THE NEW ZEALAND INSURANCE COMPANY, INC. PETITIONER, VS. THE HONORABLE INTER­MEDIATE APPELLATE COURT AND E. RAZON, INC., RESPONDENTS.

New Zealand Insurance versus E. Razon

The Case

This is a petition for review brought by The New Zealand Insurance Company against E. Razon, Incorporated, the arrastre operator, to reverse the Intermediate Appellate Court's dismissal of its claim on the ground of prescription. The insurer, having paid its insured consignee for a cargo of oats discharged in bad order, sued the arrastre operator as subrogee to recover the amount it had paid. The case matters because it settles a practical question that recurs in bar examinations: whether the bad order certificates issued by the arrastre operator itself may serve as the formal claim required under the Revised Management Contract, so as to interrupt or prevent the running of the thirty-day period.

Procedural History

The insurer filed suit against E. Razon, Incorporated before the Court of First Instance of Manila, which rendered judgment in favor of the plaintiff. The trial court ordered the defendant to pay the sum of 17,025 pesos and 87 centavos with six percent interest from April 23, 1973, until paid, plus 1,000 pesos as attorney's fees, and the costs. E. Razon, Incorporated appealed the adverse decision to the Court of Appeals. The Intermediate Appellate Court, which succeeded the Court of Appeals, reversed the trial court on the ground of prescription, holding that the appellee had no cause of action against the appellant. The insurer then filed the present petition seeking a reversal of the appellate court's decision.

Facts

A cargo of oats was consigned to Muller and Phipps (Manila) Limited. The cargo was insured against all risks by The New Zealand Insurance Company. When the cargo was discharged, several cartons containing the oats were in bad order. The consignee filed a claim against the insurer for the value of the damaged goods, which the insurer paid in the amount of 18,148 pesos and 69 centavos.

As subrogee of the consignee, the insurer sued E. Razon, Incorporated, the arrastre operator, demanding reimbursement in the amount of 17,025 pesos and 87 centavos. The lower figure resulted because the carrier responded for its share of the loss in the sum of 1,121 pesos and 2 centavos.

The bad order certificates were issued by E. Razon, Incorporated on March 23 and 24, 1972. The import entry was filed on March 17, 1972. The formal claim was filed with the Philippine Control Office only on May 17, 1972, more than seventy days from the filing of the import entry. The appellate court held that prescription had set in, even assuming the loss was discovered within the last fifteen days of the thirty-day period.

Issues

• Whether or not the bad order certificates issued by the arrastre operator on March 23 and 24, 1972, served the purpose of a formal claim, so that the claim was not filed out of time.
• Whether or not the appellate court erred in failing to discuss the insurer's argument and the doctrine laid down in Fireman's Fund Insurance Company versus Manila Port Service Company.
• Whether or not the amount of the award may be reduced at this stage of the proceedings.

Applicable Provisions

The Revised Management Contract, in respect of claims against the arrastre operator, provides:

That a formal claim together with the necessary copies of the bill of lading invoice, certified packing list, bank certificate showing the rate of exchange at the time of purchase or opening of letter of credit, and the computation arrived at covering the loss, damage, or non-delivery of such goods shall have been filed with the CONTRACTOR within thirty (30) days from the date of filing of entry; PROVIDED FURTHER, that if the loss, injury or damage is discovered within the last fifteen (15) days of said period of thirty (30) days, then the formal claim shall be filed within fifteen (15) days from the date of discovery of the loss, injury or damage.

This provision supplies the thirty-day period from the filing of the import entry within which a formal claim must be lodged against the arrastre operator, and it is the very provision on which the appellate court based its finding of prescription.

Ruling

On the first issue, the Court held that the bad order certificates issued by E. Razon, Incorporated on March 23 and 24, 1972, served the purpose of a formal claim, so that the claim was not filed out of time. The Court relied on Fireman's Fund Insurance Company versus Manila Port Service Company, where it had held that the request for, and the result of, the bad order examination, filed and done within fifteen days from the haulage of the goods from the vessel, in effect served the purpose of a claim. The purpose of a claim is:

to afford the carrier or depositary reasonable opportunity and facilities to check the validity or claims while facts are still fresh in the minds of the person who took part in the transaction and the documents are still available.

The Court further observed that the examination undertaken by the defendant's own inspector not only gave the defendant an opportunity to check the goods but is itself a verification of its own liability.

On the second issue, the Court held that the appellate court should have discussed the insurer's argument and the Fireman's Fund doctrine, which it had failed to do.

On the third issue, the Court held that the amount to be awarded is a question of fact and cannot be reduced at this stage, notwithstanding the respondent's oblique concession that if the petition be given due course its liability should be in the reduced amount of 5,344 pesos and 13 centavos only.

Doctrine

A bar candidate must retain that the bad order certificates issued by the arrastre operator, filed and done within fifteen days from the haulage of the goods from the vessel, serve the purpose of a formal claim under the Revised Management Contract. The reason is that the purpose of a claim is to afford the carrier or depositary reasonable opportunity and facilities to check the validity of claims while facts are still fresh in the minds of the persons who took part in the transaction and the documents are still available. The examination undertaken by the arrastre operator's own inspector is itself a verification of its own liability. Consequently, the thirty-day period from the filing of the import entry is satisfied, and prescription does not set in.

Disposition

The petition was granted; the decision of the Intermediate Appellate Court was set aside and that of the trial court reinstated, with costs against the respondent.

Remember This

The single line worth memorizing is that the bad order certificates issued by the arrastre operator itself serve the purpose of a formal claim, because they give the operator the very opportunity the claim requirement exists to secure. Examiners like to use this case in arrastre and insurance subrogation problems, testing whether the thirty-day formal claim period has been satisfied by the operator's own bad order examination.