On 23 August 1993, Kinsho-Mataichi Corp shipped 197 metal containers/skids of tin-free steel from Kobe, Japan, for delivery to the consignee, San Miguel Corp (SMC). The shipment, covered by a bill of lading, was loaded and received clean on board the M/V Golden Harvest Voyage No 66, a vessel owned and operated by Westwind Shipping Corp (Westwind). SMC insured the cargoes against all risks with UCPB General Insurance Co Inc (UCPB). On arrival, the cargo was discharged into the custody of the arrastre operator, Asian Terminals Inc (ATI), formerly Marina Port Services 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'.] During the unloading operation, six containers/skids sustained dents and punctures from the forklift used by the stevedores of Ocean Terminal Services Inc (OTSI) in centring and shuttling the containers/skids. As a consequence, the local ship agent of the vessel, Baliwag Shipping Agency Inc, issued bad order cargo receipts.

On 7 September 1993, Orient Freight International Inc (OFII), the customs broker of SMC, withdrew from ATI the 197 containers/skids, and delivered them to SMC's warehouse. It was discovered upon discharge that an additional nine containers/skids were damaged.

On 15 August 1994, SMC filed a claim against UCPB, Westwind, ATI, and OFII, to recover the amount corresponding to the damaged 15 containers/skids. UCPB paid out and then sued Westwind, ATI, and OFII for damages on 30 August 1994. The regional trial Court (RTC) dismissed UCPB's complaint and the counterclaims of Westwind, ATI, and OFII. It ruled that the right, if any, against ATI had already prescribed based on the stipulation in the 16 cargo gate passes issued, as well as the doctrine laid down in International Container Terminal Services Inc v Prudential Guarantee & Assurance Co Inc, 377 Phil 1082 (1999), that a claim for reimbursement for damaged goods must be filed within 15 days from the date of the consignee's knowledge. With respect to Westwind, even if the action against it was not yet barred by prescription under s 3(6) of the Carriage of Goods by Sea Act (COGSA), and despite the decisions of this Court in EE Elser Inc v Court of Appeals, 96 Phil 264 (1954), and Belgian Overseas Chartering & Shipping NV v Philippine First Insurance Co Inc, 432 Phil 567 (2002) (CMI1495), the RTC opined that Westwind was not liable, since the discharging of the cargoes was performed by ATI personnel using forklifts, and there was no allegation that Westwind had a hand in the conduct of the stevedoring operations. Finally, the RTC likewise absolved OFII from any liability, reasoning that it never undertook the operation of the forklifts which caused the dents and punctures, and that it merely facilitated the release and delivery of the shipment as the customs broker and representative of SMC.

On appeal by UCPB, the Court of Appeals (CA) reversed and set aside the decision of the RTC. While the CA sustained the RTC judgment in respect that the claim against ATI had already prescribed, it rendered a contrary view as regards the liability of Westwind and OFII. For the CA, Westwind, not ATI, was responsible for the six damaged containers/skids at the time of its unloading. In its rationale, which substantially followed Philippines First Insurance Co Inc v Wallem Philippines Shipping Inc, GR No 165647, 26 March 2009, 582 SCRA 457 (CMI1514), it concluded that the common carrier, not the arrastre operator, is responsible during the unloading of the cargoes from the vessel, and that it is not relieved from liability, and is still bound to exercise extraordinary diligence at the time, in order to see to it that the cargoes under its possession remain in good order and condition. The CA also considered that OFII was liable for the additional nine damaged containers/skids, agreeing with UCPB's contention that OFII was a common carrier bound to observe extraordinary diligence, and was presumed to be at fault or have acted negligently for such damage. Noting the testimony of OFII's own witness that the delivery of the shipment to the consignee was part of OFII's job as a cargo forwarder, the CA ruled that art 1732 of the New Civil Code (NCC) does not distinguish between one whose principal business activity is the carrying of persons or goods or both and one who does so as an ancillary activity. The CA further ruled that OFII cannot excuse itself from liability by insisting that JB Limcaoco Trucking (JBL) actually undertook the delivery of the cargoes to SMC's warehouse. It held that the delivery receipts signed by the inspector of SMC showed that the containers/skids were received from OFII, not JBL. At the most, the CA said, JBL was engaged by OFII to supply the trucks necessary to deliver the shipment, under its supervision, to SMC.

Westwind and OFII appealed to the Supreme Court.

Held: The petitions of Westwind and OFII are denied. The CA judgment is affirmed.

The case of Philippines First Insurance Co Inc v Wallem Philippines Shipping Inc applies, as it settled the query on which between a common carrier and an arrastre operator should be responsible for damage or loss incurred by the shipment during its unloading. This Court elucidated at length:

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 Article 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 the same 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, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he 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. Lopez Castelo, the Court interpreted the ship captain’s liability as ultimately that of the shipowner by regarding the captain as the representative of the shipowner.

Lastly, Section 2 of the 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) thereof then states that among the carriers’ 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.

The extraordinary responsibility of the common carrier lasts until the time that the goods are actually or constructively delivered by the carrier to the consignee or to the person who has a right to receive them. There is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee, or to its duly authorised agent, and a reasonable time is given to it to remove the goods. In this case, since the discharging of the containers/skids, which were covered by only one bill of lading, had not yet been completed at the time the damage occurred, there is no reason to imply that there was already delivery, actual or constructive, of the cargoes to ATI.

That OFII is a common carrier is buttressed by the testimony of its own witness that part of the services it offers to clients is cargo forwarding, which includes the delivery of the shipment to the consignee. Thus, for undertaking the transport of cargoes from ATI to SMC's warehouse in Calamba, Laguna, OFII is considered a common carrier. As long as a person or corporation holds itself to the public for the purpose of transporting goods as a business, it is already considered a common carrier, regardless of whether it owns the vehicle to be used or has to actually hire one.

As a common carrier, OFII is mandated to observe, under art 1733 of the NCC, extraordinary diligence in the vigilance over the goods that it transports according to the peculiar circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence. It was established that, except for the six containers/skids already damaged, OFII received the cargoes from ATI in good order and condition; and that upon its delivery to SMC, an additional nine containers/skids were found to be in bad order. It is incumbent upon OFII to prove that it actively took care of the goods by exercising extraordinary diligence in the carriage thereof. It failed to do so. Hence, its presumed negligence under art 1735 of the NCC remains unrebutted.