G.R. No. 179789 - Pinewood Marine , Inc. vs. EMCO Plywood Corp.

Case Summary (G.R. No. 179789)

Factual Background

EMCO, engaged in plywood manufacturing, entered into a contract with Ever for the loading, transportation, and unloading in Butuan City, Philippines, of EMCO’s cargo of 2,638 pieces of PNG round logs fresh cut from Papua New Guinea, with an invoice value of US $691,898.62. EMCO paid Ever the full freight of US $241,223.04. Ever chartered the vessel MV Tao Hua Ling from Kanetomi (HK) Ltd., which in turn chartered the vessel from Shenzhen. In the Philippines, the local ship agent was Pinewood.

After the logs were loaded and brought to the Philippines, EMCO received a letter dated December 5, 1995 from the law office of Sycip Salazar Hernandez Gatmaitan & Associates informing EMCO that Shenzhen, described as the “disponent owner” of the vessel, was exercising a lien over the cargo for unpaid demurrage, detention, and deviation. The letter further indicated that Shenzhen instructed the master of the vessel and its ship agent, Pinewood, to exercise the shipowner’s lien on the cargo. A similar request was sent to the Collector of Customs at the Port of Masao, Butuan, to withhold discharge of the cargo. Consequently, the Bureau of Customs District II, sub-port of Nasipit issued a memorandum directing the inspector of the vessel to withhold delivery of the cargo to EMCO.

EMCO objected and assailed the lien as invalid. EMCO nonetheless offered compromise and indicated willingness to put up a bond of US $300,000.00 for release of the cargo. EMCO demanded release from Ever. Ever attempted to negotiate with the shipowner and other parties, but the withholding persisted. The day after EMCO filed its complaint, the RTC issued a writ of replevin, and the logs were released and delivered to EMCO. Although EMCO initially also sought attachment of the vessel, it did not pursue this relief because the vessel left Philippine territory. EMCO added claims for damages arising from the alleged unwarranted refusal of defendants to release the cargo.

Trial Court Proceedings and Merits Ruling

On December 11, 1995, EMCO filed a complaint for “Replevin, Attachment and Damages” impleading Shenzhen, Dalian, Pinewood, the vessel MV Tao Hua Ling, its unknown owner and/or demise charterer, and the master of the vessel. In an amended complaint, EMCO also impleaded Ever as the vessel’s charterer. All defendants except Ever moved to dismiss on improper venue, and the RTC denied the motion. Ever answered and asserted compulsory counterclaims and cross-claims. The other defendants failed to answer and were declared in default.

On May 14, 1997, the RTC rendered its decision directing Ever to pay EMCO damages totaling P16,686,048.46, plus 6% interest from the filing of the complaint until Ever fully paid. The RTC also addressed Ever’s cross-claim by ordering Shenzhen and/or the charterer/owner of the vessel, and Pinewood, to be jointly and severally liable to Ever for reimbursement and indemnification in the same amount of P16,686,048.46 plus 6% interest from the filing of the complaint until full payment, as well as P2,000,000.00 as damages with 6% interest, and attorney’s fees of P173,600.00. The RTC additionally declared that under the Code of Commerce, Pinewood was solidarily liable with Shenzhen and/or the charterer/owner of the vessel in reimbursing and indemnifying Ever.

The RTC explained that Section 1505 of the Customs and Tariff Code enumerated the kinds of claims giving rise to a lien, namely (1) freight, (2) lighterage, or (3) general average, and it ruled that a lien anchored on demurrage and detention was not covered by the enumeration. Thus, the withholding was unwarranted. It also found that EMCO had no privity with the charter party agreements among Shenzhen, Kanetomi, and Ever. The RTC noted that the defendants other than Ever were in default and offered no evidence to prove their claims, while EMCO and Ever had established that the claims for demurrage, detention, and deviation were baseless, excessive, unreasonable, and invalid. The RTC further found that defective vessel winches resulted from the defendants’ own fault and negligence.

On the amount of damages, the RTC credited testimony showing operational losses at P1,500,000.00 per day due to unavailability of logs as raw materials, which prevented compliance with existing contracts, and it quantified depreciation of the cargo due to delay affecting moisture content. It also recognized expenses incurred for attorney’s fees and bond premium and other legal costs, and it included labor costs for paying employees even if no work was done. The RTC then concluded that Ever, by breach of its obligation to deliver and cause discharge of the logs, was liable for the quantified operational losses, labor cost, deterioration cost, and related expenses totaling P16,686,048.46.

Ever’s Cross-Claim and the RTC’s Allocation of Fault

The RTC held that Ever did not directly participate in the unjustified withholding because it had attempted to negotiate for prompt release. It nevertheless held that the conduct of Shenzhen and/or the charterer/owner, the vessel’s master, and Pinewood constituted bad faith and recklessness in withholding the logs, which led to Ever’s breach toward EMCO. Because of that fault, the RTC sustained Ever’s right to reimbursement and indemnification. It also ordered Shenzhen and/or the relevant charterer/owner and Pinewood to pay Ever an additional P2,000,000.00 as a reasonable estimate of profits Ever would have earned but for the incident, and it awarded attorney’s fees of P173,600.00.

Appeals in the CA and Procedural Developments

After the RTC decision, counsel V.E. Del Rosario & Partners entered its appearance for Shenzhen, Pinewood, and Dalian and filed a notice of appeal on June 28, 1997. On January 18, 1999, Del Rosario manifested to the CA that it received no instructions from Shenzhen and Pinewood and that the appeal it undertook was solely for Dalian. On February 17, 2000, the CA issued a resolution declaring the appeals of Shenzhen and Pinewood abandoned and dismissed due to nonpayment of docket fees and non-filing of appellants’ briefs.

In resolving Dalian’s appeal, the CA affirmed the RTC decision in toto and held Dalian solidarily liable with Shenzhen and Pinewood to pay Ever the amounts in the cross-claim. The CA emphasized the consequences of default and treated admissions as established, including that Dalian was the registered owner of MV Tao Hua Ling. It also discussed maritime principles that shipowners and ship agents could be civilly liable for the acts of the captain and for indemnities due to third persons, recognizing that injured parties may look to the owner for reimbursement.

Pinewood’s Motion for Reconsideration in the CA

Pinewood filed a motion for reconsideration dated July 18, 2006, contending that Del Rosario abandoned the appeal without Pinewood’s knowledge and consent. Pinewood also argued that it was not impleaded by Ever in the cross-claim. It further asserted that Articles 586 and 587 of the Code of Commerce were inapplicable because the withholding resulted from the shipowner’s conduct rather than that of the vessel’s captain.

On August 8, 2007, the CA denied reconsideration. It reasoned that Pinewood received a copy of the RTC decision on June 17, 1997 but the record did not show what Pinewood did thereafter, nor did it show Pinewood had engaged Del Rosario’s services to prosecute an appeal. The CA found that Pinewood relied on earlier pleadings from Del Rosario and its counsel before the CA, but Pinewood did not deny it was furnished copies of Del Rosario’s January 15, 1999 Manifestation that the firm appealed only for Dalian, as well as the appellant’s brief submitted at the same time. The CA concluded that Pinewood was estopped from contesting the dismissal, and it also denied Pinewood’s additional request for disbarment of Del Rosario and Kato for being outside the CA’s jurisdiction and for failing to establish a prima facie case, and because it would unduly delay resolution.

Issues Raised in the Supreme Court Petition

In its petition, Pinewood challenged the CA’s: first, failure to refer the disbarment complaints against Attys. Del Rosario and Kato to the IBP and/or this Court; second, denial of reinstatement of Pinewood’s appeal despite asserted treachery and abandonment by Del Rosario and Kato; and third, denial of its motion for reconsideration without resolving multiple issues raised therein, including: Ever’s alleged nonpayment of filing fees for its cross-claim; the award of unliquidated damages; Ever’s alleged failure to implead Pinewood in the cross-claim; and the adequacy of evidence to prove Pinewood’s liability as a mere ship agent.

Pinewood’s Position

Pinewood contended that the CA should have referred the complaints for disbarment to the IBP and/or the Court, invoking Section 26, Rule 138 of the Rules of Court and Canon 22 of the Code of Professional Responsibility on counsel withdrawal, and it argued that Del Rosario’s January 15, 1999 manifestation was not sufficient compliance for withdrawal. Pinewood further claimed it learned only on July 7, 2006 that its appeal had been dismissed, and it argued that Del Rosario did not update it on the appeal status. It also maintained that it was merely a ship agent and that it earned only $400.00 in the underlying transactions, so it would be left holding an empty bag if liable for acts it did not participate in.

Pinewood also argued that Ever did not pay filing fees for its cross-claim, thus allegedly depriving the RTC of jurisdiction over the cross-claim, and that Ever failed to implead the ship agent in the cross-claim. It further argued that the RTC issued a default order on the amended complaint but not on Ever’s cross-claim, making the judgment on the cross-claim allegedly void, and it asserted that the damages awarded were unliquidated and thus barred by Rule 9, Section 3(d). It invoked the prohibition under Art

Case Syllabus (G.R. No. 179789)

The case involved a petition for review on certiorari by Pinewood Marine (Phils.), Inc. (Pinewood) against EMCO Plywood Corporation (EMCO), Ever Commercial Co., Ltd. (Ever), Dalian Ocean Shipping Co., Shenzhen Guangda Shipping Co. (Shenzhen), and related parties.
The petition assailed the Court of Appeals (CA) Decision dated June 21, 2006 and Resolution dated August 8, 2007 in CA-G.R. CV No. 58909.
The CA affirmed the Regional Trial Court (RTC) of Butuan City, Branch 4 Decision dated May 14, 1997 in Civil Case No. 4374, which granted replevin, attachment, and damages, and resolved a cross-claim in favor of Ever.
Pinewood sought to overturn both the CA’s handling of Pinewood’s complaints for disbarment and the CA’s refusal to reinstate Pinewood’s dismissed appeal.

Parties and Procedural Posture

EMCO filed a civil action for replevin, attachment and damages, impleading Shenzhen, Dalian Ocean Shipping Co., Pinewood, the vessel MV Tao Hua Ling, and other unnamed parties, with Ever added in the amended complaint.
The RTC granted relief in favor of EMCO and also granted Ever its cross-claim against Shenzhen and/or the charterer/owner of MV Tao Hua Ling, and against Pinewood.
Shenzhen, Pinewood, and Dalian filed a notice of appeal through V.E. Del Rosario & Partners (Del Rosario).
Del Rosario later manifested that the appeal was undertaken solely on behalf of Dalian, leading the CA to declare the appeal of Shenzhen and Pinewood abandoned and dismissed due to nonpayment of docket fees and non-filing of appellants’ briefs.
In resolving Dalian’s remaining appeal, the CA affirmed the RTC in toto and held Dalian solidarily liable with Shenzhen and Pinewood for Ever’s cross-claim.
Pinewood moved for reconsideration, which the CA denied in the assailed August 8, 2007 Resolution.
Pinewood then filed the petition for review on certiorari before the Supreme Court, which ultimately affirmed the CA, with modifications only as to the interest reckoning period.

Key Factual Allegations

EMCO engaged in manufacturing plywood and sought replevin over its cargo of 2,638 pieces of PNG round logs fresh cut from Papua New Guinea, with an invoice value of US $691,898.62.
EMCO entered into a contract with Ever for the loading, transporting, and unloading of the logs at Butuan City, Philippines.
EMCO paid Ever the full freight for the cargo amounting to US $241,223.04.
Ever chartered MV Tao Hua Ling from Kanetomi (HK) Ltd. (Kanetomi), and Kanetomi chartered the same vessel from Shenzhen.
Pinewood acted as the ship agent representing the local interests of the foreign shipowner in the Philippines.
EMCO received a letter dated December 5, 1995 informing it that Shenzhen, as the disponent owner, was exercising a lien over the logs for allegedly unpaid demurrage, detention and deviation, and that Shenzhen instructed the vessel master and ship agent to exercise the shipowner’s lien.
A customs-related memorandum was issued directing the withholding of delivery of the cargo, and EMCO objected and even offered to put up a bond of US $300,000.00 for release.
After the RTC issued a writ of replevin the day following the filing of EMCO’s complaint, the logs were released and delivered to EMCO.
EMCO also sought attachment of the vessel, but since the vessel had left Philippine territory, EMCO did not pursue that relief.
EMCO sought damages for the unwarranted refusal to release the cargo.
The RTC later found that the withholding was unwarranted because the lien’s underlying claims were not among those that could support a lien under the Customs and Tariff Code, and it found that the other defendants’ conduct caused EMCO’s damages.

RTC Findings and Award

The RTC relied on Section 1505 of the Customs and Tariff Code, which it described as an exclusive enumeration of the types of claims that give rise to a lien, namely: (1) freight, (2) lighterage, or (3) general average.
The RTC held that a lien anchored on demurrage and detention was not included in the enumeration, and thus the withholding of EMCO’s cargo for delivery or release was unwarranted.
The RTC declared that EMCO was not privy to the charter party agreements executed among Shenzhen, Kanetomi, and Ever.
The RTC noted that, except for Ever, the defendants were declared in default, which meant they failed to present evidence to support their claims.
The RTC found that EMCO and Ever established that the claims for demurrage, detention, and deviation were baseless, excessive, unreasonable, and invalid.
The RTC also found evidence that defective vessel winches were due to defendants’ fault and negligence, which supported liability for the unjustified withholding and the resulting damages.
The RTC sustained EMCO’s proof of damages through the testimony of Mr. Max Alcantara and Nelva G. Mandap, covering operational losses, labor costs, deterioration costs, attorney’s fees, and other legal expenses.
Ever was ordered to pay EMCO the total amount of P16,686,048.46, representing damages, plus 6% interest from the filing of the complaint until Ever fully paid.
As to Ever’s cross-claim, the RTC found that Ever negotiated for the prompt release of the logs and did not directly participate in the unjustified withholding, while the other defendants acted in bad faith by recklessly withholding the logs, thereby causing Ever’s breach of its obligation to EMCO.
The RTC ordered Shenzhen and/or the charterer/owner of MV Tao Hua Ling, and Pinewood, to be jointly and severally liable to Ever for reimbursement and indemnification of P16,686,048.46, plus 6% interest.
The RTC also ordered the same cross-claim defendants to pay Ever (1) P2,000,000.00 as damages with 6% interest, and (2) attorney’s fees of P173,600.00.
The RTC further declared that under the Code of Commerce, Pinewood was solidarily liable with Shenzhen and/or the charterer/owner for reimbursement and indemnification to Ever.

CA Treatment of Default and Appeal

The CA affirmed the RTC decision in toto, including Ever’s cross-claim and the solidary liability imposed on Shenzhen, Pinewood, and Dalian.
The CA emphasized that a default judgment may be rendered even without evidentiary hearing, and the defaulting party loses the chance to deny the complaint’s allegations through the rules.
The CA explained that matters deemed admitted included the fact that Dalian was the registered owner of the vessel MV Tao Hua Ling.
The CA treated Dalian’s pleadings as admissions that it was the owner of the vessel, noting that Dalian referred to itself as “owner of the vessel ‘Tao Hua Ling’” in key documents.
The CA held that the defense that would have negated liability as a demise owner under a bareboat charter was not timely raised, and because Dalian was declared in default, it could not belatedly raise the defense on a