Special Contracts in Maritime Commerce

Charter Party Contract, defined

A Charter Party Contract is whereby the whole or part of the ship is let by the
owner to a merchant or other person for a specified time, known as a time
charter or for a specific voyage, known as a voyage charter, in consideration of
the payment of the freight. It is a contract by which the owner or agent of the
vessel leases for a certain price the whole or a portion of the vessel for the
transportation of goods or persons from one port to another.
The owner of the vessel has no more insurable interest on the vessel. In case
of loss of the vessel, the ship owner can recover the value of the vessel from
the charterer.
Towage is not a charter party. Instead, it is a contract for the hire of services by
virtue of which a vessel is engaged to tow another vessel from one port to
another for a consideration.
Classes
Two General Classes of Charter Party Contract (Planters Products vs CA, G.R.
10153)
1.) Bareboat or Demise
The ship owner gives possession of the entire vessel to the
charterer. In turn, the charter supplies, equips and mans the vessel. The
charterer is the owner pro hac vice, which means that charterer is
considered the owner of the vessel for the voyage or service stipulated.
The charterer and not theowner of the vessel is liable for vessels
expenses, including seamans wages
2.) Contract of Affreightment
The owner of the vessel leases a part or all of its space to haul
goods for others. It can either be:
a. Time charter Vessel is chartered for a particular time or
duration. While the ship owner still retains possession and control
of the vessel, the charterer has the right to use all vessels facilities.
The charterer may likewise designate vessels destination.
b. Voyage charter Vessel is chartered for a particular voyage or
series of voyages.
A voyage charter is a contract wherein the ship was leased for a
single voyage for the conveyance of goods, in consideration of the
payment of freight. The shipowner retains the possession,
command and navigation of the ship, the charterer merely having
use of the space in the vessel in return for his payment of freight.
An owner who retains possession of the ship remains liable as
carrier and must answer for loss or nondelivery of the goods
received for transportation.

The distinction between the two is significant because a demise or

bareboat charter indicates a business undertaking that is private in character.
Consequently, the rights and obligations of the parties to a contract of private
carriage are governed principally by their stipulations, not by the law on common
carriers.
Instances when a Charter Party may be rescinded
1. At the request of the charterer:
a. By abandoning the charter and paying half the price
b. Error in tonnage or flag
c. Failure to place vessel at charterers disposal
d. Return the vessel due to pirates, enemies, and bad weather
e. Arrival at port for repairs if repairs take less than 30 days, pay full
freightage; if more than, freightage in proportion to the distance covered.
2. At the request of the ship owner:
a. If extra lay days terminate without the cargo being placed alongside vessel;
and
b. Sale by the owner of the vessel before loading by the charterer.
3. Due to fortuitous event:
a. War There is a governmental prohibition of commercial intercourse,
intended to bring about an entire cessation for the time being of all trade
whatever
b. Blockade A sort of circumvallation around a place by which all foreign
connection and correspondence is, as far as human power can effect it, to be
cut off
c. Prohibition to receive cargo at port of destination
d. Embargo A proclamation or order of State, usually issued in times of war
or threatened hostilities, prohibiting the departure of ships or goods from
some or all the ports of such State until further order; or
e. Inability of the vessel to navigate. (Art. 640)
Loans on Bottomry and Respondentia
These loans are secured by the owner or captain of the vessel for
the use of the vessel.
Loan on Bottomry, defined
A contract in the nature of a mortgage, by which the owner borrows money for
the use, equipment and repair of the vessel for a definite term, and pledges the
ship as a security for its repayment, with maritime or extraordinary interest on
account of the maritime risks to be borne by the lender, it being stipulated that if
the ship be lost in the course of the specific voyage or during the limited time, by

any of the perils enumerated in the contract, the lender shall also lose his money
Loan on Respondentia, defined
It is one made on the goods on board the ship, and which are to be sold or
exchanged in the course of the voyage, the borrowers personal responsibility
being deemed the principal security for the performance of the contract. The
lender must be paid his principal and interest, though the ship perishes, provided
the goods are saved.
In the case of loans on bottomry, the security of the loan is the vessel
itself; while loan on respondentia, the security of the loan is the cargo.
Common Elements of Loans on Bottomry and Respondentia
1. Exposure of security or marine peril
2. Obligation of the debtor conditioned only upon safe arrival of security at
the point of destination
HYPOTHECARY NATURE OF BOTTOMRY AND RESPONDENTIA:
General Rule: the obligation of the borrower to pay is extinguished if
the goods given as security are absolutely lost by reason of an
accident of the voyage designated, and if it is proven that the goods
were on board.
EXCEPTIONS:
1. loss due to inherent defect
2. loss due to the barratry on
the part of the captain
3. loss due to the fault or
malice of the borrower
4. that the vessel is engaged in contraband
5. that the cargo loaded on the vessel be different from that agreed upon

CARRIAGE OF GOODS BY SEA ACT/COGSA (C.A. No. 65)

One of the most important issues dealt with by maritime law is the loss for
lost or damaged goods. The basic statute regulating the subject is the Carriage
of Goods by Sea Act of 1936 which is commonly known as COGSA. The
rationale behind this promulgation was to prevent ship owners from contracting

out of the duty to use care to put his vessel in good shape for the voyage, or the
duty to properly care for the goods aboard. If, in certain circumstances, the ship
owner provides a seaworthy vessel, he would not be liable for those in charge of
the vessel.
COGSA only applies to foreign trade. It is also limited to the period
running from the time when the goods are loaded until they are discharged from
the ship. Pursuant to Cogsa, every bill of lading incorporates the statute. It is
allowed to contract out of Cogsa's terms but only by increasing the ship owner's
liabilities and not by decreasing them
.
When will COGSA apply?
General Rule: It will only be applied in terms of loss or damage of goods
transported to and from Philippine ports in foreign trade.
Thus the transportation must be:
Water/maritime transportation;
for the carriage of goods; and
overseas/international/foreign (from foreign port to Philippine port).
The parties should expressly stipulate that COGSA shall govern their respective
rights and obligations
Exception: Paramount Clause or Clause Paramount where the parties can agree
that COGSA will be applied in domestic sea transportation.
Parties

Carrier: The carrier includes the charterer who enters into a contract of
carriage with the shipper (COGSA, Sec. 1[a])
2. Shipper

Cases covered under COGSA

It applies only in case of loss or damage, and not to misdelivery or conversion of
goods. Also, the deterioration of goods due to delay in their transportation
constitutes "loss" or "damage" within the meaning of Sec. 3(6) of COGSA.
Laws applicable to a contract for the carriage of goods by the sea:
First: Distinguish if common carrier (Civil Code) or Private Carrier
Second: Where is the vessel going
a.) Common carrier coming to the Philippines
1.Civil Code
2. COGSA (its more specific than Code of Commerce)
- foreign trade
3. Code of Commerce
b.) Private Carrier Coming to the Philippines in foreign trade
1. COGSA (more specific)
2. Code of Commerce
3. Civil Code (provisions not on common carriers example: torts
and
contracts
c.) From the Philippines to a foreign country: Apply laws of such foreign
country

ARTICLE 1753. The law of the country to which the goods are to
be transported shall govern the liability of the common carrier for
their loss, destruction or deterioration.
With respect to vessels destined for foreign ports, the COGSA does not
apply unless the parties make it applicable

NOTE: COGSA applies only to goods, not to passengers.

Duties of a Carrier under COGSA
1. Make the ship seaworthy;
2. Properly man, equip, and supply the ship;
3. Make the holds, refrigerating and cooling chambers;
4. Properly and carefully load, handle, stow, carry, keep, care and discharge the
goods
carried; and
5. Issue to the shipper a bill of lading (COGSA Sec. 3)
If the required degree of care is given, the law protects the carrier by
stating in Section 4 (1) of COGSA that:
"Neither the carrier nor the ship shall be liable for loss or damage arising
or resulting from unseaworthiness unless caused by want of due diligence on the
part of the carrier to make the ship seaworthy, and to secure that the ship is
properly manned, equipped, and supplied, and to make the holds, refrigerating
and cool chambers, and all other parts of the ship in which goods are carried fit
and safe for their reception, carriage and preservation in accordance with the
provision of paragraph (1) of section 3. Whenever loss or damage has resulted
from unseaworthiness, the burden of proving the exercise of due diligence shall
be on the carrier or other persons claiming exemption under this section."
Causes for which the carrier shall not be liable.
The most important is stated under Section 4(2)a:
"Act, neglect or default of the master, mariner, pilot, or the servants of the carrier
in the navigation or in the management of the ship"
Section 4 also provides that fire is excepted unless caused by the actual fault or
privity of the carrier. The perils of the sea are also excepted. A carrier is also not
liable for acts of God or, as stated in the statute,
" for any accident as to which he can show that it is due to natural causes,
directly and exclusively, without human intervention, and that it could not have
been prevented by any amount of foresight and pains and care reasonably to be
expected of him."
Other exceptions related to human force as mentioned under Section 4 include
the following: acts of war; acts of public enemies; arrest or restraint of princes;
seizure under legal process; quarantine restrictions; riots and civil commotions;
strikes; lockouts or stoppages of work; acts or omissions of the owner or shipper
of the goods; losses arising from inherent defect of the goods or insufficiency of
packing.
Amount of the carriers liability

As stipulated under Sec. 4(5) of COGSA, the liability limit is set at $500
per package or customary freight unit unless the nature and value of such goods
is declared by the shipper. This is deemed incorporated in the bill of lading even
if not mentioned in it (Eastern Shipping Lines Inc., v. IAC, G.R. No. 69044, May
29, 1987).
Limitation of liability applies unless the nature and value of the goods is
declared by the shipper. This is deemed incorporated in the bill of lading even if
not mentioned in it (Eastern Shipping Lines Inc., v. IAC, G.R. No. 69044, May 29,
1987).
The package/container contemplated by law to limit the liability of the
carrier should be sensibly related to the unit in which the shipper packed the
goods and described therein. Such container must be given the same meaning
and classification as a package and customary freight unit (Aboitiz Shipping
Corp. v. General Accident Fire and Life Assurance Corp. G.R. No.100446,
January 21, 1993).
Rules to be followed in case damage resulted

In case of patent damage, the shipper should file a claim with the
carrier
immediately upon delivery.
In case of latent damage, the shipper should file a claim with the
carrier within
three days from delivery (COGSA, Sec. 3[6]).

The filing of a notice of claim is not a condition precedent.

Prescriptive period for making an action for loss or damage to cargo:
The action for loss or damage to the cargo should be brought within one year
after:
a. Delivery of the goods (delivered but damaged goods); or
b. The date when the goods should have been delivered (non-delivery).
(Sec. 3[6])
Loss or Damage as applied to the COGSA contemplates a situation
where no delivery at all was made by the shipper of the goods because the same
had perished, gone out of commerce, or disappeared in such a way that their
existence is unknown or they cannot be recovered. Thus, it is inapplicable in
case of misdelivery or conversion. (Ang vs. American Steamship Agencies Inc.)
and damage arising from delay or late delivery (Mitsui O.S.K. Lines Ltd. vs. CA).
In such instance the, Civil Code rules on prescription shall apply.
Instances when the one- year prescriptive period is suspended

The express agreement of the parties (Universal Shipping Lines, Inc. vs.
IAC, 188 SCRA 170)
The filing of an action in court until it is dismissed. (Stevens & Co. vs.
Nordeutscher Lloyd, 6 SCRA 180)

The one-year period shall run from delivery of the last package and is not
suspended by extrajudicial demand. (Dole Phils.,Inc. vs. Maritime Co.,148 SCRA
118, COGSA Sec. 3[6]).

DOLE Philippines, Inc. v. Maritime Company of the Philippines

No. L-61352,February 27, 1987
Facts: The cargo subject of the instant case was discharged in Dadiangas unto
the custody of the onsignee on December 18, 1971.
The corresponding claim or the damages sustained by the cargo was filed
by the plaintiff with the defendant vessel on May 4, 1972.
On June 11, 1973, the plaintiff filed a complaint in the Court of First
Instance of Manila, docketed therein as Civil Case No. 91043, embodying three
(3) causes of action involving three (3) separate and differrent shipments. The
third cause of action involved the cargo now subject of this present litigation.
On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil
Case No. 91043 dismissing the first two causes of action in the aforesaid case
with prejudice and without pronouncement as to costs becasue the parties had
settled or compromised the claims involved therein. The third cause of action
which covered the cargo subject of this case now was likewise dismissed but
without prejudice as it was not covered by the settlement. The dismissal of that
complaint containing the tree causes of ation was upon a joint motion to dismiss
filed by the parties.
Becasue of the dismissal of the complaint in Civil Case No. 91043 with
respect to the third cause of action without prejudice,plaintiff instituted this
present complaint on January 6, 1975.
To the complaint in the subsequent action, Maritime filed an answer
plaeding inter alia the affirmative defense of prescription under the provisions of
the Carriage of Goods by Sea Act, and following pre-trial moved for a preliminary
hearing on said defense. The Trial Court granted the motion, scheduling the
preliminary hearing on April 27, 1977. The record before the Court does not show
whether or not that hearing was held, but under date of May 6, 1977, Maritime
filed a formal motion todismiss invoking once more the ground of prescription.
The motion was opposed by DOLE and TrialCourt, after due consideration ,
resolved the matter in favor of Maritime and dismissed the complaint. Dole
sought a reconsideration, which was denied, and thereafter took the present
appeal from the order of dismissal.
ISSUE: Whether Article 1155 of the Civil Code providing that the prescription of
actions is interrupted by the making of an extrajudicial written demand by the
creditor is applicable to actions brought under the Carriage of Goods by Sea Act
which, in its Section 3, paragraph 6, provides that:
The carriage and the ship shall be discharged from all liability in espect of
loss or damage unless suit is brought within one year after delivery of the goods
or the date when the goods should have been delivered; Provided, That, if a
notice of loss or damage, either apparent or concealed, is not given as provided
for in this section, that 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.

HELD: Dole concedes that its action is subject to the one-year period of limitaion
prescribed in the above-cited provision. The substance of its argument is that
since the provisions of the Civil Code are, by express mandate of said Code,
suppletory of deficiencies in the Code of Commerce and special laws in matter
governed by the latter, and there being a patent deficiency with respect to the
tolling of the prescriptive period provided for in the Carriage of Goods by Sea Act,
prescription under said act is subject to the provisions of Article 1155 of the Civil
Code on tolling and because Doles claim for loss or damage made on May 4,
1972 amounted to a written extarjudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions
under the Carriage of Goods by Sea Act. To much the same effect is the further
argument based on article 1176 of the Civil Code which provides that the rights
and obligations of common carriers shall be governed by the Code of Commerce
and by special laws in all matters not regulated by the Civil Code.
These arguments might merit weightier consideration wereitnot for the fact
that the question has already received a definite answer,adverse to the position
taken by Dole, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. v.
American President Lines, Inc. There, in a parallel factual situation, where suit to
recover for damage to cargo shipped by vessel from Tokyo to Manila was filed
more that two years after the consignees receipt of the cargo, this Court rejected
the contention that an extrajudicial demand tolled the prescriptive period provided
for in the Carriage of Goods by Sea Act.
Moreover, no different result would obtain even if the court were to accept
the proposition that a written extrajudicial demand does toll prescription under the
Carriage of Goods by Sea Act. The demand in this instance would be the claim
for damage filed by Dole with maritime on May 4, 1972. The effect of that
demand would have been to renew the one-year prescriptive period from the
date of its making. Stated otherwise, under Doles theory, when its claim was
received by Maritime, the one-year prescriptive was interrupted tolled would
be the more precise term and began to run anew from May 4, 1972, affording
Dole another period of one (1) year counted from that date within which to
institute action on its claim for damage. Unforunately, Dole let the new period
lapse without filing action. In instituting Civil Case No. 91043 only on June 11,
1973, more that one month after that period has expired and its right of acion has
prescribed.
Doles contention that the prescriptive period remained tolled as of May 4,
1972 (and that) in legal contemplation (the) case (Civil Case No. 96353) was filed
on January 7, 1975 well within the one-year prescriptive period in Sec. 3(6) of the
Carriage of Goods by Sea Act, eqautes tolling with indefinite suspension. It is
clearly fallacious and merits no consideration.

Universal Shipping Lines, Inc. v. Intermediate Appellate Court and Alliance

Assurance Co., Ltd.
G.R. No. 74125, July 31, 1990
Facts: On or about March 22, 1974, SEVALCO,Limited, owned and operated by
the petitioner, shipped from Rotterdam, Netherlands, to Bangkok, Thailand,
aboard its M/VV TAIWAN, two (2) cargoes of 50 palletized cartons consisting of
2, 000 units of 25 kilograms bags of Statex R Brand carton black, with a declared
gross weight of 53, 000 kilos each. They were respectively consigned to S.

LERSEN Company, Ltd. and Muang Ngarm Retreads, Ltd., per Bills of Lading
Nos. RB- 15 both shipments were insured with the private respondent, Alliance
Assurance Company, Ltd., a foreign insurance company domiciled in London,
England, which had withdrawn from the Philippine market on June 30, 1951 yet.
Despite the arrival of the vessel on June 28, 1974 at Bangkok the cargo
covered by Bill of Lading No. RB- 15 was not unloaded nor delivered to the
consignee, S. Lersen Company, Ltd. The shipment under Bill of Lading No. RB16 was delivered to Muang Ngarm Retreads, Ltd. with a total weight shortage of
11, 070 kilos because the cargoes had been either totally or partially dissolved in
saltwater which flooded Hatch No. 2 of the vessel where they had neen stored.
The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads, Inc.,
filed their respective formal claims for loss and damage to their cargoes on
August 7, 1974 and on November 12, 1974 the insurer paid both claims in the
amounts of $12, 180 and $2, 547. 18 for the loss and damge to their cargoes.
On June 25, 1976, private respondent,as insurer- subrogee, filed an action
in the Court of First Instance of Manila to recover from the petitioner and its
Manila agent, Carlos Go Thong & Company, what it paid the consignees of the
cargo.
After the trial, the court a quo rendered judgment for the private
respondent.
In this appeal by certiorari, petitioner alleges that respondent court erred in
finding that private respondents cause of action has not yet prescribed.
ISSUE: Whether the action under Section 3 (6) of the Carriage of Goods by Sea
Act has prescribed.
Held: Anent the issue of prescription of the action under Section 3 (6), Title I, of
the Carriage of Goods by Sea Act (Commonwealth Act No. 65) which provides
that:
x x x the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered.
This provision of the law admits of an exception: if the one- year period is
suspended by express agreement of the parties. For in such case, their
agreement becomes the law for them.
The exchange of correspondece between the parties and/or their
associates/ representatives shows that the parties had mutually agrred to extend
the time within the plaintiff or its predecessors- in- interest may file suit until
December 27, 1976. When the compalint was filed on June 25, 1976, that
deadline had not yet expired.
PETITION DENIED.
NOTES: The one- year prescriptive period under Section 3 (6) of paragraph 4 of
the Carriage of Goods by Sea Act is not applicable in cases of misdelivery or
conversion. (Ang v. American Steamship Agencies, Inc., 19 SCRA 123).
The prescriptive period for suits predicated not uopon lost or damage but
on alleged misdelivery or conversion of goods is that found in the New Civil
Code, i.e., either ten years for breach of a written contract or four years for quasidelict.

Filipino Merchants Insurance Co., Inc. v. Hon. Jose Alejandro and Frota

Oceanica Brasiliera
G.R. No. L- 54140, October 14, 1986
Filipino Merchants Insurance Co., Inc. v. Hon. Alfredo Benipayo and
Australia- West Pacific Line
G.R. No. L- 62001, October 14, 1986
Facts :On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed
as Civil Case No. 10991, againt the petitioner before the then Court of First
Instance of Manila for recovery of a sum of money under the marine insurance
policy on cargo. Mr. Choa alleged that the goods he insured with the petitioner
sustained loss and damage in the amount of P 35, 987. 26. The vessel SS
Frotario which was owned and operated by private respondent Frota Oceanica
Brasiliera (Frota), discharged the goods at the port of Manila on December 13,
1976. The said goods were delivered to the arrastre operator E. Razon, Inc., on
December 17, 1976 and on the same date were received by the consigneeplaintiff.
On December 19, 1977, the petitioner filed its amended answer
disclaiming the liability, imputing against the plaintiff the commission of fraud and
counterclaiming for damages.
On January 9, 1978, the petitioner filed a third- party compalint against the
carrier, private respondent Frota and the arrastre contarctor, E. Razon, Inc. for
indemnity, subrogation, or reimbursement in the event that it is held liable to the
plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar
compalint against the petitioner which was docketed as Civil Case No. 110061,
for recovery under the marine insurance policy for cargo alleging that the goods
insured with the petitioner sustained loss and damage in the sum of P55,996. 49.
The goods were delivered to the plaintiff- consignee on or about January
25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978,
it filed an amended third- party complaint against respondent carrier, the
Australia- West Pacific Line (Australia- West).
In both cases, the private respondents filed their respective answers and
subsequently filed a motion for preliminary hearing on their affirmative defense of
prescription. The private respondents alleged in their separate answers that the
petitioner is already barred from filing a claim because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed within one year after
delivery of the goods or the date when the goods should have been delivered.x x
x
The petitioner contended that the provision relied upon by the respondents
applies only to the shipper and not to the insurer of the goods.
On April 30, 1980, the respondents judge in Civil Case No. 109911, upheld
respondent Frota and dismissed the petitioners third party complaint. Likewise,
on August 31, 1982, the reponent judge in Civil Cse No. 110061 dismissed the
petitioners complaint against respondent Australia- West on the ground that the
same was filed beyond the prescriptive period provided in Section 3 (6) of the
Carriage of Goods by Sea Act of 1936.
Issue: Whether the prescriptive period of one year under the said Act also
applies to an insurer such as herein petitioner.
Held: The lower courts did not err.
Section 3 (6) of the Carriage of Goods by Sea Act provides:
(6)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 before 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 for 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.
In any event the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after delivery
of the goods or the goods or date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice the right
of the shipper to bring the suit within one year after the delivery of the goods or
the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and
the receiver shall give all reasonable facilities to each other for inspecting and
tallying the goods.
Clearly, the coverage of the Act includes the insurer of the goods.
Otherwise, what the Act intends to prohibit after the lapse of the one- year
prescriptive period can be done indirectly by the shipper or owner of the goods
by simply filing a claim against the insurer even after the lapse of one year. This
would be the result if we follow petitioners argument that the insurer can, at any
time, proceed against the carrier and the ship since it is not bound by the timebar provision. In this situation, the one- year limitation will be practically useless.
This could not have been the intention of the law which has also for its purpose
the protection of the carrier and the ship from fraudulent claims by having
matters affecting transportation of goods by sea be decided in as short a time as
possible and by avoiding incidents which would unnecessarily extend the period
and permit delays in the settlement of questions affecting the transportation.
In the case at bar, the petitioners action has prescribed under the
provisions of the Carriage of Goods by Sea Act. Hence, whether it files a thirdparty complaint or chooses to maintain an independent action against herein
respondents is of no moment. Had the plaintiffs in the civil cases below filed an
action against the petitioner after the one- year prescriptive period, then the latter
could have successfully denied liability on the ground that by their own doinvg,
the plaintiffs had prevented the petitioner from being subrogated to their
respective rights against the herein respondents by filing a suit after the oneyear prescriptive period. The situation, however, does not obtain in the present
case. The plaintiffs in the civil cases below gave extra- judicial notice to their
respective carriers and filed suit against the petitioner well within the one year
from their receipt o the goods. The petitioner had plenty of time within which to
act. In Civil Case No. 109911, the petitioner had more than four months to file a
third- party complaint while in Civil Case No. 110061, it had more than five
months to do so. In both instances, however, the petitioner failed to file the
appropriate action.
PETITION DISMISSED.
.
Mayer Steel Pipe Corporation and Hongkong Government Supplies

Department v. Court of Appeals, South Sea Surety and Insurance co., Inc.
and Charter Insurance Corporation
274 SCRA 432 (1997)
Facts: In 1983, petitioner Honkong Government Supplies Department (Honkong)
contracted petitioner Mayer SteelPipe Corporation (Mayer) to manufacture and
supply variuos steel pipes and fittings. From August to October 1983, Mayer
shipped the pipes and fittings to Honkong as evidenced by Invoice Nos. MSPC1014, MSPC-1015, MSPC-1020, MSPC-1017 and MSPC-1022.
Prior to the shipping, petitioner Mayer insured the pipes and fittings
againts all risks with private respondents South Sea Surety and Insurance Co.,
Inc. (South Sea) and Charter Insurance Corp. (Chapter).
Petitioners Mayer and Honkong jointly appointed Industral Inspection
(International), Inc. as third-party inspector to examine whether the pipes and
fittings ara manufactured in accordance with the specifications in the contract.
Industrial inspection certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel. Nonetheless, when the goods
reached Hongkong, it was discovered that a substantial portion thereof was
damaged.
Petitioners filed a claim againts private respondents for indemnity under
the insurance contract. Respondent Charter paid petitioner Honkong the amount
of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyors allegedly showed
that the damage is a factory defect.
On april 17, 1986, petitioners filed an action against privatte respondents
to recover the sum of HK$299,345.30. for their defense, private respondents
averred that they hae no obligation to pay the amount claimed by petitioners
because the damage to the goods is due to factory defects which are not
covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the
goods is not due to manufacturing defects. It also noted nthat the
insurancecontracts executed by petitioner Mayer and private respondents are all
risks policies which insure against all caues of conceivable loss od=r damage.
The only exceptions are those excluded in the policy, or those sustained due to
fraud or intentional misconduct onthe part of the insured.
Respondent court affirmed the finding of the trial court that the damage
isnot due to factory defect and that it was covered by the all risk insurance
policies issued by private respondents to petitioner Mayer. However, lit set aside
the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of
Goods by Sea act since it was filed only on April 17, 1986, more than two years
from the time the goods were unloaded from the vessel. Section 3(6) of the
Carriage of Goods by Sea Act provides that the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought
ithin one year after delivery of the goods or the date when the goods should have
ben delivered. Respondent court ruled that this provision applies not only to the
carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. v.
Alejandro.
Issue:Whether or not petitioners cause of action had already prescribed under
section 3(6) of the Carriage of Goods by Sea Act in the light of the doctrine of
Filipino Merchants Insurance Co., Inc. v. Alejandro (145 SCRA 42).
Held: No. The petition is impressed with merit. Respondents court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the goods
if no suit is filed within one year after delivery of the goods or the date when they
should have been delivered. Under this provision, only the carriers liability is
based not on the contract of carriage buton the contract of insurance. A close
reading of the law reveals that the Carriage of Goods by Sea Act governs the
relationship between the carrier on the one hand and the shipper, the consignee
and/or the insurer on the other hand. It defines the obligaton of the carrier under
the contract of carriage. It does not, however, affect the relationship between the
shipper and the insurer. The latter case is governed by the Insurance Code.
PETITION GRANTED.
Mayer Steel Pipe Corporation Case compared to Filipino Merchants case
The ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the
other cases cited therein does not support respondent courts view that the
insurers liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the shipper filed a complaint
against the insurer for recovery of a sum of money as indemnity for the loss and
damage sustained by the insured goods. The insurer, in turn, filed a third-party
complaint against the carrier for reimbursement of the amount it paid to the
shipper. The insurer filed the third-party complaint on January 9, 1978, more than
one year after the delivery of the goods on December 17, 1977. The court held
that the insurer was already barred from filing a claim against the carrier because
under the Carriage of Goods By Sea Act, the suit against the carrier must be filed
within one year after the delivery of the goods or the date when the goods should
have been delivered. The court said that the coverage of the Act includes the
insurer of the goods.
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim agains the carrier for the
reimbursement of the amount it paid to the shipper. In the case at bar, it was the
shipper which filed a claim against the insurer. The basis of the shippers claim is
the all risks insurance policies issue by the private respondents to petitioner
Mayer.
The ruling in Filipino Mercchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When the court
said in Filipino Merchants that Section 3 (6) of the Carriage of Goods by the Sea
Act applies to the insurer, it meant that the insurer, like the shipper, may no
longer file a claim against the carrier beyond the one- year period provided in the
law. But it does not mean that the shipper may no longer file a claim against the
insurer because the basis of the insurers liability is the insurance contract. An
insurance contract is a contract whereby one party, for a consideration known as
the premium, agrees to indemnify another for loss or damage which he may
suffer from a specified peril. An all risks insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the insured. Thus, when
private respondents issued the all risks policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods
insured. Such obligation prescribes in ten years, in accordance with Article 1144
of the New Civil Code.
The insurer exercising its right of subrogation is bound by the one-year
prescriptive period. However, it does not apply to the claim against the insurer
for the insurance proceeds. (Fil. Merchants Ins. Co. vs. Alejandro; Mayer Steel
Pipe Corp. vs. CA)

The insurer exercising its right of subrogation is bound by the one-year

prescriptive period. However, it does not apply to the claim against the insurer for
the insurance proceeds because the claim against the insurer is based on
contract, it expired in 10 years (Mayer Steel Pipe Corp. v. CA, G.R. No. 124050,
June 29,1997).