G.R. No. 112287 - National Steel Corp. vs. Court of Appeals

Case Summary (G.R. No. 112287)

Factual Background

The subject vessel was the MV VLASONS I, a tramp ship employed under a voyage charter by National Steel Corporation as charterer and Vlasons Shipping, Inc. as owner. Under the charter the vessel was hired to load steel products at Iligan City and discharge them at North Harbor, Manila. NSC shipped 1,677 skids of tinplates and 92 packages of hot rolled sheets, a total of 1,769 packages weighing about 2,481.19 metric tons, stowed in three hatches. Upon opening the hatches after arrival, NSC’s agents observed wetting and rusting of the tinplates and metal covers. Surveys by the Manila Adjusters and Surveyors Company (MASCO) and laboratory analysis by M.I.T. Testing Laboratories reported seawater contact as the cause of wetting and rusting. The master filed a marine protest recounting heavy weather and partial loss of the outer tarpaulin covering. NSC claimed damage in the amount of P941,145.18 and filed suit for damages; VSI counterclaimed for unpaid freight of P75,000.00, demurrage claimed at P8,000.00 per day for eleven days (P88,000.00) and sought attorneys fees.

Trial Court Proceedings

The Regional Trial Court found that the MV VLASONS I was a private carrier, that it had been drydocked and inspected by the Philippine Coast Guard prior to the voyage, and that it possessed the requisite seaworthiness certificates. The trial court concluded that the ship was seaworthy and that the cargo had been properly stowed and covered with hatchboards and double tarpaulins. The court found negligence in the stevedoring operations employed by NSC during discharge, holding that temporary tent-like coverings used by the stevedores allowed rain and seawater to enter the hatches and wet the cargo. The trial court dismissed NSC’s complaint and granted VSI’s counterclaim, ordering NSC to pay P75,000.00 for freight, P88,000.00 for demurrage with legal interest from April 7, 1976, attorneys fees and expenses of litigation of P100,000.00, and costs.

Court of Appeals Ruling

The Court of Appeals affirmed the trial court’s factual findings but modified the award for demurrage, reducing it from P88,000.00 to P44,000.00, and deleted the award for attorneys fees and expenses of litigation. The appellate court otherwise affirmed the trial court’s disposition. Both parties filed motions for reconsideration which the Court of Appeals denied.

Issues Presented to the Supreme Court

The consolidated petitions raise questions of fact and law. The principal legal issues included whether the ship was a common carrier or private carrier; the applicable burden of proof; whether VSI exercised due diligence to render the vessel seaworthy; whether the damage resulted from seawater contact or from the inherent character or sweating of tinplates; admissibility of certificates of seaworthiness; the legal effect of NSC’s failure to insure the cargo; the charter party’s allocation of responsibility for loading and discharge; and liability for demurrage and attorneys fees.

Parties' Contentions

National Steel Corporation contended that the trial court erred in finding the vessel seaworthy, erred in attributing damage to the character of the goods rather than seawater contact, erred in finding the stevedores negligent, erred in invoking force majeure, and erred in imposing freight, demurrage and attorneys fees against NSC. Vlasons Shipping, Inc. challenged the reduction of demurrage and the deletion of attorneys fees and maintained that the rules applicable to common carriers should not apply to a private carrier, and that the contractual stipulations of the NANYOZAI Charter Party are valid and binding.

Supreme Court’s Disposition

The Supreme Court affirmed the decision of the Court of Appeals with modification. The petitions were denied. The Court affirmed all findings and conclusions of the Court of Appeals except that it deleted the remaining award of demurrage. The Court made no pronouncement as to costs.

Preliminary Legal Characterization: Private Carrier

The Court agreed with the lower courts that MV VLASONS I functioned as a private carrier under a voyage charter. The Court applied the test of whether the carrier offered services to the general public and concluded it did not. Because the contract was one of private carriage, the parties’ contractual stipulations govern rights and obligations. The Court noted that the stringent protections applicable to common carriers under the Civil Code do not apply to private carriers who may validly agree otherwise in a charter party.

Burden of Proof

Given the contract terms that exempted the owner from liability except for proven willful negligence and the NANYOZAI Charter Party provision that owners are not liable for unseaworthiness absent lack of due diligence, the Court held that NSC bore the burden of proving willful negligence or lack of due diligence by VSI. The Court relied on Art. 361 and Art. 362 of the Code of Commerce to underscore that damage to goods in carriage generally rests with the shipper unless the carrier’s negligence is proven, and that where contractual exemptions exist the shipper must establish a breach.

Seaworthiness and Evidentiary Findings

The Court found ample record support for the trial court’s and the Court of Appeals’ conclusions that VSI exercised due diligence to make the vessel seaworthy. Evidence included drydocking and inspection by the Philippine Coast Guard immediately prior to the voyage, and the vessel’s possession of seaworthiness certificates. The Court declined to disturb the concurrent factual findings of the courts below, reaffirming the rule that such findings are binding on the Supreme Court except in narrowly defined exceptional circumstances which NSC failed to establish.

Cause of Damage and Liability

The Court held that the record supported the lower courts’ conclusion that the wetting and rusting of the tinplates occurred during the discharge operations when stevedores hired by NSC used inadequate tent-like coverings that allowed rain and seawater to enter the hatches. The Court observed that the master’s marine protest and testimony show that the new outer tarpaulin held during heavy weather and that the vessel’s officers took reasonable measures. The Court therefore found NSC had not proved that the damage resulted from the shipowner’s willful negligence or from unseaworthiness attributable to lack of due diligence.

Effect of NSC’s Failure to Insure the Cargo

The Court explained that the contractual obligation of NSC to insure the cargo is separate from VSI’s contractual or statutory liability for damage resulting from the latter’s willful negligence. NSC’s failure to procure insurance did not preclude its right to sue VSI for damages if willful negligence by the vessel were proven, and nothing in the charter party made VSI’s liability contingent upon NSC’s insurance of the cargo.

Admissibility of Certificates Proving Seaworthiness

The Court reviewed the exhibits and ruled that most certificates offered by VSI were inadmissible because they were not properly proven or were photocopies not shown to satisfy the best evidence rule. However, the Court found admissible the original Philippine Coast Guard certificate issued at Cebu (Exhibit 11) under Section 44, Rule 130 of the Rules of Court as an ent

Case Syllabus (G.R. No. 112287)

Parties and Procedural Posture

NATIONAL STEEL CORPORATION filed suit against VLASONS SHIPPING, INC. for PHP 941,145.18 in damages for wetting and rusting of shipped tinplates and hot rolled sheets, and the case was docketed as Civil Case No. 23317 before the Regional Trial Court.
VLASONS SHIPPING, INC. answered, denied liability, and filed a counterclaim for unpaid freight of PHP 75,000.00, demurrage of PHP 88,000.00, and attorneys fees of PHP 100,000.00.
The trial court (RTC, Branch 163, Pasig) dismissed the complaint and awarded the counterclaim in favor of VLASONS SHIPPING, INC. including demurrage and attorneys fees.
The Court of Appeals modified the RTC decision by reducing demurrage to PHP 44,000.00 and deleting the award of attorneys fees, and otherwise affirmed.
Both NATIONAL STEEL CORPORATION and VLASONS SHIPPING, INC. separately petitioned the Supreme Court by certiorari seeking review of the Court of Appeals decision, and their petitions were consolidated for resolution by this Court.

Key Facts

The vessel MV VLASONS I was engaged under a one-voyage Contract of Voyage Charter Hire dated July 17, 1974 to load steel products at Iligan City and discharge at North Harbor, Manila.
The cargo consisted of 1,677 skids of tinplates and 92 packages of hot rolled sheets totaling about 2,481.19 metric tons stowed in three hatches and acknowledged by the ship's chief mate on August 8, 1974 by bill of lading.
The vessel arrived at North Harbor on August 12, 1974 and upon opening the hatches on August 13, 1974 most of the cargo was alleged to be wet and rusty, and discharge completed on August 24, 1974 after interruptions from heavy rain.
MASCO conducted an ocular inspection and M.I.T. Testing Laboratories reported that wetting was caused by contact with sea water, and NATIONAL STEEL CORPORATION presented a damage claim and later sued when VSI refused payment.
The vessel master filed a Marine Protest documenting encounters with very rough seas, heavy rains, and partial failure of canvas hatch coverings during the voyage.

Contract Terms

The parties' Contract of Voyage Charter Hire fixed freight at PHP 30.00 per metric ton on FIOST terms and provided for laydays/cancelling and a loading/discharging rate of 750 tons per WWDSHINC (weather working day of 24 consecutive hours, Sundays and Holidays Included).
The contract incorporated the NANYOZAI Charter Party clauses exempting owners from liability except for proven willful negligence or lack of due diligence to make the vessel seaworthy, and placed loading, stowage and discharge responsibilities on the charterer.
The charter party expressly required the charterer to insure the cargo and contained demurrage/dispatch rates of PHP 8,000.00/PHP 4,000.00 per day.

Issues Presented

Whether the vessel was a common carrier or a private carrier and the legal consequences of that classification.
Whether MV VLASONS I was seaworthy and whether VSI exercised due diligence to make it seaworthy.
Whether the cargo damage was caused by willful negligence of the vessel's officers or by negligence of the charterer's stevedores.
Whether NATIONAL STEEL CORPORATION’s failure to insure the cargo relieved VSI of liability.
Whether the demurrage award was properly computed given the WWDSHINC laytime clause.
Whether the award of attorneys fees to VSI was proper.
Whether certificates of seaworthiness and related documents were admissible as evidence.

Statutory Framework

Article 1732 of the Civil Code defines a common carrier and informs the distinction between common and private carriage.
Articles 361 and 362 of the Code of Commerce allocate risk in maritime transport and govern burden of proof in private carriage by providing that merchandise is transported at the shipper's risk unless otherwise stipulated, and that the carrier is liable only if negligence is proven.
Section 44, Rule 130, Rules of Court provides an exception to the hearsay rule for entries in official record