MITSUI O.S.K. LINES LTD., REPRESENTED BY MAGSAYSAY AGENCIES, INC., PETITIONER, VS. COURT OF APPEALS AND LAVINE LOUNGEWEAR MFG. CORP., RESPONDENTS.

Mitsui O.S.K. Lines versus Lavine Loungewear

The Case

This is a petition for review on certiorari brought by Mitsui O.S.K. Lines Ltd., a foreign corporation represented in the Philippines by its agent Magsaysay Agencies, Inc., against Lavine Loungewear Manufacturing Corporation. The dispute arises from a contract of carriage of goods by sea from Manila to Le Havre, France. The goods arrived late, and the consignee allegedly paid only half their value because they reached France during the off season. Lavine sued for the resulting loss in value. Mitsui moved to dismiss, insisting that the action had prescribed under the one-year period of the Carriage of Goods by Sea Act. The case matters because it draws the line between a true action for loss or damage to goods, which carries the one-year prescriptive period, and an ordinary action for breach of the contract of carriage, which carries the longer period of the Civil Code.

Procedural History

Lavine filed its complaint in the Regional Trial Court of the National Capital Judicial Region, Branch 68, Pasig, impleading Meister Transport, Inc. and Magsaysay Agencies, Inc. as agent of Mitsui. Lavine later amended its complaint to implead Mitsui itself in lieu of its agent. Mitsui then filed a motion to dismiss, arguing that the claim against it had prescribed under the Carriage of Goods by Sea Act. The trial court denied the motion, and it also denied Mitsui's motion for reconsideration. Mitsui went up to the Court of Appeals on a petition for certiorari, and the Court of Appeals sustained the trial court's orders. Mitsui then brought this petition for review on certiorari before the Supreme Court, raising a single assignment of error: that the Court of Appeals erred in ruling that the amended complaint was not prescribed under Section 3, paragraph 6 of the Carriage of Goods by Sea Act.

Facts

Mitsui, a foreign corporation represented here by Magsaysay Agencies, entered into a contract of carriage through Meister Transport, Inc., an international freight forwarder, with Lavine Loungewear Manufacturing Corporation. Under that contract, Mitsui undertook to transport Lavine's goods from Manila to Le Havre, France, and to deliver them within twenty-eight days from initial loading. On July 24, 1991, Mitsui's vessel loaded Lavine's container van at the port of origin.

In Kaoshiung, Taiwan, however, the goods were not transshipped immediately. As a result, the shipment arrived in Le Havre only on November 14, 1991, well beyond the agreed period. The consignee allegedly paid only half the value of the 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 Lavine's account, and Lavine in turn demanded payment from Mitsui through its agent.

Mitsui denied the claim. On April 14, 1992, Lavine filed its case in the Regional Trial Court. Mitsui responded with a motion to dismiss on the ground of prescription under the Carriage of Goods by Sea Act, which the trial court denied, and which the Court of Appeals likewise refused to disturb.

Issues

• Whether or not Lavine's action is one for loss or damage to goods shipped, within the meaning of Section 3, paragraph 6 of the Carriage of Goods by Sea Act, so that the one-year prescriptive period applies.
• Whether or not the action, being founded on a breach of the contract of carriage rather than on physical loss or damage to the goods, is governed instead by the ten-year prescriptive period of Article 1144 of the Civil Code.

Applicable Provisions

Section 3, paragraph 6 of the Carriage of Goods by Sea Act provides:

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.

This is the one-year limitation that Mitsui invoked, and the whole question is whether the words loss or damage reach a claim like Lavine's.

Article 1144 of the Civil Code provides:

Actions on a written contract, actions upon an obligation created by law, actions upon a judgment, and actions for the recovery of the price of goods sold and delivered must be brought within ten years from the time the right of action accrues.

The Court applies this ten-year period because it treats the suit as one upon a written contract of carriage, outside the special maritime limitation.

Ruling

On the first issue, the Court held that Lavine's action is not one for loss or damage within the meaning of Section 3, paragraph 6. The Court recalled its earlier ruling that loss refers to the deterioration or disappearance of goods, and that where goods were simply misdelivered there was no loss. It likewise recalled that the deterioration of goods due to delay in their transportation does constitute loss or damage, so that a suit not brought within one year was barred. But the Court drew the distinction that controls here: such damages are covered only when they flow from the deterioration and decay of the goods while in transit, and not when they arise from other causes independent of the condition of the cargo upon arrival, like a drop in market value. In this case, the Court found neither deterioration nor disappearance nor destruction of the goods caused by the carrier's breach. Whatever reduction there was in the value of the goods was not due to their deterioration or disappearance. The Court explained the reason behind the narrow reading: the one-year period is designed to meet the exigencies of maritime hazards, and that special need does not obtain where the goods were neither lost nor damaged in transit.

On the second issue, the Court held that what is in issue is not Mitsui's liability for its handling of the goods under Section 3, paragraph 6, but its liability under its contract of carriage, covered by laws of more general application. The question before the trial court was Mitsui's potential liability for the damages it caused in the general sense, governed by the Civil Code, the Code of Commerce, and the Carriage of Goods by Sea Act, for breach of the contract of carriage. Accordingly, the Court concluded that the question of prescription is governed not by the Carriage of Goods by Sea Act but by Article 1144 of the Civil Code, with its ten-year prescriptive period.

Doctrine

The one-year prescriptive period in Section 3, paragraph 6 of the Carriage of Goods by Sea Act applies only to actions for loss or damage to goods, meaning the deterioration or disappearance of the goods, including deterioration caused by delay in their transportation. It does not apply where the reduction in the value of the goods is due to causes independent of their condition upon arrival, such as a drop in market value or late arrival during the off season. In that situation, the action is one for breach of the contract of carriage, and prescription is governed by Article 1144 of the Civil Code, which fixes a period of ten years. The rationale is that the short maritime period exists to meet the exigencies of maritime hazards, and that need is absent where the goods were neither lost nor damaged in transit.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, holding that Lavine's action had not prescribed because it is governed by the ten-year period of Article 1144 of the Civil Code.

Remember This

Memorize the line: the one-year period under the Carriage of Goods by Sea Act covers loss or damage to the goods, not every breach of the contract of carriage, so a claim for diminished value from late arrival falls under the ten-year period of Article 1144. Examiners use this case to test the distinction between physical loss or damage and general damages for breach of a contract of carriage by sea.