This was a petition seeking the reversal of the Court of Appeals (CA) judgment in CA-GR No 61885. The CA reversed the decision of the regional trial Court (RTC) of Manila, Branch 55, in Civil Case No 96-80298, dismissing the complaint for a sum of money.

In October 1995, Anhui Chemicals Import & Export Corp loaded on the M/S Offshore Master a shipment consisting of 10,000 bags of sodium sulphate, complete and in good order for transportation to and delivery at the port of Manila for the consignee, LG Atkimson Import-Export Inc, covered by a clean bill of lading, which recorded the gross weight of the total cargo at 500,200 kgs. The carrier was Shanghai Fareast Ship Business Co, through its local ship agent, the respondent Wallem Philippines Shipping Inc (Wallem).

On discharge, 2,426 bags were in bad order and condition, having sustained various degrees of spillages and losses. This was evidenced by the turn-over survey of the arrastre operator, Asian Terminals Inc. [An arrastre is defined by the Philippine Ports Authority (PPA) as a 'person/entity who/which performs portside cargo handling operations, e.g. receiving, handling, custody, security and delivery of cargo passing over piers, quays or wharves, transit sheds/warehouses and open storages within the jurisdictional area of responsibility of the authorized contractor/operator'.] Asia Star Freight Services Inc undertook the delivery of the shipment from the pier to the consignee's warehouse in Quezon City, while the final inspection was conducted jointly by the consignee's representative and the cargo surveyor. It was discovered that 63,065 kgs of the shipment had sustained unrecovered spillages, while 58,235 kgs had been exposed and contaminated, resulting in losses due to depreciation and downgrading.

The petitioner, Philippines First Insurance Co Inc, paid the consignee, and then sued Wallem as subrogee.The RTC ordered the respondents to pay the petitioner PHP 397,879.69. It attributed the damage and losses sustained by the shipment to the arrastre operator's mishandling in the discharge of the shipment. Citing Eastern Shipping Lines Inc v Court of Appeals, GR No 97412, 12 July 1994, 234 SCRA 78, the RTC held the carrier and the arrastre operator solidarily liable, since both the arrastre operator and the carrier were charged with, and obligated to deliver, the goods in good order to the consignee. It also ruled that the ship functioned as a common carrier and was obliged to observe the degree of care required of a common carrier in handling cargoes. Further, it held that a notice of loss or damage in writing is not required in this case, because the goods already underwent a joint inspection or survey at the time of receipt by the consignee, which dispensed with the notice requirement.

The CA reversed and set aside the RTC's decision. According to the CA, there was no solidary liability between the carrier and the arrastre operator, because it was clearly established by the RTC that the damage and losses of the shipment were attributed to the mishandling by the arrastre operator in the discharge of the shipment. The CA ruled that the case fell under an exception recognised in Eastern Shipping Lines. Hence, the arrastre operator was held solely liable to the consignee.

The petitioner appealed to the Supreme Court.

Held: The petition is granted. The judgment of the CA is reversed and set aside. Wallem is ordered to pay petitioner the sum of PHP 397,879.69, with interest.

It is beyond question that the respondent's vessel is a common carrier. Thus, the standards for determining the existence or absence of the respondent's liability will be gauged on the degree of diligence required of a common carrier. Moreover, as the shipment was an exercise of international trade, the provisions of the Carriage of Goods by Sea Act (COGSA), together with the Civil Code and the Code of Commerce, apply. In American President Lines Ltd v Klepper, 110 Phil 243, 248 (1960), reiterated in Maritime Co of the Philippines v Court of Appeals, GR No 47004, 8 March 1989, 171 SCRA 61, this Court ruled that the provisions of COGSA are merely suppletory to the Civil Code in view of arts 1753 and 1756 of the Civil Code. See also Sea-Land Service Inc v Intermediate Appellate Court, No L-75118, 31 August 1987, 153 SCRA 552.

The trial Court found that the loss and damage to the cargo was caused by the mishandling of the arrastre operator. Specifically, the torn cargo bags resulted from the use of steel hooks/spikes in piling the cargo bags onto the pallet board, and in pushing the bags by the stevedores of the arrastre operator onto the tug boats, and then to the ports. The CA affirmed the finding of mishandling in the discharge of cargo, and it served as its basis for exculpating the respondents from liability, rationalising that with the fault of the arrastre operator in the unloading of the cargo established, it should bear sole liability for the cost of the damaged/lost cargo.

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 transported by them. Subject to certain exceptions enumerated under art 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation, until they are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.

For marine vessels, art 619 of the Code of Commerce provides that the master is liable for the cargo from the time it is turned over to him or her at the dock, or afloat alongside the vessel at the port of loading, until he or she delivers it on the shore or on the discharging wharf at the port of unloading, unless agreed otherwise. In Standard Oil Co of New York v Castelo, 42 Phil 256, 262 (1921), this Court interpreted the master's liability as ultimately that of the shipowner, by regarding the captain as the representative of the shipowner.

Lastly, s 2 of COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3(2) of COGSA states that among the carrier's responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ship's tackle. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods, and to turn them over to the party entitled to their possession. Handling cargo is mainly the arrastre operator's principal work, so its drivers/operators or employees should observe the standards and measures necessary to prevent losses and damage to shipments under its custody. In Fireman's Fund Insurance Co v Metro Port Service Inc, GR No 83613, 21 February 1990, 182 SCRA 455, this Court explained the relationship and responsibility of an arrastre operator to a consignee of a cargo:

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 and obligated to deliver the goods in good condition to the consignee. [Emphasis added by this Court.]

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, with the clarification that the arrastre operator and the carrier are not always and necessarily solidarily liable as the facts of a case may vary the rule. Thus, in this case the CA is correct in so far as it ruled that an arrastre operator and a carrier may not be held solidarily liable at all times. But the precise question is, which entity had custody of the shipment during its unloading from the vessel? Section 3(2) of COGSA states that among the carrier's responsibilities are to properly and carefully load, care for and discharge the goods carried. The bill of lading covering the subject shipment likewise stipulates that the carrier's liability for loss or damage to the goods ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds a master liable for the cargo from the time it is turned over to him or her until its delivery at the port of unloading.

In Nichimen Co v M/V Farland 462 F 2d 319, 1972 AMC 1573 (2d Cir 1972), the US Court of Appeals ruled that like the duty of seaworthiness, the duty of care of the cargo is non-delegable, and the carrier is accordingly responsible for the acts of the master, the crew, the stevedore, and its other agents. It has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and place it in readiness for delivery to the consignee, and there is an implied obligation that this shall be accomplished with sound machinery, competent hands, and in such manner that no unnecessary injury shall be done thereto. And the fact that a consignee is required to furnish persons to assist in unloading a shipment may not relieve the carrier of its duty as to such unloading.

The evidence shows that the damage to the bags happened before and after their discharge, and that it was caused by the stevedores of the arrastre operator, who were then under the supervision of Wallem. It is settled in maritime law jurisprudence that cargoes, while being unloaded, generally remain under the custody of the carrier. In the instant case, the damage or losses were incurred during the discharge of the shipment, while under the supervision of the carrier. Consequently, the carrier is liable for the damage or losses caused to the shipment. As the cost of the actual damage to the subject shipment has long been settled, the trial Court's finding of damages in the amount of PHP 397,879.69 has to be sustained.