PHILIPPINE CHARTER INSURANCE CORPORATION, PETITIONER, VS. CHEMOIL LIGHTERAGE CORPORATION, RESPONDENT.

Philippine Charter Insurance versus Chemoil Lighterage

The Case

This is a petition for review on certiorari brought by Philippine Charter Insurance Corporation, a domestic non-life insurer, against Chemoil Lighterage Corporation, a domestic carrier engaged in the transport of goods. The insurer, as subrogee of the cargo owner, sued the carrier for damages after a shipment of the liquid chemical dioctyl phthalate was found discolored upon delivery. The case matters because it fixes the character of the notice of claim under Article 366 of the Code of Commerce: it is a condition precedent to the accrual of a right of action against a common carrier, not a mere formality, and its timely filing must be alleged and proved by the shipper or consignee.

Procedural History

The insurer filed a complaint for damages before the Regional Trial Court of Manila, Branch 16, praying for actual damages of 5,000,000 pesos, attorney's fees, and costs. After due hearing, the trial court rendered judgment in favor of the insurer, ordering the carrier to pay the claim of 5,000,000 pesos with legal interest from the filing of the complaint, and dismissing the counterclaims.

Aggrieved, the carrier appealed to the Court of Appeals, arguing in the main that the consignee failed to file any notice, claim, or protest within the period required by Article 366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against the carrier. The Court of Appeals reversed and set aside the trial court and entered a new judgment dismissing the complaint.

The insurer then filed a petition for review on certiorari with the Supreme Court. After the carrier filed its comment and the insurer its reply, the Supreme Court gave due course to the petition.

Facts

On 24 January 1991, Samkyung Chemical Company, Ltd. of Ulsan, South Korea, shipped two lots of dioctyl phthalate on board the ocean tanker Tachibana to the Philippines, consigned to Plastic Group Phils., Inc. in Manila. The consignee insured the cargo against all risks with Philippine Charter Insurance Corporation under two marine policies, later amended by an endorsement that reduced the insured value of the larger policy.

The ocean tanker unloaded the cargo to Tanker Barge LB-1011 of Chemoil Lighterage Corporation, which was to bring it to Del Pan Bridge in the Pasig River, where it would be transferred to the carrier's tanker trucks and hauled by land to the consignee's storage tanks in Calamba, Laguna. Upon inspection, samples taken from the shipment showed discoloration from yellowish to amber, although the chemical is colorless and water clear. The consignee formally made an insurance claim by letter dated 18 February 1991. An independent adjuster's report noted that the manhole covers of the ballast tanks' ceilings were loosely secured and that the rubber gaskets had reacted to the chemical, causing shrinkage and allowing cargo ingress to the rusty ballast tanks.

The insurer paid the consignee 5,000,000 pesos as full and final payment for the loss, and the consignee issued a subrogation receipt. Earlier, on 03 April 1991, the consignee had paid the carrier 301,909.50 pesos as full payment for its services, evidenced by an official receipt. The insurer then sued the carrier for damages. The carrier answered that the cargo had been inspected and found clean, dry, and fit for loading before it was loaded into the barge, that the loading and unloading were under the consignee's supervision, that the contract stipulated it would be free from claims for contamination, and that it had exercised extraordinary diligence.

Issues

• Whether or not the notice of claim was filed within the period required by Article 366 of the Code of Commerce.
• Whether or not the damage to the cargo was due to the fault or negligence of the carrier.

Applicable Provisions

Article 366 of the Code of Commerce provides:

Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages.

This paragraph fixes the twenty-four hour period within which the claim must be made, and it is the provision on which the entire case turns.

The same article continues:

After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.

This second paragraph bars the claim once the period has elapsed or the transportation charges have been paid, and the Court notes that the charges here were in fact paid.

Ruling

On the first issue, the Court ruled that the notice of claim was not filed within the required period. The Court of Appeals had found that a telephone call by the consignee's employee to the carrier's vice president for administration and operations could constitute substantial compliance with the requirement of notice, but that there was no proof of compliance with the period. The Supreme Court agreed that there was no incongruity between the findings of the trial court and the appellate court: both found that the telephone call was made, but neither found that the notice was relayed immediately or within twenty-four hours from receipt of the goods. The Court held that the testimony of the consignee's employee showed he had no personal knowledge that the carrier's drivers were informed of the contamination, and no driver was presented to prove it.

The Court stressed that the requirement is not an empty or worthless proviso. Its object is to compel the consignee to make prompt demand so that the carrier may verify the claim at the time of delivery or within twenty-four hours thereafter, fix responsibility, and secure evidence while the matter is fresh. The filing of the claim within the time limitation constitutes a condition precedent to the accrual of a right of action against the carrier for loss of or damage to the goods; the shipper or consignee must allege and prove fulfillment of the condition, and failing that, no right of action accrues. The requirement is a reasonable condition precedent; it does not constitute a limitation of action.

On the argument that payment of the transportation charges does not invalidate the claim because notice had been given before payment, the Court held that the argument proceeded from a false presupposition that the notice was timely filed. Since the transportation charges had in fact been paid, the second paragraph of Article 366 likewise barred the claim.

On the second issue, the Court found it unnecessary to rule, since the first issue had been resolved in the negative.

Doctrine

The filing of a claim with the carrier within the period fixed by Article 366 of the Code of Commerce is a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods. The shipper or consignee must allege and prove fulfillment of the condition; if it fails to do so, no right of action against the carrier can accrue in its favor. The requirement is a reasonable condition precedent and does not constitute a limitation of action.

The purpose of the notice is to enable the carrier to verify the claim at the time of delivery or within twenty-four hours thereafter, to fix responsibility, and to secure evidence as to the nature and extent of the damage while the matter is still fresh in the minds of the parties. It protects the carrier from false and fraudulent claims.

Under the second paragraph of Article 366, no claim whatsoever shall be admitted against the carrier after the period has elapsed or after the transportation charges have been paid. A telephone call to a responsible official may be considered in determining whether notice was given, but it does not excuse proof that the notice was given within the required period.

Disposition

The Court affirmed in toto the decision of the Court of Appeals dismissing the complaint, with no pronouncement as to costs. The carrier won.

Remember This

Memorize this line: the notice of claim under Article 366 of the Code of Commerce is a condition precedent to the accrual of a right of action against the carrier, and it must be both timely and proved. Examiners use this case to test whether a candidate knows that a claim, however meritorious, fails without a timely notice, and that payment of transportation charges independently bars the claim under the second paragraph of the same article.