Federal Express Corporation vs. American Home Assurance Company

Notice of claim for damage to goods shipped by air within the period prescribed by the Warsaw Convention or the airway bill is a condition precedent to the accrual of a right of action against the carrier.

Smithkline Beecham of Nebraska, USA delivered 109 cartons of veterinary biologicals to Burlington Air Express, an agent of Federal Express Corporation, for shipment to Smithkline and French Overseas Company in Makati City. The cargo was insured with American Home Assurance Company (AHAC) for $39,339.00. The shipment arrived in Manila on January 29 and 31, 1994, and was stored at Cargohaus, Inc.'s warehouse. Twelve days after the first arrival, the customs broker discovered the goods were stored in an air-conditioned room rather than a refrigerator, contrary to the "REFRIGERATE WHEN NOT IN TRANSIT" and "PERISHABLE" markings. Testing revealed the vaccines were damaged. Smithkline abandoned the shipment, declared total loss, and collected the insurance proceeds from AHAC, which then filed a subrogation claim against Federal Express and Cargohaus.

• Shipment and Insurance: On January 26, 1994, Smithkline Beecham delivered 109 cartons of veterinary biologicals to Burlington Air Express, an agent of Federal Express Corporation, for transport to Makati City. The airway bill was stamped "REFRIGERATE WHEN NOT IN TRANSIT" and "PERISHABLE." Burlington insured the cargo with AHAC for $39,339.00.
• Transport and Storage: Burlington turned over the cargo to Federal Express on January 27, 1994. The first shipment of 92 cartons arrived in Manila on January 29, 1994, and the second of 17 cartons arrived on January 31, 1994. Both were immediately stored at the warehouse of Cargohaus, Inc.
• Discovery of Damage: On February 10, 1994, twelve days after the first arrival, a customs broker discovered the goods stored in a room with two air conditioners rather than a refrigerator. A Cargohaus employee stated the cartons indicated the vaccines should not be subjected to hot or cold temperatures. Withdrawal was halted, and samples were taken to the Bureau of Animal Industry, which found the vaccines damaged.
• Subrogation and Lawsuit: Smithkline abandoned the shipment and declared total loss. AHAC, through its representative Philam Insurance Co., Inc., paid Smithkline the insured amount. Smithkline executed a Subrogation Receipt in favor of the respondents, who subsequently filed an action for damages against Federal Express and Cargohaus, imputing negligence in the handling of the cargo.

• Personality to Sue: Petitioner argued that respondents had no personality to sue and no cause of action because the insurance payment to Smithkline was erroneous, Burlington being the named insured under the policy.
• Condition of Goods: Petitioner contested the conclusion that the goods were received in good condition.
• Admissibility of Evidence: Petitioner contended that the US Department of Agriculture Test Report (Exhibits 'F' and 'G') was hearsay and inadmissible.
• Admission of Non-Liability: Petitioner maintained that the Court of Appeals ignored respondents' own admission that petitioner was not liable.
• Warsaw Convention and Notice of Claim: Petitioner asserted that respondents' claim was barred for failure to comply with the written notice requirement within the period prescribed by the Warsaw Convention and the airway bill.

• Personality to Sue and Subrogation: Respondents countered that Smithkline was the proper payee because the Certificate of Insurance was endorsed in blank, making it a bearer instrument, and that subrogation validly equipped them with a cause of action against the erring carrier.
• Prima Facie Proof of Damage: Respondents argued that the shipping receipts constituted prima facie proof that goods were delivered to the carrier in good condition and delivered damaged, shifting the burden to the carrier to prove otherwise.
• Procedural Default: Respondents maintained that petitioner's claim regarding lack of personality to sue was devoid of merit, having supposedly not been raised in the Answer or during trial.

• Propriety of Review: Whether the Petition presents a question of law proper for review under Rule 45 of the Rules of Court.
• Personality to Sue and Subrogation: Whether respondents have a cause of action against the carrier based on the Certificate of Insurance and Subrogation Receipt.
• Notice of Claim: Whether the claim against the carrier is barred for failure to file a written notice of claim within the period prescribed by the Warsaw Convention and the airway bill.

• Propriety of Review: The Petition is proper. The correctness of legal conclusions drawn from undisputed facts presents a question of law cognizable by the Supreme Court.
• Personality to Sue and Subrogation: Respondents validly acquired a cause of action. The Certificate of Insurance, endorsed in blank by Burlington's representative, was a bearer instrument; Smithkline, as holder, was the proper payee. Upon payment, respondents were subrogated to the consignee's rights, standing in substitution of the consignee and bound by the contractual stipulations under the bill of lading.
• Notice of Claim: The claim against Federal Express is barred. Neither the consignee nor the respondents filed a written notice of claim within the 7-day period under Article 26 of the Warsaw Convention or the 14-day period under the airway bill. The filing of a notice of claim within the prescribed period is a condition precedent to the accrual of a right of action against a carrier. Failure to comply bars recovery, regardless of whether a cause of action initially existed.

• Notice of Claim as Condition Precedent — The filing of a claim with the carrier within the time limitation constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to goods. It is not a mere limitation of action. The shipper or consignee must allege and prove the fulfillment of this condition; failure to do so prevents the right of action from accruing. The requirement serves to inform the carrier of the damage and afford an opportunity to examine the nature and extent of the injury while the matter is fresh, safeguarding the carrier from false and fraudulent claims.
• Subrogation — The insurer's entitlement to subrogation pro tanto equips it with a cause of action in case of a contractual breach or negligence, standing in substitution of the consignee and bound by the contractual stipulations under the bill of lading.

• "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."
• "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."
• "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."

• Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194 (1992) — Followed. Cited for the doctrine that the filing of a claim with the carrier is a condition precedent to the accrual of a right of action, and that the insurer's subrogatory right to sue for recovery under the bill of lading is jurisprudentially upheld.
• Bernardo v. CA, 216 SCRA 224 (1992) — Followed. Cited for the distinction between a question of law and a question of fact.
• Government of the Philippine Islands v. Inchausti & Co., 24 Phil. 315 (1913) and Triton Insurance Co. v. Jose, 33 Phil. 194 (1916) — Followed. Cited for the proposition that the notice requirement is a reasonable condition precedent, not a limitation of action.

• Article 26, Warsaw Convention — Requires the person entitled to delivery to complain to the carrier forthwith after discovery of damage, and at the latest within 7 days from receipt for goods. Every complaint must be in writing. Failing complaint within the prescribed times, no action shall lie against the carrier, save in the case of fraud. Applied to bar the action for failure to give written notice within 7 days.
• Rule 45, Rules of Court — Governs appeals by certiorari to the Supreme Court. Applied to establish the propriety of the review based on questions of law arising from undisputed facts.

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