KENG HUA PAPER PRODUCTS CO. INC., petitioner v.
COURT OF APPEALS,  Keng Hua admits that it received the bill of lading. It had the chance to examine the
Regional Trial Court of Manila, Br. 21 and Sea-Land Service, Inc., respondents
[1998]
 Sea-Land Service Inc. (SLSI) is a foreign shipping company licensed to do business
in the Phil.
 Jun. 29, 1982: SLSI received sealed container of 76 bales of unsorted waste paper in
its Hong Kong terminal for shipment to Keng Hua Paper Products (Keng Hua for
short) in Manila. SLSI issued a bill of lading.
 Jul. 9, 1982: shipment discharged at Manila International Container Port. Notices of
arrival were sent to Keng Hua but they failed to retrieve the shipment from the
container during the free time or grace period w/c lasted until Jul. 29, 1982. It
remained there until Nov. 22, 1983 when shipment was unloaded f container. A total
of 481 days.
 SLSI sent letters to Keng Hua demanding payment for demurrage1 charges for the
481-day period amounting to P67,340.00. However, oblig remained unpaid w/c
prompted SLSI to institute civil action for collection & damages.
 Keng Hua’s defense:
1. it only purchased 50 tons of waste paper from Hong Kong shipper, Ho Kee
Waste Paper as proven in a letter of credit issued by Equitable Banking Corp.
and the remaining balance was only 10 tons whereas the shipment SLSI was
asking Keng Hua to accept was 20 metric tons or twice that of the shipment it
was expecting.
2. Accepting the shipment would violate Central Bank rules & regulations & custom
& tariff laws.
3. SLSI has no cause of action since it was not Keng Hua that hired SLSI. Cause of
action should be against Ho Kee w/c contracted SLSI’s services.
4. They informed SLSI about the wrong shipment thru a letter dated Jan. 24,
1983.
 RTC: Keng Hua liable for demurrage, atty.’s fees & expenses of litigation. Appealed to
CA.
 CA: denied appeal & affirmed RTC decision.
Issues & Ratio:
1. WON Keng Hua accepted the bill of lading sent by SLSI. – YES
 A bill of lading has 2 functions:
a. It’s a receipt for the goods shipped.
b. A contract by w/c the shipper (Ho Kee), carrier (SLSI) & consignee (Keng Hua)
undertake specific responsibilities & assume stipulated oblig.
 Delivery & acceptance of a bill of lading, w/ full knowledge of its contents, gives rise
to the presumption that the same was a perfected & binding contract.
 Both RTC & CA ruled that the bill of lading was a valid & perfected contract among
the 3 parties. Sec. 17 of the bill of lading provided that the shipper & consignee were
liable for the payment of demurrage charges for failure to discharge the shipment
beyond the grace period, thus making Keng Hua liable.
 Keng Hua’s defense:
a. There was only “physical acceptance” but in reality, it did not really accept the
terms & conditions printed in the bill of lading. It invokes the Notice of Refused
or On Hand Freight it received from SLSI w/c they claim acknowledges their
refusal to accept the shipment.
b. It sent a letter to SLSI stressing that acceptance of the bill of lading would be
tantamount to smuggling since it only imported 10k kg and not 20,313 kg. This
can make them susceptible to legal sanctions for violation of Central Bank laws.
c. The demurrage was a consequence of Ho Kee’s mistake.
1 computation of leg interest shall be on the amount finally adjudged.
Demurrage – allowance/compensation for the delay/detention of a vessel. It’s a particular sum deemed fair by the
parties as compensation for delays. It’s the true measure of damages in all cases of mere detention, for that allowance
has reference to the ship’s expenses, wear & tear, and common employment. (Justice Story, The Apollon)
document but it did not object or dissent from any term or stipulation. Its letter to
SLSI saying that it can’t accept the shipment was only sent 6 mos after it received
the bill of lading. One can infer that it has accepted the terms & conditions of the bill
of lading due to its inaction for a long time.
 Notice of Refused or On Hand Freight does not prove anything but Keng Hua’s
prolonged failure to object to the bill of lading. It actually supports the finding that
the bill of lading was impliedly accepted by petitioner.
 Petitioner can’t likewise invoke its fear of violating the law. Mere apprehension of
violating said laws w/o clear demonstration that taking delivery of shipment has
become legally impossible can’t defeat its contractual oblig & liability under the bill of
lading.
 Petitioner actually raised this issue for the first time before the SC. Such can’t be
entertained since an issue raised for the first time on appeal & not raised timely in
the lower court proceedings is barred by estoppel.
 Thus, petitioner’s prolonged failure to receive & discharge cargo from SLSI’s vessel
constitutes a violation of the terms of the bill of lading.
2. WON there is a conflict WRT the amount of demurrage charges demanded
by SLSI. – NO
The discrepancy between the amount demanded by SLSI’s loss & prevention
manager (P50,260.00) and its counsel (P37,800.00) can be explained by the fact that
these 2 demands were made at different times. Necessarily, the longer the cargo
remained unclaimed, the higher the demurrage. CA affirmed P67,340.00 finding of RTC
and such is binding on the SC.
3. WON the bill of lading is separate from the other letter of credit
arrangements. – YES
 3 distinct & independent contracts in a letter of credit w/c must be kept perpetually
separated from each other:
a. contract of sale bet. Buyer & seller
b. contract of buyer w/issuing bank
c. letter of credit proper wherein bank promises to pay seller pursuant to terms &
conditions stated
 Additional contract of carriage may be needed when buyer & seller are in different
countries such as in this case. This contract of carriage must be treated
independently of the other contracts as well. Any discrepancy on the amount of
goods described in the contract of sale & letter of credit will not affect the validity &
enforceability of the contract of carriage as embodied in the bill of lading. Meaning,
even if the contract of sale & letter of credit stipulated 10 metric tons of waste paper,
the contract of carriage stipulating 20 metric tons of such will still be valid &
enforceable by virtue of the independence of these contracts.
 Thus, Keng Hua can’t negate its oblig to SLSI arising from the contract of carriage.
Besides, SLSI had no knowledge of the contents of the container since it was the
shipper who was responsible for loading the container. Keng Hua’s remedy in case of
overshipment lies against the shipper (Ho Kee), not against SLSI.
4. WON interest ran only from the time Keng Hua received the complaint by
summons. – YES.
 This was the first time Keng Hua learned of the demurrage claim of P67,340.00 thus
interest can’t run from date of extrajudicial demands since during those times, no
demand for interest was made.
 Oblig not constituting loan/forbearance of money is breached, interest on amt of
damages may be imposed at court’s discretion at rate of 6% per annum. Where
demand is established w/reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (CC Art. 1169). But when
certainty can’t be established at the time the demand is made, interest shall begin to
run only from the date the judgment of the court is made. Actual base for
 Since bill of lading didn’t specify amt of demurrage, total amount demanded can’t be
deemed to have been established w/reasonable certainty until trial court rendered its
judgment.
Holding: CA affirmed w/modification.
1. Legal interest of 6% per annum shall be computed from Sept. 28, 1990 until its full
payment before finality of judgment.
2. Interest rate adjusted to 12% per annum from finality of judgment until full
satisfaction.
3. Attorney’s fees deleted since no reason was stated for awarding such. Its basis being
improperly left to speculation & conjecture makes it tantamount to a conclusion w/o
premise.