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G.R. No. 226345. August 2, 2017.*

 
PIONEER INSURANCE AND SURETY CORPORATION,
petitioner, vs. APL CO. PTE. LTD., respondent.

Civil Law; Contracts; It is elementary that a contract is the

law between the parties and the obligations it carries must be
complied with in good faith.—It is elementary that a contract is
the law between the parties and the obligations it carries must be
complied with in good faith. In Norton Resources and Development
Corporation v. All Asia Bank Corporation, 605 SCRA 370 (2009),
the Court reiterated that when the terms of the contract are clear,
its literal meaning shall control, to wit: The cardinal rule in
the interpretation of contracts is embodied in the first
paragraph of Article 1370 of the Civil Code: “[i]f the terms
of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of
its stipulations shall con-

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*  SECOND DIVISION.

 
 
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trol.” This provision is akin to the “plain meaning rule”

applied by Pennsylvania courts, which assumes that the intent of
the parties to an instrument is “embodied in the writing itself,
and when the words are clear and unambiguous the intent is to be
discovered only from the express language of the agreement.” It
also resembles the “four corners” rule, a principle which allows
courts in some cases to search beneath the semantic surface for
clues to meaning. A court’s purpose in examining a contract is to
interpret the intent of the contracting parties, as objectively
manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to whether
the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are
not ambiguous and can only be read one way, the court
will interpret the contract as a matter of law. If the contract
is determined to be ambiguous, then the interpretation of the
contract is left to the court, to resolve the ambiguity in the light of
the intrinsic evidence.
Same; Carriage of Goods by Sea Act; It has long been settled
that in case of loss or damage of cargoes, the one (1)-year
prescriptive period under the Carriage of Goods by Sea Act
(COGSA) applies.—The present case involves lost or damaged
cargo. It has long been settled that in case of loss or damage of
cargoes, the one-year prescriptive period under the COGSA
applies. It is at this juncture where the parties are at odds, with
Pioneer Insurance claiming that the one-year prescriptive period
under the COGSA governs; whereas APL insists that the nine-
month prescriptive period under the Bill of Lading applies.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
   Astorga & Repol Law Offices for petitioner.
   Montilla Law Office for respondent.

 
 
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MENDOZA, J.:
 

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This petition for review on certiorari seeks to reverse

and set aside the May 26, 2016 Decision1 and August 8,
2016 Resolution2 of the Court of Appeals (CA) in C.A.-G.R.
S.P. No. 143912, which reversed the November 3, 2015
Decision3 of the Regional Trial Court, Branch 137, Makati
City (RTC). The RTC affirmed in toto the March 9, 2015
Decision4 of the Municipal Trial Court, Branch 65, Makati
City (MTC).
On January 13, 2012, the shipper, Chillies Export House
Limited, turned over to respondent APL Co. Pte. Ltd. (APL)
250 bags of chili pepper for transport from the port of
Chennai, India to Manila. The shipment, with a total
declared value of $12,272.50, was loaded on board M/V
Wan Hai 262. In turn, BSFIL Technologies, Inc. (BSFIL),
as consignee, insured the cargo with petitioner Pioneer
Insurance and Surety Corporation (Pioneer Insurance).5
On February 2, 2012, the shipment arrived at the port of
Manila and was temporarily stored at North Harbor,
Manila. On February 6, 2012, the bags of chili were
withdrawn and delivered to BSFIL. Upon receipt thereof, it
discovered that 76 bags were wet and heavily infested with
molds. The shipment was declared unfit for human
consumption and was eventually declared as a total loss.6
As a result, BSFIL made a formal claim against APL
and Pioneer Insurance. The latter hired an independent
insurance adjuster, which found that the shipment was wet
because of

_______________

1   Penned by Associate Justice Remedios A. Salazar-Fernando with

Associate Justices Priscilla J. Baltazar-Padilla and Melchor Quirino C.
Sadang, concurring; Rollo, pp. 16-26.
2  Id., at pp. 27-31.
3   Penned by Presiding Judge Ethel V. Mercado-Gutay; id., at pp. 82-
89.
4  Penned by Presiding Judge Henry E. Laron; id., at pp. 74-81.
5  Id., at p. 6.
6  Id.

 
 
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the water which seeped inside the container van APL

provided. Pioneer Insurance paid BSFIL P195,505.65 after
evaluating the claim.7
Having been subrogated to all the rights and cause of
action of BSFIL, Pioneer Insurance sought payment from
APL, but the latter refused. This prompted Pioneer
Insurance to file a complaint for sum of money against
APL.
 
MTC’s Ruling
 
In its March 9, 2015 decision, the MTC granted the
complaint and ordered APL to pay Pioneer Insurance the
amount claimed plus six percent (6%) interest per annum
from the filing of the complaint until fully paid, and
P10,000.00 as attorney’s fees. It explained that by paying
BSFIL, Pioneer Insurance was subrogated to the rights of
the insured and, as such, it may pursue all the remedies
the insured may have against the party whose negligence
or wrongful act caused the loss. The MTC declared that as
a common carrier, APL was bound to observe extraordinary
diligence. It noted that because the goods were damaged
while it was in APL’s custody, it was presumed that APL
did not exercise extraordinary diligence, and that the latter
failed to overcome such presumption. The dispositive
portion reads:

WHEREFORE, premises considered, judgment is hereby

rendered ordering defendant APL Co. Pte. Ltd. to pay plaintiff the
amount of P195,505.65 plus 6% interest per annum from the filing
of this case (01 February 2013) until the whole amount is fully
paid and the amount of P10,000.00 as attorney’s fees; and the
costs.
SO ORDERED.8

 
Aggrieved, APL appealed to the RTC.

_______________

7  Id., at pp. 6-7.

8  Id., at p. 81.

 
 

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Pioneer Insurance and Surety Corporation vs. APL Co. Pte.

Ltd.

The RTC’s Ruling

 
In its November 3, 2015 decision, the RTC concurred
with the MTC. It agreed that APL was presumed to have
acted negligently because the goods were damaged while in
its custody. In addition, the RTC stated that under the
Carriage of Goods by Sea Act (COGSA), lack of written
notice shall not prejudice the right of the shipper to bring a
suit within one year after delivery of the goods. Further,
the trial court stated that the shorter prescriptive period
set in the Bill of Lading could not apply because it is
contrary to the provisions of the COGSA. It ruled:

WHEREFORE, PREMISES CONSIDERED, the Decision

dated March 9, 2015 of the Metropolitan Trial Court Branch 65,
Makati City is hereby AFFIRMED in toto, with costs against
defendant-appellant APL.
SO ORDERED.9

 
Undeterred, APL appealed before the CA.
 
The CA’s Ruling
 
In its May 26, 2016 decision, the CA reversed the
decisions of the trial courts and ruled that the present
action was barred by prescription. The appellate court
noted that under Clause 8 of the Bill of Lading, the carrier
shall be absolved from any liability unless a case is filed
within nine (9) months after the delivery of the goods. It
explained that a shorter prescriptive period may be
stipulated upon, provided it is reasonable. The CA opined
that the nine-month prescriptive period set out in the Bill
of Lading was reasonable and provided a sufficient period
of time within which an action to recover any loss or
damage arising from the contract of carriage may be
instituted.

_______________

9  Id., at p. 89.

 
 
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The appellate court pointed out that as subrogee,

Pioneer Insurance was bound by the stipulations of the Bill
of Lading, including the shorter period to file an action. It
stated that the contract had the force of law between the
parties and so it could not countenance an interpretation
which may undermine the stipulations freely agreed upon
by the parties. The fallo reads:

WHEREFORE, premises considered, the instant Petition for

Review is hereby GRANTED. The assailed Decision dated
November 3, 2015 of the RTC, Branch 137, Makati City in Civil
Case No. 15-403 is hereby REVERSED and SET ASIDE.
Respondent Pioneer Insurance & Surety Corporation’s Complaint
is accordingly DISMISSED.
SO ORDERED.10

 
Pioneer Insurance moved for reconsideration, but the
CA denied its motion in its August 8, 2016 Resolution.
Hence, this petition.

Issues
 
I
WHETHER THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED WHEN IT RULED THAT
PETITIONER’S CLAIM AGAINST THE RESPONDENT IS
ALREADY BARRED BY PRESCRIPTION; AND
II
WHETHER THE HONORABLE COURT OF APPEALS
SERIOSULY ERRED IN HOLDING THAT THE ONE YEAR
PRESCRIPTIVE PERIOD PRO-

_______________

10  Id., at p. 26.

 
 

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VIDED UNDER THE CARRIAGE OF GOODS BY SEA ACT

(COGSA) IS NOT APPLICABLE IN THE INSTANT CASE.11

 
Pioneer Insurance insists the action, which was filed on
February 1, 2013, was within the one year prescriptive
period under the COGSA after BSFIL received the goods on
February 6, 2012. It argues that the nine-month period
provided under the Bill of Lading was inapplicable because
the Bill of Lading itself states that in the event that such
time period is found to be contrary to any law compulsorily
applicable, then the period prescribed by such law shall
then apply. Pioneer Insurance is of the view that the
stipulation in the Bill of Lading is subordinate to the
COGSA. It asserts that while parties are free to stipulate
the terms and conditions of their contract, the same should
not be contrary to law, morals, good customs, public order,
or public policy.
Further, Pioneer Insurance contends that it was not
questioning the validity of the terms and conditions of the
Bill of Lading as it was merely pointing out that the Bill of
Lading itself provides that the nine-month prescriptive
period is subservient to the one-year prescriptive period
under the COGSA.
In its Comment,12 dated November 3, 2016, APL
countered that Pioneer Insurance erred in claiming that
the nine-month period under the Bill of Lading applies only
in the absence of an applicable law. It stressed that the
nine-month period under the Bill of Lading applies, unless
there is a law to the contrary. APL explained that
“absence” differs from “contrary.” It, thus, argued that the
nine-month period was applicable because it is not contrary
to any applicable law.

_______________

11  Id., at p. 8.
12  Id., at pp. 94-99.

 
 
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In its Reply,13 dated February 23, 2017, Pioneer

Insurance averred that the nine-month period shall be
applied only if there is no law to the contrary. It noted that
the COGSA was clearly contrary to the provisions of the
Bill of Lading because it provides for a different
prescriptive period. For said reason, Pioneer Insurance
believed that the prescriptive period under the COGSA
should be controlling.
 
The Court’s Ruling
 
The petition is meritorious.
It is true that in Philippine American General Insurance
Co., Inc. v. Sweet Lines, Inc. (Philippine American),14 the
Court recognized that stipulated prescriptive periods
shorter than their statutory counterparts are generally
valid because they do not affect the liability of the carrier
but merely affects the shipper’s remedy. The CA,
nevertheless, erred in applying Philippine American in the
case at bench as it does not fall squarely with the present
circumstances.
It is elementary that a contract is the law between the
parties and the obligations it carries must be complied with
in good faith.15 In Norton Resources and Development
Corporation v. All Asia Bank Corporation,16 the Court
reiterated that when the terms of the contract are clear, its
literal meaning shall control, to wit:

The cardinal rule in the interpretation of contracts is

embodied in the first paragraph of Article 1370 of the Civil
Code: “[i]f the terms of a contract are clear and leave no
doubt upon the intention of

_______________

13  Id., at pp. 103-105.

14  287 Phil. 212; 212 SCRA 194 (1992).
15  Morla v. Belmonte, 678 Phil. 102, 117; 661 SCRA 717, 730 (2011).
16  620 Phil. 381; 605 SCRA 370 (2009), citing Benguet Corporation v.
Cabildo, 585 Phil. 23; 563 SCRA 25 (2008).

 
 
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the contracting parties, the literal meaning of its

stipulations shall control.” This provision is akin to the “plain
meaning rule” applied by Pennsylvania courts, which assumes
that the intent of the parties to an instrument is “embodied in the
writing itself, and when the words are clear and unambiguous the
intent is to be discovered only from the express language of the
agreement.” It also resembles the “four corners” rule, a principle
which allows courts in some cases to search beneath the semantic
surface for clues to meaning. A court’s purpose in examining a
contract is to interpret the intent of the contracting parties, as
objectively manifested by them. The process of interpreting a
contract requires the court to make a preliminary inquiry as to
whether the contract before it is ambiguous. A contract provision
is ambiguous if it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are
not ambiguous and can only be read one way, the court
will interpret the contract as a matter of law. If the contract
is determined to be ambiguous, then the interpretation of the
contract is left to the court, to resolve the ambiguity in the light of
the intrinsic evidence.17 [Emphases supplied]

 
After a closer perusal of the Bill of Lading, the Court
finds that its provisions are clear and unequivocal leaving
no room for interpretation.
In the Bill of Lading, it was categorically stated that the
carrier shall in any event be discharged from all liability
whatsoever in respect of the goods, unless suit is brought in
the proper forum within nine (9) months after delivery of
the goods or the date when they should have been
delivered. The same, however, is qualified in that when the
said nine-month period is contrary to any law compulsory
applicable, the period prescribed by the said law shall
apply.

_______________

17  Id., at p. 388; pp. 376-377.

 
 
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The present case involves lost or damaged cargo. It has

long been settled that in case of loss or damage of cargoes,
the one-year prescriptive period under the COGSA
applies.18 It is at this juncture where the parties are at
odds, with Pioneer Insurance claiming that the one-year
prescriptive period under the COGSA governs; whereas
APL insists that the nine-month prescriptive period under
the Bill of Lading applies.
A reading of the Bill of Lading between the parties
reveals that the nine-month prescriptive period is not
applicable in all actions or claims. As an exception, the
nine-month period is inapplicable when there is a different
period provided by a law for a particular claim or action —
unlike in Philippine American where the Bill of Lading
stipulated a prescriptive period for actions without
exceptions. Thus, it is readily apparent that the exception
under the Bill of Lading became operative because there
was a compulsory law applicable which provides for a
different prescriptive period. Hence, strictly applying the
terms of the Bill of Lading, the one-year prescriptive period
under the COGSA should govern because the present case
involves loss of goods or cargo. In finding so, the Court does
not construe the Bill of Lading any further but merely
applies its terms according to its plain and literal meaning.
WHEREFORE, the petition is GRANTED. The
November 3, 2015 Decision of the Regional Trial Court,
Branch 137, Makati City in Civil Case No. 15-403 is
REINSTATED.
SO ORDERED.

Carpio (Chairperson), Peralta, Leonen and Martires,

JJ., concur.

_______________

18  Mitsui O.S.K. Lines Ltd. v. Court of Appeals, 350 Phil. 813, 817-818;
287 SCRA 366, 373 (1998); Belgian Overseas Chartering and Shipping
N.V. v. Philippine First Insurance Co., Inc., 432 Phil. 567, 585; 383 SCRA
23, 38 (2002); Asian Terminals, Inc. v. Philam Insurance Co., Inc., 715
Phil. 78, 98; 702 SCRA 88, 109 (2013).

 
 

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Petition granted, judgment of Regional Trial Court, Br.

137, Makati City reinstated.

Notes.—Not all instances of bad weather may be

categorized as “storms” or “perils of the sea” within the
meaning of the provisions of the Civil Code and Carriage of
Goods by Sea Act (COGSA) on common carriers.
(Transimex Co. vs. Mafre Asian Insurance Corp., 802 SCRA
667 [2016])
Strong winds and waves are not automatically deemed
perils of the sea, if these conditions are not unusual for
that particular sea area at that specific time, or if they
could have been reasonably anticipated or foreseen. (Id.)
 
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