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Baliwag Transit Incs (BTI) vs CA & Martinez

G.R. No. L-57493


January 7, 1987
Facts:
Martinez, claiming to be an employee of two bus lines operating under different grants of
franchise but were issued only one ID Number: Baliwag Transit owned and operated by the
late Tuazon and Baliwag Transit Inc (BTI) owned by de Tengco, (Martinez) filed a petition
with the Social Security Commission to compel BTI to remit his premium contributions to SSS.
BTI denied ever employing Martinez, and alleges that he was in fact employed by Tuason who
operated a separate and distinct bus line from BTI. The Social Security Commission granted
Martinezs petition. On appeal, the CA reversed the decision of the commission, finding that
Tuason was operating under the kabit system; that while Tuason was the owner and operator, his
buses were not registered with the Public Service Commission in his own name; and thus
ordered BTI to remit Martinez premiums to SSS.
Issue: WON the issuance by SSS of one ID Number to the two bus lines necessarily indicates
that one of them is operating under the kabit system.
Held: No.
The Kabit System has been defined by the Supreme Court as an arrangement whereby a
person who has been granted a certificate of convenience allows another person who owns motor
vehicles to operate under such franchise for a fee.
The determining factor, therefore, is the possession of a franchise to operate which negates the
existence of the Kabit System and not the issuance of one SSS ID Number for both bus lines
from which the existence of said system was inferred.
Thus, it is evident that both bus lines operated under their own franchises but opted to retain the
firm name Baliwag Transit with slight modification, by the inclusion of the word Inc. in the
case of herein petitioner, obviously to take advantage of the goodwill such firm name enjoys
with the riding public. Conversely, the conclusion of the Court of Appeals that the late Pascual
Tuazon, during the time material to this case operated his buses under the Kabit System on the
ground that while he was actually the owner and operator, his buses were not registered with the
Public Service Commission (now the Bureau of Land Transportation) in his own name, is not
supported by the records.

Compania Maritima vs. Insurance Co. of North America


(GR L-18965, 30 October 1964)
Facts: Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from
the formers Sasa private pier at Davao City to Manila and for their subsequent transshipment to Boston,
Massachusetts, USA on board the S.S. Steel Navigator. This oral contract was later on confirmed by a
formal and written booking issued by Macleods branch office in Sasa and hand carried to Compaia
Maritimas branch office in Davao in compliance with which the latter sent to Macleods private wharf
LCT 1023 and 1025 on which the loading of the hemp was completed on 29 October 1952. These two
lighters were manned each by a patron and an assistant patron. The patron of both barges issued the
corresponding carriers receipts and that issued by the patron of Barge 1025. Thereafter, the 2 loaded
barges left Macleods wharf and proceeded to and moored at the governments marginal wharf in the
same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the
hemp was to be loaded. During the night of 29 October 1952, or at the early hours of October 30, LCT
1025 sank resulting in the damage or loss of 1,162 bales of hemp loaded therein. On 30 October 1952,
Macleod promptly notified the carriers main office in Manila and its branch in Davao advising it of its
liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing,
reconditioning, and redrying. During the period from November 1-15, 1952, the carriers trucks and
lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of
the original cargo of 1,162 bales weighing 2,324 piculs, which had a total of P116,835.00. After
reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of
P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleods expenses in
checking, grading, rebaling, and other fees for washing, cleaning and redrying in the amount of
P19,610.00, the total loss adds up to P60,421.02. All abaca shipments of Macleod, including the 1,162
bales loaded on the carriers LCT 1025, were insured with the Insurance Company of North America
against all losses and damages. In due time, Macleod filed a claim for the loss it suffered as above stated
with said insurance company, and after the same had been processed, the sum of P64,018.55 was paid,
which was noted down in a document which, aside from being a receipt of the amount paid, was a
subrogation agreement between Macleod and the insurance company wherein the former assigned to the
latter its rights over the insured and damaged cargo.
Having failed to recover from the carrier the sum of P60,421.021, which is the only amount supported by
receipts, the insurance company instituted the action on 28 October 1953. After trial, the court a quo
rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal
interest thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment
was affirmed by the Court of Appeals on 14 December 1960. Hence, the petition for review. The Supreme
Court affirmed the decision appealed from, with costs against Compania Maritima.
1. Contract of carriage exists
Herein, Macleod and Company contracted by telephone the services of petitioner to ship the hemp in
question from the formers private pier at Sasa, Davao City, to Manila, to be subsequently transshipped to
Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking
issued by the shippers branch office, Davao City, in virtue of which the carrier sent two of its lighters to
undertake the service. It also appears that the patrons of said lighters were employees of the carrier with
due authority to undertake the transportation and to sign the documents that may be necessary therefor so
much so that the patron of LCT 1025 signed the receipt covering the cargo of hemp loaded therein.
2. The fact that the carrier sent its lighters free of charge does not impair the contract of carriage
The fact that the carrier sent its lighters free of charge to take the hemp from Macleods wharf at Sasa
preparatory to its loading unto the ship Bowline Knot does not in any way impair the contract of carriage

already entered into between the Carrier and the shipper, for that preparatory steps is but a part and parcel
of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once
that step was taken and the hemp delivered to the carriers employees, the rights and obligations of the
parties attached thereby subjecting them to the principles and usages of the maritime law. In other words,
there is a complete contract of carriage the consummation of which has already begun: the shipper
delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter
manned by its authorized employees, under which Macleod became entitled to the privilege secured to
him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon
completion of the voyage.
3. When contract of carriage begins
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and
deliver, and if actually no goods are received there can be no contract. The liability and responsibility of
the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by,
the carrier or an authorized agent and delivery to a lighter in charge of a vessel for shipment on the vessel,
where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight,
the liability commencing at the time of delivery to the lighter and, similarly, where there is a contract to
carry goods from one port to another, and they cannot be loaded directly on the vessel, and lighters are
sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of
lading is applicable to the goods as soon as they are placed on the lighters.
4. Test whether relation of shipper and carrier had been established
The test as to whether the relation of shipper and carrier had been established is, had the control and
possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever
the control and possession of goods passes to the carrier and nothing remains to be done by the shipper,
then it can be said with certainty that the relation of shipper and carrier has been established.
5. Contract of affreightment commenced even if the hemp was not actually loaded on S.S. Bowline
Knot
The claim that there can be no contract of affreightment because the hemp was not actually loaded on the
ship that was to take it from Davao City to Manila is of no moment, for the delivery of the hemp to the
carriers lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that
carried the hemp stated that he was receiving the cargo in behalf of S.S. Bowline Knot in good order and
condition.
6. Bill of lading not indispensable to creation of contract of carriage; Martin on Philippine
Commercial Laws
The authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of
carriage. Martin (Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13) has written that As
to issuance of a bill of lading, although Article, 350 of the Code of Commerce provides that the shipper
as well as the carrier of merchandise of goods may mutually demand that a bill of lading be made, still,
said bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that
provided that there is a meeting of the minds and from such meeting arise rights and obligations, there
should be no limitations as to form. The bill of lading is not essential to the contract, although it may
become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the
contract by the agreement of the parties themselves. The bill of lading is juridically a documentary proof
of the stipulations and conditions agreed upon by both parties. (Del Viso p. 314-315; Robles vs. Santos,
44 O.G., 2268). In other words, the Code does not demand, as necessary requisite in the contract of
transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the
shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895).

7. Bill of lading not indispensable to creation of contract of carriage; 13 C.J.S., p. 288


The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a
bill of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute
that liability commences with the issuance of the bill of lading, actual delivery and acceptance are
sufficient to bind the carrier.
8. Mishap due to lack of adequate precaution or measures, not due to force majeure
The mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precaution or measures taken by the carrier to prevent the loss. Aside from the fact that the ill-fated barge
had cracks on its bottom which admitted sea water in the same manner as rain entered thru tank
manholes, (barge therefore was not seaworthy); on the night of the nautical accident there was no storm,
flood, or other natural disaster or calamity. The report of marine surveyors (R. J. del Pan & Co., Inc.)
attributes the sinking of LCT 1025 to the non-watertight conditions of various buoyancy compartments.
9. What constitutes a storm
According to Beauforts wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and by
Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per hour in
order to be classified as a storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co.).
Herein, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing
in Davao on 29 October 1952, cannot be classified as storm.
10. Insurance company subrogated to right of shipper; Carrier cannot set up as a defense any
defect in the insurance policy as it was not privy thereto
The insurance company can recover from the carrier as assignee of the owner of the cargo for the
insurance amount it paid to the latter under the insurance contract. Since the Cargo that was damaged was
insured with the insurance company and the latter paid the amount represented by the loss, it is but fair
that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is
not one between the insured and the insurer, but one between the shipper and the carrier, because the
insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause
of action against the carrier on account of the damage of the cargo, no valid reason is seen why such
action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can
the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but
also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay
any loss that may be caused to the cargo involved therein.
11. Desistance of the carrier from producing the books of accounts of Odell Plantation implies an
admission of the correctness of the statements of accounts contained therein
The act of Compania Maritima in waiving its right to have the books of accounts of Odell Plantation
presented in Court is tantamount to an admission that the statements contained therein are correct and
their verification not necessary because its main defense was that it is not liable for the loss because there
was no contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous
event. Hence, under the carriers theory, the correctness of the account representing the loss was not so
material as would necessitate the presentation of the books in question. At any rate, even if the books of
accounts were not produced, the correctness of the accounts cannot be disputed for the same is supported
by the original documents on which the entries in said books were based which were presented by the
shipper as part of its evidence. These documents alone sufficiently establish the award of P60,421.02
made in favor of respondent.
12. Insurance company has juridical personality to file suit

With regard to the question concerning the personality of the insurance company to maintain the action,
the Court finds the same of no importance, for the attorney himself of the carrier admitted in open court
that it is a foreign corporation doing business in the Philippines with a personality to file the present
action.
Everett Steamship Corp. vs. CA (GR 122494, 8 October 1998)
Facts: Hernandez Trading Co. Inc. imported three crates of bus spare parts marked as MARCO C/No. 12,
MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd.
(Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from
Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by Everett Steamship
Corporations principal, Everett Orient Lines. The said crates were covered by Bill of Lading NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by Everett Steamship in its letter of 13 January 1992 addressed
to Hernandez Trading, which thereafter made a formal claim upon petitioner for the value of the lost
cargo amounting to Y 1,552,500.00 Yen, the amount shown in an Invoice MTM-941, dated 14 November
1991. However, Everett Steamship offered to pay Y100,000.00, the maximum amount stipulated under
Clause 18 of the covering bill of lading which limits the liability of Everett Steamship. Hernandez
Trading rejected the offer and thereafter instituted a suit for collection (Civil Case C-15532), against
Everett Shipping before the RTC of Caloocan City (Branch 126). At the pre-trial conference, both parties
manifested that they have no testimonial evidence to offer and agreed instead to file their respective
memoranda. On 16 July 1993, the trial court rendered judgment in favor of Hernandez Trading, ordering
Everett Steamship to pay: (a) Y1,552,500.00; (b)Y20,000.00 or its peso equivalent representing the actual
value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for
and as contingent attorneys fees; and (d) to pay the cost of the suit. On appeal, and on 14 June 1995, the
Court of Appeals deleted the award of attorneys fees but affirmed the trial courts findings with the
additional observation that Hernandez Trading cannot be bound by the terms and conditions of the bill of
lading because it was not privy to the contract of carriage. Everett Steamship filed a petition for review.
The Supreme Court reversed and set aside the decision of the Court of Appeals.
1. Limited liability clause sanctioned by law
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code.
2. Article 1749 NCC
Article 1749 of the Civil Code provides that A stipulation that the common carriers liability is limited to
the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value,
is binding.
3. Article 1750 NCC
Article 1750 of the Civil Code provides that A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been freely and fairly agreed upon.
4. Limited liability clause upheld by Court; Sea Land vs. IAC
Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus,
in Sea Land Service, Inc. vs. IAC, the Court ruled that It seems clear that even if said section 4 (5) of the
Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limitation clause
in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code
Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Article 1750

itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and fairness of the law itself, and this
the private respondent does not pretend to do. But over and above that consideration, the just and
reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding
accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature
and value of the shipment in the bill of lading . . .
5. Conditions for the validity of limited liability clause
Pursuant to the provisions of law, it is required that the stipulation limiting the common carriers liability
for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed
upon.
6. Contents of bill of lading (clause 18)
The bill of lading specifically provides, among others, (18) All claims for which the carrier may be liable
shall be adjusted and settled on the basis of the shippers net invoice cost plus freight and insurance
premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss. The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or
its equivalent in any other currency per package or customary freight unit (whichever is least) unless the
value of the goods higher than this amount is declared in writing by the shipper before receipt of the
goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.
7. Stipulations are reasonable and just
The stipulations are reasonable and just. In the bill of lading, the carrier made it clear that its liability
would only be up to Y100,000.00. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering
that the shipper did not declare a higher valuation, it had itself to blame for not complying with the
stipulations.
8. Contracts of adhesion not invalid per se; PAL vs. CA
As ruled in PAL, Inc. vs. Court of Appeals, the jurisprudence on the matter reveals the consistent holding
of the court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld
the binding effect thereof.
9. Contracts of adhesion; Consent by adhering
In Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. the Court held that Ong Yiu vs.
Court of Appeals, et al., instructs us that contracts of adhesion wherein one party imposes a readymade
form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres he gives his consent. . . Not even an allegation of
ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on
the owner, shipper, or consignee as the case may be.
10. Contract of adhesion; Ong Yiu vs. CA
As further explained in Ong Yiu vs. Court of Appeals, stipulations in contracts of adhesion are valid and
binding. While it may be true that the plane ticket was not signed. . ., he is nevertheless bound by the
provisions thereof. Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latters lack of knowledge or assent to the regulation. It is
what is known as a contract of adhesion, in regards which it has been said that contracts of adhesion
wherein one party imposes a ready-made form of contract on the other, as the plane ticket in the case at
bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it

entirely; if he adheres, he gives his consent. . . ., a contract limiting liability upon an agreed valuation
does not offend against the policy of the law forbidding one from contracting against his own negligence.
11. Greater vigilance required of courts when dealing with contracts of adhesion; Article 24 NCC
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the
said contracts must be carefully scrutinized in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants, such as the bill of lading. The stringent
requirement which the courts are enjoined to observe is in recognition of Article 24 of the Civil Code
which mandates that in all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or
other handicap, the courts must be vigilant for his protection.
12. Shipper extensively engaged in trading business, cannot be said to be ignorant of transactions as
to shipment
The shipper, Maruman Trading, has been extensively engaged in the trading business. It cannot be said to
be ignorant of the business transactions it entered into involving the shipment of its goods to its
customers. The shipper could not have known, or should know the stipulations in the bill of lading and
there it should have declared a higher valuation of the goods shipped. Moreover, Maruman Trading has
not been heard to complain that it has been deceived or rushed into agreeing to ship the cargo in Everett
Steamships vessel. In fact, it was not even impleaded in the case.
13. Consignee may be bound by contract of carriage although not a signatory thereto (Agency); Sea
Land vs. IAC
In Sea-Land Service, Inc. vs. IAC, the Court held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the consignee can still be bound by the contract.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover
from the carrier or shipper for loss of, or damage to goods being transported under said bill, although that
document may have been as in practice it oftentimes is-drawn up only by the consignor and the carrier
without the intervention of the consignee. . . . . . . the right of a party to recover for loss of a shipment
consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs
from either a relation of agency that may exist between him and the shipper or consignor, or his status as
stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when
he demands fulfillment of that stipulation, such as the delivery of the goods or cargo shipped.
14. Consignee may be bound by contract of carriage although not a signatory thereto and even if
stipulations in fine print; Phoenix Assurance Co. vs. Macondray In neither capacity can he assert
personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be hardly readable.
Parenthetically, it may be observed that in one comparatively recent case (Phoenix Assurance Company
vs. Macondray & Co., Inc., 64 SCRA 15) where the Court found that a similar package limitation clause
was printed in the smallest type on the back of the bill of lading, it nonetheless ruled that the consignee
was bound thereby on the strength of authority holding that such provisions on liability limitation are as
much a part of a bill of lading as though physically in it and as though placed therein by agreement of the
parties.
15. Act of consignee that effected acceptance of provisions of contract of carriage
When Hernandez Trading formally claimed reimbursement for the missing goods from Everett
Steamship and subsequently filed a case against the latter based on the very same bill of lading, the
former accepted the provisions of the contract and thereby made itself a party thereto, or at least has come
to court to enforce it. Thus, Hernandez Trading cannot now reject or disregard the carriers limited

liability stipulation in the bill of lading. In other words, Hernandez Trading is bound by the whole
stipulations in the bill of lading and must respect the same.
16. Bill of lading proves carrier unaware of contents, quantity and value of crates
The bill of lading confirms the fact that Everett Steamship that it does not know of the contents,
quantity and value of the shipment which consisted of three pre-packed crates described in Bill of
Lading NGO-53MN (Cases Spare Parts). To defeat the carriers limited liability, Clause 18 of the bill of
lading requires that the shipper should have declared in writing a higher valuation of its goods before
receipt thereof by the carrier and insert the said declaration in the bill of lading, with the extra freight
paid. These requirements in the bill of lading were never complied with by the shipper, hence, the liability
of the carrier under the limited liability clause stands. The commercial Invoice MTM-941 does not in
itself sufficiently and convincingly show that Everett Steamship has knowledge of the value of the cargo
as contended by Hernandez Trading.
Magellan Manufacturing Marketing vs. CA [GR 95529, 22 August 1991]
Facts: On 20 May 1980, Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with
Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As
payment thereof, a letter of credit was issued to MMMC by the buyer. Through its president, James Cu,
MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the
anahaw fans through Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an onboard bill of lading and that transshipment is not allowed under the letter of credit. On 30 June 1980,
MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented
to Allied Bank. The bank then credited the amount of US$23 ,220.00 covered by the letter of credit to
appellants account.
However, when MMMCs president James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no on-board bill of lading, and there was a
transshipment of goods. As a result of the refusal of the buyer to accept, upon MMMCs request, the
anahaw fans were shipped back to Manila by OOCL and FE Zuellig, for which the latter demanded from
MMMC payment of P246,043.43. MMMC abandoned the whole cargo and asked OOCL and FE Zuellig
for damages. On 20 July 1981 MMMC filed the complaint in this case praying that OOCL and FE Zuellig
be ordered to pay whatever MMMC was not able to earn from Choju Co., Ltd., amounting to P174,150.00
and other damages like attorneys fees since OOCL and FE Zuellig are to blame for the refusal of Choju
Co., Ltd. To accept the Anahaw fans. In answer thereto the latter alleged that the bill of lading clearly
shows that there will be a transshipment and that MMMC was well aware that MV (Pacific) Despatcher
was only up to Hongkong where the subject cargo will be transferred to another vessel for Japan. They
this filed a counterclaim praying that MMMC be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93. The lower court decided the case in
favor of OOCL and FE Zuellig. On appeal to the Court of Appeals, the finding of the lower court that
MMMC agreed to a transshipment of the goods was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight charges and
demurrages incurred in Japan but not for the demurrages incurred in Manila. MMMC, dissatisfied with
the decision moved for reconsideration. Denied, it filed a petition for review on certiorari. The Supreme
Court affirmed the judgment of the Court of Appeals with the modification that MMMC is likewise
absolved of any liability, thus setting aside the award of P52,102.45 with legal interest granted by the
appellate court on OOCL and FE Zuelligs counterclaim, said counterclaim being dismissed, without
pronouncement as to costs.
1. Transshipment defined
Transshipment, in maritime law, is defined as the act of taking cargo out of one ship and loading it in
another, or the transfer of goods from the vessel stipulated in the contract of affreightment to another

vessel before the place of destination named in the contract has been reached, or the transfer for further
transportation from one ship or conveyance to another. Either in its ordinary or its strictly legal
acceptation, there is transshipment whether or not the same person, firm or entity owns the vessels. In
other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or
conveyances or in the change of camera, but rather on the fact of actual physical transfer of cargo from
one vessel to another.
2. Transshipment exists in present case
There was transhipment, as there unmistakably appears on the face of the bill of lading the entry Hong
Kong in the blank space labeled Transshipment, which can only mean that transshipment actually took
place. This fact is further bolstered by the certification issued by F.E. Zuellig, Inc. dated 19 July 1980,
although it carefully used the term transfer instead of transshipment. Nonetheless, no amount of
semantic juggling can mask the fact that transshipment in truth occurred in this case.
3. A bill of lading operates both as a receipt and as a contract
A bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a contract, it names the parties, which
includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights
and obligations assumed by the parties. Being a contract, it is the law between the parties who are bound
by its terms and conditions provided that these are not contrary to law, morals, good customs, public order
and public policy. A bill of lading usually becomes effective upon its delivery to and acceptance by the
shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the
bill or not.
4. Claims of mistake militates against nature of bill of lading
The claim that there was a mistake in documentation on the part of OOCL and FE Zuellig militates
against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the
parties, as an exception to the parol evidence rule, and would therefore permit it to explain or present
evidence to vary or contradict the terms of the written agreement, that is, the bill of lading involved.
5. Receipt of bill lading without objection presumed to mean acceptance of contents as correct and
assent thereto
A shipper who receives a bill of lading without objection after an opportunity to inspect it, and
permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as
correctly stating the contract and to have assented to its terms. The acceptance of the bill without dissent
raises the presumption that all the terms therein were brought to the knowledge of the shipper and agreed
to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that he assented
to such terms. This rule applies with particular force where a shipper accepts a bill of lading with full
knowledge of its contents and acceptance under such circumstances makes it a binding contract.
6. Parol evidence rule vis--vis contracts
Under the parol evidence rule, the terms of a contract are rendered conclusive upon the parties, and
evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied
in a document, subject to well defined exceptions which do not obtain in this case. The parol evidence
rule is based on the consideration that when the parties have reduced their agreement on a particular
matter into writing, all their previous and contemporaneous agreements on the matter are merged therein.
Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not admissible to
vary, contradict or defeat the operation of a valid instrument. The mistake contemplated as an exception to
the parol evidence rule is one which is a mistake of fact mutual to the parties. Furthermore, the rules on
evidence, as amended, require that in order that parol evidence may be admitted, said mistake must be put

in issue by the pleadings, such that if not raised inceptively in the complaint or in the answer, as the case
may be, a party cannot later on be permitted to introduce parol evidence thereon.
7. Terms of contract in bill of lading clear and conclusive
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any
interpretation. The intention of the parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract
being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of
petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there
is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of
the terms of the bill of lading and that it intended to be bound thereby.
8. Transshipment of freight without legal excuse is a violation of contract; No cause to suppose
shippers to be unaware of custom
It is a well-known commercial usage that transshipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made, is a violation of the contract and an
infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a
cause otherwise excepted. It is highly improbable to suppose that OOCL and FE Zuellig, having been
engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have
undertaken such transshipment without petitioners consent and unnecessarily expose themselves to a
possible liability. Verily, they could only have undertaken transshipment with the shippers permission, as
evidenced by the signature of James Cu.
9. Knowledge of difference between bill of lading and on board bill of lading expected from those
engaged in export industry for long periods
The refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was also made on the
ground that the bill of lading that was issued was not an on board bill of lading, in clear violation of the
terms of the letter of credit issued in favor of MMMC. MMMC knew from the onset that its buyer, Choju
Co., Ltd., particularly required that there be an on board bill of lading, obviously due to the guaranty
afforded by such a bill of lading over any other kind of bill of lading. The buyer could not have insisted
on such a stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the
cargo that having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the
distinction between an or board and a received for shipment bill of lading. It is only to be expected
that those long engaged in the export industry should be familiar with business usages and customs.
10. On board bill of lading defined
An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by which the
goods are to be shipped. Received for shipment bills of lading are issued whenever conditions are not
normal and there is insufficiency of shipping space. An on board bill of lading is issued when the goods
have been actually placed aboard the ship with every reasonable expectation that the shipment is as good
as on its way. It is, therefore, understandable that a party to a maritime contract would require an on board
bill of lading because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the
vessel which is to carry the goods.
11. FE Zuelligs certification cannot qualify bill of lading into an ob board bill of lading The
certification of F.E. Zuellig, Inc. cannot qualify the bill of lading, as originally issued, into an on board
bill of lading as required by the terms of the letter of credit issued in favor of MMMC. For one, the
certification was issued only on 19 July 1980, way beyond the expiry date of 30 June 1980 specified in
the letter of credit for the presentation of an on board bill of lading. Thus, even assuming that by a liberal

treatment of the certification it could have the effect of converting the received for shipment bill of lading
into an on board of bill of lading, such an effect may be achieved only as of the date of its issuance, that
is, on 19 July 1980 and onwards. The fact remains, though, that on the crucial date of 30 June 1980 no on
board bill of ading was presented by petitioner in compliance with the terms of the letter of credit and this
default consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to
operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would
indubitably bestretching the concept of substantial compliance too far.
12. Claim of contract of adhesion cannot be upheld as bill of lading is clear
MMMC cannot escape liability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against OOCL
and FE Zuellig as allegedly being the parties who gave rise thereto. The bill of lading is clear on its face.
There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and conditions are
plainly worded and commonly understood by those in the business.
13. Certain contracts of adhesion, such as bill of lading, not prohibited
It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the
earlier case of Ong Yiu us. Court of Appeals, et al. and reiterated in Servando, et al. vs. Philippine Steam
Navigation Co., plane tickets as well as bills of lading are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
14. Violation of letter of credit would defeat right to collect proceeds thereof
Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the
proceeds thereof was, therefore, entirely of MMMCs making for which it must bear the consequences.
Whether there was a violation of the terms and conditions of the letter of credit, or whether such violation
was the cause or motive for the rejection by MMMCs Japanese buyer should not affect OOCL and FE
Zuellig since they were not privies to the terms and conditions of MMMCs letter of credit and cannot
therefore be held liable for any violation thereof by any of the parties thereto.
15. Demurrage defined
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel
may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term in its broader sense, damages in the
nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo
with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a
party to the shipping contract. Notice of arrival of vessels or conveyances, or of their placement for
purposes of unloading is often a condition precedent to the right to collect demurrage charges.
16. Abandonment of goods releases MMMC from liability from demurrage charges
Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for its benefit or
under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping services.
By virtue of the exercise of its option to abandon the goods so as to allow OOCL and FE Zuellig to sell
the same at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage
charges, MMMC was released from liability for the sum of P52,102.43 since such amount represents the
shipping and demurrage charges from which it is considered to have been released due to the
abandonment of goods.
17. OOCL offered MMMC option, cannot renege of offer unilaterally

OOCL and FE Zuellig unequivocally offered MMMC, on 20 March 1981, the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so that
the former could sell them at public auction and thereafter apply the proceeds in payment of the shipping
and other charges. Responding thereto, in a letter dated 3 April 1981, MMMC seasonably communicated
its decision to abandon to the goods in favor of the former with the specific instruction that any excess of
the proceeds over the legal costs and charges be turned over to MMMC. Having given such option,
especially since it was accepted by MMMC, OOCL and FE Zuellig are estopped from reneging thereon.
To allow either of them to unilaterally back out on the offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of
mutuality of contracts.
18. Grounds for abandonment of goods
In overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground
for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further,
MMMC can properly abandon the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it as a means of settling its
liability for the cost and expenses of reshipment. Said choice having been duly communicated, the same
is binding upon the parties on legal and equitable considerations of estoppel.
Keng Hua Paper Products vs. CA (GR 116863, 12 February 1998)
Facts: Sea-Land Service, a shipping company, is a foreign corporation licensed to do business in the
Philippines. On 29 June 1982, SeaLand received at its Hong Kong terminal a sealed container, Container
SEAU 67523, containing 76 bales of unsorted waste paper for shipment to Keng Hua Paper Products,
Co. in Manila. A bill of lading to cover the shipment was issued by Sea-Land. On 9 July 1982, the
shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to
Keng Hua but the latter failed to discharge the shipment from the container during the free time period
or grace period. The said shipment remained inside the Sea-Lands container from the moment the free
time period expired on 29 July 1982 until the time when the shipment was unloaded from the container on
22 November 1983, or a total of 481 days. During the 481-day period, demurrage charges accrued. Within
the same period, letters demanding payment were sent by Sea-Land to Keng Hua who, however, refused
to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on Keng
Hua but the obligation remained unpaid. Sea Land thereafter commenced the civil action for collection
and damages. The RTC found Keng Hua liable for demurrage, attorneys fees and expenses of litigation.
Keng Hua appealed to the Court of Appeals, which denied the appeal and affirmed the lower courts
decision in toto. In a subsequent resolution, it also denied Keng Huas motion for reconsideration. Hence,
the petition for review. The Supreme Court affirmed the assailed Decision with the modification that the
legal interest of 6% per annum shall be computed from 28 September 1990 until its full payment before
finality of judgment. The rate
of interest shall be adjusted to 12% per annum, computed from the time said judgment became final and
executory until full satisfaction. The award of attorneys fees is deleted.
1. Nature of bill of lading
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, the shipper, the carrier, and the consignee undertake specific responsibilities
and assume stipulated obligations. A bill of lading delivered and accepted constitutes the contract of
carriage even though not signed, because the (a)cceptance of a paper containing the terms of a proposed
contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which
the acceptor has actual or constructive notice. In a nutshell, the acceptance of a bill of lading by the
shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same
was a perfected and binding contract.

2. Shipper and consignee were liable for payment of demurrer charges; Section 17 of the bill of
lading
Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of
demurrage charges for the failure to discharge the containerized shipment beyond the grace period
allowed by tariff rules. Section 17 of the bill of lading provided Cooperage Fines. The shipper and
consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the
carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling,
repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in
protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or
not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention,
demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the
ship in connection with the goods or by reason of the goods being or having been on board, or because of
shippers failure to procure consular or other proper permits, certificates or any papers that may be
required at any port or place or shippers failure to supply information or otherwise to comply with all
laws, regulations and requirements of law in connection with the goods of from any other act or omission
of the shipper or consignee. Keng Huas prolonged failure to receive and discharge the cargo from the
Sea-Lands vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for
demurrage to the former.
3. Keng Huas letter proved refusal to pick up cargo and not rejection of bill of lading; Implied
acceptance
Keng Hua received the bill of lading immediately after the arrival of the shipment on 8 July 1982.
Having been afforded an opportunity to examine the said document, it did not immediately object to or
dissent from any term or stipulation therein. It was only six months later, on 24 January 1983, that it sent
a letter to private respondent saying that it could not accept the shipment. Its inaction for such a long
period conveys the clear inference that it accepted the terms and conditions of the bill of lading.
Moreover, said letter spoke only of petitioners inability to use the delivery permit, i.e. to pick up the
cargo, due to the shippers failure to comply with the terms and conditions of the letter of credit, for
which reason the bill of lading and other shipping documents were returned by the banks to the shipper.
The letter merely proved its refusal to pick up the cargo, not its rejection of the bill of lading.
4. Apprehension of violating laws cannot defeat contractual obligation and liability
Keng Huas attempt to evade its obligation to receive the shipment on the pretext that this may cause it to
violate customs, tariff and central bank laws must fail. Mere apprehension of violating said laws, without
a clear demonstration that taking delivery of the shipment has become legally impossible, cannot defeat
the petitioners contractual obligation and liability under the bill of lading.
5. Issue raised for first time on appeal cannot be entertained
An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. Herein, the
issue of whether or not Keng Hua accepted the bill of lading was raised for the first time only in its
memorandum before the Supreme Court.
6. Nature of demurrage
Demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a
matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a
particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and
ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted
than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the
deliberate consideration of all the circumstances attending the usual earnings and expenditures in

common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of
damages in all cases of meredetention, for that allowance has reference to the ships expenses, wear and
tear, and common employment.
7. Amount of Demurrage Charges supported by extant evidence
The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was
affirmed by the Court of Appeals and, thus, binding on the Supreme Court. Besides, such factual finding
is supported by the extant evidence. The apparent discrepancy was a result of the variance of the dates
when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the
demurrage. Thus, while in his letter dated 24 April 1983, Sea-Lands counsel demanded payment of only
P37,800, the additional demurrage incurred by Keng Hua due to its continued refusal to receive delivery
of the cargo ballooned to P67,340 by 22 November 1983.
8. Three contracts in a letter of credit
In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the
buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper
in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. Few
things are more clearly settled in law than that the three contracts which make up the letter of credit
arrangement are to be maintained in a state of perpetual separation. A transaction involving the purchase
of goods may also require, apart from a letter of credit, a contract of transportation specially when the
seller and the buyer are not in the same locale or country, and the goods purchased have to be transported
to the latter.
9. Contract of carriage in bill of lading to be treated independently of contract of sale and the
contract for the issuance of credit
The contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the issuance of
a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the
goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of
lading. As the bank cannot be expected to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of the
shipper in the bill of lading and to verify their accuracy vis-a-vis the commercial invoice and the letter of
credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the
bill of lading cannot negate Keng Huas obligation to private respondent arising from the contract of
transportation.
10. Remedy of alleged overshipment lies against the shipper and not against the carrier
The contract of carriage was under the arrangement known as Shippers Load And Count, and the
shipper was solely responsible for the loading of the container while the carrier was oblivious to the
contents of the shipment. Keng Huas remedy in case of overshipment lies against the seller/shipper, not
against the carrier.
11. Computation of legal interest
a. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is

made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
b. When the judgment of the court awarding a sum of money becomes final and executory, the rate oflegal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% perannum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
12. Obligation one not arising from loan or forbearance of money; Legal interest in the present case
The case involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article
2209 of the Civil Code, the applicable interest rate is 6% per annum. Since the bill of lading did not
specify the amount of demurrage, and the sum claimed by Sea-Land increased as the days went by, the
total amount demanded cannot be deemed to have been established with reasonable certainty until the
trial court rendered its judgment. Indeed, unliquidated damages or claims, it is said, are those which are
not or cannot be known until definitely ascertained, assessed and determined by the courts after
presentation of proof. Consequently, the legal interest rate is 6%, to be computed from 28 September
1990, the date of the trial courts decision. And in accordance with the cases of PNB and Eastern
Shipping, the rate of 12% per annum shall be charged on the total then outstanding, from the time the
judgment becomes final and executory until its satisfaction.
13. Attorneys fees denied due to lack of justification
The matter of attorneys fees was taken up only in the dispositive portion of the trial courts decision. This
falls short of the settled requirement that the text of the decision should state the reason for the award of
attorneys fees, for without such justification, its award would be a conclusion without a premise, its
basis being improperly left to speculation and conjecture.
Maersk Line vs. CA (GR 94761, 17 May 1993)
Facts: Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines
through its general agent Compania General de Tabacos de Filipinas. Efren Castillo, on the other hand, is
the proprietor of Ethegal Laboratories, a firm engaged in the manufacture of pharmaceutical products. On
12 November 1976, Castillo ordered from Eli Lilly, Inc. of Puerto Rico through the latters agent in the
Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical
products. The capsules were placed in 6 drums of 100,000 capsules each valued at US $1,668.71.
Through a Memorandum of Shipment, the shipper Eli Lilly, Inc. of Puerto Rico advised Castillo as
consignee that the 600,000 empty gelatin capsules in 6 drums of 100,000 capsules each, were already
shipped on board MV Anders Maerskline under Voyage 7703 for shipment to the Philippines via
Oakland, California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be 3 April
1977. For reasons unknown, said cargo of capsules were misshipped and diverted to Richmond, Virginia,
USA and then transported back to Oakland, California. The goods finally arrived in the Philippines on 10
June 1977 or after 2 months from the date specified in the memorandum. As a consequence, Castillo as
consignee refused to take delivery of the goods on account of its failure to arrive on time. Castillo,
alleging gross negligence and undue delay in the delivery of the goods, filed an action before the trial
court for rescission of contract with damages against Maersk Line and Eli Lilly, Inc. as defendants. Later,
Castillo moved for the dismissal of the complaint against Eli Lilly on the ground that the evidence on
record shows that the delay in the delivery of the shipment was attributable solely to Maersk Line. Acting
on said motion, the trial court dismissed the complaint against Eli Lilly; and correspondingly, the latter
withdrew its cross-claim against Maersk Line in a joint motion dated 3 December 1979. After trial, the
trial court rendered judgment dated 8 January 1982 in favor of Castillo, ordered Maersk Line, through its
agent Compania General de Tabacos de Filipinas, to pay Castillo the amount of P369,000.00 as unrealized
profit; P200,000.00 as moral damages; P10,000.00 as exemplary damages; P11,680.97 as cost of credit
line; and P50,000.00, as attorneys fees and to pay the costs of suit. The court also held that sums due to

Castillo will bear the legal rate of interest until they are fully paid from the time the case was filed. On
appeal, the appellate court rendered its decision dated 1 August 1990 affirming with modifications the
lower courts decision; ordering Maersk Line to pay Castillo (1) compensatory damages of P11,680.97 at
6% annual interest from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3)
exemplary damages of P20,000,00, (3) attorneys fees, per appearance fees, and litigation expenses of
P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the costs of suit. The
Supreme Court affirmed the appealed decision, with the modification regarding the deletion of item 4 of
the appellate courts decision.
1. Dismissal of Eli Lilly cross-claim against Maersk Line did not dismiss original complaint against
it
The complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and Maersk Line as carrier.
Maersk Line, being an original party defendant upon whom the delayed shipment is imputed, cannot
claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit. Hence, the appellate
court erred in declaring that the trial court based Maersk Lines liability on the cross-claim of Eli Lilly. As
borne out by the record, the trial court anchored its decision on Maersk Lines delay or negligence to
deliver the 6 drums of gelatin capsules within a reasonable time on the basis of which Maersk Line was
held liable for damages under Article 1170 of the New Civil Code which provides that those who in the
performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
2. Content of bills of lading
The bill of lading covering the subject shipment among others, reads (6) GENERAL (1) The
Carrier does not undertake that the Goods shall arrive at the port of discharge or the place of delivery at
any particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier
shall in no circumstances be liable for any direct, indirect or consequential loss or damage caused by
delay. If the Carrier should nevertheless be held legally liable for any such direct or indirect or
consequential loss or damage caused by delay, such liability shall in no event exceed the freight paid for
the transport covered by this Bill of Lading. This provision in the bill of lading has the effect of
practically leaving the date of arrival of the subject shipment on the sole determination and will of the
carrier.
3. Contract of adhesion generally void, but not entirely prohibited
The provision at the back of the bill of lading, in fine print, is a contract of adhesion. Generally, contracts
of adhesion are considered void since almost all the provisions of these types of contracts are prepared
and drafted only by one party, usually the carrier. The only participation left of the other party in such a
contract is the affixing of his signature thereto, hence the term adhesion. Nonetheless, settled is the rule
that bills of lading are contracts not entirely prohibited. One who adheres to the contract is in reality free
to reject it in its entirety; if he adheres, he gives his consent.
4. Nature of bill of lading; Magellan Manufacturing Marketing Corp.v. CA
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a contract. It
is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As
a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates
or charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the law
between the parties who are bound by its terms and conditions provided that these are not contrary to law,
morals, good customs, public order and public policy. A bill of lading usually becomes effective upon its
delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the
absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by
his acceptance whether he reads the bill or not.

5. Delivery of shipment or cargo must be made within a reasonable time


While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right to prompt delivery, unless such common carriers previously assume
the obligation to deliver at a given date or time, delivery of shipment or cargo should at least be made
within a reasonable time.
6. Carrier generally not an insurer of delay in transportation of goods; Saludo vs. CA
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) the Court held that the oft-repeated rule
regarding a carriers liability for delay is that in the absence of a special contract, a carrier is not an
insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the
law implies a contract that they shall be delivered at destination within a reasonable time, in the absence,
of any agreement as to the time of delivery. But where a carrier has made an express contract to transport
and deliver property within a specified time, it is bound to fulfill its contract and is liable for any delay, no
matter from what cause it may have arisen. This result logically follows from the well-settled rule that
where the law creates a duty or charge, and the party is disabled from performing it without any default in
himself, and has no remedy over, then the law will excuse him, but where the party by his own contract
creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay
by inevitable necessity because he might have provided against it by contract. Whether or not there has
been such an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of contracts.
7. Awareness of shipments arrival makes execution of another contract to indicate date of arrival of
shipment a superfluity
An examination of the subject bill of lading shows that the subject shipment was estimated to arrive in
Manila on 3 April 1977. While there was no special contract entered into by the parties indicating the date
of arrival of the subject shipment, Maersk Line nevertheless, was very well aware of the specific date
when the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises
no need to execute another contract for the purpose as it would be a mere superfluity.
8. Delay in present case beyond reasonableness
Herein, a delay in the delivery of the goods spanning a period of 2 months and 7 days falls way beyond
the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject
shipment was delivered to, and left in, the possession and custody of Maersk Line for transport to Manila
via Oakland, California; but through Maersk Lines negligence was misshipped to Richmond, Virginia.
Maersk Lines insistence that it cannot be held liable for the delay finds no merit.
9. Award of actual and compensatory damages proper
It is settled that actual and compensatory damages require substantial proof. Herein, Castillo was able to
sufficiently prove through an invoice, certification from the issuer of the letter of credit and the
Memorandum of Shipment, the amount he paid as costs of the credit line for the subject goods. Therefore,
appellate court acted correctly in affirming the award of P11,680.97 as costs of said credit line.
10. Award of moral damages proper
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral
damages may be awarded in breaches of contract where the defendant acted fraudulently or in bad faith.
Herein, Maersk Line never even bothered to explain the cause for the delay, i.e. more than 2 months, in
the delivery of the subject shipment. Under the circumstances of the case, Maersk Line is liable for breach
of contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral
damages is therefore proper in the case.
11. Award of exemplary damages proper

Exemplary damages may be awarded to Castillo. In contracts, exemplary damages may be awarded if the
defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There was gross
negligence on the part of the petitioner mishipping the subject goods destined for Manila but was
inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence constitutes wanton
misconduct, hence, exemplary damages may be awarded to the aggrieved party.
12. Award of attorneys fees proper; Award of 30% of total damages unconscionable
Although attorneys fees are generally not recoverable, a party can be held liable for such if exemplary
damages are awarded (Article 2208, New Civil Code). Herein, Castillo is entitled to reasonable attorneys
fees since Maersk Line acted with gross negligence amounting to bad faith. However, the award of 30%
of the total damages awarded, except those pertaining to attorneys fees and litigation expenses in favor of
Castillo, are unconscionable. The same should then be deleted.
Saludo vs. CA (GR 95536, 23 March 1992)
Facts: After the death of Crispina Galdo Saludo, mother of Aniceto G. Saludo Jr., Maria Salvacion
Saludo, Leopoldo G. Saludo, and Saturnino G. Saludo, in Chicago, Illinois, on 23 October 1976,
Pomierski and Son Funeral Home of Chicago, made the necessary preparations and arrangements for the
shipment of the remains from Chicago to the Philippines. The funeral home had the remains embalmed
and secured a permit for the disposition of dead human body on 25 October 1976. Philippine Vice Consul
in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on 26 October 1976 at the Pomierski & Son
Funeral Home, sealed the shipping case containing a hermetically sealed casket that is airtight and
waterproof wherein was contained the remains of Crispina Galdo Saludo. On the same date, 26 October
1976, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport
(Chicago) which made the necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national
service used by undertakers throughout the nation (U.S.A.), they furnish the air pouch which the casket is
enclosed in, and they see that the remains are taken to the proper air freight terminal. C.M.A.S. booked
the shipment with PAL thru the carriers agent Air Care International, with Pomierski F.H. as the shipper
and Mario (Maria) Saludo as the consignee. PAL Airway Bill 079-01180454 Ordinary was issued wherein
the requested routing was from Chicago to San Francisco on board TWA Flight 131 of 27 October 1976,
and from San Francisco to Manila on board PAL Flight 107 of the same date, and from Manila to Cebu on
board PAL Flight 149 of 29 October 1976. In the meantime, Maria Salvacion Saludo and Saturnino
Saludo, thru a travel agent, were booked with United Airlines from Chicago to California, and with PAL
from California to Manila. She then went to the funeral director of Pomierski Funeral Home who had her
mothers remains and she told the director that they were booked with United Airlines. But the director
told her that the remains were booked with TWA flight to California. This upset her, and she and her
brother had to change reservations from UA to the TWA flight after she confirmed by phone that her
mothers remains would be on that TWA flight. They went to the airport and watched from the look-out
area. She saw no body being brought. So, she went to the TWA counter again, and she was told there was
no body on that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug,
that he would look into the matter and inform her about it on the plane or have it radioed to her. But no
confirmation from her cousin reached her that her mother was on the West Coast. Upon arrival at San
Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about her mothers remains.
She was told they did not know anything about it. She then called Pomierski that her mothers remains
were not at the West Coast terminal, and Pomierski immediately called C.M.A.S., which in a matter of 10
minutes informed him that the remains were on a place to Mexico City, that there were two bodies at the
terminal, and somehow they were switched; he relayed this information to Miss Saludo in California;
later C.M.A.S. called and told him they were sending the remains back to California via Texas. The
following day, 28 October 1976, the shipment or remains of Crispina Saludo arrived in San Francisco
from Mexico on board American Airlines. This shipment was transferred to or received by PAL at 7:45
p.m. This casket bearing the remains of Crispina Saludo, which was mistakenly sent to Mexico and was

opened (there), was resealed by Crispin F. Padagas for shipment to the Philippines. The shipment was
immediately loaded on PAL flight for Manila that same evening and arrived in Manila on 30 October
1976, a day after its expected arrival on 29 October 1976. In a letter dated 15 December 1976, the counsel
of the Saludos informed Trans World Airlines (TWA) of the misshipment and eventual delay in the
delivery of the cargo containing the remains of the late Crispina Saludo, and of the discourtesy of its
employees to Maria Salvacion Saludo and Saturnino Saludo. In a separate letter on 10 June 1977
addressed to Philippine Airlines (PAL), the Saludos stated that they were holding PAL liable for said
delay in delivery and would commence judicial action should no favorable explanation be given. Both
TWA and PAL denied liability. A damage suit was filed by the Saludos before the then Court of First
Instance, Branch III, Southern Leyte, praying for the award of actual damages of P50,000.00, moral
damages of P1,000,000.00, exemplary damages, attorneys fees and costs of suit. The trial court absolved
the two airline companies of liability. The Court of Appeals affirmed the decision of the lower court in
toto, and in a subsequent resolution, denied the Saludos motion for reconsideration for lack of merit.
Hence, the petition for review on certiorari. The Supreme Court affirmed the appealed decision, with the
modification that an award or P40,000.00 as and by way of nominal damages is granted in favor of the
Saludos to be paid by TWA.
1. Factual findings of the Court of Appeals binding upon the Supreme Court; Exceptions
Only questions of law may be raised in a petition filed in the Supreme Court to review on certiorari the
decision of the Court of Appeals. This being so, the factual findings of the Court of Appeals are final and
conclusive and cannot be reviewed by the Supreme Court. The rule, however, admits of established
exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely
on speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or
impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e)
when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee;
(g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (h) where the findings of fact of
the Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of
specific evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or
where the findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.
2. Distinction between question of law and question of fact; Test to determine
A question of law is one which involves a doubt or controversy on what the law is on a certain state of
facts; and, a question of fact, contrarily, is one in which there is a doubt or difference as to the truth or
falsehood of the alleged facts. One test, it has been held, is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case it is a question of law, otherwise
it will be a question of fact.
3. Issues warrant second look at facts
Since it is the soundness of the inferences or conclusions that may be drawn from the factual issues which
are being assayed, the Court finds that the issues raised in the present petition indeed warrant a second
look if this litigation is to come to a reasonable denouement. A discussion seriatim of said issues will
further the conclusions of the Court of Appeals subject of the review indeed find evidentiary and legal
support.
4. Nature of bill of lading
A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and
deliver them at a specified place to a person named or on his order. The two-fold character of a bill of
lading is all too familiar: it is a receipt as to the quantity and description of the goods shipped and a

contract to transport the goods to the consignee or other person therein designated, on the terms specified
in such instrument.
5. Designation of bill of lading immaterial
The designation is immaterial. Such instrument may be called a shipping receipt, forwarders receipt and
receipt for transportation. Freight tickets for bus companies as well as receipts for cargo transported by all
forms of transportation, whether by sea or land, fall within the definition. Under the Tariff and Customs
Code, a bill of lading includes airway bills of lading.
6. When bill of lading issued; Inverse order not prohibited by law
Since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the carrier
normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the
bill are regarded in commercial practice as simultaneous acts. However, except as may be prohibited by
law, there is nothing to prevent an inverse order of events, that is, the execution of the bill, of lading even
prior to actual possession and control by the carrier of the cargo to be transported. There is no law which
requires that the delivery of the goods for carriage and the issuance of the covering bill of lading must
coincide in point of time or, for that matter, that the former should precede the latter.
7. Receipt a prima facie evidence of delivery to carrier
Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation but,
when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill
of lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the
goods described therein for shipment. Except as modified by statute, it is a general rule as to the parties to
a contract of carriage of goods in connection with which a bill of lading is issued reciting that goods have
been received for transportation, that the recital being in essence a receipt alone, is not conclusive, but
may be explained, varied or contradicted by parol or other evidence.
8. Bill of lading vis--vis estoppel
An airway bill estops the carrier from denying receipt of goods of the quantity and quality described in
the bill. However, a bill of lading may contain constituent elements of estoppel and thus become
something more than a contract between the shipper and the carrier. However, as between the shipper and
the carrier, when no goods have been delivered for shipment no recitals in the bill can estop the carrier
from showing the true facts. Between the consignor of goods and a receiving carrier, recitals in a bill of
lading as to the goods shipped raise only a rebuttable presumption that such goods were delivered for
shipment. As between the consignor and a receiving carrier, the fact must outweigh the recital.
9. Explanation overcoming presumption that remains were delivered and received by TWA and
PAL
Herein, Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on 26
October 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically
sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Galdo Saludo.
On the same date, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the
airport (Chicago) which made the necessary arrangements such as flights, transfers, etc; C.M.A.S. is a
national service used by undertakers throughout the nation (U.S.A.), they furnish the air pouch which the
casket is enclosed in, and they see that the remains are taken to the proper air freight terminal. C.M.A.S.
booked the shipment with PAL thru the carriers agent Air Care International, with Pomierski F.H. as the
shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill 079- 01180454 Ordinary was issued
wherein the requested routing was from Chicago to San Francisco on board TWA Flight 131 of 27
October 1976, and from San Francisco to Manila on board PAL Flight 107 of the same date, and from
Manila to Cebu on board PAL Flight 149 of 29 October 1976.

10. PALs explanation


On 26 October 1976 the cargo containing the casketed remains of Crispina Saludo was booked for PAL
Flight PR-107 leaving San Francisco for Manila on 27 October 1976. PAL Airway Bill 079-01180454
was issued, not as evidence of receipt of delivery of the Cargo on 26 October 1976, but merely as a
confirmation of the booking thus made for the San Francisco-Manila flight scheduled on 27 October
1976. Actually, it was not until 28 October 1976 that PAL received physical delivery of the body at San
Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the American Airline Freight
System and signed for by Virgilio Rosales at 7:45 p.m. on said date.
11. Article 1736 NCC; Period where extraordinary responsibility observed by common carrier;
When delivery made
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility remains in
full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or
owner exercises the right of stoppage in transitu, and terminates only after the lapse of a reasonable time
for the acceptance of the goods by the consignee or such other person entitled to receive them. And, there
is delivery to the carrier when the goods are ready for and have been placed in the exclusive possession,
custody and control of the carrier for the purpose of their immediate transportation and the carrier has
accepted them. Where such a delivery has thus been accepted by the carrier, the liability of the common
carrier commences eo instanti.
12. PAL and TWA not liable for switching of caskets prior to their receipt of agreed cargo
While the extraordinary diligence statutorily required to be observed by the carrier instantaneously
commences upon delivery of the goods thereto, for such duty to commence there must in fact have been
delivery of the cargo subject of the contract of carriage; only when such fact of delivery has been
unequivocally established can the liability for loss, destruction or deterioration of goods in the custody of
the carrier, absent the excepting causes under Article 1734, attach and the presumption of fault of the
carrier under Article 1735 be invoked. Herein, the body intended to be shipped as agreed upon was really
placed in the possession and control of PAL on 28 October 1976 and it was from that date that TWA and
PAL became responsible for the agreed cargo under their undertakings in PAL Airway Bill 079-01180454.
Consequently, for the switching of caskets prior thereto which was not caused by them, and subsequent
events caused thereby, TWA and PAL cannot be held liable.
13. TWA without authority, even prohibited, to verify contents of casket
When the cargo was received from C.M.A.S. at the Chicago airport terminal for shipment, which was
supposed to contain the remains of Crispina Saludo, Air Care International and/or TWA, had no way of
determining its actual contents, since the casket was hermetically sealed by the Philippine Vice-Consul in
Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International and/or TWA had to rely
on the information furnished by the shipper regarding the cargos content. Neither could Air Care
International and/or TWA open the casket for further verification, since they were not only without
authority to do so, but even prohibited.
14. Pomierski & Son delivered casket to CMAS, and not to TWA
It was not to TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of
Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA
would have to rely on the representations of C.M.A.S. The casket was hermetically sealed and also sealed
by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have opened such
sealed casket just for the purpose of ascertaining whose body was inside and to make sure that the
remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to accept
whatever information was being furnished by the shipper or by the one presenting the casket for

shipment.And so as a matter of fact, TWA carried to San Francisco and transferred to defendant PAL a
shipment covered by or under PAL Airway Bill 079-ORD-01180454, the airway bill for the shipment of
the casketed remains of Crispina Saludo. Only, it turned out later, while the casket was already with PAL,
that what was inside the casket was not the body of Crispina Saludo so much so that it had to be
withdrawn by C.M.A.S. from PAL. The body of Crispina Saludo had been shipped to Mexico. The casket
containing the remains of Crispina Saludo was transshipped from Mexico and arrived in San Francisco
the following day on board American Airlines. It was immediately loaded by PAL on its flight for Manila.
The foregoing points at C.M.A.S. as the one responsible for the switching or mix-up of the two bodies at
the Chicago Airport terminal, and started a chain reaction of the misshipment of the body of Crispina
Saludo and a one-day delay in the delivery thereof to its destination.
15. Right of carrier to require good faith on part of persons delivering goods; Right of carrier to
know contents when it has reasonable ground to suspect goods are dangerous or of illegal character
It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, and enter into contracts with it, and inasmuch as the freight may depend on the value of the article
to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of
the carrier to make inquiry as to the general nature of the articles shipped and of their value before it
consents to carry them; and its failure to do so cannot defeat the shippers right to recovery of the full
value of the package if lost, in the absence of showing of fraud or deceit on the part of the shipper. In the
absence of more definite information, the carrier has the right to accept shippers marks as to the contents
of the package offered for transportation and is not bound to inquire particularly about them in order to
take advantage of a false classification and where a shipper expressly represents the contents of a package
to be of a designated character, it is not the duty of the carrier to ask for a repetition of the statement nor
disbelieve it and open the box and see for itself. However, where a common carrier has reasonable ground
to suspect that the offered goods are of a dangerous or illegal character, the carrier has the right to know
the character of such goods and to insist on an inspection, if reasonable and practical under the
circumstances, as a condition of receiving and transporting such goods.
16. Common carrier entitled to fair representation of nature and value of goods to be carried; Right
of carrier to conduct an inspection
A common carrier is entitled to fair representation of the nature and value of the goods to be carried, with
the concomitant right to rely thereon, and further noting at this juncture that a carrier has no obligation to
inquire into the correctness or sufficiency of such information. The consequent duty to conduct an
inspection thereof arises in the event that there should be reason to doubt the veracity of such
representations. Therefore, to be subjected to unusual search, other than the routinary inspection
procedure customarily undertaken, there must exist proof that would justify cause for apprehension that
the baggage is dangerous as to warrant exhaustive inspection, or even refusal to accept carriage of the
same; and it is the failure of the carrier to act accordingly in the face of such proof that constitutes the
basis of the common carriers liability.
17. CMAS classified as forwarder, is an agent of the shipper and not of the carrier
While the actual participation of CMAS has been sufficiently and correctly established, to hold that it
acted as agent for TWA and PAL would be both an inaccurate appraisal and an unwarranted categorization
of the legal position it held in the entire transaction. It bears repeating that CMAS was hired to handle all
the necessary shipping arrangements for the transportation of the human remains of Crispina Saludo to
Manila.
Telengtan Bros. & Sons. Vs. CA (GR 110581, 21 September 1994)
Second Division, Mendoza (J): 3 concur, 1 took no part
Facts: Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the
Philippines, its shipping agent being the Smith, Bell & Co., Inc. It is a member of the Far East
Conference,

the body which fixes rates by agreement of its member-shipowners. The conference is registered with the
U.S.
Federal Maritime Commission. On 8 May 1979, the Van Reekum Paper, Inc. entered into a contract of
affreightment with the K-Line for the shipment of 468 rolls of container board liners from Savannah,
Georgia
to Manila. The shipment was consigned to La Suerte Cigar & Cigarette Factory. The contract of
affreightment
was embodied in Bill of Lading 602 issued by the carrier to the shipper. The expenses of loading and
unloading were for the account of the consignee. The shipment was packed in 12 container vans and
loaded
on board the carriers vessel, SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two
vessels
of the K-Line. 10 container vans were loaded on the SS Far East Friendship, while 2 were loaded on the
SS
Hangang Glory. Shortly thereafter, the consignee (Telengtan Bros. & Sons, Inc.) received from the
shipper
photocopies of the bill of lading, consular invoice and packing list, as well as notice of the estimated time
of
arrival of the cargo. On 11 June 1979, the SS Far East Friendship arrived at the port of Manila. Aside
from the
regular advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels,
Telengtan was notified in writing of the ships arrival, together with information that container demurrage
at
the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot per day after the 5th
day
would be charged unless the consignee took delivery of the cargo within 10 days. On 21 June 1979, the
other vessel SS Hangang Glory, carrying Telengtans two other vans, arrived and was discharged of its
contents the
next day. On the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for 12
containers to the broker upon payment of freight charges on the bill of lading. The next day, the Island
Brokerage Co. presented, in behalf of Telengtan, the shipping documents to the Customs Marine Division
of
the Bureau of Customs. But the latter refused to act on them because the manifest of the SS Far East
Friendship covered only 10 containers, whereas the bill of lading covered 12 containers. The broker,
therefore, sent back the manifest to the shipping agent with the request that the manifest be amended.
Smith,
Bell & Co. refused on the ground that an amendment, as requested, would violate Section 1005 of the
Tariff
and Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading
Two
container vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the
bill
of lading. On 29 June 1979 the manifest was picked up from the office of the shipping agent by an
employee
of the IBC and filed with the Bureau of Customs. The manifest was approved for release on 3 July 1979.
IBC
wrote Smith, Bell & Co. to make of record that entry of the shipment had been delayed by the error in the
manifest. On 11 July 1979, when the IBC tried to secure the release of the cargo, it was informed by KLines
and Smith Bell & Co.s collection agent, the CBCS Guaranteed Fast Collection Services, that the free
time for

removing the containers from the container yard had expired on 26 June 1979, in the case of the SS Far
East
Friendship, and on 9 July, in the case of the SS Hangang Glory, and that demurrage charges had begun to
run
on 27 June 1979 with respect to the 10 containers on the SS Far East Friendship and on 10 July 1979 with
respect to the 2 containers shipped on board the SS Hangang Glory. On 13 July 1979, Telengtan paid
P47,680.00 representing the total demurrage charges on all the containers, but it was not able to obtain its
goods. On 16 July 1979 it was able to obtain the release of 2 containers and on 17 July 1979 of one more
container. It was able to obtain only a partial release of the cargo because of the breakdown of the
arrastres
equipment at the container yard. This matter was reported by IBC in letters of complaint sent to the
Philippine
Ports Authority. In addition, on 16 July 1979, Telengtan sent a letter dated 12 July 1979 to Smith, Bell &
Co.,
requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the goods
was
due to the alleged late arrival of the shipping documents, the delay caused by the amendment of the
manifest,
and the fact that 2 of the containers arrived separately from the other 10 containers. On 19 July 1979
Telengtan paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to secure
the
release of its cargo, but still Telengtan was unable to get any cargo from the remaining 9 container vans. It
was only the next day, July 20, 1979, that it was able to have 2 more containers released from the
container
yard, bringing to 5 the total number of containers whose contents had been delivered to it. Subsequently,
Telengtan refused to pay any more demurrage charges on the ground that there was no agreement for their
payment in the bill of lading and that the delay in the release of the cargo was not due to its fault but to
the
breakdown of the equipment at the container yard. In all, petitioner had paid demurrage charges from
June 27
to July 19, 1979 in the total amount of P67,840.00. On 20 July 1979, Telengtan wrote Smith, Bell & Co.
for a
refund of the demurrage charges, but the latter replied on 25 July 1979 that as member of the Far East
Conference, it could not modify the rules or authorize refunds of the stipulated tariffs.
Telengtan, therefore, filed a suit in the RTC for specific performance to compel K-Line, through its
shipping
agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and for a refund of
P67,840.00 which it had paid, plus attorneys fees and other expenses of litigation. Telengtan also asked
for
the issuance of a writ of preliminary injunction to restrain private respondents from charging additional
demurrage. Thereafter, a writ was issued after Telengtan had posted a bond of P50,000.00 and the
container
vans were released to the petitioner. On 19 March 1986, however, the RTC dismissed Telengtans
complaint.
The RTC, therefore, ordered Telengtan to pay K-Line, through Smith Bell & Co., the sum of P36,480.00
representing demurrage charges for the detention of 7 forty-footer container vans from July 20 to August
7,
1979, with legal interest commencing on 7 August 1979 until fully paid; and the sum of P10,000.00, by
way
of attorneys fees.

On appeal, the case was affirmed with modification by the Court of Appeals, deleting the award of
attorneys
fees; with costs against Telengtan. Hence, the petition for review.
The Supreme Court set aside the decision appealed from, and rendered another one, ordering K-Line, and
Smith Bell &U Co. to pay to Telengtan the sum of P39,360.00 by way of refund, with legal interest.
1. Clause 23, Bill of lading
Clause 23 of the bill of lading provides that the ocean carrier shall have a lien on the goods, which
shall survive delivery, for all freight, dead freight, demurrage, damages, loss, charges, expenses and any
other
sums whatsoever payable or chargeable to or for the account of the Merchant under this bill of lading.
2. Clause 29, Bill of lading
Clause 29 of the bill of lading provides that the terms of the ocean carriers applicable tariff,
including tariffs covering intermodal transportation on file with the Federal Maritime Commission and
the
Interstate Commission or any other regulatory body which governs a portion of the carriage of goods, are
incorporated herein.
3. Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and
Regulations
Rule 21 provides (D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines. Note:
Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody of the
Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery to the
consignee.
xxx Demurrage charges on Containers with CY Cargo. (1) Free time will commence at 8:00 a.m. on the
first
working calendar day following completion of discharge of the vessel. It shall expire at 12:00 p.m.
(midnight)
on the tenth working calendar day, excluding Saturdays, Sundays and holidays. Work stoppage at a
terminal
due to labor dispute or other force majeure as defined by the conference preventing delivery of cargo or
containers shall be excluded from the calculation of the free time for the period of the work stoppage. (2)
Demurrage charges are incurred before the container leaves the carriers designated CY, and shall be
applicable on the container commencing the next working calendar day following expiration of the
allowable
free time until the consignee has taken delivery of the container or has fully stripped the container of its
contents in the carriers designated CY. Demurrage charges shall be assessed hereunder: Ordinary
containers
P4.00 per linear foot of the container per day for the first five days; P8.00 per linear foot of the
container
per day, thereafter.
4. Demurrage defined; Magellan Marketing vs. CA
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is
the
claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel
may be
considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only
when expressly stipulated in the contract. Using the term in [its broader sense, damages in the] nature of
demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with
reasonable
dispatch, but only by the party to whom the duty is owed and only against one who is a party to the
shipping

contract.
5. Meaning of demurrage in Clause 23 clarified by Clause 29 of the bill of
lading (in relation to
Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12)
Herein, Telengtan contends that the bill of lading does not provide for the payment of container
demurrage, as Clause 23 of the bill of lading only says demurrage, i.e., damages for the detention of
vessels, and here there is no detention of vessels. Whatever may be the merit of Telengtans contention as
to
the meaning of the word demurrage in clause 23 of the bill of lading, the fact is that clause 29(a) also of
the
bill of lading, in relation to Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12, specifically
provides for the payment by the consignee of demurrage for the detention of containers and other
equipment
after the so-called free time.
6. Bill of lading, both a receipt and contract
A bill of lading operates both as a receipt and a contract. As a contract, it names the contracting
parties which include the consignee, fixes the route, destination, freight rate or charges, and stipulates the
rights and obligations assumed by the parties. By receiving the bill of lading, Telengtan Bros. assented to
the
terms of the consignment contained therein, and became bound thereby, so far as the conditions named
are
reasonable in the eyes of the law. Since neither appellant nor appellee alleges that any provision therein is
contrary to law, morals, good customs, public policy or public order and indeed we found none the
validity of the Bill of Lading must be sustained and the provisions therein properly applies to resolve the
conflict between the parties.
7. Enforcement of Far East Conference and the Federal Maritime
Commission is in accordance
with RA 1407, 1
The enforcement of the rules of the Far East Conference and the Federal Maritime Commission is in
accordance with Republic Act No. 1407, 1 of which declares that the Philippines, in common with other
maritime nations, recognizes the international character of shipping in foreign trade and existing
international
practices in maritime transportation and that it is part of the national policy to cooperate with other
friendly
nations in the maintenance and improvement of such practices.
8. Contract of adhesion valid; Servando v. Philippine Steam Navigation
As held in Servando v. Philippine Steam Navigation, While it may be true that petitioner had not
signed the plane ticket, he is nevertheless bound by the provisions thereof. Such provisions have been
held to
be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latters
lack of
knowledge or assent to the regulation. It is what is known as a contract of adhesion, in regards to
which it
has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.
9. Telengtan cannot be made liable for demurrage when delay in release of
goods not due to its
fault; Modification of the manifest
Herein, Telengtan cannot be held liable for demurrage starting 27 June 1979 on the 10 containers

which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was not
due
to its fault. The evidence shows that because the manifest issued by K-Line, through the Smith, Bell &
Co.,
stated only 10 containers, whereas the bill of lading also issued by the K-Line showed there were 12
containers, the Bureau of Customs refused to give an entry permit to Telengtan. For this reason,
Telengtans
broker, the IBC, had to see the Smith, Bell & Co. on 22 June 1979 but the latter did not immediately do
something to correct the manifest. Smith, Bell & Co. was asked to amend the manifest, but it refused to
do
so on the ground that this would violate the law. It was only on 29 June 1979 that it thought of adding
instead
of footnote to indicate that 2 other container vans to account for a total of 12 container vans consigned
to
petitioner had been loaded on the other vessel SS Hangang Glory.
10. Footnote not added 22 June 1979; more probable that manifest
corrected 29 June 1979
Herein, there is nothing in the testimonies of witnesses of either party to support the finding that the
footnote, explaining the apparent discrepancy between the bill of lading and the manifest, was added on
22
June 1979 but that Telengtans representative did not return to pick up the manifest until 29 June 1979. To
the
contrary, it is more probable that the manifest was corrected only on 29 June 1979, (by which time the
free
time had already expired), because Smith, Bell & Co. did not immediately know what to do as it insisted
it
could not amend the manifest and only thought of adding a footnote on 29 June 1979 upon the suggestion
of
the IBC.
11. Demurrer commenced 3 July 1979 as to 10 containers, and 10 July 1979
as to other 2 containers
29 June 1979 was a Friday. It is probable that the corrected manifest was presented to the Bureau of
Customs only on Monday, 2 July 1979 and, therefore, it was only on July 3 that it was approved. It was,
therefore, only from this date (3 July 1979) that Telengtan could have claimed its cargo and charged for
any
delay in removing its cargo from the containers. With respect to the other two containers which arrived on
the
SS Hangang Glory, demurrage was properly considered to have accrued on 10 July 1979 since the free
time
expired on July 9.
12. Period of delay stopped on 13 July 1979
The period of delay, however, for all the 12 containers must be deemed to have stopped on 13 July
1979, because on this date Telengtan paid P47,680.00. If it was not able to get its cargo from the container
vans, it was because of the breakdown of the shifters or cranes. This breakdown cannot be blamed on
Telengtan since these were cranes of the arrastre service operator. It would be unjust to charge demurrage
after 13 July 1979 since the delay in emptying the containers was not due to the fault of Telengtan.
Indeed,
there is no reason why Telengtan should not get its cargo after paying all demurrage charges due on 13
July
1979. If it paid P20,180.00 more in demurrage charges after said date it was only because Smith Bell &
Co.

would not release the goods.


13. Liability for demurrage in the amount of P28,480; Overpayment of
P39,360
Herein, Telengtan can be held liable for demurrage only for the period July 3-13, 1979 and that in
accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount
P28,480.00. There is an overpayment of P39,360.00 which should be refunded to Telengtan.