G.R. No. L-37604 - Eastern and Australian Steamship Co., Ltd vs. Great American Insurance Co.

Eastern and Australian Steamship Co., Ltd. and F.E. Zuellig, Inc. are the petitioners.
Great American Insurance Co. and the Court of First Instance of Manila, Branch XIII are the respondents.

On December 10, 1971, Jackson and Spring (Sydney) Pty. Ltd. shipped one case of impellers for a warman pump.

The shipment was aboard the SS “Chitral,” a vessel owned and operated in the Philippines by Eastern & Australian Steamship Co., Ltd.
The shipment was handled through the agent F.E. Zuellig, Inc. under Bill of Lading No. 31.

The goods were destined for delivery to Benguet Consolidated, Inc. in Manila and were insured by Great American Insurance Co. for P35,921.81 against all risks.

The SS “Chitral” arrived in Manila on December 22, 1971 but failed to discharge the shipment or any part thereof.
A demand for delivery was made on the petitioners, which was not complied with, leading to a claim being presented against them for the shipment’s value.
As a consequence, Great American Insurance Co., acting as subrogee, paid the consignee the insured amount and later filed a complaint dated November 20, 1972 to recover P35,921.81 along with legal interest and attorney’s fees.

In their answer dated November 27, 1972, petitioners contended that their liability was limited to 100 Sterling or its peso equivalent (P1,544.40) as stipulated in Clause 17 of the Bill of Lading.
The parties narrowed the dispute to a single issue during the pre-trial on May 28, 1973:

Whether the petitioners’ liability should be limited to 100 Sterling (P1,544.40) per the Bill of Lading, or
Whether liability should follow Section 4(5) of the Carriage of Goods by Sea Act mandating a minimum maximum liability of $500 (or its peso equivalent).

The lower court ruled that under Section 4(5) of the Carriage of Goods by Sea Act, a statutory maximum of $500 per package applied, thereby declaring the contractual limit of 100 Sterling in the Bill of Lading void and holding petitioners liable for the higher amount.

First, petitioners argued the court erred in declaring the 100 Sterling limit void as contrary to law.
Second, they contended the court erred in awarding attorney’s fees and costs in favor of the private respondent.

Whether the liability of the petitioners should be limited to 100 Sterling (or its peso equivalent of P1,544.40) as provided in Clause 17 of the Bill of Lading or should follow the statutory provision under Section 4(5) of the Carriage of Goods by Sea Act, which sets a minimum maximum liability of $500 per package.

Whether the award of attorney’s fees and costs in favor of the private respondent was proper.

How to reconcile the provisions of the Bill of Lading with the statutory mandate of the Carriage of Goods by Sea Act regarding the limitation of liability.