This was a petition for review of a Court of Appeals (CA) judgment affirming the regional trial Court (RTC) decision dated 22 February 2001.

On 31 August 1992, the shipper, Sylvex Purchasing Corp, delivered to the petitioner, Unsworth Transport International (Philippines) Inc (UTI), a shipment of 27 drums of various raw materials for pharmaceutical manufacturing. UTI issued a bill of lading. The shipment was insured with Pioneer Insurance & Surety Corp (PISC) in favour of the consignee, United Laboratories Inc (Unilab), against all risks. The shipment was loaded in a sealed 1x40 container van, was then boarded onto the M/V President Jackson, belonging to American President Line (APL), and was subsequently transhipped onto APL's M/V President Taft for delivery to the petitioner.

On 30 September 1992, the shipment arrived at the port of Manila. On 6 October 1992, the petitioner received the shipment in its warehouse. Unilab's quality control representative rejected one paper bag containing dried yeast and one steel drum containing Vitamin B complex as unfit for the intended purpose. PISC paid out, and then sued APL and the petitioner as subrogee. The RTC found in favour of PISC, ordering APL and the petitioner to pay jointly and severally PHP 76,231.27 with interest. On appeal, the CA affirmed the RTC decision. The CA rejected UTI's defence that it was merely a freight forwarder, declaring instead that it was a common carrier. The CA added that by issuing the bill of lading, UTI acknowledged receipt of the goods and agreed to transport and deliver them at a specific place to a named person or to order. The CA further concluded that upon the delivery of the subject shipment to the petitioner's warehouse, its liability became similar to that of a depositary. As such, it ought to have exercised ordinary diligence in the care of the goods. As found by the RTC, the CA agreed that the petitioner failed to exercise the required diligence. The CA also rejected petitioner's claim that its liability should be limited to USD 500 per package pursuant to the Carriage of Goods by Sea Act (COGSA), considering that the value of the shipment was declared pursuant to the letter of credit and the pro forma invoice. As to APL, the CA considered it as a common carrier, notwithstanding the non-issuance of a bill of lading, in as much as a bill of lading is not indispensable for the execution of a contract of carriage.

The petitioner appealed to the Supreme Court.

Held: The petition is partially granted. The CA judgment is affirmed with modification, by reducing the principal amount due to PISC from PHP 76,231.27 to USD 500, with interest.

Undoubtedly, UTI is liable as a common carrier. 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. 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.

The shipment was received by UTI in apparent good order and condition in New York. The survey stated that one steel drum, 'STC Vitamin B Complex Extract', was discovered to be with a cut/hole on the side, with approximate spilling of 1%. This conclusively proves the fact of shipment in good order and condition, and the consequent damage to one steel drum while in the possession of the petitioner, who failed to explain the reason for the damage. Further, the petitioner failed to prove that it observed the extraordinary diligence and precaution which the law requires a common carrier to exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.

However, this Court affirms the applicability of the package limitation rule under COGSA, contrary to the RTC and the CA's findings. 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 rights and obligations of common carriers are governed by the Code of Commerce and special laws. Thus, COGSA supplements the Civil Code by establishing a provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading. Section 4(5) of COGSA provides:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package of lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

Here, the shipper did not declare a higher valuation of the goods to be shipped. Contrary to the CA's conclusion, the insertion of the words 'L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of raw materials for pharmaceutical Mfg. ...' cannot be the basis of the petitioner's liability. Furthermore, 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. The petitioner's liability should thus be limited to USD 500 per steel drum. In this case, as there was only one drum lost, PISC is entitled to receive only USD 500 as damages for the loss, plus interest.