PHILAMGEN vs.

SWEET LINES FACTS A total 7,000 bags of low density polyethylene (600 bags of polyethylene 641 and 6,400 bags of polyethylene 647) were shipped from Baton Rouge, LA to Manila on board SS Vishva Yash, a vessel belonging to the Shipping Corporation of India (SCI). From Manila, the cargoes were shipped to Davao on board MV Sweet Love, a vessel owned by Sweet Lines. The consignee was Far East Bank with arrival notice to Tagum Plastics, Inc., Tagum, Davao City. The cargoes were insured by Far East Bank with the Philippine American General Insurance Co (Philamgen) and were covered by bills of lading which contained the following stipulation in paragraph 5: Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if container shows exterior signs of damage or shortage. Claims for nondelivery, misdelivery, loss or damage must be filed within 30 days from accrual. Suits arising from shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days from date of accrual of right of action. Failure to file claims or institute judicial proceedings as herein provided constitutes waiver of claim or right of action. In no case shall carrier be liable for any delay, non-delivery, misdelivery, loss of damage to cargo while cargo is not in actual custody of carrier. On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody of the consignee. A survey conducted on July 8, 1977 showed that of the shipment totalling 7,000 bags, originally contained in 175 pallets, only a total of 5,820 bags were delivered to the consignee in good order condition, leaving a balance of 1,080 bags. Some of the 1,080 bags were either MISSING OR DAMAGED beyond the point of being useful for the intended purpose. FEBTC and Tagum Plastics sued the international carrier, SCI, the inter-island carriers, Sweet Lines, the arrastre company, Davao Arrastre and FE Zuellig (which I assume is the shipper). Before trial, a compromise agreement was entered into between the complainants and SCI and F.E. Zuellig, thus, only Sweet Lines and Davao Arrastre remained as defendants. The trial court ruled in favour of Philamgen and Tagum Plastics. The CA reversed on the ground of prescription and denied the motion for reconsideration. ISSUES (1) Was there a prescriptive period? (2) If yes, was the prescriptive period valid and legal? (3) If it was valid and legal, did Philamgen act within the prescriptive period? RULING (1) Yes. There was a prescriptive period. When the complaint was filed, prescription as an affirmative defense was seasonably raised by Sweet Lines in its answer. Though the bills of lading were not presented in evidence, the SC said that: As petitioners are suing upon S LI's contractual obligation under the contract of carriage as contained in the bills of lading, such bills of lading can be categorized as actionable documents which under the Rules must be properly pleaded either as causes of action or defenses, and the genuineness and due execution of which are deemed admitted unless specifically denied under oath by the adverse party. The rules on actionable documents cover and apply to both a cause of action or defense based on said documents. In their answer, Sweet Lines included the prescriptive period under paragraph 5 of the bills of lading. Philamgen did not deny the existence of the bill of lading under oath. Instead, in its reply to the answer, Philamgen asserted that the bills of lading were contracts of adhesion and that such provisions were contrary to law and public policy and thus, Sweet Lines cannot avail of such prescriptive period as a valid defense. The SC said that Philamgens failure to deny under oath the existence of the bills of lading was tantamount to an admission of its existence, together with paragraph 5 containing the prescriptive period. Thus, the existence of the prescriptive period was duly proved even if the bills of lading were not presented in court. (2) Yes. The prescriptive periods were valid and legal. Philamgen insists that the bills of lading were contracts of adhesion and that the prescriptive periods stated therein were void for being contrary to

law and public policy. The SC, citing Ong Yu vs CA, said that contracts of adhesion are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres he gives his consent. Philamgen, thus, gave its consent to the contracts the bills of lading including consent to the prescriptive periods therein. The SC also agreed with the CA that parties can stipulate a shorter prescriptive period for the filing of suits. The SC quoted the CA, It must be noted, at this juncture, that the aforestated time limitation (paragraph 5) in the presentation of claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the Code of Commerce... The SC said that, ... the validity of a contractual limitation of time for filing the suit itself against a carrier shorter than the statutory period therefor has generally been upheld as such stipulation merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory limitation and subject only to the requirement on the reasonableness of the stipulated limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the complete vestiture of the right to recover, but merely requires the assertion of that right by action at an earlier period than would be necessary to defeat it through the operation of the ordinary statute of limitations. The SC also said that, ..., the shortened period for filing suit is not unreasonable and has in fact been generally recognized to be a valid business practice in the shipping industry. This is in recognition of the inherent dangers of carriage by sea. (3) No. Philamgen did not act within the prescriptive period. The shipment was discharged into the custody of the consignee on May 15, 1977, and it was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to file a claim with the carrier for any loss or damage which may have been suffered by the cargo and thereby perfect their right of action. Claim was filed only on April 28, 1978, way beyond the period provided in the bills of lading and violative of the contractual provision, the inevitable consequence of which is the loss of petitioners' remedy or right to sue. The SC said, Even the filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits for the filing thereof, whether viewed as a condition precedent or as a prescriptive period, would in this case be productive of the same result, that is, that petitioners had no right of action to begin with or, at any rate, their claim was timebarred.

Other things discussed by the SC: 1. ...where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. 2. Philamgen also asserted that since the purpose of the notice of claim or loss was to charge Sweet Lines with actual knowledge of the loss and damage involved, then the issuance of Sweet Lines of a Report on Losses and Damage dated May 15, 1977, would obviate the need for or render superfluous the filing of a claim within the stipulated period. The SC said, The report on losses and damages is not the claim referred to and required by the bills of lading for it does not fix responsibility for the loss or damage, but merely states the condition of the goods shipped. The claim contemplated herein, in whatever form, must be something more than a notice that the goods have been lost or damaged; it must contain a claim for compensation or indicate an intent to claim. Furthermore, the report bears an annotation at its lower part that says this Copy should be submitted together with your claim invoice or receipt within 30 days from date of issue otherwise your claim will not be honored." 3. The claim against the carrier, Sweet Lines, has prescribed but what about the claim against Davao Arrastre. The SC said that there was not enough proof to pinpoint the party responsible for the lost

and damaged bags. (What I found surprising was that the SC also said, Unlike a common carrier, an arrastre operator does not labor under a presumption of negligence in case of loss, destruction or deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did not exercise due diligence in the handling and care of the goods.