G.R. No.

150094 August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner,

DECISION

PANGANIBAN, J.:

Basic is the requirement that before suing to recover loss of or damage to transported goods, the
plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw
Convention and/or the airway bill.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001
Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208.
The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit.
The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No.
95-1219, entitled 'American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL
EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),' is
hereby AFFIRMED and REITERATED.

"Costs against the [petitioner and Cargohaus, Inc.]."4

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The antecedent facts are summarized by the appellate court as follows:

"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA
delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee
SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was
covered by Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE WHEN NOT IN
TRANSIT' and 'PERISHABLE' stamp marked on its face. That same day, Burlington insured the
cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The

Page 1 of 8
following day, Burlington turned over the custody of said cargoes to Federal Express which
transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on
January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.'s]
warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on January
31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus'
warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the release of
its cargoes from the Bureau of Customs, of the impending arrival of its client's cargoes.

"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the cargoes
arrived in Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the
release of the subject cargoes, found out, while he was about to cause the release of the said
cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool
the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes
were stored in the 'cool room' only, the latter told him that the cartons where the vaccines were
contained specifically indicated therein that it should not be subjected to hot or cold
temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the
withdrawal of the vaccines and instead, samples of the same were taken and brought to the
Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the 'ELISA reading of vaccinates sera are below the
positive reference serum.'

"As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring 'total loss' for the unusable shipment, filed a claim with
AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. ('PHILAM')
which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND
THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action
for damages against the [petitioner] imputing negligence on either or both of them in the
handling of the cargo.

"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held
solidarily liable for the loss as follows:

'WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and

1. Actual damages in the amount of the peso equivalent of US$39,339.00 with

2. Attorney's fees in the amount of P50,000.00 and

3. Costs of suit.

'SO ORDERED.'

Page 2 of 8
 "Aggrieved, [petitioner] appealed to [the CA]."5

Ruling of the Court of Appeals

The Test Report issued by the United States Department of Agriculture (Animal and Plant Health
Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate
court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered
to the carrier in good condition. We quote from the ruling as follows:

"Where the plaintiff introduces evidence which shows prima facie that the goods were delivered
to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the
goods in a damaged condition, a presumption is raised that the damage occurred through the
fault or negligence of the carrier, and this casts upon the carrier the burden of showing that the
goods were not in good condition when delivered to the carrier, or that the damage was
occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed
to discharge. x x x."6

Found devoid of merit was petitioner's claim that respondents had no personality to sue. This argument
was supposedly not raised in the Answer or during trial.

Hence, this Petition.7

The Issues

In its Memorandum, petitioner raises the following issues for our consideration:

"I.

Are the decision and resolution of the Honorable Court of Appeals proper subject for review by
the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?

"II.

Is the conclusion of the Honorable Court of Appeals – petitioner's claim that respondents have
no personality to sue because the payment was made by the respondents to Smithkline when
the insured under the policy is Burlington Air Express is devoid of merit – correct or not?

"III.

Is the conclusion of the Honorable Court of Appeals that the goods were received in good
condition, correct or not?

"IV.

Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?

"V.

Page 3 of 8
 Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own
admission that petitioner is not liable? and

"VI.

Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8

Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is
Federal Express liable for damage to or loss of the insured goods?

This Court's Ruling

The Petition has merit.

Preliminary Issue:
Propriety of Review

The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question
of law cognizable by the Supreme Court.9

In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the
conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court.

Main Issue:
Liability for Damages

Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it --
because the payment made to Smithkline was erroneous.

Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing parties cite in
support of their respective positions. They differ only in their interpretation of what their rights are
under its terms. The determination of those rights involves a question of law, not a question of fact. "As
distinguished from a question of law which exists 'when the doubt or difference arises as to what the
law is on a certain state of facts' -- 'there is a question of fact when the doubt or difference arises as to
the truth or the falsehood of alleged facts'; or when the 'query necessarily invites calibration of the
whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific
surrounding circumstance, their relation to each other and to the whole and the probabilities of the
situation.'"11

Proper Payee

The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x upon
surrender of this Certificate." Such wording conveys the right of collecting on any such damage or loss,
as fully as if the property were covered by a special policy in the name of the holder itself. At the back of
the Certificate appears the signature of the representative of Burlington. This document has thus been
duly indorsed in blank and is deemed a bearer instrument.

Page 4 of 8
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being
indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a
special policy in the name of the holder. Hence, being the holder of the Certificate and having an
insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds.

Subrogation

Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt 12 in
favor of respondents. The latter were thus authorized "to file claims and begin suit against any such
carrier, vessel, person, corporation or government." Undeniably, the consignee had a legal right to
receive the goods in the same condition it was delivered for transport to petitioner. If that right was
violated, the consignee would have a cause of action against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the
insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of
action in case of a contractual breach or negligence.13 "Further, the insurer's subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld." 14

In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents
and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and
the consignee are bound by the contractual stipulations under the bill of lading.15

Prescription of Claim

From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that
respondents' claim and right of action are already barred. The latter, and even the consignee, never filed
with the carrier any written notice or complaint regarding its claim for damage of or loss to the subject
cargo within the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact
has never been denied by respondents and is plainly evident from the records.

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

"6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a
written notice, sufficiently describing the goods concerned, the approximate date of the damage
or loss, and the details of the claim, is presented by shipper or consignee to an office of
Burlington within (14) days from the date the goods are placed at the disposal of the person
entitled to delivery, or in the case of total loss (including non-delivery) unless presented within
(120) days from the date of issue of the [Airway Bill]."16

Relevantly, petitioner's airway bill states:

"12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the
case:

12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the
latest within fourteen (14) days from receipt of the goods;

Page 5 of 8
 12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the
goods;

12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and

12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of
the issue of the air waybill.

12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill
was used, or to the first carrier or to the last carrier or to the carrier who performed the
transportation during which the loss, damage or delay took place."17

Article 26 of the Warsaw Convention, on the other hand, provides:

"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without
complaint shall be prima facie evidence that the same have been delivered in good condition and
in accordance with the document of transportation.

(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after
the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case
of baggage and 7 days from the date of receipt in the case of goods. In case of delay the
complaint must be made at the latest within 14 days from the date on which the baggage or
goods have been placed at his disposal.

(3) Every complaint must be made in writing upon the document of transportation or by separate
notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the
case of fraud on his part."18

Condition Precedent

In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually
constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or
damage to the goods.19 The shipper or consignee must allege and prove the fulfillment of the condition.
If it fails to do so, no right of action against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of
action.20

The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The
fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been
damaged, and that it is being charged with liability therefor; and (2) 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 fresh and easily investigated so as to safeguard itself from
false and fraudulent claims."21

Page 6 of 8
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a
notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its
enforcement can be prevented and the liability cannot be imposed on the carrier. To stress, notice is a
condition precedent, and the carrier is not liable if notice is not given in accordance with the
stipulation.22 Failure to comply with such a stipulation bars recovery for the loss or damage suffered.23

Being a condition precedent, the notice must precede a suit for enforcement. 24 In the present case,
there is neither an allegation nor a showing of respondents' compliance with this requirement within the
prescribed period. While respondents may have had a cause of action then, they cannot now enforce it
for their failure to comply with the aforesaid condition precedent.

In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in
respondents' Complaint below -- has been adjudged by the trial court as liable for, inter alia, "actual
damages in the amount of the peso equivalent of US $39,339."25 This judgment was affirmed by the
Court of Appeals and is already final and executory.26

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to
Petitioner Federal Express Corporation. No pronouncement as to costs.

SO ORDERED.

Corona, and Carpio-Morales, JJ., concur.

Footnotes

1 Rollo, pp. 14-33.

2 Id.,
pp. 35-43. Twelfth Division. Penned by Justice Martin S. Villarama Jr., with the concurrence
of JusticesConrado M. Vasquez Jr. (Division chair) and Alicia L. Santos (member).

3 Id., pp. 45-47.

4 Assailed CA Decision, p. 9; rollo, p. 43.

5 Id., pp. 1-3 & 35-37.

6 Id., pp. 8 & 42.

7 The case was deemed submitted for decision on September 20, 2002, upon this Court's receipt
of respondents' Memorandum, signed by Atty. Mary Joyce M. Sasan. Petitioner's Memorandum,
signed by Atty. Emiliano S. Samson, was received by this Court on August 28, 2002.

Page 7 of 8
8 Petitioner's Memorandum, p. 10; rollo, p. 116. Citations omitted.

9 Pilar Development Corp. v. IAC, 146 SCRA 215, December 12, 1986.

10 Exhibit "D"; records, p. 142.

11 Bernardo v. CA, 216 SCRA 224, December 7, 1992, per Campos Jr., J.

12 Exhibit "N"; records, p 159.

13 PhilippineAmerican General Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194, August 5,
1992 (citing Fireman's Fund Insurance Company, Inc. v. Jamila & Company, Inc., 70 SCRA 323,
April 7, 1976).

14 PhilippineAmerican General Insurance Co., Inc. v. Sweet Lines, Inc., supra, p. 201, per
Regalado, J. (citing National Development Company v. Court of Appeals, 164 SCRA 593, August
19, 1988).

15 Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra.

16 Exhibit "B" of respondent; records, p. 139-A. This airway bill was issued on January 26, 1994.

17 Exhibit "5-a" of Federal Express; records, p. 189-A.

18 51 OG 5091-5092, October 1955.

19 Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra.

20 Government of the Philippine Islands v. Inchausti & Co., 24 Phil. 315, February 14, 1913; Triton
Insurance Co. v. Jose, 33 Phil. 194, January 14, 1916.

21 Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra, p. 208, per
Regalado, J.

22 Id.
(citing 14 Am. Jur. 2d, Carriers 97; Roldan v. Lim Ponzo & Co., 37 Phil. 285, December 7,
1917; Consunji v. Manila Port Service, 110 Phil. 231, November 29, 1960).

23 Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra, pp. 208-209.

24 Philippine American General Insurance Co. Inc v. Sweet Lines, Inc., supra.

25 The insured value of the goods lost.

26 Entry of judgment in the Supreme Court was made on March 11, 2003.

Page 8 of 8