This was a petition for review of the Court of Appeals (CA) decision in CA-GR CV No 53571, requiring the petitioner to pay the respondent PHP 451,027.32 in damages, representing the value of damaged cargo.

On 13 June 1990, CMC Trading AG shipped 242 of prime cold rolled steel sheets from Hamburg to Manila consigned to the Philippine Steel Trading Corp on board the MV Anangel Sky. Four coils were found to be in bad order on discharge. The consignee declared them as a total loss. The respondent paid out the consignee under its policy and sued the petitioner.

The trial Court dismissed the complaint, because the respondent had failed to prove its claims. The CA reversed, ruling that the petitioner was liable for the loss or damage of the goods shipped, because it had failed to overcome the presumption of negligence imposed on common carriers. As to the extent of the petitioner'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. The petitioner appealed to the Supreme Court.

Held: The petition is partly granted and the assailed decision modified. The petitioner's liability is reduced to USD 2,000 plus interest.

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. Thus, common carriers are required to render service with the greatest skill and foresight and 'to use all reason[a]ble means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires'. 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.

Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence. However, the presumption of fault or negligence will not arise if the loss is due to any of the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5) an order or act of competent public authority. This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is liable therefor.

Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination thus constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, the loss, or the destruction of the goods happened, the transporter shall be held responsible. The petitioner failed to rebut this prima facie presumption of negligence. As stated in the bill of lading, the petitioner received the shipment in good order and condition in Hamburg, Germany. 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.

The petitioner claims that pursuant to s 3(6) of the Carriage of Goods by Sea Act (COGSA), respondent should have filed its notice of loss within three days from delivery. However, the cargo was discharged on 31 July 1990, but the respondent filed its notice of claim only on 18 September 1990. The Court is not persuaded. First, 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. 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, 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.

In Loadstar Shipping Co Inc v Court of Appeals 315 SCRA 339, 28 September 1999 (CMI1522), this Court ruled that a claim is not barred by prescription as long as the one-year period has not lapsed:

Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) - which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit - may be applied suppletorily to the case at bar.

In this case, the cargo was discharged on 31 July 1990, while the complaint was filed by the respondent on 25 July 1991, within the one-year prescriptive period.

The petitioner contends that its liability should be limited to USD 500 per package as provided in the bill of lading and by s 4(5) of COGSA. On the other hand, the respondent argues that s 4(5) of COGSA is inapplicable, because the value of the subject shipment was declared by the petitioner beforehand, as evidenced by the reference to, and the insertion of, the letter of credit or 'L/C No. 90/02447' in the bill of lading.

The Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the right and the obligations of common carriers are governed by the Code of Commerce and special laws. Thus, COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading. The provisions on limited liability are as much a part of the bill of lading as though physically in it, and as though placed there by agreement of the parties.

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. The insertion of the words 'L/C No. 90/02447' cannot be the basis for the petitioner's liability. A notation in the bill of lading which indicates the amount of the letter of credit obtained by the shipper for the importation of steel sheets does 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. In Keng Hua Paper Products v Court of Appeals 286 SCRA 257, 12 February 1998, this Court held that a bill of lading was separate from the other letter of credit arrangements.

[T]he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-à-vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation.

The petitioner's liability should be computed based on USD 500 per package and not on the per metric ton price declared in the letter of credit. In Eastern Shipping Lines Inc v Intermediate Appellate Court 150 SCRA 463, 29 May 1987 (CMI1530), this Court explained the meaning of packages:

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 the ruling in Eastern Shipping Lines, 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 USD 500 limitation.