Asian Terminals, Inc. vs. Padoson Stainless Steel Corporation

A Bureau of Customs Hold-Order does not transfer constructive possession of goods to the BOC for the purpose of relieving the consignee of contractual liability for storage fees owed to an arrastre operator, because the BOC's jurisdiction under such orders is limited to enforcing customs laws, and contracts bind only the parties thereto.

Padoson Stainless Steel Corporation engaged Asian Terminals, Inc. to provide arrastre, wharfage, and storage services for imported steel coils at the South Harbor, Port of Manila. The shipments arrived in October 2001 and remained in ATI's custody until July 2006. In September 2001, the Bureau of Customs issued a Hold-Order against the shipments due to Padoson's tax liability, which was the subject of a separate customs case pending before the Regional Trial Court.

• Nature of the Contract: Padoson hired ATI to provide arrastre, wharfage, and storage services for nine stainless steel coils and seventy-two hot-rolled steel coils imported on October 5 and October 30, 2001, respectively.
• Storage Period: The goods were stored at ATI's premises from October 12, 2001, and November 8, 2001, respectively, until they were discharged on July 29, 2006.
• Bureau of Customs Hold-Order: On September 7, 2001, the BOC issued a Hold-Order against the shipments due to Padoson's tax liability in a pending customs case (Civil Case No. 01-102440) with the RTC of Manila, Branch 173.
• Demand and Complaint: ATI demanded payment of storage fees totaling ₱8,914,535.28. When Padoson refused, ATI filed a complaint for sum of money and damages with prayer for preliminary attachment on August 4, 2006.
• Defense and Counterclaim: Padoson alleged that the coils deteriorated and one went missing while in ATI's custody, claiming ATI failed to exercise extraordinary diligence. It asserted that the BOC's Hold-Order placed the goods in the BOC's constructive possession, relieving Padoson of liability for storage fees.
• Evidence Issues: Padoson relied on photographs and Sheriff's reports from the customs case to prove damage. The RTC disallowed the photographs in an Order dated September 8, 2011, for failure to pre-mark them during pre-trial; the CA upheld this in a final decision dated July 1, 2013. Padoson also presented Sheriff's reports and a Partial Return on Execution from the customs case, but did not present the Sheriff to testify.
• Lower Court Rulings: The RTC dismissed the complaint on July 16, 2012, ruling that the BOC had constructive possession by virtue of the Hold-Order and was an indispensable party not impleaded. The CA affirmed this on July 23, 2013.

• Misapplication of SBMA v. Rodriguez: ATI argued that the lower courts misapplied Subic Bay Metropolitan Authority v. Rodriguez, which requires actual possession by the BOC to trigger exclusive jurisdiction over seizure and forfeiture proceedings, not constructive possession via a Hold-Order.
• Relativity of Contracts: The liability for storage fees arises solely from the contract between ATI and Padoson; the BOC, not being a party, cannot be held liable, and its Hold-Order does not extinguish Padoson's contractual obligation.
• Indispensable Party: The BOC is not an indispensable party because its interest (tax collection) is distinct and divisible from ATI's claim for storage fees; complete relief can be granted without the BOC.
• Due Process and Evidence: Padoson failed to prove damage. Documents from the customs case (Sheriff's reports) are inadmissible against ATI because ATI was not a party and was denied due process (no opportunity to cross-examine). The photographs were not authenticated by the photographer.
• Damages: ATI maintained it was entitled to exemplary damages and attorney's fees.

• Constructive Possession: Padoson maintained that the BOC acquired constructive possession over the shipments by virtue of the Hold-Order, citing SBMA v. Rodriguez.
• Exoneration from Liability: Because the BOC had constructive possession, Padoson could not be held liable for storage fees; the BOC should pay but was not impleaded, necessitating dismissal.
• Negligence and Damages: Padoson argued that ATI failed to exercise extraordinary diligence, causing deterioration and loss of the coils, as evidenced by Sheriff's reports and photographs showing the goods in a deteriorating condition in an open area.

• Constructive Possession and Liability: Whether the BOC's issuance of a Hold-Order transferred constructive possession of the goods to the BOC, thereby relieving Padoson of its contractual liability to ATI for storage fees.
• Indispensable Party: Whether the BOC is an indispensable party to the collection suit filed by ATI against Padoson.
• Due Process and Admissibility of Evidence: Whether Padoson proved that the shipments sustained damage while in ATI's custody, considering the evidence originated from proceedings to which ATI was not a party.
• Applicability of Interest Rates: What is the applicable rate of interest on the monetary award.

• Constructive Possession: The BOC did not acquire constructive possession over the shipments by merely issuing a Hold-Order. SBMA v. Rodriguez was misapplied; it requires actual possession for the BOC to acquire exclusive jurisdiction over seizure and forfeiture proceedings. The BOC's jurisdiction is limited to enforcing customs laws (tax collection), not adjudicating private storage fee disputes.
• Relativity of Contracts: Padoson remains liable to ATI for storage fees based on their contract of service. Under the principle of relativity of contracts, only parties to the contract are bound; the BOC was not privy to the agreement. The Hold-Order was extraneous to the contractual obligation.
• Indispensable Party: The BOC is not an indispensable party. Its interest in tax collection is distinct and divisible from ATI's claim for storage fees. Complete relief can be afforded to ATI without the BOC's presence, and the BOC's rights will not be prejudiced by a judgment against Padoson.
• Due Process and Evidence: Padoson failed to prove damage. Documents from the customs case are inadmissible against ATI because ATI was not a party to those proceedings and was denied due process (no opportunity to cross-examine). The photographs were not authenticated by the photographer as required. Mere allegations without competent proof are insufficient.
• Interest Rate: The obligation is not a loan or forbearance of money. Applying the transition rule in Nacar v. Gallery Frames, the rate of interest shall be twelve percent (12%) per annum from August 4, 2006 (date of judicial demand) to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until full satisfaction.
• Exemplary Damages and Attorney's Fees: Denied. No factual basis for bad faith or wanton conduct required under Articles 2229 and 2208 of the Civil Code.

• Relativity of Contracts — Contracts bind only the parties thereto and cannot favor or prejudice third persons not privy thereto. The Court applied this to hold that the BOC, not a party to the storage contract, could not be liable for fees, nor could its Hold-Order relieve Padoson of its contractual obligation.
• Indispensable Party — Defined as one whose interest is affected by the court's action and without whom no final determination can be had. The Court held that a party is not indispensable if its interest is distinct and divisible from the others', and complete relief can be had without them. Applied to exclude the BOC, whose tax collection interest was separate from the private debt.
• Due Process in Evidence — A party cannot be bound by evidence or proceedings in a case to which it was not a party and had no opportunity to be heard. The Court excluded Sheriff's reports from the customs case because ATI was not impleaded there and could not cross-examine.
• Authentication of Photographic Evidence — Photographs must be identified by the photographer as to their production and circumstances; the witness must testify they are correct representations of the original. The Court excluded photos where the witness admitted she did not take them.
• Legal Interest Rates (Nacar v. Gallery Frames Framework) — Distinguishes between loan/forbearance (12%/6% from default) and other obligations (6% from demand or finality). Post-finality interest is 12% (now 6%) as equivalent to forbearance. The transition date is July 1, 2013 (BSP-MB Circular 799).

• "Nowhere in the SBMA case did we exclaim that the moment a Hold-Order has been issued, the BOC acquires constructive possession over the subject shipment. On the contrary, what we stated is that once the BOC is actually in possession of the subject shipment by virtue of a Hold-Order, it acquires exclusive jurisdiction over the same for the purpose of enforcing the customs laws." — Clarifying that actual, not constructive, possession triggers BOC's exclusive jurisdiction.
• "The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof." — Basis for holding Padoson solely liable.
• "An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had... Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties..." — Test for indispensable parties applied to exclude BOC.
• "The essence of due process is the opportunity to be heard, logically preconditioned on prior notice, before judgment is rendered... No man shall be affected by any proceeding to which he is a stranger." — Basis for excluding evidence from the customs case.
• "Evidence which has not been admitted cannot be validly considered by the courts in arriving at their judgments." — Reinforcing the exclusion of unmarked photographs.

• Subic Bay Metropolitan Authority v. Rodriguez, 633 Phil. 196 (2010) — Distinguished; clarified that the case requires actual possession by BOC for exclusive jurisdiction, not constructive possession.
• LICOMCEN, Inc. v. Engr. Abainza, 704 Phil. 166 (2013) — Cited for the rule that issues not in the pre-trial order may only be considered if impliedly included.
• PNB v. Heirs of Militar, 504 Phil. 634 (2005) — Cited for the definition of indispensable party.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Applied for the framework on interest rates and the transition from 12% to 6%.

• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by ATI.
• Article 1311, Civil Code — Relativity of contracts; contracts bind only parties thereto.
• Article 1169, Civil Code — Default; relevant to commencement of interest.
• Article 2208, Civil Code — Requisites for award of attorney's fees.
• Article 2229, Civil Code — Exemplary damages imposed by way of example or correction.
• Article 2234, Civil Code — Requisite that other damages be awarded before exemplary damages.
• BSP-MB Circular No. 799, Series of 2013 — Reduced legal interest rate to 6% effective July 1, 2013.

Del Castillo (Acting Chairperson), Jardeleza, and Gesmundo, JJ.