Keng Hua Paper Products Co. Inc. vs. Court of Appeals

Acceptance of a bill of lading by the consignee with full knowledge of its contents creates a perfected contract of carriage among shipper, carrier, and consignee, rendering the consignee liable for demurrage for failure to discharge the cargo within the allowed free time, regardless of overshipment claims rooted in a separate sales or letter-of-credit arrangement. Demurrage, being an unliquidated claim until judicially assessed, earns legal interest only from the date of judgment adjudicating the amount due.

Sea-Land Service, Inc., a foreign shipping company licensed in the Philippines, received at its Hong Kong terminal a sealed container with seventy-six bales of unsorted waste paper from shipper Ho Kee Waste Paper, consigned to Keng Hua Paper Products in Manila. A bill of lading was issued covering the shipment. The consignment was part of a purchase by Keng Hua under a letter of credit that permitted partial deliveries. When the container arrived in Manila, Keng Hua refused to receive it, claiming the quantity shipped exceeded the remaining balance under the credit and that acceptance would violate customs and Central Bank regulations. The carrier, kept in the dark for months, eventually demanded demurrage for the prolonged detention of its container.

• The Shipment and Bill of Lading: On June 29, 1982, private respondent Sea-Land Service, Inc. received at its Hong Kong terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of unsorted waste paper for shipment to petitioner Keng Hua Paper Products in Manila. A bill of lading was issued to cover the shipment under a “Shipper’s Load And Count” arrangement, meaning the shipper alone was responsible for loading and the carrier had no knowledge of the contents.

• Arrival and Failure to Discharge: The shipment was discharged at the Manila International Container Port on July 9, 1982. Arrival notices were transmitted to petitioner. The grace period for discharging the container without charge expired on July 29, 1982. Petitioner failed to unload the cargo throughout the free time and for 481 days thereafter, until the shipment was eventually unstuffed on November 22, 1983.

• Demurrage Accrued and Demands Made: As a result of the prolonged detention of the container, demurrage charges accumulated to a total of ₱67,340.00. Sea-Land sent several demand letters. Its loss and prevention manager initially demanded ₱50,260.00 in March 1983, and its counsel later demanded ₱37,800.00 in April 1983, the variance reflecting the mounting charges over time. Petitioner refused to pay.

• Petitioner’s Refusal and Alleged Overshipment: Petitioner claimed that it had purchased only fifty metric tons of waste paper from Ho Kee Waste Paper under Letter of Credit No. 824858, with partial shipment permitted. As of the relevant date, the remaining balance was only ten metric tons. The bill of lading, however, described a shipment of 20,313 kilograms—roughly twice the allowable balance. Petitioner argued that accepting the overshipment would violate Central Bank rules and customs and tariff laws. It maintained that it had notified the carrier of the wrong shipment through a letter dated January 24, 1983 and that it had never accepted the bill of lading. The trial court and the Court of Appeals found that petitioner had received the bill of lading without objection and that its prolonged silence constituted acceptance of the contract of carriage and its demurrage stipulations.

• Non-Acceptance of Bill of Lading: Petitioner maintained that it never gave consent to the bill of lading and should not be bound by its terms. Although it physically received the document, its subsequent actions—particularly the “Notice of Refused or On Hand Freight” issued by respondent and petitioner’s January 24, 1983 letter—demonstrated that it declined the shipment and thus did not accept the contract of carriage.

• Overshipment Justified Refusal: Petitioner argued that the shipment exceeded the remaining balance under its letter of credit by ten metric tons, making acceptance tantamount to smuggling and exposing it to legal sanctions for violating customs, tariff, and Central Bank laws. The demurrage was solely a consequence of the shipper’s mistake.

• Improper Quantum of Demurrage: Petitioner contended that prior to suit, respondent made no demand for the exact amount of ₱67,340.00; the earlier demands for ₱50,260.00 and ₱37,800.00 rendered the final claim uncertain and unenforceable.

• Interest Should Not Run from Extrajudicial Demand: Petitioner argued that it first learned of the ₱67,340.00 claim only upon receiving the summons and complaint; thus, legal interest could not be imposed from the dates of the prior extrajudicial demands, especially when no demand for interest accompanied those letters.

• Binding Effect of the Bill of Lading: Respondent Sea-Land Service, Inc. maintained that petitioner, as consignee, received the bill of lading and kept it without objection for an unreasonable period, thereby impliedly accepting all its terms, including the demurrage provision in Section 17.

• Overshipment Immaterial to Carrier’s Claim: Respondent countered that any discrepancy between the quantity stated in the commercial invoice and the bill of lading was a matter between buyer and seller under the sales contract and the letter of credit, not a defense against the carrier that transported the sealed container under “Shipper’s Load And Count.” The carrier had neither the duty nor the means to verify the contents.

• Demurrage Properly Computed: Respondent argued that the mounting demurrage charges reflected the continuing detention of the container, and the differing demand amounts merely mirrored the accumulation over time, not an inconsistency.

• Acceptance of Bill of Lading: Whether petitioner, as consignee, became bound by the bill of lading, including its demurrage clause, despite having objected to the shipment only six months after receiving the document.

• Effect of Alleged Overshipment: Whether the claimed overshipment under the separate sales and letter-of-credit arrangements justified petitioner’s refusal to receive the cargo and relieved it of liability for demurrage.

• Amount of Demurrage: Whether the award of ₱67,340.00 was proper in light of prior demands for lower amounts.

• Interest: Whether legal interest on the demurrage award should run from the date of extrajudicial demand or from the date of judicial determination.

• Acceptance of Bill of Lading: Petitioner was bound by the bill of lading. A bill of lading delivered and accepted constitutes a contract of carriage even if not signed. Petitioner admitted receiving the bill upon the shipment’s arrival on July 8, 1982, yet it did not voice any objection or dissent for six months, until its letter of January 24, 1983. That letter merely communicated an inability to use the delivery permit due to the shipper’s non-compliance with the letter of credit; it did not repudiate the bill of lading itself. Such prolonged inaction gave rise to the presumption that petitioner accepted all terms and conditions with full knowledge of their contents. Moreover, the issue of acceptance was raised for the first time only in petitioner’s Supreme Court memorandum and was therefore barred by estoppel.

• Effect of Alleged Overshipment: The alleged overshipment did not excuse petitioner’s failure to discharge the cargo. The contract of carriage embodied in the bill of lading is independent of the contract of sale and the letter of credit. As the carrier cannot be expected to look beyond the shipper’s representations in the bill of lading or to verify the contents of a sealed container under “Shipper’s Load And Count,” a discrepancy between the invoice quantity and the bill of lading does not affect the consignee’s obligations under the transportation contract. Mere apprehension of violating customs, tariff, and central bank laws, without proof of legal impossibility under Article 1266 of the Civil Code, cannot defeat contractual liability. Petitioner’s remedy lay against the shipper, not the carrier.

• Amount of Demurrage: The factual finding that demurrage totalled ₱67,340.00 was affirmed. The trial court’s determination, supported by the evidence and the testimony of respondent’s counsel, was binding. The variation in earlier demand amounts merely reflected the escalating charges as the container remained unclaimed; thus, no inconsistency existed.

• Interest: The demurrage claim was an unliquidated one—its exact amount could not be known with reasonable certainty until determined by the court. Therefore, pursuant to Article 2209 of the Civil Code and the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals, the applicable interest was six percent per annum computed from September 28, 1990 (the date of the trial court’s decision), not from the dates of extrajudicial demand. From the time the judgment became final and executory, the rate increased to twelve percent per annum until full satisfaction. The award of attorney’s fees was deleted for lack of textual reasoning in the RTC decision.

• Bill of Lading as Receipt and Contract — A bill of lading serves two functions: it is a receipt for the goods shipped, and it is a contract by which the shipper, carrier, and consignee assume specific responsibilities and stipulated obligations. The document, once delivered and accepted, constitutes the contract of carriage even without the consignee’s signature.

• Implied Acceptance of Bill of Lading — Acceptance of a bill of lading with actual or constructive notice of its terms constitutes acceptance of the contract and all its conditions. A consignee who retains the bill without objection for an unreasonable time is presumed to have agreed to its stipulations.

• Independence of Letter-of-Credit Contracts — The three contracts comprising a letter-of-credit transaction—the sales contract, the contract between buyer and issuing bank, and the letter of credit itself—are to be maintained in a state of perpetual separation. Similarly, a contract of carriage embodied in a bill of lading is independent of the underlying sales and credit arrangements. A carrier is not required to verify the accuracy of the shipper’s declarations against the commercial invoice or letter of credit.

• Demurrage as Compensation for Detention — Demurrage is an allowance or compensation for the delay or detention of a vessel. Even absent an express contractual stipulation, demurrage may serve as the measure of damages for wrongful detention, being founded on mercantile usage as to indemnity.

• Interest on Unliquidated Damages — Under the Eastern Shipping guidelines, when an obligation not constituting a loan or forbearance of money is breached, interest at six percent per annum may be imposed at the court’s discretion. However, no interest accrues on unliquidated claims until the demand can be established with reasonable certainty. Where such certainty cannot be achieved at the time of extrajudicial demand, interest begins to run only from the date of the judgment quantifying the damages. Once the judgment becomes final and executory, the rate becomes twelve percent per annum until satisfaction.

• “A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations.” — This passage encapsulates the dual character of a bill of lading and was central to holding petitioner bound.

• “Acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice.” — Quoted from 17 C.J.S. 672, this rule anchored the finding of implied acceptance through petitioner’s prolonged inaction.

• “In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. … It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship’s expenses, wear and tear, and common employment.” — From The Apollon (22 U.S. 362), this excerpt articulates the nature and rationale of demurrage.

• Magellan Mftg. Marketing Corp. v. Court of Appeals, 201 SCRA 102 (1991) — Cited for the dual function of a bill of lading as both receipt and contract.

• Pan American World Airways, Inc. v. IAC, 164 SCRA 268 (1988); Ong Yiu v. Court of Appeals, 91 SCRA 223 (1979) — Relied upon for the rule that a bill of lading delivered and accepted constitutes a contract of carriage even if unsigned.

• Saludo, Jr. v. Court of Appeals, 207 SCRA 498 (1992) — Invoked to support the principle that acceptance of a bill of lading with knowledge of its contents gives rise to a perfected and binding contract.

• The Apollon, 22 U.S. (9 Wheat.) 362 (1824) — A classic admiralty case defining demurrage as compensation for vessel detention, used to validate the imposition of demurrage even absent a specific contractual quantum.

• Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 88 (1994); Philippine National Bank v. Court of Appeals, 263 SCRA 766 (1996) — Applied as the controlling framework for computing legal interest on unliquidated damages, establishing the two-tiered six percent/twelve percent rule.

• Francel Realty Corporation v. Court of Appeals, 252 SCRA 127 (1996) — Cited for the requirement that the text of a decision must state the reasons for awarding attorney’s fees; without such justification, the award must be struck down.

• Section 17, Bill of Lading — The stipulation making shipper and consignee liable for demurrage and other charges incurred through delay or failure to discharge the container. This contractual provision served as the direct basis for petitioner’s liability.

• Article 2209, Civil Code — Governs the rate of legal interest for obligations not involving loans or forbearances of money, applied to fix the six percent per annum interest on the unliquidated demurrage claim.

• Article 1266, Civil Code — Provides that an obligor is released when the prestation becomes legally or physically impossible without the obligor’s fault. The Court found no clear demonstration of legal impossibility to excuse petitioner’s obligation.

Davide, Jr., Bellosillo, Vitug, and Quisumbing, JJ., concurred.