Designer Baskets, Inc. vs. Air Sea Transport, Inc. and Asia Cargo Container Lines, Inc.

A common carrier does not breach its obligation of extraordinary diligence when it delivers goods to the consignee without the surrender of the original bill of lading, provided the bill of lading imposes no express condition requiring such surrender, and the release is covered by an indemnity agreement or receipt under Article 353 of the Code of Commerce. The contract of carriage is separate from the contract of sale; the carrier is not liable for the buyer’s failure to pay the purchase price.

Designer Baskets, Inc. (DBI), a domestic exporter of housewares, received an order from foreign-based Ambiente for 223 cartons of wooden items worth US$12,590.87, payable via telegraphic transfer. Ambiente designated Asia Cargo Container Lines, Inc. (ACCLI), agent of US-based carrier Air Sea Transport, Inc. (ASTI), to ship the goods. On January 7, 1996, DBI delivered the shipment to ACCLI and received ASTI Bill of Lading No. AC/MLLA601317. DBI retained the original bills pending Ambiente’s payment. On January 23, 1996, Ambiente and ASTI executed an Indemnity Agreement under which ASTI agreed to deliver the goods without surrender of the bill of lading due to its “non-arrival or loss,” with Ambiente undertaking to indemnify ASTI. ASTI released the goods to Ambiente without DBI’s knowledge or receipt of payment. DBI’s subsequent demands for payment against Ambiente went unheeded.

• The Transaction and Shipment: DBI, a domestic corporation engaged in export, sold 223 cartons of wooden items to Ambiente, a foreign-based buyer, for US$12,590.87, payable by telegraphic transfer. Ambiente designated ACCLI as forwarding agent and ASTI as carrier. On January 7, 1996, DBI delivered the goods to ACCLI in Manila for ocean transport to Beverly Hills, California. ACCLI issued to DBI triplicate copies of ASTI Bill of Lading No. AC/MLLA601317 as the contract of carriage.
• The Bill of Lading and Retention: The face of the bill of lading stated: “Received by the Carrier in apparent good order and condition … the Container(s) and/or goods … upon and subject to all the terms and conditions appearing on the face and back of this Bill of Lading. If required by the Carrier this Bill of Lading duly endorsed must be surrendered in exchange for the Goods or delivery order.” DBI retained possession of the original bills pending Ambiente’s full payment of the goods.
• The Indemnity Agreement and Release: On January 23, 1996, Ambiente and ASTI entered into an Indemnity Agreement wherein Ambiente obligated ASTI to deliver the shipment without surrender of the relevant bill of lading “due to the non-arrival or loss thereof,” and Ambiente agreed to indemnify and hold ASTI harmless from any resulting liability. ASTI subsequently released the entire shipment to Ambiente without DBI’s knowledge and without DBI receiving payment.
• Demand and Non-Payment: DBI repeatedly demanded payment from Ambiente, but Ambiente failed to pay the total cost of the shipment. DBI then filed its complaint against ASTI, ACCLI, and ACCLI’s incorporators-stockholders, later impleading Ambiente.
• Defense of the Carriers: ASTI and ACCLI asserted that the bill of lading did not require surrender before release; that the matter was simply an unpaid buyer case; that the release was lawful under Article 353 of the Code of Commerce; and that their only obligation — delivery in good condition — was performed. The trial court nevertheless found them solidarily liable with Ambiente. The CA reversed as to ASTI and ACCLI.

• Breach of Carrier’s Duty: DBI maintained that under the bill of lading, ASTI and ACCLI were obliged to deliver the cargo only upon surrender of the original bills, and that releasing the goods without such surrender made them liable for the value of the shipment under Articles 1733, 1734, and 1735 of the Civil Code.
• Inapplicability of Article 353 of the Code of Commerce: DBI argued that Article 1503 of the Civil Code — a special and later provision dealing specifically with the seller retaining the bill of lading — should prevail over the general provision of Article 353 of the Code of Commerce, and that the carrier’s release under an indemnity agreement could not defeat its rights as unpaid seller.
• Liability of ACCLI: DBI asserted that ACCLI should be jointly and severally liable because it failed to register ASTI as a foreign corporation doing business in the Philippines and failed to secure a license to act as agent, warranting the piercing of the corporate veil.

• No Absolute Obligation to Require Surrender: ASTI and ACCLI countered that the bill of lading contained no absolute stipulation requiring surrender before delivery; the phrase “If required by the Carrier” made it optional, not mandatory.
• Valid Release Under Article 353: They contended that Article 353 of the Code of Commerce expressly allows release without the bill of lading when it is lost or for any other cause, provided the consignee gives a receipt. The Indemnity Agreement served as a receipt in substantial compliance.
• Separate Contracts of Sale and Carriage: Respondents stressed that their obligation as common carrier was solely to deliver the goods in good condition — an obligation they fulfilled. The non-payment by the buyer is a matter between DBI and Ambiente, wholly outside the contract of carriage.

• Surrender of Bill of Lading: Whether ASTI and ACCLI may be held liable for releasing the goods to the consignee without the surrender of the original bill of lading, where the bill of lading itself did not expressly require such surrender.
• Applicable Law: Whether Article 353 of the Code of Commerce or Article 1503 of the Civil Code governs the carrier’s obligation when the seller retains the bill of lading.
• Extraordinary Diligence: Whether the release of goods without the surrender of the bill of lading constitutes a breach of the common carrier’s duty of extraordinary diligence under Articles 1733, 1734, and 1735 of the Civil Code.
• Liability of the Agent: Whether ACCLI, as a disclosed agent of ASTI, may be held solidarily liable with the carrier and the buyer.

• Surrender of Bill of Lading: No absolute obligation to withhold delivery existed. Article 353 of the Code of Commerce provides the general rule that the consignee returns the bill upon receipt of goods, but permits delivery without it when the bill is lost or for any other cause, upon the consignee’s issuance of a receipt. DBI’s retention of the bill pending payment constituted “other cause.” The Indemnity Agreement between Ambiente and ASTI, pursuant to which the goods were released, operated as a receipt in substantial compliance with Article 353. The bill of lading itself conditioned surrender only “if required by the Carrier,” imposing no mandatory prohibition. Jurisprudence — Republic v. Lorenzo Shipping, Macam v. Court of Appeals, and Eastern Shipping Lines v. Court of Appeals — uniformly hold that non-surrender of the original bill does not per se violate the carrier’s duty.
• Applicable Law: Article 1503 of the Civil Code, together with Article 1523, pertains to the contract of sale between seller and buyer and determines which party has the right of possession or ownership over the goods. It does not impose an obligation on the common carrier to withhold delivery. The action below was a complaint for sum of money against the carrier for releasing goods without the bill of lading, not an action by the seller asserting ownership. The contract of carriage is distinct and governed by the Code of Commerce and the bill of lading.
• Extraordinary Diligence: Articles 1733, 1734, and 1735 of the Civil Code impose extraordinary diligence upon common carriers only as to the loss, destruction, or deterioration of the goods. That duty ceases upon actual or constructive delivery to the consignee. It was undisputed that the goods were delivered in good condition to Ambiente, the authorized consignee. The non-surrender of the bill, in the absence of an express prohibition, does not fall within these articles. Article 353 expressly allowed the release.
• Liability of the Agent: ACCLI acted as a mere agent of ASTI, a relationship established and not disputed. No evidence showed that ACCLI exceeded its authority. Thus, ACCLI cannot be held solidarily liable.

• Release Without Original Bill of Lading — Article 353 of the Code of Commerce does not make the surrender of the original bill of lading an absolute prerequisite for delivery. The law recognizes two exceptions: when the bill is lost, or for any other cause. In either case, the consignee need only issue a receipt, which produces the same effect as the surrender of the bill. An indemnity agreement may constitute substantial compliance with the receipt requirement. The carrier’s duty is discharged upon such delivery.
• Separation of Contracts of Sale and Carriage — A contract of carriage is independent of the contract of sale between shipper and buyer. The carrier’s sole obligation is to transport the goods and deliver them in good condition to the consignee. Liability for non-payment of the purchase price rests exclusively on the buyer; the carrier is not privy to the sale and cannot be compelled to answer for the buyer’s default.
• Scope of Extraordinary Diligence — The common carrier’s duty of extraordinary diligence under Articles 1733 to 1735 of the Civil Code pertains strictly to the physical safety and preservation of the goods (against loss, destruction, or deterioration) and terminates upon actual or constructive delivery to the consignee or person authorized to receive them. It does not encompass an obligation to verify that the shipper has been paid or to insist on the surrender of the bill of lading when the contract of carriage does not require it.

• “The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the carrier and their respective obligations are considered canceled. The law, however, provides two exceptions where the goods may be released without the surrender of the bill of lading because the consignee can no longer return it. These exceptions are when the bill of lading gets lost or for other cause.”
• “Articles 1733, 1734, and 1735 speak of the common carrier’s responsibility over the goods. They refer to the general liability of common carriers in case of loss, destruction or deterioration of goods … It is, in fact, undisputed that the goods were timely delivered to the proper consignee … DBI’s only cause of action … is the release of the goods … without the surrender of the bill of lading … Without any prohibition, therefore, the carrier had no obligation to withhold release of the goods.”
• “Articles 1523 and 1503 do not apply to a contract of carriage between the shipper and the common carrier. The third paragraph of Article 1503 … does not oblige the common carrier to withhold delivery of the goods in the event that the bill of lading is retained by the seller. Rather, it only gives the seller a better right to the possession of the goods as against the mere inchoate right of the buyer.”

• Republic v. Lorenzo Shipping Corporation, G.R. No. 153563, February 7, 2005, 450 SCRA 550 — Followed; established that the surrender of the original bill of lading is not a condition precedent for the discharge of the carrier’s contractual obligation; release based on delivery receipts and certified true copies of bills of lading satisfied the duty of extraordinary diligence.
• Macam v. Court of Appeals, G.R. No. 125524, August 25, 1999, 313 SCRA 77 — Followed; absolved the carrier from liability for releasing goods without surrender of bills of lading based on the shipper’s telexed instructions, demonstrating flexibility of the rule under Article 353.
• Eastern Shipping Lines v. Court of Appeals, G.R. No. 80936, October 17, 1990, 190 SCRA 512 — Followed; recognized an Undertaking for Delivery of Cargo as a valid receipt under the last paragraph of Article 353, where the consignee could not return the bill of lading for a cause, and upheld the carrier’s release of goods.
• Loadstar Shipping Company, Incorporated v. Malayan Insurance Company, Incorporated, G.R. No. 185565, November 26, 2014, 742 SCRA 627 — Followed; underscored that a contract of carriage is distinct from a contract of sale; carriers are bound by transportation law and their contract of affreightment, not by the sale agreement between seller and buyer.
• Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439 — Applied to modify the rate of legal interest on the buyer’s obligation from 12% to 6% per annum from the finality of the judgment until full satisfaction.

• Article 353, Code of Commerce — Governs the return of the bill of lading upon delivery. The third paragraph permits release without its surrender in case of loss or any other cause, upon the consignee’s issuance of a receipt that produces the same effects. The Indemnity Agreement was treated as such a receipt, validating the release to Ambiente.
• Articles 1733, 1734, and 1735, Civil Code — Impose extraordinary diligence upon common carriers for the loss, destruction, or deterioration of goods and create a presumption of negligence. Held inapplicable because the goods were delivered in good condition to the proper consignee; the complaint did not involve loss or deterioration but rather release without the bill.
• Article 1503, Civil Code — Addresses reservation of ownership in a contract of sale where the seller retains the bill of lading. The Court held that this provision governs only the rights of the seller as against the buyer, not the obligations of the carrier under a distinct contract of carriage.

Velasco, Jr. (Chairperson), Peralta, Perez, and Reyes, JJ., concurred.