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BELGIAN OVERSEAS CHARTERING v. PHILIPPINE FIRST INSURANCE CO.

FACTS:

CMC Trading A.G. shipped 242 coils of Prime Cold Rolled Steel sheets from Hamburg, Germany to Manila, consigned to the Philippine Steel Trading Corporation. Upon arrival at the port of Manila, four coils were found to be in bad order and declared as total loss. The consignee demanded payment from the carrier, but they refused. The consignee paid the amount to the consignee and filed a complaint to recover the amount paid. The trial court dismissed the complaint for lack of proof while the Court of Appeals reversed the decision and held the carrier liable for the loss or damage of the goods. They also ruled that the package limitation under COGSA was not applicable and affirmed the award of attorney's fees. The carrier appealed to the Supreme Court.

ISSUES:

  1. Whether petitioners have rebutted the prima facie presumption of negligence.

  2. Whether petitioners have proven that they observed the extraordinary diligence required of a common carrier.

  3. Whether petitioners are exempted from liability under Article 1734(4) of the Civil Code.

  4. Whether respondent complied with the requirement of filing a Notice of Loss within three days from delivery.

  5. Whether the failure to file a notice of claim within three days bars recovery if it is filed within one year.

  6. Whether the liability of the common carrier should be limited to a fixed amount per package.

  7. Whether the notation in the Bill of Lading indicating the amount of the Letter of Credit constitutes a declaration of the value of the goods.

  8. Whether or not the damaged coils should be considered as the shipping unit subject to the limitation of liability under the Carriage of Goods by Sea Act.

RULING:

  1. The court held that petitioners failed to rebut the prima facie presumption of negligence. The evidence presented by respondent, including the Bill of Lading, Inspection Report, Bad Order Tally Sheet, Certificate of Analysis, and correspondence from petitioners, confirmed that the shipment was received in good order and condition but was subsequently found damaged. Petitioners failed to explain why the damage occurred while the shipment was in their possession.

  2. The court ruled that petitioners failed to prove that they observed the extraordinary diligence required of a common carrier. While the Bill of Lading noted the condition of the goods as "rust stained and slightly dented," petitioners did not show that they took any precautionary measures to prevent further deterioration. The court stated that, given the nature of the cargo and their knowledge of proper transportation methods, petitioners should have taken precautions to avoid damage to the goods.

  3. The court rejected petitioners' argument that they are exempted from liability under Article 1734(4) of the Civil Code. The condition noted on the Bill of Lading did not reasonably cause the damage to the goods. Additionally, even if improper packing was known or apparent, petitioners cannot be relieved of liability once they accept the goods.

  4. The court rejected petitioners' claim that respondent failed to comply with the requirement of filing a Notice of Loss within three days from delivery. The court did not provide further explanation for this ruling.

  5. The failure to file a notice of claim within three days does not bar recovery if it is filed within one year. The Carriage of Goods by Sea Act (COGSA) provides a one-year period of limitation on claims for loss or damage to cargo sustained during transit. As long as the one-year period has not lapsed, the claim is not barred by prescription.

  6. The liability of the common carrier should be limited to a fixed amount per package. A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of cargo is sanctioned by law, as long as the contract is reasonable and just under the circumstances and has been freely agreed upon by the parties. The COGSA supplements the Civil Code by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading.

  7. The notation in the Bill of Lading indicating the amount of the Letter of Credit does not constitute a declaration of the value of the goods. It was made for the convenience of the shipper and the bank processing the Letter of Credit, and it does not affect the carrier's liability. The contract of carriage as embodied in the bill of lading should be treated independently from other Letter of Credit arrangements.

  8. The four damaged coils should be considered as the shipping unit subject to the limitation of liability under the Carriage of Goods by Sea Act. Therefore, the petitioners' liability is reduced to US$2,000 plus interest.

PRINCIPLES:

  • A common carrier is required to exercise extraordinary diligence in the transportation of goods to avoid damage or destruction. The burden of proving the exercise of extraordinary diligence is upon the carrier. (Doctrine of extraordinary diligence)

  • A common carrier cannot be relieved of liability for loss or injury resulting from improper packing, even if the carrier knew or observed such condition upon acceptance of the goods. (Doctrine of carrier's liability for improper packing)

  • The exemption from liability under Article 1734(4) of the Civil Code applies only to cases involving natural decay of perishable goods, fermentation or evaporation of substances, necessary and natural wear of goods, defects in packages, or the natural propensities of animals. (Doctrine of exemption from liability for damage to goods)

  • Failure to file a notice of claim within three days does not bar recovery if it is filed within one year.

  • Liability of the common carrier can be limited to a fixed amount per package, as long as the stipulation is reasonable and freely agreed upon by the parties.

  • The COGSA supplements the Civil Code in establishing a statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading.

  • Notations in the Bill of Lading for the convenience of the shipper and the bank processing the Letter of Credit do not affect the carrier's liability. The bill of lading should be treated independently from other Letter of Credit arrangements.

  • The liability limitation under the Carriage of Goods by Sea Act applies to the "package" being shipped.

  • The "package" is not the container, but the individual units contained within it.

  • The Bill of Lading should clearly disclose the contents of the containers, the number of units, and the nature of the goods.