American Home Assurance vs.

CA Case Digest
American Home Assurance vs. Court of Appeals
(208 SCRA 343)

Facts: On or about June 19, 1998, Cheng Hwa Pulp Corp. shipped 5,000 bales of bleached kraft
pulp from Haulien, Taiwan on board “SS Kaunlaran” (owned by National Marine Corporation). The
shipment was consigned to Mayleen Paper, Inc. which insured the same with American Home
Assurance Co. On June 22, 1998, the shipment arrived in manila and was discharged onto the
custody of the Marina Port Services, Inc. However, upon delivery to Mayleen Paper Inc., it was
found that 122 bales had either been damaged or lost with the value of P61, 263.41.

Mayleen Paper Inc, duly demanded indemnification from NMC but was not heeded. Mayleen then
sought recovery from American Home Assurance, the insurer, which was adjusted to P31, 506.75.
As subrogee, American Home then filed a suit against NMC for the recovery of the said amount.
NMC filed a motion to dismiss on the ground that there was no cause of action based on Art 848 of
the Code of Commerce which provides “that claims for averages shall not be admitted if they do not
exceed 5% of the interest which the claimant may have in the vessel or in the cargo if it be gross
average and 1% of the goods damaged if particular average, deducting in both cases the expenses
of appraisal, unless there is an agreement to the contrary. NMC contended that based on the
allegations of the complaint, the loss sustained in the case was P35, 506.75 which is only .18% of
P17.420.000.00, the total value of the cargo.

The trial court dismissed the case for lack of cause of action. American Home then filed a petition for
certiorari with the Court of Appeals which later dismissed as constituting plain errors of law. Hence,
this petition.

Issue: Whether or not the law on averages applies when there is negligence?

Held: NO. 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. It is 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.

Instead of presenting proof of the exercise of extraordinary diligence as requires by law, NMC filed
its motion to dismiss, 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.

Philippine Home Assurance vs. CA Case Digest

Philippine Home Assurance vs. Court of Appeals
(257 SCRA 468)

Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, a
shipment for carriage to Manila and Cebu freight prepaid and in good order and condition. While the
vessel is off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the
main deck level. As the crew was trying to extinguish the fire, the acetylene cylinder suddenly
exploded sending a flash of flame throughout the accommodation area, thus causing death and
severe injuries to the crew and instantly setting fire to the whole superstructure of the vessel. The
incident forces the master and the crew to abandon the ship. Thereafter, SS Eastern Explorer was
found to be constructive total loss and its voyage was declared abandoned. Several hours later, a
tugboat under the control of Fukuda Salvage Co. arrived near the vessel and commenced to tow the
vessel for the port of Naha, Japan.

After the fire was extinguished, the cargoes which were saved were loaded to another vessel for
delivery for their original of port of destination. ESLI charged the consignees several amounts
corresponding to additional freight and salvage charges. The charges were all paid by Philippine
Home Assurance Corporation (PHAC) under protest for and in behalf of the consignees. PHAC, as
subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of Manila,
Branch 39, against ESLI to recover the sum paid under protest on the ground that the same were
actually damages directly brought about by the fault, negligence, illegal act and/or breach of contract
of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody
and carriage of the shipment; that the fire was caused by unforeseen event; that the additional
freight charges are due and demandable pursuant to the Bill of Lading, and that salvage charges are
properly collectible under Act. No. 2616, known as the Salvage Law.

The trial court dismissed the PHAC’s complaint and ruled in favor of ESLI. The court said that the
Supreme Court has ruled in Erlanger and Galinger vs. Swedish East Asiatic Co., Ltd., 34 Phil. 178,
that three elements are (1) a marine peril (2) service voluntary rendered when not required as an
existing duty or from a special contract and (3) success in whole or in part, or that the service
rendered contributed to such success. The court said that the above elements are all present in the
instant case. Salvage charges may thus be assessed on the cargoes saved from the vessel. As
provided for in Section 13 of the Salvage Law, “The expenses of salvage, as well as the reward for
salvage or assistance shall be a charge on the things salvaged or their value.” In Manila Railroad
Co. vs. Macondray Co., 37 Phil. 583. It was also held that “When a ship and its cargo are saved
together, the salvage allowance should be charged against the ship and the cargo in the proportion
of their respective values, the same as in the case of general average…” Thus, the “compensation to
be paid by the owner of the cargo is in proportion to the value of the vessel and the value of the
cargo saved.”

On appeal to the Court of Appeals, respondent court affirmed the trial court’s findings and
conclusion; hence, the present petition for review before this Court on the following error, among
others:

Issue: Whether or not the respondent Court erroneously adopted with approval the Trial Court’s
conclusion that the expenses or averages incurred in saving the cargo constitute general average?

Held: On the issue whether or not respondent court committed an error in concluding that the
expenses incurred in saving the cargo are considered general average, we rule in the affirmative. As
a rule, general or gross averages include all damages and expenses which are deliberately caused
in order to save vessels, its cargo or both at the same time, from a real and known risk. While the
instant case may technically fall within the purview of the said provision, the formalities prescribed
under Article 813 and 814 of the Code of Commerce in order to incur the expenses and cause the
damage corresponding to gross average were not complied with. Consequently, respondent ESLI’s
claim for contribution from the consignees of the cargo at the time of the occurrence of the average
turns to naught.

The Court reversed and set aside the judgment of the respondent court and ordered respondent
Eastern Shipping Lines. Inc. to return to petitioner Philippine Home Assurance Corporation the
amount it paid under protest in behalf of the consignees.