G.R. No. L-37604. October 23, 1981
EASTERN AND AUSTRALIAN STEAMSHIP CO., LTD. AND F. E. ZUELLIG, INC., petitioners, vs. GREAT AMERICAN INSURANCE CO. and COURT OF FIRST INSTANCE OF MANILA, BRANCH XIII, respondents.

FACTS

The case originated from a claim for the loss of a shipment. Jackson and Spring (Sydney) Pty. Ltd. shipped one case of impellers from Sydney to Manila on board the SS “Chitral,” owned by petitioner Eastern & Australian Steamship Co., Ltd., through its agent F.E. Zuellig, Inc. The consignee was Benguet Consolidated, Inc., and the shipment was insured by respondent Great American Insurance Co. The vessel arrived in Manila but failed to discharge the subject shipment. The insurer paid the consignee for the loss and, as subrogee, filed a complaint against the carrier for recovery.
The carrier admitted the loss but contended its liability was limited to £100 Sterling (P1,544.40) as stipulated in Clause 17 of the bill of lading, which required a written declaration of a higher value and payment of extra freight for the carrier to be liable beyond that amount. The insurer argued the applicable limit was US$500 (P3,217.50) per package under Section 4(5) of the Carriage of Goods by Sea Act (COGSA). The trial court ruled in favor of the insurer, holding the £100 stipulation void for being less than COGSA’s $500 minimum and awarded the $500 amount plus attorney’s fees.

ISSUE

Whether the carrier’s liability for the lost shipment is limited to £100 Sterling as per the bill of lading stipulation, or to US$500 per package under the Carriage of Goods by Sea Act.

RULING

The Supreme Court reversed the trial court and held the carrier’s liability was validly limited to £100 Sterling. The Court clarified the interpretation of Section 4(5) of COGSA. The first paragraph sets a maximum liability of $500 per package in the absence of a declaration of a higher value by the shipper in the bill of lading. The second paragraph allows the carrier and shipper to agree on a different maximum amount, provided it is not less than $500. The Court ruled this proviso applies only to agreements fixing a maximum higher than $500, not to stipulations like Clause 17 which set a lower limit.
The legal logic is that Clause 17 and the first paragraph of COGSA Section 4(5) are consistent: both establish a default monetary limit for liability ($500 under COGSA; £100 under the bill of lading) which applies only if the shipper does not declare a higher value. The shipper here did not declare a higher value or pay extra freight. Therefore, the specific contractual stipulation, which is permitted under Articles 1749 and 1750 of the Civil Code provided it is reasonable and freely agreed upon, governs. The Court found the stipulation valid and binding, limiting recovery to £100. The award of attorney’s fees was consequently set aside.