Ordinary diligence

Can a person or entity who is not a party to a contract sue any of the parties thereto for breach of said contract? This is the question raised in the case of a stevedoring company (MTBS).

MTBS was contracted by a food and agricultural products company (DMP) to load and stow a shipment of 146,288 cartons of fresh green bananas and 15, 202 cartons of fresh pineapple belonging to its sister company (DMF) into the cargo hold of a foreign vessel (MVM). The goods were to be transported to Korea in favor of consignee (TII). DMF insured the shipment under an “open cargo policy” with a New York based insurance company (PAC) and its underwriting agent (MGC).

MTBS thus loaded and stowed the cargoes of DMF aboard the MVM in accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s hold prepared by DMF and the vessel’s officers, using materials such as ropes, pallets and cardboards provided by MVM that meets industry standards. The loading and stowing were done under the direction and supervision of the ship officers who would order the closing of the hatches only if the loading was done correctly after a final inspection. Then a foreman’s report is prepared by the checkers of MTBS concurred by the MVM Chief Officer after being satisfied that the cargoes were properly loaded.

After the loading, MVM set sail and arrived in Korea although it encountered a typhoon during the voyage. Upon arrival and discharge of the cargo, it was discovered that some of them were in bad condition. The Marine Cargo Damage Surveyor reported that 16,069 cartons of banana shipment and 2,185 cartons of pineapple shipment were so damaged that they no longer had commercial value.

After the insurers PAC and MGC paid the amount of loss to DMF as recommended by the Adjuster in the sum of $210,266.43, DMF issued a subrogation receipt to PAC and MGC. In turn MGC and PAC filed an action for damages against MTBS before the Regional Trial Court.

In a decision dated 20 October 1999, the RTC held that MTBS was not liable because its only participation was to load the cargoes on board MVM under the direction and supervision of its officers who would not have accepted the cargoes if not properly loaded to withstand voyage. The RTC also found that the cargoes were damage on account of a typhoon during the voyage. The RTC further held that PAC and MGC had no cause of action against MTBS because the latter had no contract with the assured DMF but with DMP a corporation distinct and separate from DMF. Hence the RTC dismissed the complaint and awarded MTBS P100,000 attorney fees and P83,845.90 actual damages representing the expenses of its lawyer in attending the hearings of the case. Was the RTC correct?

The RTC is not correct in ruling that PAC and MGC had no cause of action against MTBS because the latter’s services was contracted by DMP and not by the assured DMF. Even assuming that PAC and MGC have only been subrogated to the rights of DMF who is not a party to the contract of services between MTBS and DMP, still they have a cause of action because the act that breaks the contract may also be a tort. A liability for tort may arise even under a contract where tort is that which breaches the contract. In this case, PAC and MGC are not suing for damages arising from the breach of contract of service but from the alleged negligent manner by which MTBS handled the cargoes belonging to DMF. Despite the absence of contractual relationship between DMF and MTBS, the allegation of negligence on the part of MTBS should be sufficient to establish a cause of action arising from quasi-delict.

But even if PAC and MGC had a cause of action against MTBS, they were not able to prove it. The RTC is correct in finding that MTBS’s participation was only to load and stow the cargo. Under Article 1173 of the Civil Code, the degree of diligence which is to be observed in the performance of its obligation is only ordinary diligence. And in this case, it is clear that MTBS has not acted negligently and had duly exercised the required degree of diligence in loading and stowing the cargoes. However the award of attorney’s fees in favor of MTBS is not also proper for there is no showing that PAC and MGC instituted the action for the mere purpose of vexation or injury (Mindanao Terminal etc. vs. Phoenix Assurance etc. G.R. 162467, May 8, 2009).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call Tel. 7249445.

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