This was a petition for review on certiorari of the decision of the Second Division of the Court of Appeals (CA) in CA-GR CV No 88744, modifying the decision of the regional trial Court by upholding the liability of Eastern Shipping Lines Inc (ESLI), but absolving Asian Terminals Inc (ATI) from liability.

BPI/MS Insurance Corp (BPI/MS) and Mitsui Sumitomo Insurance Co Ltd (Mitsui) filed a complaint against ESLI and ATI to recover damages. BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan, Sumitomo Corp shipped 22 coils of steel sheets to Manila on ESLI's vessel, the M/V Eastern Venus 22, in favour of the consignee, Calamba Steel Center Inc (Calamba Steel). The shipment arrived at Manila in an unknown condition, and was turned over to ATI for safekeeping. Upon withdrawal of the shipment by Calamba Steel's representative, part of the shipment was found to be damaged. There was a request for a bad order survey. Calamba Steel rejected the damaged shipment for being unfit for its intended purpose. There was a similar pattern of events in respect of a second shipment of 50 coils of steel sheets, which arrived at the port of Manila partly damaged and in bad order. The coils sustained further damage during the discharge from vessel to shore until its turnover to ATI's custody for safekeeping. Calamba Steel again rejected the damaged shipment for being unfit for its intended purpose.

Calamba Steel attributed the damages on both shipments to ESLI, as the carrier, and to ATI, as the arrastre operator in charge of the handling and discharge of the coils, and filed a claim against them. [An arrastre is defined by the Philippine Ports Authority (PPA) as a 'person/entity who/which performs portside cargo handling operations, e.g. receiving, handling, custody, security and delivery of cargo passing over piers, quays or wharves, transit sheds/warehouses and open storages within the jurisdictional area of responsibility of the authorized contractor/operator'.] When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim for the total amount of the cargo against BPI/MS and Mitsui, as the cargo insurers. As a result, BPI/MS and Mitsui paid out and became subrogated to Calamba Steel's rights.

ATI denied the allegations, and insisted that the coils in the two shipments were already damaged upon receipt from ESLI's vessels. It claimed that it exercised due diligence in the handling of the shipments, and contended that, in case of an adverse decision, its liability should not exceed PHP 5,000, pursuant to s 7.01 of the Contract for Cargo Handling Services between the PPA and ATI. ESLI denied the allegations of the complainants, and alleged that the damage to both shipments was incurred while they were in the possession and custody of ATI and/or the consignee or its representatives. ATI and ESLI filed cross-claims against each other for indemnification.

The regional trial Court found both ESLI and ATI liable for the damage sustained by the two shipments. ESLI and ATI appealed to the CA. The CA denied ESLI's appeal, but granted ATI's appeal. ESLI appealed to the Supreme Court, seeking the reversal of the CA ruling on its liability.

Held: Petition denied.

ATI was not impleaded as a respondent on appeal. ESLI, BPI/MS, and Mitsui are aware of the non-inclusion of ATI, the arrastre operator, as a party to this review. The parties therefore impliedly agree that the CA's absolution of ATI from liability is final and beyond review. Clearly, ESLI is the consequential loser. It alone must bear the proven liability for the loss of the shipment. It cannot shift the blame to ATI, the arrastre operator, which has been cleared by the CA. Nor can it argue that the consignee should bear the loss.

Common carriers, from the nature of their business and on public policy considerations, are bound to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under art 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation, until they are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. In maritime transportation, a bill of lading is issued by a common carrier as a contract, receipt, and symbol of the goods covered by it. If it has no notation of any defect or damage in the goods, it is considered a 'clean bill of lading'. A clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described. Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.

ESLI argues that the CA erred in finding that the package limitation under COGSA was inapplicable, even though the bills of lading covering the shipments only made reference to the corresponding invoices. Notably, the invoices specified, among other things, the weight, quantity, description, and value of the cargoes, and bore the notation 'Freight Prepaid' and 'As Arranged'. ESLI argues that the value of the cargoes was not incorporated into the bills of lading, and that there was no evidence that the shipper had presented the actual value of the cargo to the carrier in writing prior to loading, and that there was no payment of corresponding freight. Finally, despite the fact that ESLI admits the existence of the invoices, it denies any knowledge of the value declared, or of any information contained therein.

According to the New Civil Code, the law of the country to which the goods are to be transported governs the liability of the common carrier for their loss, destruction or deterioration. The Code takes precedence as the primary law over the rights and obligations of common carriers, with the Code of Commerce and COGSA applying suppletorily. The New Civil Code provides that a stipulation limiting a common carrier’s liability to the value of the goods appearing in the bill of lading is binding, unless the shipper or owner declares a greater value. In addition, a contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.

COGSA, on the other hand, provides under s 4(5) that an amount recoverable in case of loss or damage shall not exceed USD 500 per package or per customary freight unit, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. In line with these maritime law provisions, para 13 of the bills of lading issued by ESLI to the shipper specifically provides a similar restriction:

The value of the goods, in calculating and adjusting any claims for which the Carrier may be liable shall, to avoid uncertainties and difficulties in fixing value, be deemed to the invoice value of the goods plus ocean freight and insurance, if paid, [i]rrespective of whether any other value is greater or less, and any partial loss or damage shall be adjusted pro rata on the basis of such value; provided, however, that neither the Carrier nor the ship shall in any event be or become liable for any loss, non-delivery or misdelivery of or damage or delay to, or in connection with the custody or transportation of the goods in an amount exceeding $500.00 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, unless the nature of the goods and a valuation higher than $500.00 is declared in writing by the shipper on delivery to the Carrier and inserted in the bill of lading and extra freight is paid therein as required by applicable tariffs to obtain the benefit of such higher valuation. In which case even if the actual value of the goods per package or unit exceeds such declared value, the value shall nevertheless be deemed to be the declared value and any Carrier’s liability shall not exceed such declared value and any partial loss or damage shall be adjusted pro-rata on the basis thereof. The Carrier shall not be liable for any loss or profit or any consequential or special damage and shall have the option of replacing any lost goods and replacing o[r] reconditioning any damage[d] goods. No oral declaration or agreement shall be evidence of a value different from that provided therein.

ESLI contends that the invoices specifying the weight, quantity, description and value of the cargo in reference to the bills of lading do not prove the fact that the shipper complied with the requirements mandated by COGSA. It contends that there must be an insertion of this declaration into the bill of lading itself to fall outside the statutory limitation of liability. ESLI asserts that the CA erred when it ruled that there was compliance with the declaration requirement even if the value of the shipment and fact of payment were indicated on the invoice and not on the bill of lading itself.

The bills of lading represent the formal expression of the parties' rights, duties and obligations. It is the best evidence of the intention of the parties, which is to be deciphered from the language used in the contract, not from the unilateral post facto assertions of one of the parties, or of third parties who are strangers to the contract. Thus, when the terms of an agreement have been reduced to writing, it is deemed to contain all the terms agreed upon, and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

There is no question about the declaration of the nature, weight and description of the goods on the first bill of lading.

As to the non-declaration of the value of the goods on the second bill of lading, there was no error on the part of the CA when it ruled that there was compliance of the requirement provided by COGSA. The declaration requirement does not require that all the details must be written down on the bill of lading itself. All the necessary details are in the invoice, which 'contains the itemized list of goods shipped to a buyer, stating quantities, prices, shipping charges', and other details. Compliance can be attained by incorporating the invoice, by way of reference, into the bill of lading, provided that the former contains the description of the nature, value, and/or payment of freight charges, as is the case here.

In Unsworth Transport International (Philippines) Inc v Court of Appeals, GR No 166250, 26 July 2010, 625 SCRA 357, 368 (CMI1515), this Court held that the insertion of an invoice number does not, in itself, sufficiently and convincingly show that the petitioner had knowledge of the value of the cargo. However, the same interpretation does not squarely apply if the carrier had been advised of the value of the goods, as evidenced by the invoice and payment of corresponding freight charges. It would be unfair for ESLI to invoke the limitation under COGSA when the shipper in fact paid the freight charges based on the value of the goods. In Adams Express Co v Croninger 226 US 491, 33 S Ct 148, 57 L Ed 314 (1913) it was said:

Neither is it conformable to plain principles of justice that a shipper may understate the value of his property for the purpose of reducing the rate, and then recover a larger value in case of loss. Nor does a limitation based upon an agreed value for the purpose of adjusting the rate conflict with any sound principle of public policy.

Conversely, but for the same reason, it is unjust for ESLI to invoke the limitation when it is informed that the shipper paid the freight charges corresponding to the value of the goods.