Transpo Law Digest

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Transportation Law Case Digests | Atty. Norianne Tan | 2016

CODE OF COMMERCE (ARTS. 806-845)- MARITIME CONTRACTS

• Coastwise Lighterage Corp. v. CA And Philippine General Insurance

Company- Reeneth Santos

• Puromines, Inc v. CA And Philipp Brothers Oceanic Inc- Akira Yogue

• Loadstar Shipping Co., Inc v. Pioneer Asia Insurance- Aubbrey Lim

• Telengtan Bros. & Sons. v. CA – Vet Lim

• Keng Hua Paper Products, Inc. v. CA, RTC Br. 21 and Seal-Land

Service, Ins.

COASTWISE LIGHTERAGE CORP. v. CA and PHILIPPINE GENERALINSURANCE COMPANY

G.R. No. 114167, 12 July 1995Maritime Contracts

CASE:

Pag-asa Sales, Inc. entered into a contract to transport molassesfrom Negros to Manila with petitioner Coastwise Lighterage Corporationusing the latter’s dumb barges. Upon arrival at its destination, one of thebarges struck an unknown sunken object (later discovered to be asubmerged derelict vessel). As a result, water seeped through the barge andcontaminated the molasses. Pag-asa had to abandon the goods as total loss.It filed a formal claim with the insurer of its goods, Philippine GeneralInsurance. PhilGen paid Pag-asa.

Exercising its rights as a subrogee, PhilGen filed a complaint againstPetitioner, claiming the amount it paid to Pag-asa. Petitioner’s argumenthinges on the nature of the contract it executed with Pag-asa. Petitionercontends that the contract was a charter agreement, transforming it into a

private carrier.The Court ruled against Petitioner.Under the demise or bareboat charter, the charterer will generally be

regarded as the owner for the voyage or service stipulated. The charterermans the vessel with his own people and becomes the owner pro hac vice,subject to liability to others for damages caused by negligence. To create ademise, the owner of a vessel must completely and exclusively relinquishpossession, command and navigation thereof to the charterer. This contracttransforms a common carrier into a private one.

A contract of affreightment is one in which the owner of the vesselleases part or all of its space to haul goods for others. It is a contract forspecial service to be rendered by the owner of the vessel and under suchcontract the general owner retains the possession, command and navigationof the ship, the charterer or freighter merely having use of the space in thevessel in return for his payment of the charter hire. This contract does notaffect the status of a common carrier.

In this case, what was entered into was a contract of affreightment.Pag-asa only leased three of Petitioner’s vessels, but the possession,command and navigation of the vessels remained with Petitioner.

Therefore, Petitioner was not converted into a private carrier. Itremained liable as a common carrier, and mere proof of delivery of goods ingood order to a carrier and subsequent arrival of the same goods in badorder makes for a prima facie case against the carrier.

Furthermore, the patron of the vessel admitted that he was notlicensed to command the vessel. This is a clear violation of Art. 609 of the

Lim, A. | Lim, Y. | Miranda | Rivera | Santos | Yogue



Transportation Law Case Digests | Atty. Norianne Tan | 2016Code of Commerce. Failing to overcome the presumption of negligence,Petitioner must be held liable to consignee and consequently, to subrogee.

FACTS:

• Pag-asa Sales, Inc. (“Pag-asa”) entered into a contract to transportmolasses from Negros to Manila with Coastwise LighterageCorporation (“Petitioner”), using the latter’s dumb barges. These

barges were towed by the tugboat, MT Marica, which is likewiseowned by Petitioner.

• Upon reaching its destination, one of the barges struck an unknownsunken object (later found out to be a submerged derelict vessel).The forward buoyancy compartment was damaged, water gushed in,and as a consequence, the molasses were contaminated.

• Pag-asa rejected the shipment and declared it as a total loss. It fileda formal claim with the insurer of its cargo, Philippine GeneralInsurance (“PhilGen”).

• PhilGen paid Pag-asa and thereafter, exercised its right as thesubrogee and filed an action against Petitioner. It sought to recoverP700,000.00 which it paid to Pag-asa.

• The RTC awarded the amount prayed for by PhilGen. CTA affirmedthe decision.

• Petitioner argued that the courts erred in finding that it was acommon carrier. It insisted that the contract entered into was acharter agreement, citing Home Insurance v. American Steamship,which states that “a common carrier undertaking to carry a specialcargo or chartered to a special person only becomes a privatecarrier.”

ISSUES:1. whether or not Petitioner was transformed into a private carrier, by virtueof the contract of affreightment which it entered into with the consignee, Pag-

asa2. whether or not the insurer was subrogated into the rights of the consigneeagainst the carrier, upon payment by the insurer of the value of the goodslost

HELD & RATIO:1. NO, Petitioner remained a common carrier.

• The case of Puromines, Inc. v. CA explains the issue. Under thedemise or bareboat charter, the charterer will generally be regardedas the owner for the voyage or service stipulated. The charterermans the vessel with his own people and becomes the owner prohac vice, subject to liability to others for damages caused by

negligence. To create a demise, the owner of a vessel must

completely and exclusively relinquish possession, command andnavigation thereof to the charterer, anything short of such a completetransfer is a contract of affreightment (time or voyage charter party)or not a charter party at all.

• On the other hand a contract of affreightment is one in which theowner of the vessel leases part or all of its space to haul goods forothers. It is a contract for special service to be rendered by the

owner of the vessel and under such contract the general ownerretains the possession, command and navigation of the ship, thecharterer or freighter merely having use of the space in the vessel inreturn for his payment of the charter hire.

• Although a charter party may transform a common carrier into aprivate one, the same however is not true in a contract ofaffreightment.

• In this case, the contract entered into was a contract ofaffreightment. Pag-asa only leased three of Petitioner’s vessels, butthe possession, command and navigation of the vessels remainedwith Petitioner.

• Therefore, Petitioner was not converted into a private carrier. It

remained liable as a common carrier, and mere proof of delivery ofgoods in good order to a carrier and subsequent arrival of the samegoods in bad order makes for a prima facie case against the carrier.

• While it was true that it was difficult to ascertain the presence of asubmerged item, Petitioner is found to be liable when the patron ofthe vessel, Jesus Constantino, admitted that he was not licensed.

• Article 609 of the Code of Commerce states that “Captains, masters,or patrons of vessels must be Filipinos, have legal capacity tocontract in accordance with this code, and prove the skill capacityand qualifications necessary to command and direct the vessel, asestablished by marine and navigation laws, ordinances orregulations, and must not be disqualified according to the same for

the discharge of the duties of the position. . . .”• By going on a voyage with an unlicensed patron, Petitioner violated

this provision. Failing to overcome the presumption of negligence,Petitioner is found to be liable to the consignee and consequently, tothe subrogee.

2. YES, PhilGen is subrogated.

• Article 2207 of the Civil Code provides “If the plaintiffs property hasbeen insured, and he has received indemnity from the insurancecompany for the injury or loss arising out of the wrong or breach ofcontract complained of, the insurance company shall be subrogatedto the rights of the insured against the wrongdoer or the person who

violated the contract. . . .”Lim, A. | Lim, Y. | Miranda | Rivera | Santos | Yogue



Transportation Law Case Digests | Atty. Norianne Tan | 2016• Upon payment by PhilGen of P700,000.00 to Pag-asa, the former

was subrogated into all the rights which Pag-asa may have hadagainst the carrier.

PUROMINES, INC V. CA AND PHILIPP BROTHERS OCEANIC INC

G.R. No. 91228; March 22, 1993

CASE:PUROMINES and Makati Agro Trading Inc entered into a contract withPhilipp Brothers Oceanic Inc. for the sale of prilled Urea in bulk. Their salescontract provided for an arbitration clause which stated that, “any disputesarising under this contract shall be settled by arbitration in London.” M/Vliliana Dimitrova loaded on board the shipment of 15,500 metric tons prilledUrea in bulk complete and good condition for transport to Iloilo and MLA, tobe delivered to PUROMINES. 3 bill of ladings were issued for theshipmement. Shipments covering Bill of Lading Nos. 1 and 3 were dischargdin MLA in bad order and condition, caked and hardened and lumpy,discolored and contaminated with rust and dirt. PUROMINES filed acomplaint in TC (PH) or breach of contract of carriage against Maritime

Factors Inc, as ship-agent in the Philippines for the owners of the vessel MV"Liliana Dimitrova," while private respondent, Philipp Brothers Oceanic Inc.,was impleaded as charterer of the said vessel and proper party to accordpetitioner complete relief. TC denied Philipp Brothers’ MTD stating that thecause of acton of the complaint arose from a breach of contract of carriageby the vessel chartered by Philipp Bros. Thus, the arbitration clause in thesales contract cannot apply to the dispute in the present action whichconcerns PUROMINE's claim for cargo loss/damage arising from breach ofcontract of carriage. CA found that the arbitration provision in the salescontract and/or the bills of lading is applicable in the present case. Hence,CA dismissed PUROMINES’ complaint.

SC held that sales contract is comprehensive enough to includeclaims for damages arising from carriage and delivery of the goods .The disputed sales contact provides for conditions relative to the delivery ofgoods, such as date of shipment, demurrage, weight as determined by thebill of lading at load port. In the case at bar, PUROMINES derives his rightto the cargo from the bill of lading which is the contract ofaffreightment together with the sales contract. Consequently,PUROMINES is bound by the prov isions and t erms of said bi ll of ladingand of the arbitration clause incorporated in the sales contract .

Assuming arguendo that the liability of PHILIPP BROTHERS is not based onthe sales contract, but rather on the contract of carriage, being the chartererof the vessel MV "Liliana Dimitrova," it would, therefore, be material to showwhat kind of charter party the respondent had with the shipowner todetermine respondent's liability. Should in the present case, the charter party

(PHILIPP BROTHERS) is a demise or bareboat charter , then it is liable toPUROMINES subject to the terms and conditions of the sales contract. Onthe other hand, should the contract between PHILIPP BROTHERS and theowner of the vessel MV "Liliana Dimitrova" was merely that ofaffreightment, then PHILIPP BROTHERS cannot be held liable for thedamages caused by the breach of contract of carriage, the evidence of whichis the bills of lading. In any case, whether the liability of respondent

should be based on the same contract or that of the bill of lading, theparties are nevertheless obligated to respect the arbitration provisionson the sales contract and/or the bill of lading. Petitioner being asignatory and party to the sales contract cannot escape from hisobligation u nder the arbitration clause as stated therein.

FACTS:

• Puromines, Inc. (PUROMINES) and Makati Agro Trading, Inc. (not aparty in this case) entered into a contract with Philipp Brothers Oceanic,Inc. for the sale of prilled Urea in bulk.

• Their Sales Contract provided, among others an arbitration clause whichstates, thus:

o "9. Arbitration: Any dispu tes arising under th iscontract shall be settled by arbitration inLondon in accordance with the Arbitration Act 1950and any statutory amendment or modificationthereof. Each party is to appoint an Arbitrator, andshould they be unable to agree, the decision of anUmpire appointed by them to be final. The

Arbitrators and Umpire are all to be commercial menand resident in London. This submission may bemade a rule of the High Court of Justice in Englandby either party."

• Vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a

shipment of 15,500 metric tons prilled Urea in bulk complete and in goodorder and condition for transport to Iloilo and Manila, to be delivered topetitioner.

• Three bills of lading were issued by the ship-agent in the Philippines,Maritime Factors Inc.o The shipment covered by Bill of Lading No. 2 was discharged in

Iloilo City complete and in good order and condition.o Shipments covered by Bill of Lading Nos. 1 and 3 were

discharged in Manila in bad order and condition, caked,hardened and lumpy, discolored and contaminated with rustand dirt. Damages were valued at P683, 056. 29 includingadditional discharging expenses.




Transportation Law Case Digests | Atty. Norianne Tan | 2016• Consequently, PUROMINES filed a complaint with the trial court (in Ph)

for breach of contract of carriage against Maritime Factors Inc, as ship-agent in the Philippines for the owners of the vessel MV "LilianaDimitrova," while private respondent, Philipp Brothers Oceanic Inc.,was impleaded as charterer of the said vessel and proper party toaccord petitioner complete relief.

• Philip Brothers Oceanic Inc., filed a motion to dismiss, on the grounds

that:1. the complaint states no cause of action;2. it was prematurely filed; and3. PUROMINES should co mply with the arbitration clause in the

sales contract

• PUROMINES opposed the MTD contending the inapplicability of thearbitration clause inasmuch as the cause of action did not arise from aviolation of the terms of the sales contract but rather for claims of cargodamages where there is no arbitration agreement.

• TC denied Philip Brothers Oceanic Inc's motion to dismiss stating that aperusal of the facts alleged in the complaint upon which the question ofsufficiency of the cause of action of the complaint arose from a breach

of contract of carriage by the vessel chartered by the defendantPhilipp Brothers Oceanic, Inc. Thus, the aforementioned arbitrationclause cannot apply to the dispute in the present action whichconcerns plaintiff's claim for cargo loss/damage arising frombreach of contract of carriage.

• CA dismissed PUROMINES’ complaint. CA found that the arbitrationprovision in the sales contract and/or the bills of lading is applicable inthe present case.

ISSUE:1. Whether the phrase "any dispute arising under this contract" in the

arbitration clause of the sales contract covers a cargo claim against the

vessel (owner and/or charterers) for breach of contract of carriage YES!

RATIO+HELD:

1. PUROMINES is bound by the provisions and terms of said bill oflading and of the arbitration clause incorporated in the salescontract.

Petitioner states in its complainants that Philipp Brothers "was the chartererof the vessel MV 'Liliana Dimitrova' which transported the shipment fromYuzhny USSR to Manila." Moreover, in its Opposition to the Motion to

Dismiss, petitioner said that the cause of action of the complaint arose frombreach of contract of carriage by the vessel that was chartered by defendantPhilipp Brothers.” In the present petition, PUROMILES argues that thesales contract does not include the contract of carriage which is adifferent contract entered into by the carrier with the cargo owners .Petitioner contradicts itself.

SC held that the the sales contract is comp rehensive enough to includeclaims for damages arising fro m carriage and delivery of the goods.

• As a general rule, the seller has the obligation to transmit the goodsto the buyer, and concomitant thereto, the contracting of a carrier todeliver the same. (Art. 1523 of the Civil Code)

The disputed sales contact provides for conditions relative to the delivery ofgoods, such as date of shipment, demurrage, weight as determined by thebill of lading at load port. In the case at bar, PUROMINES derives his rightto the cargo from the bill of lading which is the contract ofaffreightment together with the sales contract. Consequently,PUROMINES is bo und by t he provisio ns and terms of said bill o f lading

and of the arbitration clause incorporated in the sales contract."

Assuming arguendo that the liability of PHILIPP BROTHERS is not based onthe sales contract, but rather on the contract of carriage, being the chartererof the vessel MV "Liliana Dimitrova," it would, therefore, be material to showwhat kind of charter party the respondent had with the shipowner todetermine respondent's liability.

• American jurisprudence defines CHARTER PARTY as a contract bywhich an entire ship or some principal part thereof is let by the ownerto another person for a specified time or use.

• TWO KINDS OF CHARTER/CHARTER PARTY:

CHARTER OF DEMISE

OR BAREBOAT

CONTRACTS OF

AFFREIGHTMENTUnder this, the chartererwill generally beconsidered as owner forthe voyage or servicestipulated. The charterermans the vessel with hisown people and becomes,in effect, the owner prohac vice, subject to liabilityto others for damagescaused by negligence. To

It is in which the owner of thevessel leases part or all of itsspace to haul goods for others. Itis a contract for a special serviceto be rendered by the owner ofthe vessel and under suchcontract the general ownerretains the possession, commandand navigation of the ship, the

charterer or freighter merely

having use of the space in the




Transportation Law Case Digests | Atty. Norianne Tan | 2016create a demise the ownerof a vessel mustcompletely andexclusively relinquishpossession, anythingshort of such a completetransfer is a contract of

affreightment (time orvoyage charter party) ornot a charter party at all

vessel in return for his payment ofthe charter hire.

If the charter is a contract ofaffreightment, which leaves thegeneral owner in possession ofthe ship as owner for the

voyage, the rights,responsibilities of ownershiprest on the owner and thecharterer is usually free fromliability to third persons inrespect of the ship

• Responsibility to third persons for goods shipped on board avessel follows the vessel's possession and employment:

CHARTER OF DEMISEOR BAREBOAT

CONTRACTS OF AFFREIGHTMENT

If possession is transferred

to the charterer by virtue ofa demise, the charterer,and not the owner, isliable as carrier on thecontract of affreightmentmade by himself or bythe master with thirdpersons, and isanswerable for loss,damage or non-deliveryof goods received fortransportation .

An owner who retains

possession of the ship, thoughthe hold is the property of thecharterer, remains liable ascarrier and must answer forany breach of duty as to thecare, loading or unloading ofthe cargo

• Assuming that in the present case, the charter party is a demise orbareboat charter, then Philipp Brothers is liable to PUROMINESsubject to the terms and conditions of the sales contract. On theother hand, if the contract between respondent and the owner of thevessel MV "Liliana Dimitrova" was merely that of affreightment, thenit cannot be held liable for the damages caused by the breach ofcontract of carriage, the evidence of which is the bills of lading.

• In any case, whether the liabilit y of respond ent should be basedon the same contract or that of the bill of lading, the parties arenevertheless obligated to respect the arbitration provisions onthe sales contract and/or the bill of lading. Petitioner being a

signatory and party to the sales contract cannot escape fromhis obl igation under the arbitration c lause as stated therein.

LOADSTAR SHIPPING CO., INC v. PIONEER ASIA INSURANCE CORP.G.R. No. 157481, January 24, 2006

CASE:

Loadstar Shipping Co., Inc. is the registered owner and operator ofthe vessel M/V Weasel. It entered into a voyage-charter with NorthernMindanao Transport Company, Inc. M/V Weasel left Iligan City for Manila ingood weather carrying 67,500 bags of cement for delivery to the consignee.This was insured with respondent Pioneer Asia Insurance Corporation. Themaster of M/V Weasel, ordered the vessel to be forced aground.Consequently, the entire shipment of cement was good as gone due toexposure to seawater. Pioneer Asia filed a case against Loadstar afterpaying the consignee and being subrogated.

(1) W/N Loadstar is a common carrier - YES (2) W/N Loadstarexercised extraordinary diligence – NO

(1) Petitioner is a corporation engaged in the business of transporting

cargo by water and for compensation, offering its services indiscriminately tothe public. Hence, it is a common carrier. The voyage-charter agreementbetween petitioner and Northern Mindanao did not in any way convert it intoa private carrier pursuant to the ruling in Planters Products, Inc. v. CA.

(2) Loadstar’s defense of fortuitous event was not substantiated.Records show that in the evening of June 24, 1984, the sea and weatherconditions in the vicinity of Negros Occidental were calm. The records revealthat petitioner took a shortcut route, instead of the usual route, whichexposed the voyage to unexpected hazard. Petitioner has only itself to blamefor its misjudgment.

FACTS:

• Petitioner Loadstar Shipping Co., Inc. is the registered owner andoperator of the vessel M/V Weasel. Loadstar entered into a voyage-charter with Northern Mindanao Transport Company, Inc. for thecarriage of 65,000 bags of cement from Iligan City to Manila.Loadstar entered into a voyage-charter with Northern MindanaoTransport Company, Inc. for the carriage of 65,000 bags of cementfrom Iligan City to Manila.

• At 12:50 in the afternoon of June 24, 1984, M/V Weasel left IliganCity for Manila in good weather carrying 67,500 bags of cement fordelivery to the consignee. This was insured with respondent Pioneer

Asia Insurance Corporation for P1,400,000.

• However, at 4:31 in the morning of June 25, 1984, Captain Vicente

C. Montera, master of M/V Weasel, ordered the vessel to be forcedLim, A. | Lim, Y. | Miranda | Rivera | Santos | Yogue



Transportation Law Case Digests | Atty. Norianne Tan | 2016aground. Consequently, the entire shipment of cement was good asgone due to exposure to seawater. Petitioner thus failed to deliverthe goods to the consignee in Manila.

• Respondent insurance company paid the consignee and wassubrogated to the latter’s rights. Consequently, respondent filed acomplaint against petitioner Loadstar for reimbursement.

• Loadstar’s contentions:

1. At the time of the voyage the carrier’s voyage-charter with theshipper converted it into a private carrier. Thus, the presumptionof negligence against common carriers could not apply.

2. At the time of the voyage the carrier’s voyage-charter with theshipper converted it into a private carrier. Thus, the presumptionof negligence against common carriers could not apply.

• Pioneer’s argument: Petitioner was a common carrier despite thecharter of the whole vessel, since the charter was limited to the shiponly.

• RTC ruled in favor of Pioneer.The RTC called attention to the PAG-ASA report that at the time ofthe incident, tropical storm Asiang had moved away from the

Philippines. Further, records showed that the sea and weatherconditions in the area of Hinubaan, Negros Occidental from 8:00p.m. of June 24, 1984 to 8:00 a.m. the next day were slight andsmooth. Thus, the trial court concluded that the cause of the losswas not tropical storm Asiang or any other force majeure, but grossnegligence of petitioner.

ISSUES:1. Is petitioner a common or a private carrier? common carrier2. In either case, did petitioner exercise the required diligence i.e., the

extraordinary diligence of a common carrier or the ordinary diligence

of a private carrier?

NO

HELD + RATIO:1. Loadstar is a common carrier and retained its character as suchnotwithstanding the charter of the vessel since its charter is only avoyage-charter, not a bareboat charter.

• Article 1732 of the Civil Code defines a common carrier as follows: Article 1732. Common carriers are persons, corporations, firms orassociations engaged in the business of carrying or transportingpassengers or goods or both, by land, water, or air, forcompensation, offering their services to the public.

o Petitioner is a corporation engaged in the business of

transporting cargo by water and for compensation,

offering its services indiscriminately to the public. Thus,without doubt, it is a common carrier.

• The voyage-charter agreement between petitioner and NorthernMindanao Transport Company, Inc. did not in any way convert thecommon carrier into a private carrier.

o Planters Products, Inc. v. Court of Appeals:“It is therefore imperative that a public carrier shall remain as

such, notwithstanding the charter of the whole or portion of avessel by one or more persons, provided the charter islimited to the ship only, as in the case of a time-charter orvoyage-charter. It is only when the charter includes both thevessel and its crew, as in a bareboat or demise that acommon carrier becomes private, at least insofar as theparticular voyage covering the charter-party is concerned.Indubitably, a shipowner in a time or voyage charter retainspossession and control of the ship, although her holds may,for the moment, be the property of the charterer.”

o Conformably, petitioner remains a common carriernotwithstanding the existence of the charter agreement

with the Northern Mindanao Transport Company, Inc.since the said charter is limited to the ship only anddoes not involve both the vessel and its crew. As

elucidated in Planters Products, its charter is only a voyage-charter, not a bareboat charter.

2. As a common carrier, Loadstar has the duty to observe extraordinarydiligence which it failed to meet. Its claim of fortuitous event was notsubstantiated.

• The extraordinary diligence in the vigilance over the goods tenderedfor shipment requires the common carrier to know and to follow therequired precaution for avoiding damage to, or destruction of thegoods entrusted to it for safe carriage and delivery. It requires

common carriers to render service with the greatest skill andforesight and to use all reasonable means to ascertain the natureand characteristics of goods tendered for shipment, and to exercisedue care in the handling and stowage, including such methods astheir nature requires.

• Petitioner claims that the loss of the goods was due to a fortuitousevent. Yet, its claim is not substantiated. On the contrary, we findsupported by evidence on record the conclusion of the trial court andthe Court of Appeals that the loss of the entire shipment of cementwas due to the gross negligence of petitioner.

o Records show that in the evening of June 24, 1984, the seaand weather conditions in the vicinity of Negros Occidentalwere calm. The records reveal that petitioner took a




Transportation Law Case Digests | Atty. Norianne Tan | 2016shortcut route, instead of the usual route, whichexposed the voyage to unexpected hazard. Petitionerhas only itself to blame for its misjudgment.

3. The contract between the parties in this case contained a stipulation that incase of suit, attorney’s fees and expenses of litigation shall be limited to onlyten percent (10%) of the total monetary award.

TELENGTAN BROS. & SONS v. CAG.R. No. 110581 September 21, 1994CASE:

Respondent K-Line entered in a contract of affreightment with VanReekum Paper to ship 468 rolls of container board liners from Georgia toManila. These container board liners were placed in 12 containers. In Japan,the containers were transhipped (to Manila) via two K-Line vessels: 10containers carried by SS Far East Friendship and 2 containers by SSHangang Glory. The vessels arrived in Manila on June 11, 1979 and June21, 1979, respectively. Tthe consignee has a free time for removing thecontainers from the yard until June 26, 1979 (Far East) and July 9, 1979(Hangang Glory) after the free time petitioner would already be liable for

demurrage charges.On June 22, 1979, petitioner’s broker IBC presented the shippingdocuments to the Bureau of Custons for the container’s released but thesame was not allowed because the shipping document which only covers 10containers is not the same with the Bill of Lading which covers 12 containers.Hence, petitioner had to have it corrected with the respondents. IBC wasable to get the corrected shipping document on June 29, 1979.

On July 11, 1979, petitioner tried to secure the relase of the cargo,but they were informed by respondent’s collection agent that they need topay demurrage charges. From June 27 to July 19, 1979 respondent paidP67,850 in demurrage charges but within this period only 5 out of the 12containers were released (delay was also attributed to the breakdown of the

arrastre’s equipment). Already fed up, the petitioner refused to pay additional demurrageand filed a case in the RTC. The RTC issued a writ of preliminary injunctionto stop respondents from collecting additional demurrage, it was during thistime that petitioner was able to fully secure the possession of all thecontainers.

The RTC and CA ruled in favor of respondents averring that theparties are bound by the terms of the Bill of Lading. The SC affirmed thedecision BUT ruled that petitioner is only liable in paying demurrage chargesof P28,480. The SC ruled that the delay was not due to petitioners fault.Based on the facts the delay was due to the inconsistency in the shippingdocument and bill of lading and the breakdown of the arrastre’s equipmentand it would be unjust if petitioner would pay for demurrage for these events.

FACTS:

• Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is aforeign shipping company doing business in the Philippines. Itsshipping agent is Smith Bell & Co. It is a member of the Far EastConference, the body which fixes rates by agreement of its member-shipowners. The conference is registered with the US FederalMaritime Commission.

•

On May 8, 1979, Van Reekum Paper shipped 468 rolls of containerboard liners from Savannah, Georgia to Manila on board K-Line. Theshipment was consigned with petitioner La Suerte. The contract ofaffreightment was embodied in Bill of Lading No. 602. The expensesof loading and unloading were for the account of the consignee.

• When the shipment arrived in Japan, it had to be transhipped on twovessels: 10 containers were carried by SS Far East Friendship and 2containers on SS Hangang Glory.

• The shipment carried by SS Far East Friendship arrived in Manila onJune 11, 1979. Its arrival was advertised in the shipping section ofBulletin Today. Petitioner was likewise notified by writing togetherwith the information that there will be container demurrage at the

rate of P4.00 per linear foot per day for the first 5 days andP8.00 per linear foot p er day after the 5th day wo uld be c hargedunless the consig nee took delivery of the cargo within ten days.

• SS Hangang Glory arrived on June 21, 1979.

• On June 22, 1979, the Island Brokerage Co., presented in behalf ofthe petitioner, the shipping documents to Customs Marine Division ofthe Bureau of Customs. But the latter refused to act on thembecause the manifest only covered 10 containers, whereas the bill oflading covered 12 containers.

• The broker, sent back the manifest to the shipping agent with therequest that the manifest be amended. Smith, Bell & Co. refused onthe ground that an amendment, as requested, would violate §1005 of

the Tariff and Customs Code relating to unmanifested cargo. Later,however, it agreed to add a footnote reading "Two container vanscarried by the SS Hangang Glory to complete the shipment of twelvecontainers under the bill of lading."

• On June 29, 1979 the manifest was picked up from the office ofrespondent shipping agent by an employee of the IBC and filed withthe Bureau of Customs. The manifest was approved for release onJuly 3, 1979. IBC wrote Smith, Bell & Co. to make of record thatentry of the shipment had been delayed by the error in the manifest.

• On July 11, 1979, when the IBC tried to secure the release of thecargo, it was informed by private respondents' collection agent, theCBCS Guaranteed Fast Collection Services, that the free time for

removing the cont ainers from the container yard had expired onLim, A. | Lim, Y. | Miranda | Rivera | Santos | Yogue



Transportation Law Case Digests | Atty. Norianne Tan | 2016June 26, 1979, in the case of the SS Far East Friendship, and onJuly 9, in the case of t he SS Hangang Glory, and that demurragecharges had begun to run on June 27, 1979 with respect to the10 containers on the SS Far East Friendship and on July 10,1979 with respect to the 2 containers shipped on board the SSHangang Glory.

• On July 13, 1979, petitioner paid P47,680.00 representing the total

demurrage charges on all the containers, but it was not able toobtain its goods. On July 16, 1979 it was able to obtain the release oftwo containers and on July 17, 1979 of one more container. It wasable to obtain only a partial release of the cargo because of thebreakdown of the arrastre's equipment at the container yard.

• This matter was reported by IBC in letters of complaint sent to thePhilippine Ports Authority and to Smith Bell requestingreconsideration of the demurrage charges, on the ground that thedelay in claiming the goods was due to the alleged late arrival of theshipping documents, the delay caused by the amendment of themanifest, and the fact that two of the containers arrived separatelyfrom the other ten containers.

•

On July 19, 1979, petitioner paid additional charges in the amount ofP20,160.00 for the period July 14-19, 1979 to secure the release ofits cargo, but still petitioner was unable to get any cargo from theremaining nine container vans. It was only the next day, July 20,1979, that it was able to have two more containers released from thecontainer yard, bringing to five the total number of containers whosecontents had been delivered to it.

• Subsequently, petitioner refused to pay any more demurragecharges. In all, petitioner had paid demurrage charges from June 27to July 19, 1979, in the total amount of P67,840.00.

• The petitioner wrote to respondents for refund of the demurragecharges but respondent denied the request. Hence petitioner filed for

specific performance to compel respondents to release 7 containervans consigned to it free of charge and for a refund of P67,840.00which it had paid, plus attorney's fees and other expenses oflitigation. Petitioner also asked for the issuance of a writ ofpreliminary injunction to restrain private respondents from chargingadditional demurrage.

• In its answer, respondents claimed that collection of containercharges was authorized by §§ 2, 23 and 29 of the bill of lading andthat they were not free to waive these charges because under theUnited States Shipping Act of 1916 it was unlawful for any commoncarrier engaged in transportation involving the foreign commerce ofthe United States to charge or collect a greater or lesser

compensation that the rates and charges specified in its tariffs on file

with the Federal Maritime Commission. That petitioner knew that thecontract of carriage was subject to the Far East Conference rulesand that the publication of the notice of reimposition of containerdemurrage charges published in the shipping section of the BulletinToday and Businessday newspapers from February 19 — February25, 1979 was binding upon petitioner. They contended further thatthe collection of container demurrage was an international practice

which is widely accepted in ports all over the world and that it was inconformity with Republic Act No. 1407, otherwise known as thePhilippine Overseas Shipping Act of 1955.

RTC: RTC granted the writ and the container vans were released. It howeverdismissed the complaint. It held that the bill of lading prescribes thedemurrage charges in case of delay in discharge of the goods. That the bill oflading was the contract between the parties hence its terms should berespected. The RTC also rejected the claim of the petitioner that the breakingdown of the quipment of the arrastre operator constitutes force majeure.

CA: Affirmed RTC

ISSUE: W/N PETITIONER IS LIABLE FOR THE PAYMENT OFCONTAINER DEMURRAGE?

RULING: (AFFIRMED CA)PETITIONER IS BOUND BY THE TERMS OF THE BILL OF LADING

• Bill of Lading is both a receipt and a contract. As a contract, its termsand conditions are conclusive on the parties including the consignee.

• As the CA pointed out, the enforcement of the rules of the Far EastConference and the Federal Maritime Commission is in accordancewith Republic Act No. 1407, §1 of which declares that thePhilippines, in common with other maritime nations, recognizes theinternational character of shipping in foreign trade and existinginternational practices in maritime transportation and that it is part ofthe national policy to cooperate with other friendly nations in themaintenance and improvement of such practices.

• Petitioner's argument that it is not bound by the bill of lading issuedby K-Line because it is a contract of adhesion, whose terms as setforth at the back are in small prints and are hardly readable, iswithout merit and ruled it’s bound with it.

LIABILITY OF THE PETITIONER

• Petitioner cannot be held liable for demurrage starting June 27, 1979on the 10 containers which arrived on the SS Far East Friendshipbecause the delay in obtaining release of the goods was not due to

its fault. The evidence shows that because the manifest issued byLim, A. | Lim, Y. | Miranda | Rivera | Santos | Yogue



Transportation Law Case Digests | Atty. Norianne Tan | 2016the respondent K-Line, through the Smith, Bell & Co., stated only 10containers, whereas the bill of lading also issued by the K-Lineshowed there were 12 containers, the Bureau of Customs refused togive an entry permit to petitioner. For this reason, petitioner's broker,the IBC, had to see the respondent's agent (Smith, Bell & Co.) onJune 22, 1979 but the latter did not immediately do something tocorrect the manifest. Smith, Bell & Co. was asked to "amend" the

manifest, but it refused to do so on the ground that this would violatethe law. It was only on June 29, 1979 that it thought of addinginstead a footnote to indicate that two other container vans — toaccount for a total of 12 container vans consigned to petitioner —had been loaded on the other vessel SS Hangang Glory.

• Now June 29, 1979 was a Friday. Again it is probable the correctmanifest was presented to the Bureau of Customs only on Monday,July 2, 1979 and, therefore, it was only on July 3 that it wasapproved. It was, therefore, only from this date (July 3, 1979) thatpetitioner could have claimed its cargo and charged for any delay inremoving its cargo from the containers. With respect to the other twocontainers which arrived on the SS Hangang Glory, demurrage was

properly considered to have accrued on July 10, 1979 since the "freetime" expired on July 9.

• The period of delay, however, for all the 12 containers must bedeemed to have stopped on July 13, 1979, because on this datepetitioner paid P47,680.00. If it was not able to get its cargo from thecontainer vans, it was because of the breakdown of the shifter orcranes. This breakdown cannot be blamed on petitioners since thesewere cranes of the arrastre service operator. It would be unjust tocharge demurrage after July 13, 1979 since the delay in emptyingthe containers was not due to the fault of the petitioner.

• Indeed, there is no reason why petitioner should not get its cargoafter paying all demurrage charges due on July 13, 1979. If it paid

P20,180.00 more in demurrage charges after July 13, 1979 it wasonly because respondents would not release the goods. Even thenpetitioner was able to obtain the release of cargo from five containervans. Its trucks were unable to load anymore cargo and returned topetitioner's premises empty.

• In sum, we hold that petitioner can be held liable for demurrage onlyfor the period July 3-13, 1979 and that in accordance with thestipulation in its bill of lading, it is liable for demurrage only in theamount of P28,480.00.

KENG HUA PAPER PRODUCTS CO. INC. vs. COURT OF APPEALS;REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND

SERVICE, INC.G.R. No. 116863, February 12, 1998

CASE:Sea Land received at its Hong Kong a sealed container of unsorted waste

paper for shipment to Keng Hua in Manila. A bill of lading was issuedpursuant to the transaction. The shipment was discharged in Manila, butdespite numerous notices sent to Keng Hua, the shipment was onlyunloaded from the container after 481 days. Due to the delay in dischargingthe shipment, demurrage charges accrued and because Keng Hua refusedto pay, Sea Land filed this collection suit. Keng Hua contends that it shouldnot be bound by the bill of lading because it did not consent to it citing aNotice of Refused or On Hand Freight it received from Sea Land.Furthermore, it contends that the demurrage was a consequence of theshipper’s mistake of shipping more than what was bought.WON Keng Hua is bound by the bill of lading.YES. Having been afforded an opportunity to examine the said document,Keng Hua did not immediately object to or dissent from any term orstipulation therein. It was only six months later that it sent a letter to SeaLand saying that it could not accept the shipment. Keng Hua’s inaction forsuch a long period conveys the clear inference that it accepted the terms andconditions of the bill of lading. the case at bar, the prolonged failure ofpetitioner to receive and discharge the cargo from the private respondentsvessel constitutes a violation of the terms of the bill of lading. It should thusbe liable for demurrage to the former.

FACTS:

• Sea-Land Service, Inc. (Sea Land), a shipping company, received at its

Hong Kong terminal a sealed container containing seventy-six bales ofunsorted waste paper for shipment to defendant (herein petitioner), KengHua Paper Products, Co. (Keng Hua) in Manila. A bill of lading (Exh. A)to cover the shipment was issued by Sea-Land.

• The shipment was discharged at the Manila International ContainerPort. Notices of arrival were transmitted to Keng Hua but the latter failedto discharge the shipment from the container during the free time periodor grace period.

• The said shipment remained inside the plaintiffs container from themoment the free time period expired on July 29, 1982 until the time whenthe shipment was unloaded from the container on November 22, 1983,or a total of four hundred eighty-one (481) days.




Transportation Law Case Digests | Atty. Norianne Tan | 2016• During the 481-day period, demurrage charges accrued which eventually

amounted to P67,340.00. Numerous demands were made on thedefendant but the obligation remained unpaid.

• Sea-Land commenced this civil action for collection and damages.

ISSUES: 1) (MAIN ISSUE) Whether or not Keng Hua was bound by the bill of

lading.2) Whether or not respondent court committed an error in concludingthat the expenses incurred in saving the cargo are consideredgeneral average.

HELD & RATIO:1) YES, Keng Hua is bound by the Bill o f Lading.

• Preliminaries:o A bill of lading serves two functions. First, it is a receipt for the goods

shipped. Second, it is a contract by which three parties, namely, theshipper, the carrier, and the consignee undertake specificresponsibilities and assume stipulated obligations.

o

A bill of lading delivered and accepted constitutes the contract ofcarriage even though not signed, because the acceptance of apaper containing the terms of a proposed contract generallyconstitutes an acceptance of the contract and of all of its terms andconditions of which the acceptor has actual or constructive notice.

o In a nutshell, the acceptance of a bill of lading by the shipper and theconsignee, with full knowledge of its contents, gives rise to thepresumption that the same was a perfected and binding contract.

• Keng Hua’s contentions:o It should not be bound by the bill of lading because it never gave its

consent thereto. It cites as support the Notice of Refused or On Hand

Freight it received from Sea Land, which acknowledged that petitionerdeclined to accept the shipment.o Its acceptance of the bill of lading would be tantamount to an act of

smuggling as the amount it had imported was only for 10,000kilograms and not for 20,313 kilograms as stated in the bill of ladingand could lay them vulnerable to legal sanctions for violation ofcustoms and tariff as well as Central Bank laws.

o The demurrage was a consequence of the shippers mistake ofshipping more than what was bought.

• Court ruled that Keng Hua is bound by the Bill of Lading.o Having been afforded an opportunity to examine the said document,

Keng Hua did not immediately object to or dissent from any term or

stipulation therein. It was only six months later that it sent a letter toSea Land saying that it could not accept the shipment. Keng Hua’sinaction for such a long period conveys the clear inference that itaccepted the terms and conditions of the bill of lading.

o Keng Hua’s reliance on the Notice of Refused or On Hand Freight, asproof of its nonacceptance of the bill of lading, is of noconsequence. Said notice was not written by it; it was sent by Sea

Land to Keng Hua four months after petitioner received the bill oflading.

• Keng Hua is liable for the payment of demurrage.o Demurrage is merely an allowance or compensation for the delay or

detention of a vessel. It is deemed by the parties a fair compensationfor delays. An allowance, by way of demurrage, is the true measure ofdamages in all cases of mere detention, for that allowance hasreference to the ships expenses, wear and tear, and commonemployment.

o In the case at bar, the prolonged failure of petitioner to receive anddischarge the cargo from the private respondents vessel constitutes aviolation of the terms of the bill of lading. It should thus be liable fordemurrage to the former.

Other Discussions:

• Bill of Lading Separate from Other Letter of Credit Arrangementso In a letter of credit, there are three distinct and independent

contracts: (1) the contract of sale between the buyer and theseller, (2) the contract of the buyer with the issuing bank, and (3) theletter of credit proper in which the bank promises to pay the sellerpursuant to the terms and conditions stated therein.

o The three contracts which make up the letter of credit arrangementare to be maintained in a state of perpetual separation.

o Hence, the contract of carriage must be treated independently of thecontract of sale between the seller and the buyer, and the contract forthe issuance of a letter of credit between the buyer and the issuingbank. Any discrepancy between the amount of the goods described inthe commercial invoice in the contract of sale and the amount allowedin the letter of credit will not affect the validity and enforceability of thecontract of carriage as embodied in the bill of lading. As the bankcannot be expected to look beyond the documents presented to it bythe seller pursuant to the letter of credit, neither can the carrier beexpected to go beyond the representations of the shipper in the bill oflading.




Transportation Law Case Digests | Atty. Norianne Tan | 2016o Furthermore, Sea Land, as carrier, had no knowledge of the contents

of the container. The contract of carriage was under the arrangementknown as Shippers Load And Count, and the shipper was solelyresponsible for the loading of the container while the carrier wasoblivious to the contents of the shipment. Keng Hua’s remedy incase of overshipment lies against the seller/shipper, not against thecarrier.

• Payment of Interest (Ruling in favor of Keng Hua)o The case before us involves an obligation not arising from a loan or

forbearance of money; thus, the applicable interest rate is 6% perannum. Since the bill of lading did not specify the amount ofdemurrage, and the sum claimed by private respondent increased asthe days went by, the total amount demanded cannot be deemed tohave been established with reasonable certainty until the trial courtrendered its judgment. Consequently, the legal interest rate is sixpercent, to be computed from September 28, 1990, the date of thetrial courts decision.


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