This was a petition for review of the Court of Appeals (CA) decision affirming the Court of First Instance of Manila decision that the action of the petitioner, Benito Chua Kuy, had 'already been barred by operation of law'.

Kuy placed an order with Cumbrero & Sons for 500 cases of evaporated milk of 96 babies [bottles?] each. The latter bought the merchandise from the Columbia Pacific Distributing Co of Portland, Oregon. On 6 January 1947, the Columbia Pacific Distributing Co loaded the evaporated milk on the S/S HH Raymond, belonging to American Mail Line Ltd, consigned to the order of the China Banking Corp and Min Sheng Trading, Manila.

The vessel arrived at Manila on 21 February 1947, discharged the cargo, and delivered it to the custody of the Manila Terminal Co. On 26 February 1947, the Manila Terminal Co delivered the cargo to Mun Sheng Trading, through Serrano Transportation. When the contends of the cases were unpacked, Kuy discovered that the cargo consisted of 500 cases of 48 babies [bottles?] of evaporated milk, and not 96 babies [bottles?] as ordered. Kuy immediately gave notice to the respondent, Everrett Steamship Corp, of the shortage in the cargo delivered, and later filed a formal claim for PHP 3,911.06. After negotiations for the amicable settlement of the matter failed, this action was instituted on 7 May 1948.

The main issues raised in the appeal are: (1) whether the Carriage of Goods by Sea Act (COGSA) is applicable to this particular case, or whether it should be governed by the Code of Commerce or other laws; (2) whether Kuy's action has already prescribed; and (3) whether the respondent should pay the indemnity claimed by the petitioner.

Held: Appeal dismissed. CA decision affirmed.

COGSA was enacted by the US Congress on 16 April 1936 (46 USC 1300 ff). Section 13 of the Act provides that it applies 'to all contracts of carriage of goods by sea to or from ports of the United States in foreign trade'. The term 'United States' was defined as including its districts, territories and possessions.

When COGSA was enacted by the US Congress, the Philippines was a Commonwealth Government and, therefore, a territory of the United States. In view of the particular relationship then existing between the US and the Philippines, Congress gave the latter the choice of making the provisions of COGSA applicable to transportation to or from the Philippines by inserting in s 13 a proviso to the effect that 'the Philippine Legislature may, by law, exclude its application to transportation to or from ports of the Philippines Islands'. The Commonwealth Government, however, elected to accept COGSA and make it applicable to the Philippines through Commonwealth Act No 65, approved on 22 April 1936, s 1 of which provided that the provisions of COGSA are 'hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade; Provided, That nothing in this Act shall be construed as repealing any existing provisions of the Code of Commerce which is now in force, or as limiting its application'.

The petitioner contends that COGSA cannot apply to the relevant carriage contract, because at the time COGSA was made applicable to the Philippines, it was still a US possession or territory. In other words, it is contended that COGSA is applicable only to transporation of goods in foreign trade, or between ports of the United States and ports of foreign countries, and since the Philippines was not a foreign country at that time, it does not come within the purview of COGSA.

Granting, for the sake of argument, that the Philippines was a territory or possession of the United States for the purposes of COGSA, a different situation obtained after it became an independent State on 4 July 1936, which fully places it within the purview of COGSA. If, before its declaration of independence, trade relations between the Philippines and the US could only be considered in a domestic sense, after it became independent, trade relations must, of necessity, have acquired the character of foreign relations within the meaning of COGSA. And there is no need of an express legislation to make COGSA applicable to the Philippines upon the advent of independence, as claimed by the petitioner, for the simple reason that, foreseeing that eventuality, the Philippine legislative body, in enacting Commonwealth Act No 65, already provided that COGSA should be made applicable 'to all contracts for the carriage of goods by sea to and from Philippine ports of foreign trade'. This express provision clearly paved the way for the application of COGSA to all contracts from Philippine ports to foreign countries, including the US. The CA did not err in holding that COGSA is applicable to the transaction under consideration.

The next question is whether this action has already prescribed under s 3(6) of COGSA. The cargo was unloaded at the port of Manila and delivered to the petitioner on 26 February 1947; the alleged shortage in the cargo was discovered by the petitioner on the same date; and this action was commenced only on 7 May 1948. It would seem evident that it has already prescribed.

The petitioner, however, contends that the prescriptive period embodied in COGSA has no application to this case, because the period of prescription that should be considered is that embodied in the Code of Civil Procedure, which repealed the provisions of the Code of Commerce on the subject. In the alternative, the prescriptive period should not apply to the petitioner, on the theory that 'such time bar applies to the shipper only, and not to a person other than the shipper'.

The claim that the prescriptive period to be considered in this case is that embodied in the Code of Civil Procedure is untenable, for the simple reason that this is a general law which only applies to cases not covered by any special Act. This transaction is covered by COGSA. To hold otherwise would be render nugatory the prescriptive provision contained in that special Act.

Nor is it tenable to argue that the prescriptive period contained in COGSA can only invoked by the shipper, excluding all other parties to the transaction. While the proviso contained in s 3(6) apparently gives the impression that the right to file suit within one year after delivery of the goods applies to the shipper alone, reading the proviso in conjunction with the rest of s 3(6), it at once becomes apparent that the conclusion drawn by the petitioner is unwarranted. In the first place, the section provides that the notice of loss or damage for which a claim for indemnity may be made should be given in writing to the carrier at the port of discharge before or at the time of the removal of the goods, and if the loss or damage is not apparent, the notice should be given 'within three days of the delivery'. From the language of the section, it seems clear that the notice of loss or damage is required to be filed, not necessarily by the shipper, but also by the consignee or any legal holder of the bill of lading. In fact, the section requires that the notice be given at the port of discharge, and the most logical party to file the notice is either the consignee or the endorsee of the bill of lading. A study of the historical background of this particular provision will show that, although the word 'shipper' is used in the proviso referred to by the petitioner, the intention of the law was not to exclude the consignee or endorsee of the bill of lading from bringing the action, but merely to limit the filing of the claim within one year after the delivery of the goods at the port of discharge: see The Southern Cross 1940 AMC 59 (SDNY); Lindgren v Farley 1938 AMC 805 (SDNY).

Arnold W Knauth, an eminent authority on admiralty law commenting on this proviso, says:

The American Act contains an added proviso, which is not in any other Hague Rules text, intended to clarify the foregoing. This was one of the American amendments agreed to at the 1930 Chamber of Commerce Conference. It provides, in addition to the text of the Rule, that:

If a notice of loss or damage, either apparent or concealed is not given as provided for in this section, the fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.

It seems evident that this language does not alter the sense of the text of the Hague Rules; it merely reiterates in another form the rule already laid down. Curiously, the proviso seems limited to the rights of shippers, and might strictly be construed not to any rights to consignees, representatives, or surrogated parties; whereas the Hague Rules phraseology is broader. As the Act contains both phrases, it would seem to be as broad as the broader of the two forms of words.

The petitioner finally contends that the negotiations between the parties conducted with a view to reaching an amicable settlement between them, and which caused the delay in the filing of the present action, constitute a waiver on the part of the respondent to set up the prescriptive period, or operates as a estoppel on its part to rely on the prescriptive period to the prejudice of petitioner. This contention is also untenable. It is settled that a mere proposal for arbitration, or the fact that negotiations have been made for the adjustment of a controversy, even if the proposal is not acted upon, or the adjustment is not carried out, does not suspend the running of the period of prescription, unless there is an express agreement to the contrary. Here, there is no such agreement. The mere pendency of negotiations for the adjustment of a controversy does not suspend the statutory prescription against an action on the claim involved.