Everett Steamship Corporation vs. Hernandez Trading Co. Inc.

A limited-liability clause in a bill of lading that limits the carrier’s liability to a fixed amount per package unless the shipper declares a higher value and pays extra freight is valid and binding on the consignee who sues to enforce the contract of carriage, provided the stipulation is reasonable and just, was freely agreed upon between the shipper and the carrier, and the consignee’s standing is derived from that contract.

Hernandez Trading Co. Inc., a domestic corporation, imported three crates of bus spare parts from its Japanese supplier, Maruman Trading Company, Ltd. The goods were shipped from Nagoya to Manila aboard a vessel owned by Everett Steamship Corporation’s principal, Everett Orient Lines, under Bill of Lading No. NGO53MN. Upon arrival, one of the crates was missing. The carrier admitted the loss in writing but offered to settle at the maximum amount stated in the bill of lading’s limitation clause — ¥100,000 per package. Hernandez Trading rejected the offer and filed a collection suit for the full invoice value.

• The Shipment and Loss: Hernandez Trading Co. Inc. imported three crates of bus spare parts from its Japanese supplier, Maruman Trading Company, Ltd., shipped from Nagoya to Manila on board “ADELFAEVERETTE,” a vessel of Everett Orient Lines. The shipment was covered by Bill of Lading No. NGO53MN. Upon discharge at the Port of Manila, the crate marked MARCO C/No. 14 was missing. Everett Steamship Corporation, as agent of the vessel owner, admitted the loss in a letter dated January 13, 1992.
• The Claim and Offer: Hernandez Trading made a formal claim for the full invoice value of the lost cargo, i.e., ¥1,552,500, as reflected in Invoice No. MTM-941 dated November 14, 1991. Everett Steamship offered to pay only ¥100,000, invoking Clause 18 of the bill of lading, which limited the carrier’s liability to that amount per package unless a higher value was declared in writing by the shipper and inserted in the bill of lading with corresponding extra freight paid.
• The Bill of Lading Clause: Clause 18 of Bill of Lading No. NGO53MN provided that all claims would be settled based on the shipper’s net invoice cost plus freight and insurance premiums, but that in no event would the carrier be liable for an amount exceeding ¥100,000 per package “unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.”
• Trial Court Proceedings: At pre-trial, the parties agreed to submit the case on memoranda without testimonial evidence. The trial court found that the carrier admitted the loss and failed to overcome the presumption of negligence. It refused to enforce the limitation clause, holding that the terms printed in fine letters at the back of the bill of lading could not give rise to a presumption that the shipper or consignee had “fairly and freely agreed” to them, as required by Article 1750 of the Civil Code. The trial court therefore ordered payment of the full invoice value, packaging cost, attorney’s fees, and costs.
• Court of Appeals Ruling: The Court of Appeals deleted the attorney’s fees but affirmed the trial court’s award. It held that Hernandez Trading, as consignee, was never privy to the contract of carriage between the shipper Maruman Trading and the carrier; thus, the consignee could not be bound by the bill of lading’s stipulations. The appellate court treated the carrier’s liability as arising under Article 1735 of the Civil Code for negligence, not from breach of contract.

• Consent of Consignee Unnecessary: Petitioner argued that the consent of the consignee to the terms and conditions of the bill of lading is not required for those stipulations to bind it. The bill of lading, being a contract of adhesion, is valid and binding on all parties who seek to enforce it, including a consignee who files suit for delivery or loss.
• Limited Liability Clause Applicable: Petitioner contended that Clause 18 of the bill of lading, which limits liability to ¥100,000 per package unless a higher valuation is declared and extra freight paid, was sanctioned by Articles 1749 and 1750 of the Civil Code and consistently upheld by the Supreme Court. Because the shipper did not declare a higher value or pay additional freight, the carrier’s exposure was capped at that amount.
• Full Recovery Should Not Be Allowed: Petitioner maintained that the consignee should not be allowed to recover the full alleged value of the lost cargo because the shipper had merely described the shipment as “3 CASES SPARE PARTS” in the bill of lading, and the commercial invoice alone was insufficient to prove that the carrier had knowledge of the cargo’s value.

• Limitation Clause Not Freely Agreed Upon: Respondent argued that the conditions printed at the back of the bill of lading in letters so small they were hard to read could not be considered “fairly and freely agreed upon” as required by Article 1750 of the Civil Code. The shipper and the consignee were not bound by the fine-print stipulations.
• Consignee Not a Party to the Contract: Respondent countered that, as consignee, it was not privy to the contract of carriage between the shipper and the carrier; therefore, it could not be bound by the terms and conditions of the bill of lading, including the limitation of liability.
• Full Value Declared Through Invoice: Respondent insisted that the shipper had “fully declared the shipment … the contents of each crate, the dimensions, weight and value of the contents” as shown in Commercial Invoice No. MTM-941, and that the carrier should consequently be liable for the full value of ¥1,552,500.

• Validity of Limitation Clause: Whether the limited-liability stipulation in Clause 18 of the bill of lading was valid and binding under Articles 1749 and 1750 of the Civil Code, despite being printed in fine print at the back of the document.
• Consignee’s Binding to Bill of Lading: Whether the respondent consignee, not a signatory to the bill of lading, was bound by the stipulations thereof, particularly the limitation-of-liability clause.
• Effect of the Commercial Invoice: Whether the shipper’s commercial invoice, which detailed the contents and value of the cargo, constituted a sufficient declaration of higher valuation to defeat the carrier’s limited liability under Clause 18.

• Validity of Limitation Clause: The limited-liability clause was valid and enforceable. Articles 1749 and 1750 of the Civil Code expressly permit a stipulation limiting the common carrier’s liability to a fixed sum unless the shipper declares a greater value. Clause 18, which capped liability at ¥100,000 per package while giving the shipper an option to declare a higher value and pay extra freight, was reasonable and just. The fact that the conditions appeared in fine print at the back of the bill of lading did not render them invalid; contracts of adhesion, such as a bill of lading, are not void per se. The shipper, Maruman Trading, a business entity experienced in international trade, was presumed to have read and consented to the terms. No complaint of deception or undue haste was made by the shipper.
• Consignee’s Binding to Bill of Lading: The respondent consignee was bound by the limitation clause even though it was not a signatory to the bill of lading. When a consignee demands performance of the contract of carriage — by filing a formal claim for the lost cargo and subsequently a court action based on the bill of lading — it accepts the entirety of that contract and becomes a party to it. The consignee’s right to recover springs either from an agency relationship with the shipper or from its status as a stranger in whose favor a stipulation was made; in either capacity, the consignee cannot selectively reject provisions of the same bill of lading it seeks to enforce. The stringent scrutiny required for contracts of adhesion was satisfied, and no evidence showed that the shipper was imposed upon.
• Effect of the Commercial Invoice: The commercial invoice did not operate as the declaration of higher value required to defeat the limited liability. Clause 18 mandated that the shipper declare a higher value in writing before receipt of the goods by the carrier, that the declaration be inserted in the bill of lading, and that extra freight be paid. None of these requisites were met. The bill of lading described the cargo simply as “3 CASES SPARE PARTS,” and the invoice alone did not prove that the carrier had knowledge of the cargo’s true value. The limited liability under Clause 18 therefore remained effective.

• Limited-Liability Clause in a Bill of Lading — Under Articles 1749 and 1750 of the Civil Code, a stipulation limiting a common carrier’s liability for loss of cargo to a fixed sum is valid and binding, provided it is reasonable and just under the circumstances and was freely and fairly agreed upon. A clause that caps liability per package but allows the shipper to declare a higher value and pay corresponding extra freight is inherently reasonable. The burden to declare the higher value rests on the shipper.
• Contracts of Adhesion — A bill of lading is a contract of adhesion. Such contracts are not void per se; the party adhering is free to reject the contract entirely, and if he adheres, he gives his consent. However, courts must scrutinize adhesion contracts with greater vigilance to protect a party at a disadvantage (Article 24, Civil Code). In the case of an experienced commercial shipper, the stipulations in fine print are binding unless fraud, deception, or undue pressure is shown.
• Consignee’s Acceptance of Contract Terms — A consignee who is not a signatory to the bill of lading is nonetheless bound by all its terms when it demands fulfillment of the contract of carriage, such as by filing a claim for lost cargo or a suit based on the bill of lading. By seeking to enforce the contract, the consignee ratifies and accepts it in its entirety and cannot selectively repudiate its limitations.
• Requisites for Overcoming Limited Liability — To defeat a valid limited-liability clause requiring a declaration of higher value, the shipper must: (1) declare the higher value in writing before the goods are received by the carrier; (2) have that declaration inserted in the bill of lading; and (3) pay the required extra freight. A separate commercial invoice, without compliance with these steps, is insufficient.

• “[T]he right of a party … to recover for loss of a shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to be hardly readable.” — This passage, quoting Sea-Land Service, Inc. v. Intermediate Appellate Court, establishes that a consignee who sues on the bill of lading accepts the entire contract and cannot challenge a clause on the ground of fine print.
• “When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently filed a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to court to enforce it. Thus, private respondent cannot now reject or disregard the carrier’s limited liability stipulation in the bill of lading.” — This excerpt captures the ratio that the act of filing suit constitutes acceptance of the contract’s terms.

• Sea-Land Service, Inc. v. Intermediate Appellate Court, 153 SCRA 552 (1987) — Controlling precedent. Held that a consignee is bound by a liability-limitation clause in a bill of lading and cannot assert that the clause was in fine print to avoid it. Reaffirmed that such clauses are sanctioned by Articles 1749 and 1750 of the Civil Code.
• Ong Yiu v. Court of Appeals, 91 SCRA 223 (1979) — Followed for the principle that contracts of adhesion are not entirely prohibited; the adhering party is free to reject the contract entirely, and consent is given by adherence.
• Philippine Airlines, Inc. v. Court of Appeals, 255 SCRA 48 (1996) — Cited to reinforce that contracts of adhesion are not invalid per se and have been repeatedly upheld.
• Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194 (1992) — Quoted for the rule that ignorance of a party does not excuse non-compliance with contractual stipulations, as the responsibility for comprehension devolves on the owner, shipper, or consignee.
• Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 — Relied upon for the proposition that a consignee who sues on a contract of carriage accepts all its provisions.

• Article 1749, Civil Code — “A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.” Applied to uphold the validity of the ¥100,000 limitation in Clause 18, as the shipper did not declare a greater value in the bill of lading.
• Article 1750, Civil Code — “A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly agreed upon.” Applied to find that the limitation clause was reasonable and that the shipper, an experienced trader, freely agreed to it; fine print did not negate consent.
• Article 24, Civil Code — Mandates courts to be vigilant for the protection of a party at a disadvantage due to ignorance, indigence, mental weakness, or other handicap. Used to justify the stricter scrutiny of adhesion contracts, though the facts showed the shipper was not a disadvantaged party.
• Article 1735, Civil Code — Provides for the presumption of negligence against common carriers for loss of goods. Invoked by the Court of Appeals but not the principal basis of the Supreme Court’s ruling; the Court instead resolved the case on the contractual limitation of liability.

Justices Regalado, Melo, Puno, and Mendoza concurred.