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Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61352 February 27, 1987
DOLE PHILIPPINES, INC., plaintiff-appellant,
vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.
Domingo E. de Lara & Associates for plaintiff-appellant.
Bito, Misa and Lozada Law Office for defendant-appellee.

NARVASA, J.:
This appeal, which was certified to the Court by the Court of Appeals as involving only questions of
law, 1 relates to a claim for loss and/or damage to a shipment of machine parts sought to be enforced by
the consignee, appellant Dole Philippines, Inc. (hereinafter caged Dole) against the carrier, Maritime
Company of the Philippines (hereinafter called Maritime), under the provisions of the Carriage of Goods
by Sea Act. 2
The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the
relevant portion of which reads:
xxx xxx xxx
Before the plaintiff started presenting evidence at today's trial at the instance of the
Court the lawyers entered into the following stipulation of facts:
1. The cargo subject of the instant case was discharged in Dadiangas unto the
custody of the consignee on December 18, 1971;
2. The corresponding claim for the damages sustained by the cargo was filed by the
plaintiff with the defendant vessel on May 4, 1972;
3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of
Manila, docketed therein as Civil Case No. 91043, embodying three (3) causes of
action involving three (3) separate and different shipments. The third cause of action
therein involved the cargo now subject of this present litigation;

4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No.
91043 dismissing the first two causes of action in the aforesaid case with prejudice
and without pronouncement as to costs because the parties had settled or
compromised the claims involved therein. The third cause of action which covered
the cargo subject of this case now was likewise dismissed but without prejudice as it
was not covered by the settlement. The dismissal of that complaint containing the
three causes of action was upon a joint motion to dismiss filed by the parties;
5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to
the third cause of action without prejudice, plaintiff instituted this present complaint
on January 6, 1975.
xxx xxx xxx 4
To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative
defense of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pretrial, moved for a preliminary hearing on said defense. 6 The Trial Court granted the motion, scheduling
the preliminary hearing on April 27, 1977. 7 The record before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977, Maritime filed a formal motion to dismiss invoking once
more the ground of prescription. 8 The motion was opposed by Dole 9 and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole sought a
reconsideration, which was denied, 11 and thereafter took the present appeal from the order of dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of
actions is interrupted by the making of an extrajudicial written demand by the creditor is applicable to
actions brought under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6,
provides that:
*** the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered; Provided, That, if a notice of loss or
damage, either apparent or conceded, is not given as provided for in this section,
that fact shall not affect or prejudice the right of the shipper to bring suit within one
year after the delivery of the goods or the date when the goods should have been
delivered.
xxx xxx xxx
Dole concedes that its action is subject to the one-year period of limitation prescribe in the abovecited provision. 12 The substance of its argument is that since the provisions of the Civil Code are, by
express mandate of said Code, suppletory of deficiencies in the Code of Commerce and special laws in
matters governed by the latter, 13 and there being "*** a patent deficiency *** with respect to the tolling of
the prescriptive period ***" provided for in the Carriage of Goods by Sea Act, 14 prescription under said Act
is subject to the provisions of Article 1155 of the Civil Code on tolling and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods
by Sea Act. To much the same effect is the further argument based on Article 1176 of the Civil Code which

provides that the rights and obligations of common carriers shag be governed by the Code of Commerce
and by special laws in all matters not regulated by the Civil Code.

These arguments might merit weightier consideration were it not for the fact that the question has
already received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire
& Marine Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual situation,
where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than
two years after the consignee's receipt of the cargo, this Court rejected the contention that an extrajudicial
demand toiled the prescriptive period provided for in the Carriage of Goods by Sea Act, viz:
In the second assignment of error plaintiff-appellant argues that it was error for the
court a quo not to have considered the action of plaintiff-appellant suspended by the
extrajudicial demand which took place, according to defendant's own motion to
dismiss on August 22, 1952. We notice that while plaintiff avoids stating any date
when the goods arrived in Manila, it relies upon the allegation made in the motion to
dismiss that a protest was filed on August 22, 1952 which goes to show that
plaintiff-appellant's counsel has not been laying the facts squarely before the court
for the consideration of the merits of the case. We have already decided that in a
case governed by the Carriage of Goods by Sea Act, the general provisions of the
Code of Civil Procedure on prescription should not be made to apply. (Chua Kuy vs.
Everett Steamship Corp., G.R. No. L-5554, May 27, 1953.) Similarly, we now hold
that in such a case the general provisions of the new Civil Code (Art. 1155) cannot
be made to apply, as such application would have the effect of extending the oneyear period of prescription fixed in the law. It is desirable that matters affecting
transportation of goods by sea be decided in as short a time as possible; the
application of the provisions of Article 1155 of the new Civil Code would
unnecessarily extend the period and permit delays in the settlement of questions
affecting transportation, contrary to the clear intent and purpose of the law. * * *
Moreover, no different result would obtain even if the Court were to accept the proposition that a
written extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The
demand in this instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972.
The effect of that demand would have been to renew the one- year prescriptive period from the date
of its making. Stated otherwise, under Dole's theory, when its claim was received by Maritime, the
one-year prescriptive period was interrupted "tolled" would be the more precise term and
began to run anew from May 4, 1972, affording Dole another period of one (1) year counted from
that date within which to institute action on its claim for damage. Unfortunately, Dole let the new
period lapse without filing action. It instituted Civil Case No. 91043 only on June 11, 1973, more than
one month after that period has expired and its right of action had prescribed.
Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in
legal contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within
the one-year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." 16 equates tolling
with indefinite suspension. It is clearly fallacious and merits no consideration.
WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the appellant,
Dole Philippines, Inc.

SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 74125 July 31, 1990


UNIVERSAL SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELATE COURT and ALLIANCE ASSURANCE COMPANY,
LTD., respondents.
Del Rosario & Del Rosario Law Office for petitioner. Quasha, Asperilla, Ancheta, Pea, Marcos &
Nolasco for private respondents.

GRIO-AQUINO, J.:
In this appeal by certiorari, the petitioner seeks to set aside the decision of the then Intermediate
Appellate Court, now Court of Appeals, promulgated on March 25, 1986 in AC-G.R. CV No. 69824,
affirming with modification the decision of the former Court of First Instance of Manila dated February
4, 1981, against the herein petitioner, Universal Shipping Lines, Inc., the defendant in the trial court.
On or about March 22,1974, SEVALCO Limited, owned and operated by the petitioner, shipped from
Rotterdam Netherlands, to Bangkok, Thailand, aboard its M/V "TAIWAN", two (2) cargoes of 50
palletized cartons consisting of 2,000 units of 25-kilogram bags of State R Brand carton black, with a
declared gross weight of 53,000 kilos each. They were respectively consigned to S. Lersen
Company, Ltd. and Muang Ngarm Retreads,Ltd., per Bills of Lading Nos. RB-15 (Exh. A) and RB-16
(Exh. B). Both shipments were insured with the private respondent, Alliance Assurance Company,
Ltd., a foreign insurance company domiciled in London, England, which had withdrawn from the
Philippine market on June 30, 1951 yet.

Despite the arrival of the vessel on June 28, 1974 at Bangkok, the cargo covered by Bill of Lading
No. RB-15 was not unloaded nor delivered to the consignee, S. Lersen Company, Ltd. The shipment
under Bill of Lading No. RB-16 was delivered to Muang Ngarm Retreads, Ltd. with a total weight
shortage of 11,070 kilos because the cargoes had been either totally or partially dissolved in
saltwater which flooded Hatch No. 2 of the vessel where they had been stored.
Upon arrival in Manila on July 4, 1974, Arturo C. Saavedra, master of M/V "TAIWAN" filed a marine
protest (Exh. H), pertinent portions of which read:
By investigation, the source of the water could not be definitely ascertained where it
comes from. However, the bilge pump was employed to pump out continue working
for almost 12 hours No. 2. The bilge pump was employed every other day to pump
out the water, but it was seems to be almost same soundings. Suspecting of some
leakage of suction pipes.
That the hold No. 2 cannot be inspected on account of the full cargoes inside the
hold, rendering it to be inaccessible.
Suspecting that the water comes from outside passing through some loosen rivets on
starboard side of the ship. (sic.)
That the pumping out the water from the hold was done by shore help upon arrival at
Bangkok. (sic.) (pp. 23-24, Rollo.)
The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads, Inc., filed their respective formal
claims for loss and damage to their cargoes on August 7, 1974 (Exhs. N and N-1) and on November
12,1974 (Exh. M). (p. 24, Rollo.) The insurer paid both claims in the amounts of I2,180 and
2,547.18 for the loss and damage to their cargoes.
On June 25, 1976, private respondent, as insurer-subrogee, filed an action in the Court of First
Instance of Manila to recover from the petitioner and its Manila agent, Carlos Go Thong & Company,
what it paid the consignees of the cargo.
After trial, the court a quo rendered judgment for the private respondent, the dispositive portion of
which reads:
PREMISES CONSIDERED, judgment is hereby rendered ordering defendants
Universal Shipping Lines, Inc. and Carlos Go Thong & Co., jointly and severally, to
pay plaintiff Alliance Asurance Co., Ltd., under the first cause of action, the sum of
12,180.00 or the peso equivalent thereof, and under the second cause of action, the
sum of 2,547.18 or the peso equivalent thereof, both with legal interest thereon from
June 25, 1976, the date of the filing of the present action, until said obligations are
fully paid, plus attorney's fees in the sum of P10,000.00, with costs. (pp. 24-25,
Rollo.)

On appeal to the Court of Appeals, the decision was affirmed after exculpating petitioner's shipagents in Manila (Go Thong) from any liability on the ground that it had no participation in the
shipment of the cargo which had been loaded and discharged in places other than Manila (p. 28,
Rollo).
itc-asl

In this appeal by certiorari, petitioner alleges that respondent court erred:


1. in holding petitioner liable for the damage/loss suffered by the subject shipments;
2. in holding that private respondent has capacity to sue in this jurisdiction;
3. in finding that private respondent's cause of action has not yet prescribed; and
4. in awarding attorney's fees without stating any factual, legal and equitable
justification.
The petition is not meritorious.
The first assignment of error raises a factual issue which we decline to review as this Court may
review only legal issues which must be distinctly set forth in the petition (Sec. 2, Rule 45, Rules of
Court). In any event, the Court of Appeals committed no reversible error in holding, as the trial court
did, that:
... It was incumbent upon the defendants to prove that the losses and damages were
due to causes other than the negligence or fault of their employees. Said defendants
have not adduced proof on this point. It having been shown that the losses and
damages were incurred while the shipments were in the custody of the M/V' Taiwan'
the liability of its owner/operator and shipping agent is clear-they must pay for the
losses and damages sustained by the consignees as a consequence of the breach of
contract of water transportation. (pp. 27-28, Rollo.)
On the issue of jurisdiction, we uphold the appellate court's ruling that the private respondent may
sue in Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business
in this country, for it is not the lack of the prescribed license (to do business in the Philippines) but
doing business without such license, which bars a foreign corporation from access to our courts.
(Pacific Vegetable Oil Corporation vs. Singzon L-7919, April 29, 1955; Eastboard Navigation, Ltd. vs.
J. Ysmael & Co., Inc.,
L-9090, Sept. 10, 1957.)
Anent the issue of prescription of the action under Section 3(6), Title I, of the Carriage of Goods by
Sea Act (Commonwealth Act No. 65) which provides that:
... the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered. ...

This provision of the law admits of an xception: if the one-year period is suspended by express
agreement of the parties (Chua Kay vs. Everett Steamship Corporation, L-5554, May 27,1953; Tan
Liao vs. American President Lines, Ltd., L-7280, January 20, 1956) for in such a case, their
agreement becomes the law for them. (Phoenix Assurance Co., Ltd. vs. United States Lines, 22
SCRA 674; Baluyot vs. Venegas, 22 SCRA 412; Lazo vs. Republic Surety & Insurance, Co., Inc., 31
SCRA 329; Philippine American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22-23).
The exchange of correspondence between the parties and/or their associates/representatives (Exhs.
R, S, S-1, T, T-1 and T-2) shows that the parties had mutually agreed to extend the time within which
the plaintiff or its predecessors-in-interest may file suit until December 27,1976. When the complaint
was filed on June 25, 1976, that deadline had not yet expired.
An award of attorney's fees lies within the discretion of the court and depends upon the
circumstances of each case (Medco Industrial Corp., et al. vs. Court of Appeals, et al., 167 SCRA
838). In this case, the award of P10,000 as attorney's fees was reasonable and justified because the
defendant's rejection of the private respondent's demand, compelled the latter to litigate and incur
expenses to protect and enforce its just and valid claim.
itc-asl

WHEREFORE, the petition for review is denied for lack of merit. Costs against the petitioner.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-54140 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch XXVI of the Court of First
Instance of Manila and FROTA OCEANICA BRASILIERA, respondents.
G.R. No. L-62001 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch XVI of the Court of First
Instance of Manila and AUSTRALIA-WEST PACIFIC LINE, respondents.

GUTIERREZ, JR., J.:


These consolidated petitions raise the issue of whether or not the one-year period within which to file
a suit against the carrier and theship, in case of damage or loss as provided for in the Carriage of
Goods by Sea Act applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911,
against the petitioner before the then Court of First Instance of Manila for recovery of a sum of
money under the marine insurance policy on cargo. Mr. Choa alleged that the goods he insured with
the petitioner sustained loss and damage in the amount of P35,987.26. The vessel SS Frotario
which was owned and operated by private respondent Frota Oceanica Brasiliera, (Frota) discharged
the goods at the port of Manila on December 13, 1976. The said goods were delivered to the
arrastre operator E. Razon, Inc., on December 17, 1976 and on the same date were received by the
consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended answer disclaiming liability, imputing against
the plaintiff the commission of fraud and counterclaiming for damages.
On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent
Frota and the arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the
event that it is held liable to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner
which was docketed as Civil Case No. 110061, for recovery under the marine insurance policy for
cargo alleging that the goods insured with the petitioner sustained loss and damage in the sum of
P55,996.49.
The goods were delivered to the plaintiff-consignee on or about January 25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended thirdparty complaint against respondent carrier, the Australia-West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and subsequently filed a motion
for preliminary hearing on their affirmative defense of prescription. The private respondents alleged
in their separate answers that the petitioner is already barred from filing a claim because under the
Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery
of the goods or the date when the goods should have been delivered...
The petitioner contended that the provision relied upon by the respondents applies only to the
shipper and not to the insurer of the goods.
On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and
dismissed the petitioner's third-party complaint. Likewise, on August 31, 1982, the respondent judge
in Civil Case No. 110061 dismissed the petitioner's third-party complaint against respondent

Australia-West on the ground that the same was filed beyond the prescriptive period provide in
Section 3 (6) of the Carriage of Goods by Sea Act of 1936. These both cases, the petitioner
appealed to us on a pure question of law, raising the issue of whether or not the prescriptive period
of one year under the said Act also applies to an insurer such as herein petitioner.
The petitioner maintains that the one-year prescriptive period cannot cover an insurer which has not
settled the claim of its insured because it cannot be considered as the person referred to in the
applicable provision of the said Act that has the duty or right to give notice of loss or damage to the
carrier or to sue such carrier within the period of one year and that where an insurer does not settle
the claim of its insured it cannot be considered as subrogated to the rights of said insured that would
then authorize it to sue the carrier within the time-bar of one year. The petitioner further contends
that the period for the filing of a third-party complaint must be reckoned from the date when the
principal action was filed, that is, from the time the insured filed a suit against the petitioner, because
the third-party complaint is merely an incident of the main action.
On the other hand, the respondents argue that the one-year prescriptive period within which to file a
case against the carrier also applies to a claim filed by an insurer who stands as a subrogee to the
insured and that the third-party complaint filed by the petitioner cannot be reckoned from the firing of
the main action because such complaint is independent of, and separate and distinct from the
insured's action against the petitioner.
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage
be given in writing to the carrier or his agent at the port of discharge before or at the
time of the removal of the goods into the custody of the person entitled to delivery
thereof under the contract of carriage, such removal shall be prima facie evidence of
the delivery by the carrier of the goods as described in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given
by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of
their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered: Provided, that if a notice of
loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring the suit
within one year after the delivery of the goods or the date when the goods should
have been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the
receiver shall give all reasonable facilities to each other for inspecting and tallying the
goods. (Emphasis supplied) Philippine Permanent and General Statutes (Revised
Edition, Vol. 1, pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214), expounds on the extent of the
applicability of the aforequoted provision. We ruled:
Neither do we find tenable the claim that the prescriptive period contained in said act
can only be invoked by the shipper, excluding all other parties to the transaction.
While apparently the proviso contained in the portion of section 3(6) of the act we
have quoted gives the impression that the right to file suit within one year after
delivery of the goods applies to the shipper alone, however, reading the proviso in
conjunction with the rest of section 3(6), it at once becomes apparent that the
conclusion drawn by petitioner is unwarranted. In the first place, said section
provides that the notice of loss or damage for which a claim for indemnity may be
made should be given in writing to the carrier at the port of discharge before or at the
time of the removal of the goods, and if the loss or damage is not apparent said
notice should be given 'within three days on delivery.' From the language of this
section, it seems clear that the notice of loss or damage is required to be filed not
necessarily by the shipper but also by the consignee or any legal holder of the bill of
lading. In fact, said section requires that the notice be given at the port of discharge
and the most logical party to file the notice is either the consignee or the endorsee of
the bill of lading. In the second place, a study of the historical background of this
particular provision will show that although the word shipper is used in the proviso
referred to by the petitioner, the intention of the law was not to exclude the consignee
or endorsee of the bill of lading from bringing the action but merely to limit the filing of
the same within one year after the delivery of the goods at the port of discharge. [The
Southern Cross, 1940, A. M. C. 59 (SDNY); Lindgren v. Farley, 1938 A. M. C. 805
(SDNY)].
Arnold W. Knauth, an eminent authority on admiralty, commenting on this proviso,
says:
xxx xxx xxx
It seems evident that this language does not alter the sense of the text of the Hague
Rules; it merely reiterates in another form the rule already laid down. Curiously, the
proviso seems limited to the rights of shippers, and might strictly be construed not to
give any rights to consignees, representatives, or subrogated parties; whereas the
Hague Rules phraseology is broader. As the Act contains both phrases, it would
seem to be as broad as the broader of the two forms of words. (Ocean Bills of
Lading, by Knauth, p. 229).
Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to
prohibit after the lapse of the one-year prescriptive period can be done indirectly by the shipper or

owner of the goods by simply filing a claim against the insurer even after the lapse of one year. This
would be the result if we follow the petitioner's argument that the insurer can, at any time, proceed
against the carrier and the ship since it is not bound by the time-bar provision. In this situation, the
one-year limitation will be practically useless. This could not have been the intention of the law which
has also for its purpose the protection of the carrier and the ship from fraudulent claims by having
"matters affecting transportation of goods by sea be decided in as short a time as possible" and by
avoiding incidents which would "unnecessarily extend the period and permit delays in the settlement
of questions affecting the transportation." (See The Yek Tong Fire and Marine Insurance Co., Ltd., v.
American President Lines, Inc., 103 Phil. 1125-1126).
In the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation (62 SCRA 11, 15), we denied
the appeal of an insurance company which filed a suit against the carrier after the lapse of one year.
We ruled:
There is no merit in the appeal. The trial court correctly held that the one-year
statutory and contractual prescriptive period had already expired when appellant
company filed on April 7, 1965 its action against Barber Line Far East Service. The
one-year period commenced on February 25, 1964 when the damaged cargo was
delivered to the consignee. (See Chua Kuy v. Everrett Steamship Corporation, 93
Phil. 207; Yek Tong Fire & Marine Insurance Co., Ltd. v. American President Lines,
Inc., 103 Phil. 1125).
We likewise agree with the respondents that the third-party complaint of the petitioner cannot be
considered to have been filed upon the filing of the main action because although it can be said that
a third-party complaint is but ancilliary to the main action (Eastern Assurance and Surety Corporation
v. Cui 105 SCRA 622), it cannot abridge, enlarge, nor modify the substantive rights of any litigant. It
creates no substantive rights. Thus, unless there is some substantive basis for the third-party
Plaintiff's claim, he cannot utilized the filing of such action to acquire any right of action against the
third-party defendant. (See also Francisco, The Revised Rules of Court in the Philippines, Vol. 1,
1973 Ed., p. 507). The petitioner can only rightfully file a third-party complaint against the
respondents if, in the first place, it can still validly maintain an action against the latter.
In the case at bar, the petitioner's action has prescribed under the provisions of the Carriage of
Goods by Sea Act. Hence, whether it files a third-party complaint or chooses to maintain an
independent action against herein respondents is of no moment. Had the plaintiffs in the civil cases
below filed an action against the petitioner after the one-year prescriptive period, then the latter
could have successfully denied liability on the ground that by their own doing, the plaintiffs had
prevented the petitioner from being subrogated to their respective rights against the herein
respondents by filing a suit after the one-year prescriptive period. The situation, however, does not
obtain in the present case. The plaintiffs in the civil cases below gave extra-judicial notice to their
respective carriers and filed suit against the petitioner well within one year from their receipt of the
goods. The petitioner had plenty of time within which to act. In Civil Case No. 109911, the petitioner
had more than four months to file a third-party complaint while in Civil Case No. 110061, it had more
than five months to do so. In both instances, however, the petitioner failed to file the appropriate
action.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R. No. 54140 and G. R. No.
62001 are hereby DISMISSED for lack of merit. Costs against the petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT


SUPPLIES DEPARTMENT, petitioners, vs. COURT OF APPEALS,
SOUTH SEA SURETY AND INSURANCE CO., INC. and the
CHARTER INSURANCE CORPORATION, respondents.
DECISION
PUNO, J.:

This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995 and its
Resolution dated February 22, 1996 in CA-G.R. CV No. 45805 entitled Mayer
Steel Pipe Corporation and Hongkong Government Supplies Department v.
South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation.
[1]

[2]

[3]

In 1983, petitioner Hongkong Government Supplies Department


(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC1020, MSPC-1017 and MSPC-1022.
[4]

Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and Insurance
Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and
fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while
those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection


(International) Inc. as third-party inspector to examine whether the pipes and
fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in good
order condition before they were loaded in the vessel. Nonetheless, when the
goods reached Hongkong, it was discovered that a substantial portion thereof
was damaged.
Petitioners filed a claim against private respondents for indemnity under
the insurance contract. Respondent Charter paid petitioner Hongkong the
amount of HK$64,904.75. Petitioners demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly
showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to
recover the sum of HK$299,345.30. For their defense, private respondents
averred that they have no obligation to pay the amount claimed by petitioners
because the damage to the goods is due to factory defects which are not
covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the
goods is not due to manufacturing defects. It also noted that the insurance
contracts executed by petitioner Mayer and private respondents are "all risks"
policies which insure against all causes of conceivable loss or damage. The
only exceptions are those excluded in the policy, or those sustained due to
fraud or intentional misconduct on the part of the insured. The dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly
and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with
legal rate of interest as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and

3. costs of suit.
SO ORDERED.

[5]

Private respondents elevated the case to respondent Court of Appeals.


Respondent court affirmed the finding of the trial court that the damage is
not due to factory defect and that it was covered by the "all risks" insurance
policies issued by private respondents to petitioner Mayer. However, it set
aside the decision of the trial court and dismissed the complaint on the ground
of prescription. It held that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more
than two years from the time the goods were unloaded from the
vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the
carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered." Respondent court
ruled that this provision applies not only to the carrier but also to the insurer,
citing Filipino Merchants Insurance Co., Inc. vs. Alejandro.
[6]

Hence this petition with the following assignments of error:


1. The respondent Court of Appeals erred in holding that petitioners' cause of action
had already prescribed on the mistaken application of the Carriage of Goods by Sea
Act and the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint.[7]

The petition is impressed with merit. Respondent court erred in applying


Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the date
when they should have been delivered. Under this provision, only the carrier's
liability is extinguished if no suit is brought within one year. But the liability of
the insurer is not extinguished because the insurer's liability is based not on
the contract of carriage but on the contract of insurance. A close reading of

the law reveals that the Carriage of Goods by Sea Act governs the
relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of
the carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is governed
by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the
other cases cited therein does not support respondent court's view that the
insurer's liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the shipper filed a complaint
against the insurer for recovery of a sum of money as indemnity for the loss
and damage sustained by the insured goods. The insurer, in turn, filed a thirdparty complaint against the carrier for reimbursement of the amount it paid to
the shipper. The insurer filed the third-party complaint on January 9, 1978,
more than one year after delivery of the goods on December 17, 1977. The
court held that the Insurer was already barred from filing a claim against the
carrier because under the Carriage of Goods by Sea Act, the suit against the
carrier must be filed within one year after delivery of the goods or the date
when the goods should have been delivered. The court said that "the
coverage of the Act includes the insurer of the goods."
[8]

[9]

[10]

The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was
the shipper which filed a claim against the insurer. The basis of the shipper's
claim is the "all risks" insurance policies issued by private respondents to
petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When the court
said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea
Act applies to the insurer, it meant that the insurer, like the shipper, may no
longer file a claim against the carrier beyond the one-year period provided in
the law. But it does not mean that the shipper may no longer file a claim
against the insurer because the basis of the insurer's liability is the insurance
contract. An insurance contract is a contract whereby one party, for a

consideration known as the premium, agrees to indemnify another for loss or


damage which he may suffer from a specified peril. An "all risks" insurance
policy covers all kinds of loss other than those due to willful and fraudulent act
of the insured. Thus, when private respondents issued the "all risks" policies
to petitioner Mayer, they bound themselves to indemnify the latter in case of
loss or damage to the goods insured. Such obligation prescribes in ten years,
in accordance with Article 1144 of the New Civil Code.
[11]

[12]

[13]

IN VIEW WHEREOF, the petition is GRANTED. The Decision of


respondent Court of Appeals dated December 14, 1995 and its Resolution
dated February 22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30805 December 26, 1984
DOMINGO ANG, plaintiff-appellant,
vs.
COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L.
DIOKNO, defendants-appellees.

AQUINO, J.:
This case involves the recovery of damages by the consignee from the carrier in case
of misdelivery of the cargo which action was dismissed by the trial court on the grounds of lack of
cause of action and prescription.

It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of
plaintiff-appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543 and
125 Phil. 1040, three cases. As observed by Ang's counsel, the facts of those cases and the instant
case are the same mutatis mutandis. It was held that Ang has a cause of action against the carrier
which has not prescribed
In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue
Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the
Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the sum
of US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages.
Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain
conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on May
25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the defendants, to be
transported to Manila and consigned "to order" of the shipper, Tokyo Boeki, Ltd., which indorsed the
bill of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank.
Ang further alleged that the defendants, by means of a permit to deliver imported articles, authorized
the delivery of the cargo to Teves who obtained delivery from the Bureau of Customs without the
surrender of the bill of lading and in violation of the terms thereof. Teves dishonored the draft drawn
by Yau Yue against him.
The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft's
dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang.
The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action.
Ang opposed the motion. As already stated, the trial court on May 22, 1964 dismissed the complaint
on the grounds of lack of cause of action and prescription since the action was filed beyond the oneyear period provided in the Carriage of Goods by Sea Act.
In the American Steamship Agencies cases, it was held that the action of Ang is based
on misdelivery of the cargo which should be distinguished from loss thereof. The one-year period
provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is
applicable is the four-year period of prescription for quasi-delicts prescribed in article 1146 (2) of the
Civil Code or ten years for violation of a written contract as provided for in article 1144 (1) of the
same Code.
As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it
has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest with a cause of
action for damages.
WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the trial
court for further proceedings. Costs against the defendants.
SO ORDERED.

SECOND DIVISION
[G.R. No. 119571. March 11, 1998]
MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES,
INC., petitioner, vs. COURT OF APPEALS and LAVINE
LOUNGEWEAR MFG. CORP., respondents.
DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the January 25, 1995 decision of the
Court of Appeals[1] and its resolution of March 22, 1995 denying petitioners motion for
reconsideration.The appellate court upheld orders of Branch 68 (Pasig) of the Regional
Trial Court, National Capital Judicial Region, denying petitioners motion to dismiss in the
original action filed against petitioner by private respondent.
The facts are not in dispute.[2]
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the
Philippines by its agent, Magsaysay Agencies. It entered into a contract of carriage
through Meister Transport, Inc., an international freight forwarder, with private
respondent Lavine Loungewear Manufacturing Corporation to transport goods of the
latter from Manila to Le Havre, France.Petitioner undertook to deliver the goods to
France 28 days from initial loading. On July 24, 1991, petitioners vessel loaded private
respondents container van for carriage at the said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with
the result that the shipment arrived in Le Havre only on November 14, 1991. The
consignee allegedly paid only half the value of the said goods on the ground that they
did not arrive in France until the off season in that country. The remaining half was
allegedly charged to the account of private respondent which in turn demanded
payment from petitioner through its agent.

As petitioner denied private respondents claim, the latter filed a case in the
Regional Trial Court on April 14, 1992. In the original complaint, private respondent
impleaded as defendants Meister Transport, Inc. and Magsaysay Agencies, Inc., the
latter as agent of petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993, it amended its
complaint by impleading petitioner as defendant in lieu of its agent. The parties to the
case thus became private respondent as plaintiff, on one side, and Meister Transport
Inc. and petitioner Mitsui O.S.K. Lines Ltd. as represented by Magsaysay Agencies,
Inc., as defendants on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had prescribed
under the Carriage of Goods by Sea Act.
The Regional Trial Court, as aforesaid, denied petitioners motion as well as its
subsequent motion for reconsideration. On petition for certiorari, the Court of Appeals
sustained the trial courts orders. Hence this petition containing one assignment of error:

THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS


ERROR OF LAW IN RULING THAT PRIVATE RESPONDENTS AMENDED
COMPLAINT IS (sic) NOT PRESCRIBED PURSUANT TO SECTION 3(6) OF
THE CARRIAGE OF GOODS BY SEA ACT.
The issue raised by the instant petition is whether private respondents action is for
loss or damage to goods shipped, within the meaning of 3(6) of the Carriage of Goods
by Sea Act (COGSA).
Section 3 provides:

(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the notice
must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the
goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time
of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been
delivered: Provided, that, if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect
or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the
receiver shall give all reasonable facilities to each other for inspecting and
tallying the goods.
In Ang v. American Steamship Agencies, Inc., the question was whether an action
for the value of goods which had been delivered to a party other than the consignee is
for loss or damage within the meaning of 3(6) of the COGSA. It was held that there was
no loss because the goods had simply been misdelivered. Loss refers to the
deterioration or disappearance of goods.[3]

As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the
Carriage of Goods by Sea Act, loss contemplates merely a situation where no
delivery at all was made by the shipper of the goods because the same had
perished, gone out of commerce, or disappeared in such a way that their
existence is unknown or they cannot be recovered.[4]
Conformably with this concept of what constitutes loss or damage, this Court held in
another case[5] that the deterioration of goods due to delay in their transportation
constitutes loss or damage within the meaning of 3(6), so that as suit was not brought
within one year the action was barred:

Whatever damage or injury is suffered by the goods while in transit would


result in loss or damage to either the shipper or the consignee. As long as it is
claimed, therefore, as it is done here, that the losses or damages suffered by
the shipper or consignee were due to the arrival of the goods in damaged or
deteriorated condition, the action is still basically one for damage to the
goods, and must be filed within the period of one year from delivery or receipt,
under the above-quoted provision of the Carriage of Goods by Sea Act.[6]
But the Court allowed that

There would be some merit in appellants insistence that the damages suffered
by him as a result of the delay in the shipment of his cargo are not covered by
the prescriptive provision of the Carriage of Goods by Sea Act above referred
to, if such damages were due, not to the deterioration and decay of the goods
while in transit, but to other causes independent of the condition of the cargo
upon arrival, like a drop in their market value. . . .[7]
The rationale behind limiting the said definitions to such parameters is not hard to
find or fathom. As this Court held in Ang:

Said one-year period of limitation is designed to meet the exigencies of


maritime hazards. In a case where the goods shipped were neither lost nor
damaged in transit but were, on the contrary, delivered in port to someone
who claimed to be entitled thereto, the situation is different, and the special
need for the short period of limitation in cases of loss or damage caused by
maritime perils does not obtain.[8]
In the case at bar, there is neither deterioration nor disappearance nor destruction
of goods caused by the carriers breach of contract. Whatever reduction there may have
been in the value of the goods is not due to their deterioration or disappearance
because they had been damaged in transit.
Petitioner contends:

Although we agree that there are places in the section (Article III) in which the
phrase need have no broader meaning than loss or physical damage to the
goods, we disagree with the conclusion that it must so be limited wherever it is
used. We take it that the phrase has a uniform meaning, not merely in Section
3, but throughout the Act; and there are a number of places in which the
restricted interpretation suggested would be inappropriate. For example
Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the carrier, the
ship (sic), from liability loss or damage (sic) resulting from certain courses
beyond their control.[9]
Indeed, what is in issue in this petition is not the liability of petitioner for its handling of
goods as provided by 3(6) of the COGSA, but its liability under its contract of carriage
with private respondent as covered by laws of more general application.

Precisely, the question before the trial court is not the particular sense of damages
as it refers to the physical loss or damage of a shippers goods as specifically covered
by 3(6) of COGSA but petitioners potential liability for the damages it has caused in the
general sense and, as such, the matter is governed by the Civil Code, the Code of
Commerce and COGSA, for the breach of its contract of carriage with private
respondent.
We conclude by holding that as the suit below is not for loss or damage to goods
contemplated in 3(6), the question of prescription of action is governed not by the
COGSA but by Art. 1144 of the Civil Code which provides for a prescriptive period of ten
years.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

THIRD DIVISION
[G.R. No. 134514. December 8, 1999]
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., petitioner,
vs. PRUDENTIAL
GUARANTEE &
ASSURANCE
CO.,
INC., respondent.
DECISION
PANGANIBAN, J.:

When cargo is placed on a vessel at the shippers load and count, the arrastre
operator is required only to deliver to the consignee the container van received from
the shipper, not to verify or to compare the contents thereof with those declared by the
shipper. A claim for reimbursement for the loss, damage or misdelivery of goods must
be filed within 15 days from the date the consignee learns of such problem(s).

The Case

For the resolution of the Court is a Petition for Review under Rule 45 of the Rules
of Court assailing the March 10, 1998 Decision and the June 23, 1998 Resolution both
promulgated by the Court of Appeals in CA-GR CV No. 52129 reversing the trial
courts dismissal of the Complaint for the collection of a sum of money filed by
Prudential Guarantee & Insurance Co., Inc. (Prudential) against International
Container Terminal Services, Inc. (ICTSI).
The Facts

The challenged Decision sets forth the facts of this case as follows:
On April 25, 1990, mother vessel Tao He loaded and received on board in San
Francisco, California, a shipment of five (5) lots of canned foodstuff complete and in
good order and condition for transport to Manila in favor of Duel Food Enterprises
("consignee" for brevity). China Ocean Shipping Company issued the corresponding
bill of lading therefor.
Consignee insured the shipment with Prudential Guarantee and Assurance, Inc.
against all risks for P1,921,827.00 under Marine Insurance Policy No. 20RN-3011/90.
On May 30, 1990, the shipment arrived at the Port of Manila and discharged by [the]
vessel MS Wei He in favor of International Container Terminal Services, Inc. for
safekeeping.
On June 1, 1990, A. D. Reyna Customs Brokerage ("defendant brokerage" for brevity)
withdrew the shipment and delivered the same to [the] consignee. An inspection
thereof revealed that 161 cartons were missing valued at P85,984.40.
Claim for indemnification of the loss having been denied by [ICTSI] and [the]
brokerage, consignee sought payment from [Prudential] under the marine cargo
policy. Consignee received a compromised sum of P66,730.12 in settlement
thereof. As subrogee, [Prudential] instituted the instant complaint against said
defendants [ICTSI and brokerage].
Traversing the complaint, [ICTSI] counters that it observed extraordinary diligence
over the subject shipment while under its custody; that the loss is not attributable to its

fault or its agent, representative or employee; that consignee failed to file a formal
claim against it in accordance with PPA Administrative Order No. 10-81; and that the
complaint states no cause of action. By way of crossclaim, it sought reimbursement
from defendant brokerage in the event it is adjudged to pay the loss.
In its Order dated March 3, 1992, the court a quo upon [Prudentials] motion, declared
defendant brokerage in default for failure to file [its] answer within the reglementary
period. Acting on [ICTSIs] motion, the court a quo, in its Order dated May 27, 1992,
allowed the former to present its evidence ex-parte against defendant brokerage
relative to the cross claim.
On May 19, 1993, the court a quo rendered a decision dismissing the complaint
against defendant brokerage for lack of evidence.
In its Order of July 12, 1993, the court a quo, upon motion of [ICTSI] and
[Prudential], vacated the decision dated May 19, 1993 and set the case for hearing to
give [ICTSI] an opportunity to cross examine [Prudentials] witnesses. [1]
On November 8, 1995, the trial court [2] rendered a Decision dismissing Prudentials
Complaint against ICTSI in this wise:[3]
Failure on the part of the consignee to comply with the terms and conditions of the
contract with [ICTSI], [Prudential] is not placed in a better position than the consignee
who cannot claim damages against[ICTSI]. Hence, the complaint is hereby
DISMISSED.
Reconsideration was denied by the Regional Trial Court in its Order dated
December 27, 1995.[4]
Disposing of the appeal, the CA[5] ruled:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE
and, in lieu thereof, judgment is hereby rendered ordering [appellee] International
[C]ontainer Terminal Services, Inc. (ICTSI) to pay appellant the sum of P66,730.12
with legal interest from May 13, 1991, until fully paid, plus 10% of xxx said claim by
way of attorneys fee.[6]

Reconsideration of the CA Decision was denied in the herein challenged June 23,
1998 Resolution.[7]
Ruling of the Court of Appeals

The appellate court found ICTSI negligent in its duty to exercise due diligence
over the shipment. It concluded that the shortage was due to pilferage of the shipment
while the sea vans were stored at the container yard of ICTSI.
It also ruled that the filing of a claim depended on the issuance of a certificate of
loss by ICTSI based on the liability clause printed on the back of the arrastre and
wharfage receipt. Since ICTSI did not issue such a certificate despite being informed
of the shortage, the 15-day period given to the consignee for filing a formal claim
never began. By subrogation, Prudential, as insurer of the consignee, was entitled to
hold the ICTSI liable for the shortage.
Assignment of Errors

Petitioner claims that the appellate court committed reversible errors (1) in ruling
that ICTSI failed to adduce convincing evidence to rebut the finding of the
independent adjuster and (2) in allowing the Complaint despite the failure of the
consignee to file a formal claim within the period stated on the dorsal side of the
arrastre and wharfage receipt.[8]
This Courts Ruling

The Petition is meritorious.


First Issue: Proof of Negligence

The legal relationship between an arrastre operator and a consignee is akin to that
between a warehouseman and a depositor.[9] As to both the nature of the functions and
the place of their performance, an arrastre operators services are clearly not maritime
in character.[10]
In a claim for loss filed by a consignee, the burden of proof to show compliance
with the obligation to deliver the goods to the appropriate party devolves upon the

arrastre operator.[11] Since the safekeeping of the goods rests within its knowledge, it must prove that the losses
were not due to its negligence or that of its employees.[12]

To discharge this burden, petitioner presented five Arrastre and Wharfage


Bill/Receipts, which also doubled as container yard gate passes, covering the whole
shipment in question. The short-landed shipment was covered by the gate pass marked
Exhibit 5.[13] The latter bore the signature of a representative of the consignee,
acknowledging receipt of the shipment in good order and condition (Exh. 5-e).Thus,
we see no reason to dispute the finding of the trial court that the evidence adduced by
the parties will show that the consignee received the container vans xxx in good
condition (Exhs. 1-6).[14]
By its signature on the gate pass and by its failure to protest on time, the
consignee is deemed to have acknowledged receipt of the goods in good order and
condition.
Lamberto Cortez, petitioners witness, testified that he personally examined the
shipment and identified the gate pass which covered the delivery of the shipment and
which was countersigned by the consignees representative. He explained the import of
his examination as follows:[15]
A: Before I sign this gate pass, sir, the representative of the consignee [gives] it to me then I write
down the items, the goods to be delivered so that it will be mounted in the truck of the
consignee. After mounting it, it will go to our office then I will check the number of the container
if it is properly padlocked, and if it is okay, I will place there okay and I will sign it to be
countersigned by the representative of the consignee, sir.
Q: In other words, Mr. Witness, you said that this particular shipment was padlocked?
A: Yes, sir.

xxxxxxxxx
Q: You also stated that the shipment was okay, will you point to that particular portion of the gate
pass?
A: After the physical check-up, I placed there okay, meaning it ha[d] no damage, sir.

The assailed Decision ruled that the petitioner was negligent, as evidenced by the
loss of the original seal and padlock of the container, which were subsequently

replaced with safety wire while the shipment was still stored at the ICTSI compound.
[16]

The appellate court cites, as proof of petitioners negligence, the Survey/Final


Report of the independent adjuster, Tan-Gatue Adjustment Company, Inc. (Exh. F).
[17]
The Report stated:
The 3,439 cartons comprising [the] balance of the shipment were found and
accepted by consignees representative in good order.
In our opinion, shortage sustained by the shipment was due to pilferage whilst the
sea vans containing the shipment were stored at [the] [c]ontainer [y]ard of the
[petitioner], [at] North Harbor, Manila but we cannot categorically state as to
when and who undertook [it] due to the absence of documentary evidence.
The customs safety wire as well as the padlock of Sea Van No. HTMU-803515-6
where the short (missing) cartons discovered may have been tampered
[with]/opened and returned/re-closed with finesse which [was] unfortunately not
noticed during delivery and prior to opening at consignees warehouse.
All the sea vans were reportedly full of contents when examined by the customs
examiner for tax evaluation of contents.
The [ship agents] and arrastre contractors['] representative reportedly refused the
invitation of the consignee to witness the stripping/withdrawal of the same from
the sea vans at their warehouse averring that the shipment per Bill of Lading was
shipped under []Shippers Load and Count hence, loss/damage, if any, to the
shipment is not their liability.
We thoroughly investigate[d] this particular case at International Container
Terminal Services, Inc., North Harbor, Manila[,] but up to this time no person(s)
and/or group(s) could be pinpointed liable [for] the shortage of 161 cartons,
hence, the delay [in the] issuance of this report. [18]
The adjuster insists that the shipment was complete when the customs examiner
opened the sea vans for tax evaluation. However, the latter's report was not
presented. Hence, there is no basis for comparing the cartons subjected to customs
examination and those which were delivered to the consignee.

More important, the consigned goods were shipped under Shippers Load and
Count. This means that the shipper was solely responsible for the loading of the
container, while the carrier was oblivious to the contents of the shipment. [19] Protection
against pilferage of the shipment was the consignees lookout. The arrastre operator
was, like any ordinary depositary, duty-bound to take good care of the goods received
from the vessel and to turn the same over to the party entitled to their
possession, subject to such qualifications as may have validly been imposed in the
contract between the parties.[20] The arrastre operator was not required to verify the
contents of the container received and to compare them with those declared by the
shipper because, as earlier stated, the cargo was at the shippers load and count. The
arrastre operator was expected to deliver to the consignee only the container received
from the carrier.
Petitioner claims that the absence of a request for a bad order survey belied the
consignees assertion that the shipment was filched while in ICTSIs custody, and that
such absence did not stop the 15-day period from running. Normally, a request for a
bad order survey is made in case there is an apparent or presumed loss or damage. The
consignee made no such request despite being provided by the petitioner a form
therefor.
The lack of a bad order survey does not toll the prescriptive period for filing a
claim for loss, because the consignee can always file a provisional claim within 15
days from the time it discovers the loss or damage. Such a claim would place the
arrastre operator on notice that the shipment sustained damage or loss, even if the
exact amount thereof could not be specified at the moment. In this manner, the arrastre
operator can immediately verify its culpability and liability. A provisional claim
seasonably filed is sufficient compliance with the liability clause. [21]
From the foregoing discussion, it is clear that the appellate court erred in
concluding that the shortage was due to the negligence of the arrastre operator.
Second Issue: Period to File a Claim for Loss

Petitioner contends that the appellate court misconstrued the liability clause
printed on the dorsal side of the Arrastre and Wharfage Bill/Receipt. The contentious
provision of this document reads:

Liability Clause
The duly authorized representative of herein named CONSIGNEE, and ICTSI
hereby certify to the correctness of the description of the containerized cargo
covered by this CY GATEPASS, the issuance of which constitutes delivery to and
receipt by Consignee of the containerized cargo as described in this CY
GATEPASS, in good order and condition, unless otherwise indicated. This CY
GATEPASS is subject to all terms and conditions defined in the Existing
Management Contract between the PPA & ICTSI[;] PPA Administrative Order
No. 10-81, ICTSI shall, however, be liable to the extent of the local invoice value
of each package but not to exceed P3,500 Philippine currency for imported
cargoes and P1,000 for domestic cargoes (consistent with Administrative Order
10-81 unless revised), unless the value thereof is otherwise specified or
manifested or communicated in writing together with the invoice value and
supported by a certified packing list to ICTSI by any interested party/ies before
the discharge of the cargo and corresponding port charges ha[ve] been fully
paid. This provision shall only apply upon filing of a formal claim within 15 days
from the date of issuance of the Bad Order Certificate or certificate of loss,
damage or non-delivery by ICTSI.[22]
Petitioner argues that the 15-day limitation for filing a claim against the arrastre
operator should run from the time of the delivery of the goods to the consignee, and
that the latters failure to file a claim within said period is sufficient ground to deny the
claim for loss.
On the other hand, the appellate court overruled the trial court, because the filing
of the claim was dependent upon the issuance of a certificate of loss, damage or
nondelivery. Since the petitioner did not issue such certificate, the 15-day limit, the
CA opined, did not begin to run against the consignee. Private respondent argues that
the clear and unambiguous language of the liability clause does not support petitioners
construction.
We agree with the petitioner. In order to hold the arrastre operator liable for lost or
damaged goods, the claimant should file with the operator a claim for the value of said
goods within fifteen (15) days from the date of discharge of the last package from the
carrying vessel x x x.[23] The filing of the claim for loss within the 15-day period is in
the nature of a prescriptive period for bringing an action and is a condition precedent

to holding the arrastre operator liable. This requirement is a defense made available to
the arrastre operator, who may use or waive it as a matter of personal discretion. [24]
The said requirement is not an empty formality. It gives the arrastre contractor a
reasonable opportunity to check the validity of the claim, while the facts are still fresh
in the minds of the persons who took part in the transaction, and while the pertinent
documents are still available. Such period is sufficient for the consignee to file a
provisional claim after the discharge of the goods from the vessel. [25] For this reason,
we believe that the 15-day limit is reasonable.
We should hasten to add that while a literal reading of the liability clause makes
the time limit run from the moment the shipment is discharged from the carrying
vessel, this Court has chosen to interpret this condition liberally in an endeavor to
promote fairness, equity and justness. [26] A long line of cases has held that the 15-day period for filing
claims should be counted from the date the consignee learns of the loss, damage or misdelivery of goods. [27]

In the case at bar, the consignee had all the time to make a formal claim from the
day it discovered the shortage in the shipment, which was June 4, 1990, as shown by
the records. According to the independent adjuster, the stripping or opening of the sea
vans containing the shipped canned goods was made at the consignees place upon
receipt of the shipment. After discovering the loss, the consignee asked the adjuster to
investigate the reason for the short-landing of the shipment. By the time the claim for
loss was filed on October 2, 1990, four months had already elapsed from the date of
delivery, June 4, 1990.
Prudential did not explain the delay. It did not even allege or prove that the
discovery of the shortage was made by the consignee only 15-days before October 2,
1990. The latter had to wait for the independent adjusters survey report dated
September 7, 1990, before filing the claim with the former. By that time, however, it
was clearly too late, as the 15-day period had expired.
In any event, within 15 days from the time the loss was discovered, the consignee
could have filed a provisional claim, which would have constituted substantial
compliance with the rule.[28] Its failure to do so relieved the arrastre operator of any
liability for the nondelivery of the goods. [29] More specifically, the failure to file
a provisional claim bars a subsequent action in court. [30] The rationale behind the time
limit is that, without it, a consignee could too easily concoct or fabricate claims and

deprive the arrastre operator of the best opportunity to probe immediately their
veracity.
WHEREFORE, the Petition is hereby GRANTED. The assailed Decision and
Resolution are SET ASIDE, and the trial courts Decision is REINSTATED. No
pronouncement as to costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 143133. June 5, 2002]

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE


DAVIES TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE
FIRST INSURANCE CO., INC., respondent.
DECISION
PANGANIBAN, J.:

Proof of the delivery of goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes prima facie fault or negligence on
the part of the carrier. If no adequate explanation is given as to how the loss, the
destruction or the deterioration of the goods happened, the carrier shall be held liable
therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing
the July 15, 1998 Decision[1] and the May 2, 2000 Resolution[2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads
as follows:

WHEREFORE, in the light of the foregoing disquisition, the decision appealed from
is hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to
jointly and severally pay plaintiffs-appellants the following:
1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100
(P451,027.32) as actual damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time of filing of the complaint
on July 25, 1991, until fully paid;
2) Attorneys fees amounting to 20% of the claim; and
3) Costs of suit.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City
(Branch 134), which had disposed as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the
complaint, as well as defendants counterclaim. [5]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in
this wise:
On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at
Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation. On
July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the
subsequent days, discharged the subject cargo. Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to
be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation
declared the same as total loss.
Despite receipt of a formal demand, defendants-appellees refused to submit to the
consignees claim. Consequently, plaintiff-appellant paid the consignee five hundred
six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the

latters rights and causes of action against defendants-appellees. Subsequently,


plaintiff-appellant instituted this complaint for recovery of the amount paid by them,
to the consignee as insured.
Impugning the propriety of the suit against them, defendants-appellees imputed that
the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice
or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency
of packing thereof, or to the act or omission of the shipper of the goods or their
representatives. In addition thereto, defendants-appellees argued that their liability, if
there be any, should not exceed the limitations of liability provided for in the bill of
lading and other pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment.[6]
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its
claims with the quantum of proof required by law.[7]
It likewise debunked petitioners counterclaim, because respondents suit was not
manifestly frivolous or primarily intended to harass them. [8]
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or
the damage of the goods shipped, because they had failed to overcome the
presumption of negligence imposed on common carriers.
The CA further held as inadequately proven petitioners claim that the loss or the
deterioration of the goods was due to pre-shipment damage. [9] It likewise opined that
the notation metal envelopes rust stained and slightly dented placed on the Bill of
Lading had not been the proximate cause of the damage to the four (4) coils. [10]
As to the extent of petitioners liability, the CA held that the package limitation
under COGSA was not applicable, because the words L/C No. 90/02447 indicated that
a higher valuation of the cargo had been declared by the shipper. The CA, however,
affirmed the award of attorneys fees.

Hence, this Petition.[11]


Issues
In their Memorandum, petitioners raise the following issues for the Courts
consideration:
I

Whether or not plaintiff by presenting only one witness who has never seen the
subject shipment and whose testimony is purely hearsay is sufficient to pave the way
for the applicability of Article 1735 of the Civil Code;
II

Whether or not the consignee/plaintiff filed the required notice of loss within the time
required by law;
III

Whether or not a notation in the bill of lading at the time of loading is sufficient to
show pre-shipment damage and to exempt herein defendants from liability;
IV

Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of


COGSA is applicable to the case at bar.[12]
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a
common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Courts Ruling
The Petition is partly meritorious.

First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers
should not be applied on the basis of the lone testimony offered by private respondent.
The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence and
vigilance with respect to the safety of the goods and the passengers they transport.
[13]
Thus, common carriers are required to render service with the greatest skill and
foresight and to use all reason[a]ble means to ascertain the nature and characteristics
of the goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires. [14] The extraordinary
responsibility lasts from the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier until they are delivered,
actually or constructively, to the consignee or to the person who has a right to receive
them.[15]
This strict requirement is justified by the fact that, without a hand or a voice in the
preparation of such contract, the riding public enters into a contract of transportation
with common carriers.[16] Even if it wants to, it cannot submit its own stipulations for
their approval.[17] Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. [18] That is, unless they prove that they
exercised extraordinary diligence in transporting the goods. [19] In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such diligence.[20]
However, the presumption of fault or negligence will not arise [21] if the loss is due
to any of the following causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether international or
civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order or act of

competent public authority.[22] This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the carrier is liable
therefor.[23]
Corollary to the foregoing, mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate explanation is given
as to how the deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.[24]
That petitioners failed to rebut the prima facie presumption of negligence is
revealed in the case at bar by a review of the records and more so by the evidence
adduced by respondent.[25]
First, as stated in the Bill of Lading, petitioners received the subject shipment in
good order and condition in Hamburg, Germany.[26]
Second, prior to the unloading of the cargo, an Inspection Report [27] prepared and
signed by representatives of both parties showed the steel bands broken, the metal
envelopes rust-stained and heavily buckled, and the contents thereof exposed and
rusty.
Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport
Services, Inc., stated that the four coils were in bad order and condition. Normally, a
request for a bad order survey is made in case there is an apparent or a presumed loss
or damage.[29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted
and tested, the steel sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating
Corporation and dated October 12, 1990 -- admitted that they were aware of the
condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos
Checkers Agency. Pertinent portions of his testimony are reproduce hereunder:

Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court
with what company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies Transport
Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.

xxxxxxxxx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head
Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection of cold
steel sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.

xxxxxxxxx
Q. Based on your inspection since you were also present at that time, will you inform this Honorable
Court the condition or the appearance of the bad order cargoes that were unloaded from the
MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets
and the best evidence is the document itself, Your Honor that shows the condition of the steel
sheets.
COURT:
Let the witness answer.

A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the
sides.[32]

All these conclusively prove the fact of shipment in good order and condition and
the consequent damage to the four coils while in the possession of petitioner, [33] who
notably failed to explain why.[34]
Further, petitioners failed to prove that they observed the extraordinary diligence
and precaution which the law requires a common carrier to know and to follow, to
avoid damage to or destruction of the goods entrusted to it for safe carriage and
delivery.[35]
True, the words metal envelopes rust stained and slightly dented were noted on the
Bill of Lading; however, there is no showing that petitioners exercised due diligence
to forestall or lessen the loss. [36]Having been in the service for several years, the master
of the vessel should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit. [37] Equipped
with the proper knowledge of the nature of steel sheets in coils and of the proper way
of transporting them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But none of these
measures was taken.[38] Having failed to discharge the burden of proving that they have
exercised the extraordinary diligence required by law, petitioners cannot escape
liability for the damage to the four coils. [39]
In their attempt to escape liability, petitioners further contend that they are
exempted from liability under Article 1734(4) of the Civil Code. They cite the
notation metal envelopes rust stained and slightly dented printed on the Bill of Lading
as evidence that the character of the goods or defect in the packing or the containers
was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage
to the four coils was due to the condition noted on the Bill of Lading. [40] The aforecited
exception refers to cases when goods are lost or damaged while in transit as a result of
the natural decay of perishable goods or the fermentation or evaporation of substances
liable therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of animals. [41] None of
these is present in the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew
or was apparent upon ordinary observation, it is not relieved of liability for loss or
injury resulting therefrom, once it accepts the goods notwithstanding such condition.
[42]
Thus, petitioners have not successfully proven the application of any of the
aforecited exceptions in the present case. [43]
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods
by Sea Act[44] (COGSA), respondent should have filed its Notice of Loss within three
days from delivery. They assert that the cargo was discharged on July 31, 1990, but
that respondent filed its Notice of Claim only on September 18, 1990. [45]
We are not persuaded. First, the above-cited provision of COGSA provides that
the notice of claim need not be given if the state of the goods, at the time of their
receipt, has been the subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report [46] as to the condition of the goods was
prepared and signed by representatives of both parties. [47]
Second, as stated in the same provision, a failure to file a notice of claim within
three days will not bar recovery if it is nonetheless filed within one year. [48] This oneyear prescriptive period also applies to the shipper, the consignee, the insurer of the
goods or any legal holder of the bill of lading. [49]
In Loadstar Shipping Co., Inc. v. Court of Appeals, [50] we ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed. Thus, in the
words of the ponente, Chief Justice Hilario G. Davide Jr.:
Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which
provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit--may be applied suppletorily to the case at bar.
In the present case, the cargo was discharged on July 31, 1990, while the
Complaint[51] was filed by respondent on July 25, 1991, within the one-year
prescriptive period.

Third Issue:
Package Limitation
Assuming arguendo they are liable for respondents claims, petitioners contend
that their liability should be limited to US$500 per package as provided in the Bill of
Lading and by Section 4(5)[52] of COGSA.[53]
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable,
because the value of the subject shipment was declared by petitioners beforehand, as
evidenced by the reference to and the insertion of the Letter of Credit or L/C No.
90/02447 in the said Bill of Lading.[54]
A bill of lading serves two functions. First, it is a receipt for the goods shipped.
Second, it is a contract by which three parties -- namely, the shipper, the carrier, and
the consignee -- undertake specific responsibilities and assume stipulated obligations.
[56]
In a nutshell, the acceptance of the bill of lading by the shipper and the consignee,
with full knowledge of its contents, gives rise to the presumption that it constituted a
perfected and binding contract.[57]
[55]

Further, a stipulation in the bill of lading limiting to a certain sum the common
carriers liability for loss or destruction of a cargo -- unless the shipper or owner
declares a greater value[58] -- is sanctioned by law.[59] There are, however, two conditions
to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2)
it has been fairly and freely agreed upon by the parties. [60] The rationale for, this rule is
to bind the shippers by their agreement to the value (maximum valuation) of their
goods.[61]
It is to be noted, however, that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package. [62] In all matters not regulated by the
Civil Code, the right and the obligations of common carriers shall be governed by the
Code of Commerce and special laws. [63] Thus, the COGSA, which is suppletory to the
provisions of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carriers liability in the absence of a shippers declaration of a
higher value in the bill of lading.[64] The provisions on limited liability are as much a
part of the bill of lading as though physically in it and as though placed there by
agreement of the parties.[65]

In the case before us, there was no stipulation in the Bill of Lading [66] limiting the
carriers liability. Neither did the shipper declare a higher valuation of the goods to be
shipped. This fact notwithstanding, the insertion of the words L/C No. 90/02447
cannot be the basis for petitioners liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of
Credit obtained by the shipper for the importation of steel sheets did not effect a
declaration of the value of the goods as required by the bill. [67] That notation was made
only for the convenience of the shipper and the bank processing the Letter of Credit. [68]
Second, in Keng Hua Paper Products v. Court of Appeals, [69] we held that a bill of
lading was separate from the Other Letter of Credit arrangements. We ruled thus:
(T)he contract of carriage, as stipulated in the bill of lading in the present case, must
be treated independently of the contract of sale between the seller and the buyer, and
the contract of issuance of a letter of credit between the amount of goods described in
the commercial invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of carriage as
embodied in the bill of lading. As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading
and to verify their accuracy vis--vis the commercial invoice and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the invoice and the
amount in the bill of lading cannot negate petitioners obligation to private respondent
arising from the contract of transportation. [70]
In the light of the foregoing, petitioners liability should be computed based on
US$500 per package and not on the per metric ton price declared in the Letter of
Credit.[71] In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court [72] we
explained the meaning of package:
When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the package referred
to in the liability limitation provision of Carriage of Goods by Sea Act.

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the
Bill of Lading clearly disclosed the contents of the containers, the number of units, as
well as the nature of the steel sheets, the four damaged coils should be considered as
the shipping unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners liability is reduced to US$2,000 plus interest at the
legal rate of six percent from the time of the filing of the Complaint on July 25, 1991
until the finality of this Decision, and 12 percent thereafter until fully paid. No
pronouncement as to costs.
SO ORDERED.