FACTS: 

American Home Assurance Co. and the National Marine Corporation (NMC) are foreign corporations licensed to do business in the Philippines. On or about 19 June 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of bleached kraft pulp from Haulien, Taiwan on board “SS Kaunlaran”, which is owned and operated by NMC. The said shipment was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with American Home Assurance Co..

On 22 June 1988, the shipment arrived in Manila and was discharged into the custody of the Marina Port Services, Inc., for eventual delivery to the consignee-assured.

However, upon delivery of the shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41. Mayleen Paper, Inc. then duly demanded indemnification from NMC for the damages and losses in the shipment but to no avail. Mayleen Paper, Inc. sought recovery from American Home Assurance Co.. Upon demand and submission of proper documentation, American Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31, 506.75 for the damages/losses suffered by the shipment, hence, AHA was subrogated to the rights and interests of Mayleen Paper, Inc.

AHA brought a suit against respondent NMC for the amount it paid Mayleen Paper, Inc.

The RTC rendered a decision dismissing the complaint, such decision was affirmed by the CA.

ISSUE:

Is American Home Assurance Company is entitled to reimbursement from NMC of what it paid to Mayleen Paper?

RULING:

YES.

The Supreme Court reversed the decisions of both the Court of Appeals and the Regional Trial Court of Manila, Branch 41, appealed from; and ordered NMC to reimburse the subrogee, American Home Assurance, the amount of P31,506.75.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them according to all circumstances of each case. Thus, under Article 1735 of the same Code, in all cases other than those mentioned in Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

Common carriers cannot limit their liability for injury or loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on averages under the Code of Commerce cannot be applied in determining liability where there is negligence.

Under the foregoing principle and in line with the Civil Code’s mandatory requirement of extraordinary diligence on common carriers in the care of goods placed in their stead, it is but reasonable to conclude that the issue of negligence must first be addressed before the proper provisions of the Code of Commerce on the extent of liability may be applied.

As resolved in National Development Co. v. C.A. (164 SCRA 593 [1988]; citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987], “the 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.” (Article 1753, Civil Code). Herein, thus, for cargoes transported to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code).

The filing of a motion to dismiss on the ground of lack of cause of action carries with it the admission of the material facts pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Herein, upon delivery of the shipment in question at Mayleen’s warehouse in Manila, 122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called “percentage method” at 4,360 kilograms and amounting to P61,263.41. Instead of presenting proof of the exercise of extraordinary diligence as required by law, NMC filed its Motion to Dismiss dated 7 August 1989, hypothetically admitting the truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was due to the negligence or fault of NMC. Such being the case, it is evident that the Code of Commerce provisions on averages cannot apply.

Article 1734 of the Civil Code provides that common carriers are responsible for loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein. Herein, it is obvious that the present case does not fall under any of the exceptions. Thus, American Home Assurance Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.