23 Eastern Shipping Lines vs CA

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents.

G.R. No. 97412 | July 12, 1994 | J. VITUG | [ MAOI DR ]

Doctrine: The court recommended guidelines for settling the amount of legal interest and the
determination of the start of legal interest. See the discussion below.

Nature: Appeal from a judgement of the CA finding Eastern Shipping liable for damaged goods.

Facts

On Dec. 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET", owned by Eastern Shipping Lines. The shipment was insured under the Mercantile
Insurance Company’s Marine Insurance Policy for P36,382,466.38. Mercantile Insurance is the original
plaintiff.

Upon arrival of the shipment in Manila on Dec. 12, 1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. Metro Port noted one drum in bad order. This damage was unknown to
Mercantile.

On Jan. 7, 1982 Allied Brokerage Corporation received the shipment from Metro Port one drum opened
and without seal.

On Jan. 8 and 14, 1982, Allied Brokerage then made deliveries of the shipment to the consignee's
warehouse. The consignee noted that one drum contained spillages, while the rest of its contents were
adulterated/fake.

Mercantile contended that due to the losses and damage sustained by this one drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants (Eastern Shipping, Metro Port, and Allied Brokerage) who failed and refused to pay
the same.

As a consequence of the losses sustained, Mercantile was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants Eastern Shipping, Metro Port, and Allied Brokerage.

THE COURT A QUO

The court a quo ruled the losses and damages were sustained while in the respective and successive
custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage).

This is evident from the Marine Cargo Survey Report. It is stated that when the shipment was docked, it
was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad
Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from the arrastre operator's custody, one drum was found opened without seal, cello bag
partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that
when the drums reached the consignee, one drum was found with adulterated/faked contents. It is
obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while
under the successive custodies of defendants.

Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in
the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been
advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).

Accordingly, the court a quo ordered defendants carrier (Eastern), arrastre operator (Metro Port) and
broker (Allied Brokerage) to jointly and severally pay Mercantile Insurance the amount of P19,023 with
legal interest of 12% from the date of filing of the complaint.

IAC

The IAC affirmed in toto the decision of the court a quo. Thus defendant Eastern Shipping lines filed the
instant petition alleging errors and grave abuse of discretion on the IAC.

Issues and Ratio

Whether or not a claim for damage sustained on a ship can be a solidary liability of the common carrier,
arrastre operator, and the customs broker?

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods
that are in its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.

Of course, the arrastre and customs broker are necessarily only liable when attendant facts may prove so.
A factual finding of both the court a quo and the appellate court is that "there is sufficient evidence that
the shipment sustained damage while in the successive possession of appellants" including Eastern
Shipping. Accordingly, the liability imposed on Eastern Shipping, the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.

Whether the payment of legal interest on an award for loss or damage is to be computed from the time
the complaint was filed or the date the decision is rendered? Whether the applicable rate of interest is
12% or 6%

For these two questions, the court surveyed two groups of cases.

In the first group1, the basic issue focuses on the application of either 6% (Civil Code) or 12% (Central Bank
Circular) interest per annum.

The consistent holding is that the Central Bank Circular imposing 12% legal interest is only applicable to
loans, or forbearances of money, goods, or credit; and judgements involving such loans or forbearances
of money goods or credit. The Civil Code provision that mandates 6% interest governs the payment of

1
Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992)
indemnities in the concept of damages arising from breach or delay in performance of obligations.
Furthermore, in these cases, the 6% interest is always applied from the time the complaint is filed.

The second group2 however varied on the commencement of the running of legal interest. The factual
circumstances may have called for different applications, guided by the rule that the courts are vested
with discretion, depending on the equities of each case, on the award of interest.

However, the Court presents the following rules for future guidance:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 116923 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.

RULING

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision,
dated

2
Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and
American Express International v. Intermediate Appellate Court (1988).
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision until the payment thereof.

(In other words, interest is 6% per annum from the initial court a quo decision, which turns into 12% per
annum upon the finality of the Supreme Court Decision.)