Southern Lines, Inc. vs. Court of Appeals and City of Iloilo

A common carrier that accepts goods despite apparent defective packing is not relieved of liability for resulting loss, and proof of the carrier’s negligence defeats the exemption under Articles 361 and 362 of the Code of Commerce. Further, a stipulation requiring presentation of a claim within 24 hours is a condition precedent that the carrier must plead as a defense; failure to do so constitutes waiver, and the requirement does not govern an action for refund of money paid in excess for goods never delivered.

In 1948, the City of Iloilo requisitioned rice from the National Rice and Corn Corporation (NARIC) in Manila. NARIC shipped 1,726 sacks of rice consigned to the City on board petitioner’s vessel SS “General Wright.” The bill of lading showed a total weight of 129,450 kilos and a value of P63,115.50. Upon delivery, the City received only 1,685 sacks weighing 116,131 kilos—a shortage of 13,319 kilos, equivalent to 41 sacks worth P6,486.35. The City paid the full amount, subject to subsequent adjustment for shortages.

• Nature: Action to recover the value of a shortage in a shipment of rice.
• The Shipment: On August 24, 1948, NARIC shipped 1,726 sacks of rice, each weighing 75 kilos, consigned to the City of Iloilo aboard petitioner’s vessel SS “General Wright.” The bill of lading reflected a total weight of 129,450 kilos and a total cost of P63,115.50, itemized as unit price, handling, and trucking.
• Receipt and Shortage: On September 3, 1948, the City of Iloilo received the shipment and paid the full P63,115.50. A notation on the bill of lading stated that actual receipt was 1,685 sacks with a gross weight of 116,131 kilos, revealing a shortage of 13,319 kilos—equivalent to 41 sacks with a proportionate value of P6,486.35.
• Petitioner’s Admissions: As found by the Court of Appeals, petitioner admitted that the strings tying the bags were broken, some bags had holes, considerable rice spilled inside the hull of the vessel, and the boat’s personnel collected no less than 26 sacks of rice and distributed them among themselves.

• Exemption under Article 361: Petitioner argued that the shortage resulted from shrinkage, leakage, or spillage due to the bad condition of the sacks when received and from the negligence of respondent’s agents in receiving the goods; thus, the loss fell at the shipper’s risk under Article 361.
• Bar by Failure to File Claim: Petitioner invoked Article 366 of the Code of Commerce and the bill of lading, asserting that respondent’s failure to present a claim within 24 hours from receipt was a condition precedent to the right of action, citing Government v. Ynchausti & Co., 24 Phil. 315 and Triton Insurance Co. v. Jose, 33 Phil. 194.

• Carrier’s Negligence: Respondent countered that the shortage was directly attributable to petitioner’s negligence, as established by the broken strings, holes, spilled rice, and the crew’s taking of 26 sacks.
• Action for Refund, Not Damages: Respondent maintained that the suit was for refund of money paid in excess, not an action for damages, and the bill of lading did not fix a time limit for such a refund claim.

• Liability for Shortage: Whether petitioner-carrier is liable for the shortage despite its claim that the loss was due to the inherent nature or defect of the goods under Article 361 and that respondent failed to prove negligence under Article 362.
• Timeliness of Claim: Whether respondent’s failure to file a claim within 24 hours from receipt, as prescribed in Article 366 of the Code of Commerce and the bill of lading, bars the action.

• Liability for Shortage: The exemption from liability was rejected. Under Article 361, the carrier bears the risk of loss unless it proves the damage resulted from the inherent nature or defect of the goods. Under Article 362, the carrier remains liable if negligence is established. The Court of Appeals’ factual finding—binding on the Supreme Court—showed that petitioner knew of the broken strings and holes, accepted the goods anyway, and its crew collected and appropriated spilled rice. A carrier who accepts goods with apparent improper packing is not relieved of liability for resulting loss (9 Am. Jur. 869). The shortage thus flowed from petitioner’s own negligence, not from any inherent defect.
• Timeliness of Claim: The defense was both waived and inapplicable. While Article 366 imposes a requirement of filing a claim within 24 hours, the weight of authority treats such a stipulation as a limitation on recovery, with the carrier bearing the burden to show it is reasonable and that the claim was not timely made. Petitioner did not plead this affirmative defense in its answer, thereby waiving it under Section 10, Rule 9 of the Rules of Court; it could not be raised for the first time on appeal. Additionally, the action was not for damages but for refund of money paid in excess for goods not delivered. The bill of lading placed no time limit on such a refund suit. The precedents cited by petitioner were distinguished—in one no claim was ever filed, and in the other payment of transportation charges precluded any claim.

• Carrier’s Liability for Improperly Packed Goods — A common carrier that knows, or by ordinary observation should know, of improper packing, but nonetheless accepts the goods, is not relieved of liability for loss or injury resulting from that condition. The rule prevents a carrier from taking goods with visible defects and later asserting the defects as a defense.
• Nature of Claim Requirement as Condition Precedent — A contractual stipulation requiring the owner to present a claim within a specified time is in the nature of a condition precedent; however, the majority rule treats it as a limitation upon the right of recovery, placing the burden on the carrier to prove that the limitation was reasonable and that the claim was not timely filed. (Hutchinson on Carrier, 3d ed., par. 44, cited in Hoye v. Pennsylvania Railroad Co.)
• Waiver of Defense of Failure to File Claim — The failure to file a claim within the time required by Article 366 is an affirmative defense that must be specifically pleaded in the answer. If not raised, the defense is deemed waived and cannot be raised for the first time at trial or on appeal. (Section 10, Rule 9, Rules of Court)
• Distinction Between Action for Damages and Refund of Excess Payment — An action to recover the portion of the purchase price paid for goods that were never delivered is not an action for damages for shortage; a contractual time limit for filing claims for loss or damage does not govern a suit for refund of money paid in excess.

• “if the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury resulting thereform.” (9 Am. Jur. 869)
• “appellant (petitioner) itself frankly admitted that the strings that tied the bags of rice were broken; some bags were with holes and plenty of rice were spilled inside the hull of the boat, and that the personnel of the boat collected no less than 26 sacks of rice which they had distributed among themselves.”
• “The weight of authority, however, sustains the view that such a stipulation is more in the nature of a limitation upon the owner’s right to recovery, and that the burden of proof is accordingly on the carrier to show that the limitation was reasonable and in proper form or within the time stated.” (Hutchinson on Carrier, 3d ed., par. 44)
• “the present action is one for the refund of the amount paid in excess, and not for damages or the recovery of the shortage; for admittedly the appellee (respondent) had paid the entire value of the 1726 sacks of rice, subject to subsequent adjustment, as to shortages or losses.”

• Government v. Ynchausti & Co., 40 Phil. 219 — Applied to define the allocation of burdens of proof under Articles 361 and 362; carrier must prove nature/defect, while shipper must prove negligence.
• Government v. Ynchausti & Co., 24 Phil. 315 — Distinguished; in that case no claim whatsoever was filed before suit, unlike the present case where the action was for refund and the claim issue waived.
• Triton Insurance Co. v. Jose, 33 Phil. 194 — Distinguished; there was payment of transportation charges that precluded any claim, a situation not present here.
• Hoye v. Pennsylvania Railroad Co., 13 Ann. Cas. 414 — Cited as persuasive American authority on the rule that the burden of proof rests on the carrier to show reasonableness of a time limitation for claims.

• Article 361, Code of Commerce — Goods are transported at the risk of the shipper unless otherwise stipulated; losses from fortuitous event, force majeure, or inherent nature/defect fall on the shipper, but the carrier bears the burden of proving such accidents. The carrier failed to prove the shortage was due to such causes; instead, negligence was shown.
• Article 362, Code of Commerce — The carrier is liable for losses under Article 361 if it is proved that they occurred through the carrier’s negligence or failure to take the precautions adopted by careful persons, unless the shipper committed fraud in the bill of lading. Respondent met its burden by establishing petitioner’s admissions of broken sacks, spillage, and crew taking rice.
• Article 366, Code of Commerce — Governs the time within which claims for damages against a carrier must be presented. The requirement was not applied because the defense was waived and the action was for refund, not damages.
• Section 10, Rule 9, Rules of Court — Mandates that defenses not raised in the answer are deemed waived. Petitioner’s failure to plead the 24-hour claim requirement barred its invocation on appeal.

Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Dizon, JJ., concurred. Bengzon, C.J., Bautista Angelo, and Paredes, JJ., took no part.