Title
R.V. Marzan Freight Inc. vs. Court of Appeals
Case
G.R. No. 128064
Decision Date
Mar 4, 2004
Customs-bonded warehouse fire destroyed Shielaas' cargo; trial court held RV Marzan liable, but SC reversed, citing lack of jurisdiction over Customs' abandonment declaration.
marzan freight
court of appeals
jurisdictional question

Case Summary (G.R. No. 128064)

Factual Background: Arrival, Custody, and Abandonment Proceedings

Private respondent’s shipment was valued at US$32,006.93. Because the Bureau of Customs treated the shipment as subject to ordinary import taxes and because the consignee allegedly failed to file the import entry and to claim the cargo, the shipment remained in the customs-bonded warehouse.

Sea-Land Service, Inc. authorized petitioner to take delivery of a specific container for stripping and safekeeping. Subsequently, the International Container Terminal Services, Inc. (ICTSI) requested authority to clear storage areas for cargoes abandoned or seized. The District Collector of Customs then initiated Abandonment Proceedings No. 288-89 over the shipment.

On September 29, 1989, the District Collector issued a Notice to consignees of various overstaying cargoes, granting them fifteen (15) days from notice to file entry documents without prejudice to redemption pursuant to the law, otherwise the cargoes would be deemed abandoned and sold at public auction. The record showed that the notice of abandonment proceedings was posted on the Bureau of Customs bulletin board. No separate notice was sent to private respondent because, according to the Bureau’s records, the address of the consignee was unknown.

Earlier, on November 7, 1989, a Bureau of Customs law division memorandum informed the auction and cargo disposal division that the declaration of abandonment had become final and executory as of October 30, 1989, and that the cargoes should be inventoried and sold at public auction. Before inventory and public sale could occur, however, the warehouse containing part of the shipment was burned on July 26, 1990. Private respondent’s shipment was likewise destroyed.

Philfire later paid private respondent P12,000,000, as evidenced by a receipt issued to private respondent. Private respondent nevertheless demanded payment of the cargo value (US$32,006.93) from petitioner on March 19, 1991, but petitioner rejected the demand.

Filing of the Complaint and Procedural Posture in the Trial Court

On December 26, 1991, more than two years after the cargo arrival and after the fire, private respondent filed a complaint for damages before the RTC of Pasig City, Branch 154, against petitioner and sought to hold Philfire jointly and severally liable. Private respondent alleged that it stored the goods in petitioner’s bonded warehouse due to problems encountered at the Bureau of Customs, that the goods were gutted by fire on July 26, 1990 while stored in the warehouse, and that petitioner refused to release the goods despite demands. It prayed for the equivalent of US$32,006.93 computed at the exchange rate prevailing at payment, plus interest from filing of the complaint, attorneys’ fees, and costs.

Petitioner denied liability and raised special and affirmative defenses, including lack of privity of contract, lack of status as the real party-in-interest, and that the cargo had already become government property due to abandonment under the Tariff and Customs Code. Petitioner argued that the Bureau of Customs was the effective source of custody under Customs Administrative Order No. 102-88 governing forfeited, abandoned, and cargo held under detention and warrant. It further maintained that private respondent violated customs laws by failing to file import entry and to pay duties and taxes, failed to make any claim for release, and only later did the matter become categorized as overstaying and subsequently abandoned cargo. Petitioner also invoked fortuitous event as the cause of loss and stressed that bonded warehouses are treated as an extension of the Bureau of Customs insofar as storage continues.

Philfire filed a motion to dismiss on the ground that it had no contractual obligation to private respondent. It argued that petitioner was the insured party, that private respondent had no insurable interest in the goods, and that the obligation sought to be enforced had already been settled when it paid private respondent under the insurance policy, supported by a Release of Claim and Hold Harmless Undertaking.

The trial court proceeded with trial despite the deferred ruling on Philfire’s motion. It admitted testimony from Bureau of Customs law division chief Atty. Leonardo S. Doctor, who stated that the cargo had already been declared abandoned in Abandonment Proceedings No. 288-89 and that the cargo was destroyed before it could be sold at public auction. Private respondent, for its part, contended that it did not abandon the goods because it never received notice of abandonment.

Trial Court Decision: Ineffective Abandonment and Liability for Loss

After trial, the RTC rendered judgment holding petitioner solely liable for the loss and ordering it to pay (a) the value of US$32,006.93 or its peso equivalent computed at the exchange rate prevailing at payment with six percent (6%) interest from the filing of the complaint until actual payment; (b) P30,000.00 as attorneys’ fees; and (c) costs. It dismissed the complaint against Philfire and the counterclaim/cross-claim involving petitioner and private respondent.

The RTC concluded that the abandonment declaration by the Bureau of Customs was ineffective because private respondent was not sent a copy of the September 29, 1989 notice as required under Section 1801. It reasoned that due process required notice to the consignee or its agent so it could be heard before abandonment was effected after notice. Because private respondent was allegedly never notified, the RTC held that it could not be deemed to have impliedly abandoned the shipment and thus had not lost ownership to the government.

On the fortuitous event defense, the RTC rejected petitioner’s claim that fire exonerated it. It held that bonded warehouse operation requires insurance against fire precisely to protect those dealing with bonded warehouses. It ruled that the insurance procured by petitioner inured proportionately to owners of the insured property, even if those owners did not request or know of the insurance.

Finally, the RTC ruled that private respondent had no cause of action against Philfire because private respondent was not a party to the insurance contract between petitioner and Philfire, and because the policy did not confer a benefit upon private respondent as a third person under Article 1311 of the Civil Code.

Issues Raised on Appeal Before the Court of Appeals

Petitioner appealed to the Court of Appeals, which docketed the appeal as CA-G.R. CV No. 49905. Petitioner assigned errors essentially contending that the complaint should have been dismissed for lack of valid cause of action because, long before the July 26, 1990 fire, the Bureau of Customs had already declared the shipment abandoned by a final order, such that ownership had passed to the government. It also assailed the award of attorneys’ fees, arguing that no malice or bad faith was found.

Private respondent opposed, arguing that, as found by the trial court, the abandonment was not effective due to lack of notice and due process, and it further asserted that if petitioner’s theory were correct, the Bureau of Customs should have intervened given private respondent’s stance denying abandonment and ownership transfer. It claimed that petitioner’s refusal to satisfy a valid demand forced it to litigate and incur expenses, evidencing bad faith and thus justifying attorneys’ fees.

The Court of Appeals affirmed with costs. It held that the District Collector failed to give due notice to private respondent. It stated that posting alone was insufficient unless the owner or importer was unknown, and that private respondent was known to the Bureau of Customs given its registration as a garment manufacturer and exporter, so notice should have been sent to its address. The Court of Appeals concluded that because private respondent was not properly notified, the goods could not be considered impliedly abandoned cargo.

Petitioner then elevated the matter to the Supreme Court.

Contentions in the Supreme Court

Petitioner maintained that the RTC and the Court of Appeals erred on jurisdiction and should have dismissed the complaint outright. It argued that the central issue required assessment of the validity and regularity of abandonment and resulting ownership transfer by the District Collector of Customs. It contended that such questions fell within the exclusive competence of the District Collector and the appellate jurisdiction of the Court of Tax Appeals. Hence, it asserted that the RTC had no authority to review the abandonment proceedings or to declare them ineffective.

Petitioner also challenged procedural posture on the premise that private respondent’s cause of action against petitioner existed only if private respondent remained the owner when the fire occurred. Since the cargo had already been declared abandoned as final and executory as of October 30, 1989, and because the complaint was filed only after more than two years, petitioner asserted that the cargo had already become government property under Section 1802.

Private respondent replied that petitioner raised the jurisdictional challenge only for the first time at the Supreme Court and should thus be barred by laches. It also argued that the trial court did not review the administrative abandonment proceedings in the manner petitioner suggested; rather, it applied Section 1801’s notice requirement using the admitted facts, particularly that private respondent was not furnished the required notice giving it fifteen (15) days to file import entry documents. It argued that an administrative appeal would have been futile because the goods had already been destroyed by fire. It further contended that the Bureau of Customs had notice of the case through the testimony of its witness, yet did not intervene to claim ownership.

Core Issue: RTC Jurisdiction to Nullify the Abandonment Declaration

The Supreme

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