Eastern Shipping Lines, Inc. v. IAC and Development Insurance & Surety Corp.

G.R. No. L-69044 May 29, 1987

Eastern Shipping Lines, Inc. v. The Nisshin Fire and Marine Insurance Co., and Dowa Fire
& Marine Insurance Co., Ltd.
G.R. No. 71478 May 29, 1987

Digested by Calma, Marvin F.

FACTS:

(G.R. No. L-69044) A vessel operated by petitioner Eastern Shipping Lines, Inc. loaded 5,000
pieces of calorized lance pipes in 28 packages consigned to Philippine Blooming Mills Co., Inc.
in Kobe, Japan for transport to Manila. Likewise, seven cases of spare parts consigned to Central
Textile Mills, Inc were also transported. Both sets of goods were insured with Development
Insurance and Surety Corp.

(G.R. No. 71478) The same vessel took on board 128 cartons of garment fabrics and accessories,
in two containers, consigned to Mariveles Apparel Corporation, and two cases of surveying
instruments consigned to Aman Enterprises and General Merchandise. The vessel caught fire and
sank, resulting in the total loss of ship and cargo.

ISSUES:

1. Which law should govern- the Civil Code provisions on common carriers or the Carriage of
Goods by Sea Act (COGSA)? ;

2. Who has the burden of proof to show negligence of the carrier?

3. What is the extent of the carriers liability?

HELD:

1. The Court held that law of the country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or deterioration. As the cargoes
were being transported from Japan to the Philippines, the liability of petitioner carrier is
governed primarily by the Civil Code. However, in all matters not regulated by the Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce and by
special laws. Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the
provisions of the Civil Code.
2. Article 1735 of the Civil Code provides that all cases other than those mentioned in Article
1734, the common carrier shall be presumed to have been at fault (presumption of negligence) or
to have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law. The burden is upon Eastern Shipping Lines to prove that it has exercised the
extraordinary diligence required by law. Fire, the cause of the vessels sinking, is not considered
a natural disaster or calamity within the contemplation of Art. 1734. It arises almost invariably
from some act of man or by human means. It does not fall within the category of an act of God
unless caused by lightning or by other natural disaster or calamity. Having failed to discharge the
burden of proving that it had exercised the extraordinary diligence required by law, Eastern
Shipping Lines cannot escape liability for the loss of the cargo. As it was at fault, it cannot seek
the protective mantle of Sec. 4(2) of Carriage of Goods by Sea Act which provides: Neither the
carrier nor the ship shall be responsible for loss or damage arising or resulting from x x x (b)
Fire, unless caused by the actual fault or privity of the carrier. There was actual fault of the
carrier shown by lack of diligence. When smoke was noticed, the fire was already big.The fire
must have started 24 hours prior to being noticed. The cargoes were stored in the hatches but no
regular inspections were made as to their condition during the voyage. Hence, the Court found
the petitioner negligent in observing extraordinary diligence.

3. Art. 1749 of the Civil Code provides : A stipulation that the common carriers liability is
limited to the value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding. There was no stipulation in the Bills of Lading limiting the
carriers liability for the loss or destruction of the goods. Also, no declaration of a higher value
of the goods was made. Hence, Eastern Shipping Lines liability should not exceed US $500 per
package (as provided in 4(5) of the COGSA), or its peso equivalent, at the time of payment of
the value of the goods lost, but in no case more than the amount of damage actually sustained.