G.R. No. 116863 - Keng Hua Paper Products Co., Inc. vs. Court of Appeals

Case Summary (G.R. No. 116863)

Key Dates and Procedural Posture

Arrival and issuance of bill of lading: July 1982 (petitioner received its copy July 8, 1982)
Petitioner’s written refusal/notification to carrier: January 24, 1983 (letter stating inability to take delivery)
Trial court judgment: September 28, 1990 — awarded demurrage P67,340.00 with legal interest from extrajudicial demand and 10% attorney’s fees
Court of Appeals: Affirmed trial court (May 20, 1994)
Supreme Court review: Decision reviewed; disposition modified as to interest and attorney’s fees

Applicable Law and Sources Relied Upon

Constitutionary basis (decision date post-1990): 1987 Philippine Constitution as the supreme law framework for judicial process and remedies (contextual)
Civil Code provisions and jurisprudence cited in the decision, notably rules on obligations and interest (including Article 1169 and Article 2209 as applied to legal interest), Article 1266 on impossibility of prestation, and established admiralty/commercial law principles regarding bills of lading and demurrage
Admiralty authorities and prior Philippine cases cited: The Apollon (U.S. admiralty authority), and Philippine jurisprudence including Eastern Shipping Lines, Philippine National Bank, and other cited precedents

Statement of Facts

Sea-Land received a sealed container in Hong Kong and issued a bill of lading for shipment to Keng Hua in Manila. The shipment was discharged at Manila but Keng Hua failed to remove the cargo within the free time/grace period. The container remained on the carrier’s premises beyond the free time from July 29, 1982 until November 22, 1983 (481 days), during which demurrage accrued. Repeated extrajudicial demands were sent; the total demurrage calculated by the carrier reached P67,340. Keng Hua defended on grounds of overshipment (purchase under a letter of credit for 10 metric tons while the bill of lading represented approximately 20 metric tons), alleging that accepting the bill of lading would expose it to customs/Central Bank violations, and that its remedy should be against the shipper, not the carrier.

Issues Presented

Whether petitioner had accepted the bill of lading and thus became bound by its terms.
Whether the award of P67,340.00 in demurrage to the carrier was proper.
Whether petitioner’s refusal to accept the shipment based on alleged overshipment was justified.
Proper computation and commencement of interest on unpaid demurrage.

Nature and Legal Effect of a Bill of Lading

The Court reiterated established principles: a bill of lading has dual functions — as a receipt for goods shipped and as a contract of carriage among shipper, carrier and consignee. Acceptance of a bill of lading (even if unsigned) generally constitutes acceptance of its terms where the acceptor has actual or constructive notice. Acceptance by shipper and consignee with knowledge of contents gives rise to the presumption that the bill of lading is a perfected and binding contract; therefore stipulations such as liability for demurrage are enforceable against parties bound by the bill.

Application to Petitioner’s Conduct — Acceptance by Conduct and Implied Consent

Petitioner received its copy of the bill of lading shortly after arrival (July 8, 1982) and did not object to its contents until six months later (January 24, 1983). The Court found that the long inaction and failure to promptly object was strong evidence of implied acceptance of the bill’s terms. The petitioner’s November 2, 1982 “Notice of Refused or On Hand Freight” was issued by the carrier and not authored by petitioner; it did not negate petitioner’s earlier receipt and opportunity to inspect the bill. The January 24 letter only showed inability to retrieve the cargo (due to issues with the letter of credit) and did not constitute timely rejection of the bill’s contractual terms. Because the issue of non-acceptance was not properly raised below and was first pressed on appeal to the Supreme Court, it was also procedurally barred by estoppel (issues not timely raised in the trial court are ordinarily not entertained on appeal).

Overshipment Claim and the Independence of Transport Contracts from the Letter of Credit/Sale

The Court emphasized the independence of the contract of carriage (bill of lading) from the contract of sale and the letter of credit. Letter-of-credit arrangements involve three separate contracts (sale between buyer and seller; buyer and issuing bank; and the letter of credit itself), and these remain distinct. Discrepancies between the commercial invoice/letter of credit and the description/weight in the bill of lading do not invalidate the carrier’s contract of carriage. The carrier acted under a “Shipper’s Load and Count” arrangement and had no constructive knowledge of container contents; therefore, any remedial claim for overshipment lies against the shipper (seller), not the carrier. Consequently, overshipment did not justify petitioner’s refusal to accept delivery and did not absolve petitioner from its contractual liability to the carrier under the bill of lading.

Demurrage Liability and the Amount Awarded

Demurrage is a recognized commercial and contractual remedy — compensation for delay/detention of a vessel or its equipment — and may be stipulated by contract. The courts below found and the Supreme Court affirmed that petitioner’s prolonged failure to receive and discharge the cargo breached the bill of lading terms and caused demurrage. The contested P67,340.00 figure was treated as a factual finding by the trial court supported by documentary evidence and testimony; variations in earlier demand letters (P50,260 or P37,800) reflected the dates of those demands and the continuing accrual of demurrage as the cargo remained unclaimed. The carrier’s later demand and collection steps reflected the increased accumulated demurrage up to November 22, 1983.

Interest: Rate and When Computation Begins

Because the obligation did not arise from a loan or forbearance of money, the Court applied the rule governing interest on non-loan obligations: legal interest is six percent per annum (Article 2209 as invoked) for obligations of this type. For unliquidated damages or claims, interest begins to run when the demand is established with reasonable certainty — here, the total demurrage could not be fixed until judicial determination due to continuing accrual. Consequently, interest at six percent per annum was ordered computed from the date of the trial court’s decision (September 28, 1990). After the judgment becomes final and executory, the applicable legal interest increases to twelve percent per annum until full satisfaction; this follows precedents applying an elevated rate for the post-judgment forbearance period.

Attorney’s Fees: Requirement of Stated Reasons

The trial court had awarded attorney’s fees (10% of the total amount) in its dispositive paragraph, but failed to set forth the factual or legal reasons justifying that award in the body of the decision. The Court stressed the settled requirement that an award of attorney’s fees must be supporte

Case Syllabus (G.R. No. 116863)

Statement of the Case

Petition for review to the Supreme Court assails the Decision of the Court of Appeals promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953, which affirmed in toto the Regional Trial Court of Manila, Branch 21 decision dated September 28, 1990 in Civil Case No. 85-33269.
The RTC had rendered judgment ordering defendant (petitioner here) to pay plaintiff (private respondent Sea-Land) P67,340.00 as demurrage charges, with interest at the legal rate from the date of extrajudicial demand until fully paid, and ten percent of the total amount due as attorney’s fees and litigation expenses.
The principal legal questions presented include: the nature of a bill of lading; when a bill of lading becomes binding on a consignee; whether alleged overshipment justifies consignee’s refusal to receive goods described in a bill of lading; and when interest may be computed on unpaid demurrage charges.
The Supreme Court finds the petition partly meritorious: it affirms petitioner’s liability for demurrage but modifies the applicable interest rate and deletes the award of attorney’s fees.

Procedural History

Shipment received at Hong Kong terminal June 29, 1982; bill of lading issued. Shipment discharged at Manila International Container Port July 9, 1982.
Demurrage accrued after free time expired July 29, 1982; cargo remained in container until unloaded November 22, 1983 (481 days).
Private respondent commenced civil action for collection and damages; RTC decision dated September 28, 1990 awarded demurrage, interest from extrajudicial demand, and attorney’s fees.
Petition to the Court of Appeals; CA promulgated Decision on May 20, 1994 (C.A.-G.R. CV No. 29953) affirming the RTC in toto; CA denied motion for reconsideration in a subsequent resolution.
Petition for review to the Supreme Court (G.R. No. 116863); case deemed submitted for resolution on June 3, 1996 upon receipt of petitioner’s memorandum; Supreme Court decision rendered February 12, 1998.

Facts

Plaintiff/private respondent Sea-Land, a foreign corporation licensed to do business in the Philippines, received a sealed container (No. SEAU 67523) at its Hong Kong terminal containing 76 bales of unsorted waste paper for shipment to defendant/petitioner Keng Hua Paper Products Co. in Manila.
A bill of lading (Exh. A) was issued to cover the shipment.
Notices of arrival were transmitted to petitioner, who failed to discharge the shipment during the free time/grace period; the container remained from July 29, 1982 until November 22, 1983 — 481 days.
Demurrage charges accrued during that 481-day period; letters demanding payment were sent but petitioner refused to settle; total demurrage claim amounted to P67,340.00.
Petitioner answered alleging, among others, that it purchased 50 tons of waste paper under Letter of Credit No. 824858 with partial shipment permitted, that the remaining balance under the credit was 10 metric tons as shown in Invoice No. H-15/82, that the shipment Sea-Land sought to deliver was 20 metric tons (10 metric tons in excess), and that acceptance would violate Central Bank, customs and tariff laws.
Petitioner alleged it had no contractual relation with Sea-Land (the carrier) and that recourse should be against the shipper; petitioner also notified Sea-Land of the alleged wrong shipment by letter dated January 24, 1983.

Issues Presented

Whether petitioner had accepted the bill of lading.
Whether the award of P67,340.00 to private respondent was proper.
Whether petitioner was correct in refusing to accept the alleged overshipment.
Whether legal interest should be computed from the date of private respondent’s extrajudicial demand.

Main Holding / Disposition

The Supreme Court affirms the judgment of the lower courts insofar as petitioner’s liability for demurrage is concerned.
The Court modifies the award by providing that legal interest at 6% per annum shall be computed from September 28, 1990 (date of RTC decision) until full payment prior to finality; upon finality, the interest rate shall be 12% per annum until full satisfaction.
The award of attorney’s fees is deleted because the trial court failed to state reasons justifying such award.
The petition is declared partly meritorious.

Legal Principles — Nature and Effect of a Bill of Lading

A bill of lading serves two functions: (1) it is a receipt for the goods shipped, and (2) it is a contract among the shipper, the carrier, and the consignee, by which they undertake specific responsibilities and assume stipulated obligations (citing Magellan Mftg. Marketing Corp. v. Court of Appeals).
A bill of lading delivered and accepted constitutes the contract of carriage even though not signed, bec