Cargo Hijacking and Liability: Breach of Contract and Subrogation Rules

The Supreme Court recently clarified how liability is allocated when insured cargo is lost to hijacking during transport by a subcontracted carrier. In Keihin-Everett Forwarding Co., Inc. v. Tokio Marine Malayan Insurance Co., Inc. (G.R. No. 212107, January 28, 2019), the Court affirmed that the primary common carrier remains liable to the shipper for breach of contract of carriage, even if the loss occurred while a subcontracted carrier had physical custody of the goods. The decision also clarifies the rules on subrogation, solidary liability, and the right of reimbursement between carriers.

The Facts of the Case

In 2005, Honda Trading Phils. ordered aluminum alloy ingots from an Indonesian supplier. The goods were shipped to Manila and insured under a marine policy. Honda Trading engaged Keihin-Everett to clear the cargo from the pier and deliver it to its warehouse in Laguna. Keihin-Everett, in turn, had an Accreditation Agreement with Sunfreight Forwarders to perform the actual inland trucking.

On November 8, 2005, after the cargo was released from customs, Sunfreight's truck was hijacked en route. One container van was recovered, but its contents—40 bundles of ingots worth over P2 million—were never retrieved. The insurer paid Honda Trading's claim and, as subrogee, sued Keihin-Everett for damages. Keihin-Everett filed a third-party complaint against Sunfreight.

The Issue

The central question was whether Keihin-Everett, as the common carrier that contracted directly with Honda Trading, could be held liable for the loss even though the cargo was in Sunfreight's custody when hijacked.

The Ruling: The Primary Carrier Remains Liable

The Supreme Court held that Keihin-Everett was liable to the insurer-subrogee for breach of contract of carriage. Under Article 1733 of the Civil Code, a common carrier must observe extraordinary diligence in the vigilance over goods it transports. This responsibility, under Article 1736, lasts from the time goods are unconditionally placed in the carrier's possession until they are delivered to the consignee.

The Court rejected Keihin-Everett's argument that it was absolved because the loss occurred while the cargo was in Sunfreight's custody. There was no privity of contract between Honda Trading and Sunfreight—Honda's contract was with Keihin-Everett alone. The Court also noted that hijacking is not considered a fortuitous event that excuses a common carrier from liability. A carrier may only be absolved if it proves the hijacking involved grave, irresistible threat, violence, or force—which Keihin-Everett failed to do.

No Solidary Liability, But a Right of Reimbursement

The Court clarified that Keihin-Everett and Sunfreight were not solidarily liable. Solidarity is never presumed; it exists only when the obligation expressly states so, when the law provides it, or when the nature of the obligation requires it. Since Keihin-Everett's liability arose from breach of contract—not quasi-delict—Article 2194 on solidary liability in quasi-delicts did not apply.

However, the Court held that Keihin-Everett had a right of reimbursement from Sunfreight. By subcontracting the delivery, Keihin-Everett entered into its own contract of carriage with Sunfreight. Under Article 1735, Sunfreight was presumed at fault for the loss and failed to rebut that presumption. Thus, Sunfreight was liable to Keihin-Everett for breach of their contract.

Subrogation Rules Affirmed

The Court also addressed procedural issues. It held that the insurer's failure to attach the insurance policy to the complaint was not fatal, since the insurer later presented the policy and a Subrogation Receipt as evidence. The right of subrogation under Article 2207 of the Civil Code accrues simply upon payment of the insurance claim—it does not depend on privity of contract.

Practical Takeaways

• Primary carriers remain liable to shippers even when they subcontract actual delivery; the shipper's contract is with the primary carrier alone.
• Hijacking is not automatic force majeure. A carrier must prove grave, irresistible threat, violence, or force to be excused.
• Subrogation arises upon payment. The insurer steps into the insured's shoes simply by paying the claim; attaching the policy to the complaint is not strictly required if it is later presented as evidence.
• Solidary liability is not presumed. Without an express stipulation or legal basis, co-defendants are not automatically jointly liable.
• Subcontracting creates a separate contract. The primary carrier can seek reimbursement from the subcontracted carrier for the latter's breach.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.