On 18 June 1991, three units of a waste water treatment plant with accessories were purchased by San Miguel Corp (SMC) from Super Max Engineering Enterprises Co Ltd of Taipei, Taiwan. The goods came from Charleston, USA, and arrived at the port of Manila on the MV Scandutch Star. They were then transported to Cebu on the MV Aboitiz Supercon II. After its arrival at the port of Cebu and clearance from the Bureau of Customs, the goods were delivered to and received by SMC at its plant site on 2 August 1991. It was then discovered that an electrical motor was damaged. Pursuant to an insurance agreement, UCPB General Insurance Co Inc (UCPB) paid SMC PHP 1,703,381.40, representing the value of the damaged unit. Consequently, UCPB, as subrogee of SMC, sued the respondents, Aboitiz Shipping Corp (Aboitiz), Eagle Express Lines (Eagle), DAMCO Intermodal Services Inc (DAMCO), and Pimentel Customs Brokerage Co, seeking to recover the amount it had paid out to SMC. On 20 September 1994, UCPB also impleaded East Asiatic Co Ltd for being the 'general agent' of DAMCO, but that complaint was subsequently dismissed.

The trial Court found in favour of UCPB against the remaining respondents. The respondents appealed to the Court of Appeals (CA). The CA reversed, ruling that UCPB's right of action against the respondents did not accrue, because UCPB failed to file a formal notice of claim within 24 hours from SMC's receipt of the damaged merchandise, as required under art 366 of the Code of Commerce. According to the CA, the filing of a claim within the time limitation in art 366 is a condition precedent to the accrual of a right of action against the carrier for the damages caused to the merchandise. UCPB appealed to the Supreme Court.

UCPB asserts that the claim requirement under art 366 of the Code of Commerce does not apply in this case, because the damage to the merchandise had already been known to the carrier. Damage to the cargo was found on discharge from the foreign carrier to International Container Terminal Services Inc (ICTSI) in the presence of Eagle's representative, who signed a bad order survey request. On transhipment, the cargo was already damaged when loaded on board the inter-island carrier. This knowledge, UCPB argues, dispenses with the need to give the carrier a formal notice of claim. UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be given if the condition of the cargo has been the subject of joint inspection, such as in this case, when the cargo was opened by ICTSI. UCPB further asserts that the issue of the applicability of art 366 of the Code of Commerce was never raised before the trial Court and should, therefore, not have been considered by the CA.

Held: The petition is denied. The judgment of the CA is affirmed. Double costs against the petitioner.

UCPB itself has stated that when the shipment was discharged and opened at the ICTSI in Manila in the presence of an Eagle representative, the cargo had already been found damaged. A request for a bad order survey was then made, and a turnover survey of bad order cargoes was issued, pursuant to the procedure in the discharge of bad order cargo. The shipment was then repacked and transhipped from Manila to Cebu on the MV Aboitiz Supercon II. When the cargo was finally received by SMC at its Mandaue City warehouse, it was found in bad order, thereby confirming the damage already uncovered in Manila. In finding Aboitiz liable for the damaged cargo, the trial Court condoned UCPB's wrongful suit against Aboitiz, to whom the damage could not have been attributable, since there was no evidence presented that the cargo was further damaged during its transhipment to Cebu. Even by the exercise of extraordinary diligence, Aboitiz could not have undone the damage to the cargo that was already there when it was shipped on board its vessel.

It is necessary to ascertain whether any of the remaining parties may still be held liable by UCPB. The provisions of the Code of Commerce, which apply to overland, river and maritime transportation, come into play. Art 366 of the Code of Commerce states:

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.

The law clearly requires that the claim for damage or average must be made within 24 hours from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo. The requirement to give notice of loss or damage to the goods is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged, and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is still fresh and easily investigated, so as to safeguard itself from false and fraudulent claims. The 24-hour claim requirement is a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former.

The shipment in this case was received by SMC on 2 August 1991. However, as found by the CA, the claims were dated 30 October 1991, more than three months from receipt of the shipment. The claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by art 366 of the Code of Commerce.

Section 3(6) of COGSA provides a similar claim mechanism as the Code of Commerce, but prescribes a period of three days within which notice of claim must be given if the loss or damage is not apparent. It states:

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 seizes upon the last paragraph which dispenses with the written notice if the state of the goods has been the subject of a joint survey which, in this case, was the opening of the shipment in the presence of an Eagle representative. It should be noted that the applicability of this COGSA provision was not raised as an issue by UCPB before the trial Court, and was only cited by UCPB in its memorandum in this case. However, it would be unjust to hold that Eagle's knowledge of the damage to the cargo is such that it served to preclude or dispense with the 24-hour notice to the carrier required by art 366 of the Code of Commerce. Nor did the inspection of the cargo in which Eagle's representative had participated lead to the waiver of the written notice under s 3(6) of COGSA. Eagle had acted as the agent of the freight consolidator, not that of the carrier to whom the notice should have been made.

At any rate, the notion that the request for a bad order survey and turn over survey of bad cargoes signed by Eagle's representative is construable as compliant with the notice requirement under art 366 of the Code of Commerce was foreclosed by the dismissal of the complaint against DAMCO's representative, East Asiatic Co Ltd.

As regards Pimentel Customs Brokerage Co, it is sufficient to acknowledge that it had no participation in the physical handling, loading and delivery of the damaged cargo and should, therefore, be absolved of liability.

Finally, UCPB's misrepresentation that the applicability of the Code of Commerce was not raised as an issue before the trial Court warrants the assessment of double costs of suit against it.