COSCO. The Court stressed that the document showed that when the loss/damage was discovered, the cargo had already been under ATI’s custody for at least two weeks. Additionally, the Court relied on PROVEN’s witnesses that while the shipment was in ATI’s custody, it was left in an open area exposed to elements, thieves, and vandals. These circumstances led to the conclusion that ATI did not exercise due care and diligence.

The Court held that ATI’s approach was insufficient. It ruled that an arrastre operator must do more than assert that another party could be responsible. It must prove the use of all reasonable means to handle

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