Topic: Extraordinary Diligence in Carriage by Sea (Proper Storage)

Case No: BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES
TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent
[G.R. No. 143133. June 5, 2002.]

Characters:
CMC Trading A.G.
M/V Anangel Sky – owned by Belgian Overseas – carrier (defendant/appellee)
Philippine Steel Trading Corporation – consignee/insured
Philippine First Insurance – insurer (plaintiff-appellant)

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.

Facts:
 CMC Trading A.G. shipped on board the M/V 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, M/V 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.

 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.

 Philippine First Insurance paid the claim of Philippine Steel and was thus subrogated

 Philippine First then instituted a complaint for recovery of the amount paid to the consignee as insured.

Petitioner’s contention:
Belgian claims 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. Belgian further 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, Belgian averred that, in any event, they exercised due diligence and
foresight required by law to prevent any damage/loss to said shipment.

 The RTC dismissed the complaint because Phil. First Insurance had failed to prove its claims with the
quantum of proof required by law.

 The CA reversed and ruled that Belgian 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. As
to the extent of Belgian’s 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.

Issues:

1. Whether petitioners have overcome the presumption of negligence of a common carrier

2. Whether the notice of loss was timely filed.
(Belgian claims that pursuant to Section 3, paragraph 6 of Carriage of Goods by Sea Act
(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.)

3. Whether the package limitation of liability under COGSA is applicable.

(Belgian contends that assuming that they are liable their liability should be limited to US$500 per
package as provided in the Bill of Lading and by Section 4(5) of COGSA
Held:

1. NO.
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.

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. 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.

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.

In this case, Belgian failed to rebut the prima facie presumption of negligence.

First, as stated in the Bill of Lading, Belgian received the subject shipment in good order and condition in
Germany.

Second, prior to the unloading of the cargo, an Inspection Report 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 issued by Jardine Davies Transport Services 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.

Fourth, the Certificate of Analysis stated that, based on the sample submitted and tested, the steel
sheets found in bad order were wet with fresh water.

Fifth, Belgian -- in a letter addressed to the Philippine Steel --admitted that they were aware of the
condition of the four coils found in bad order and condition.

2. YES.

First, the 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. Here, prior
to unloading the cargo, an Inspection Report as to the condition of the goods was prepared and signed by
representatives of both parties.

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. This one-year prescriptive period also applies to
the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.

A claim is not barred by prescription as long as the one-year period has not lapsed. In the present case,
the cargo was discharged on July 31, 1990, while the Complaint was filed by respondent on July 25,
1991, within the one-year prescriptive period.
3. YES.

Assuming arguendo they are liable for respondent's 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 52 of COGSA.
53 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.

In this case, there was no stipulation in the Bill of Lading limiting the carrier's 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 Belgian’s liability.

A bill of lading serves two functions.

1. First , it is a receipt for the goods shipped.
2. Second, it is a contract by which three parties — namely, the shipper, the carrier, and the
consignee — undertake specific responsibilities and assume stipulated obligations. 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.

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. Thus, the COGSA, which is suppletory to the
provisions of the Civil Code.

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. That notation was made only for the convenience of the shipper and the bank
processing the Letter of Credit.

Second, a bill of lading is separate from the Other Letter of Credit arrangements. Thus, Belgian’s liability
should be computed based on US$500 per package and not on the per metric ton price declared in the
Letter of Credit.

In Eastern Shipping vs IAC the Court, 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 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.