UCPB GENERAL INSURANCE CO., INC., PETITIONER, VS. ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO INTERMODAL SERVICES, INC., AND PIMENTEL CUSTOMS BROKERAGE CO., RESPONDENTS.

UCPB General Insurance versus Aboitiz Shipping

The Case

This is a petition for review brought by UCPB General Insurance Company, as subrogee of San Miguel Corporation, against Aboitiz Shipping Corporation, Eagle Express Lines, DAMCO Intermodal Services, and Pimentel Customs Brokerage. UCPB seeks to recover the amount it paid to San Miguel for a damaged electrical motor that formed part of a shipment of waste water treatment plant units. The case matters because it settles a recurring bar question: the twenty-four hour claim under Article 366 of the Code of Commerce is a condition precedent to the accrual of a right of action against a carrier, and it is not dispensed with merely because the carrier's supposed representative knew of the damage.

Procedural History

UCPB filed a complaint before the Regional Trial Court of Makati City, sitting in Branch 146, as subrogee of San Miguel. It later amended the complaint to implead East Asiatic Company as the general agent of DAMCO. DAMCO was declared in default. East Asiatic sought a preliminary hearing on its defense of prescription, and when the trial court denied the motion, East Asiatic elevated the matter to the Court of Appeals, which ordered the dismissal of the complaint against East Asiatic, and that ruling became final and executory. Trial then proceeded against the remaining defendants. The trial court rendered judgment holding DAMCO, Eagle Express, and Aboitiz solidarily liable to UCPB for the damaged shipment. Eagle Express and Aboitiz appealed. The Court of Appeals reversed the trial court, ruling that UCPB's right of action never accrued because it failed to file a formal notice of claim within twenty-four hours from receipt of the damaged merchandise under Article 366 of the Code of Commerce. UCPB's motion for reconsideration was denied. UCPB then came to the Supreme Court by petition for review.

Facts

On June 18, 1991, San Miguel Corporation purchased three units of waste water treatment plant with accessories from Super Max Engineering Enterprises of Taipei, Taiwan. The goods came from Charleston, in the United States, and arrived at the port of Manila on board the vessel SCANDUTCH STAR. They were then transported to Cebu on board the vessel ABOITIZ SUPERCON II. After arrival at the port of Cebu and clearance from the Bureau of Customs, the goods were delivered to and received by San Miguel at its plant site on August 2, 1991. It was then discovered that one electrical motor of a drive unit was damaged.

Pursuant to an insurance agreement, UCPB paid San Miguel the amount of 1,703,381 pesos and 40 centavos, representing the value of the damaged unit. San Miguel then executed a subrogation form in favor of UCPB. On July 21, 1992, UCPB filed a complaint as subrogee of San Miguel, seeking to recover from the defendants the amount it had paid.

Unknown to the trial court's later analysis, the damage had actually been discovered earlier. When the shipment was discharged and opened at the International Container Terminal Services in Manila, in the presence of a representative of Eagle Express, the cargo was already found damaged. A request for bad order survey was made and a turnover survey of bad order cargoes was issued. The shipment was then repacked and transshipped from Manila to Cebu. When San Miguel finally received the cargo at its warehouse, it was found in bad order, confirming the damage already uncovered in Manila. The claims filed by San Miguel were dated October 30, 1991, more than three months from receipt of the shipment.

Issues

• Whether or not the twenty-four hour claim requirement under Article 366 of the Code of Commerce applies to bar UCPB's action against the carriers.
• Whether or not the knowledge of Eagle Express of the damage, and the inspection in which its representative participated, dispensed with the formal notice of claim.
• Whether or not the issue of the applicability of Article 366 was properly raised before the trial court.
• Whether or not Aboitiz, Eagle Express, and Pimentel Customs may be held liable for the damage.

Applicable Provisions

Article 366 of the Code of Commerce provides:

Article 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.

This is the provision the Court applies, and it requires the claim to be made within twenty-four hours from receipt where the damage cannot be ascertained from the outside packaging.

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

Section 3(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 of 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.

UCPB invokes the last paragraph, which dispenses with written notice where the goods have been the subject of a joint survey or inspection.

Ruling

On the first issue, the Court held that Article 366 applies. The shipment was received by San Miguel on August 2, 1991, but the claims were dated October 30, 1991, more than three months later and even after the extent of the loss had been determined by San Miguel's surveyor. The claim was clearly filed beyond the twenty-four hour time frame. The Court stressed that the requirement to give notice of loss is not an empty formalism. Its purpose is reasonably to inform the carrier that the shipment has been damaged and that it is charged with liability, and to give it an opportunity to examine the nature and extent of the injury while the matter is still fresh. The Court construed the twenty-four hour claim requirement as a condition precedent to the accrual of a right of action against a carrier, which the shipper or consignee must allege and prove.

On the second issue, the Court held that the knowledge of Eagle Express did not dispense with the notice. UCPB was ambivalent as to which party Eagle Express represented. By its own manifestation, it was East Asiatic, not Eagle Express, that acted as the agent through which summons and court notices may be served on DAMCO. It would therefore be unjust to hold that Eagle Express's knowledge precluded or dispensed with the twenty-four hour notice to the carrier. Neither did the inspection in which Eagle Express's representative participated amount to a waiver of written notice under the Carriage of Goods by Sea Act, because Eagle Express had acted as the agent of the freight consolidator, not of the carrier to whom notice should have been made.

On the third issue, the Court found that the applicability of Article 366 was squarely raised before the trial court. Eagle Express pleaded it in its answer to the amended complaint, and Aboitiz raised the defense that no claim was filed with it. The Court found that UCPB made a gross misrepresentation in claiming otherwise, and that the Court of Appeals correctly looked into the issue.

On the fourth issue, the Court absolved Aboitiz, since there was no evidence that the cargo was further damaged during transshipment to Cebu, and even extraordinary diligence could not have undone damage already present when the cargo was loaded on board its vessel. It absolved Pimentel Customs, which had no participation in the physical handling, loading, and delivery of the damaged cargo. As for Eagle Express, liability could not attach because the notice requirement was not met.

Doctrine

The twenty-four hour claim under 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 goods. The shipper or consignee must allege and prove its fulfillment; otherwise, no right of action accrues. The requirement is not an empty formalism: it informs the carrier of the damage and gives it an opportunity to investigate while the matter is fresh, safeguarding it from false and fraudulent claims. Knowledge of the damage by a party who is not the carrier's agent does not dispense with the notice, and neither does an inspection participated in by such a party amount to the joint survey or inspection that waives written notice under the Carriage of Goods by Sea Act.

Disposition

The petition was denied, the decision and resolution of the Court of Appeals were affirmed, and double costs were assessed against UCPB.

Remember This

Memorize this line: the twenty-four hour claim under Article 366 of the Code of Commerce is a condition precedent to the accrual of a right of action against a carrier, and it is not excused by the knowledge of a party who is not the carrier's agent. Examiners use this case to test the condition precedent rule and the distinction between the carrier's agent and the freight consolidator's agent.