National Food Authority vs. Hongfil Shipping Corporation

A charterer who fails to load the full contracted cargo under a whole-vessel charter party is liable for deadfreight under Article 680 of the Code of Commerce, notwithstanding a “more or less” quantity clause, but demurrage cannot be recovered where the charter party explicitly stipulates “Demurrage/Dispatch: NONE” and the delay results from circumstances beyond the charterer’s control. Corporate officers incur no personal civil liability for obligations contracted in their official capacity, absent a showing of bad faith, gross negligence, or a specific legal or contractual undertaking to be personally bound.

NFA needed to transport corn grains from Cagayan de Oro to Manila. Through its officers, it executed a “Letter of Agreement for Vessel/Barge Hire” with Hongfil Shipping Corporation, chartering the vessel MV CHARLIE/DIANE for the shipment of 200,000 bags of corn grains, more or less. The agreement fixed a freight rate of P7.30 per bag, stated laydays as “Customary Quick Dispatch,” and contained a line item “Demurrage/Dispatch: NONE.” Loading at Cagayan de Oro was delayed by a strike of arrastre workers; unloading at North Harbor, Manila, was delayed by the unavailability of a berthing space due to port congestion. After discharge, only 166,798 bags were delivered. NFA paid freight on that quantity but rejected Hongfil’s subsequent billing for deadfreight on the unshipped bags and demurrage for the vessel’s detention, prompting Hongfil to sue.

• Nature of the Transaction: NFA and Hongfil entered into a “Letter of Agreement for Vessel/Barge Hire,” a contract of affreightment where the shipowner retained possession and control of the vessel and granted NFA the use of its cargo space.
• Key Contractual Terms: The vessel MV CHARLIE/DIANE was to load “200,000 bags, more or less” of corn grains at Cagayan de Oro City and discharge at North Harbor, Manila. Laydays were designated “Customary Quick Dispatch” (CQD). The freight rate was P7.30 per bag, based on out-turn weight at 50 kilos per bag. The contract contained the stipulation “Demurrage/Dispatch: NONE.”
• Loading and Delay: The vessel arrived at Cagayan de Oro on February 6, 1987, and NFA received notice of readiness on February 9, 1987. The arrastre operator, Gold City Integrated Port Services, Inc. (INPORT), certified that loading would take 7 days, 8 hours, and 43 minutes. Loading commenced on February 10, 1987 and was completed only on March 4, 1987 — a total of 21 days, 15 hours, and 18 minutes. The delay was caused by a strike of the arrastre workers who refused to work. NFA’s Provincial Manager allowed the vessel to depart on March 6, 1987.
• Unloading and Delay: The vessel arrived at the Port of Manila on March 11, 1987. A certification of discharging rate estimated 12 days, 6 hours, and 22 minutes to unload. Unloading began on March 15, 1987 and finished on April 7, 1987 — a total of 20 days, 14 hours, and 33 minutes. The delay resulted from the unavailability of a berthing space because of congestion at North Harbor, where numerous vessels were waiting to dock.
• Cargo Shortfall and Billing: Only 166,798 bags were discharged at Manila, leaving 33,201 bags unshipped. After discharge, NFA paid P1,006,972.11, representing freight for the actually unloaded quantity. Hongfil subsequently billed NFA for deadfreight on the 33,201 unshipped bags (P242,367.30) and for demurrage (P1,152,687.50) based on the detention of the vessel. NFA refused payment.
• Lower Courts’ Findings: The RTC and the Court of Appeals both found NFA liable for deadfreight and demurrage. The CA deleted the RTC’s award of attorney’s fees but otherwise affirmed, holding that Article 680 of the Code of Commerce imposed deadfreight liability and that demurrage was demandable under Article 656 because the delay exceeded the customary period.

• Deadfreight: Petitioners argued that the phrase “200,000 bags, more or less” made the quantity flexible, and since the freight rate was based on actual out-turn weight per bag, NFA was obliged to pay only for the 166,798 bags actually unloaded.
• Demurrage: Petitioners contended that the charter party expressly stipulated “Demurrage/Dispatch: NONE,” which precluded any demurrage claim. The delays in loading and unloading were caused by a stevedore strike and berth unavailability — events beyond NFA’s control and not attributable to its fault.
• Personal Liability of Officers: Petitioners maintained that the individual officers signed the agreement solely in their official capacities as NFA officers and therefore incurred no personal civil liability.

• Deadfreight: Respondent Hongfil countered that NFA chartered the entire vessel, bound itself to ship 200,000 bags, and under Article 680 of the Code of Commerce was liable for freight on the unshipped portion as deadfreight; the phrase “more or less” did not obliterate the definite quantity.
• Demurrage: Respondent argued that even without an express demurrage rate, Article 656 of the Code of Commerce allowed recovery for unreasonable delay that exceeded the customary period, and the protracted loading and unloading made NFA liable.
• Personal Liability: Respondent asserted that the officers who signed the contract should be held solidarily liable.

• Deadfreight: Whether NFA is liable for deadfreight for the 33,201 bags not shipped, considering the contract stated “200,000 bags, more or less” and the freight rate was tied to out-turn weight.
• Demurrage: Whether NFA is liable for demurrage despite the express contractual term “Demurrage/Dispatch: NONE” and the causes of the delays (arrastre strike and lack of berthing space).
• Personal Liability of Officers: Whether the individual NFA officers — Roselinda Geraldez, Ramon Sargan, and Apelina A. Yap — incurred personal civil liability under the charter party.

• Deadfreight: NFA was liable for deadfreight. The charter party was one for the whole vessel, and evidence — including a letter from NFA Administrator Emil Ong that the vessel was chartered “to load our 200,000 bags corn grains” — confirmed that the agreed cargo was 200,000 bags. The words “more or less” serve only to cover slight or unimportant inaccuracies and do not destroy the obligation to ship the stated quantity when the parties’ true intention is otherwise clear. Because only 166,798 bags were loaded, the 33,201 unshipped bags constituted deadfreight. Under Article 680 of the Code of Commerce, a charterer who fails to complete the full cargo must pay the freightage for the unshipped amount. NFA was accordingly ordered to pay Hongfil P242,367.30 (33,201 bags × P7.30).
• Demurrage: The demurrage award was deleted. Demurrage in its strict technical sense arises only when stipulated, and the contract plainly stated “Demurrage/Dispatch: NONE.” This provision was interpreted as a waiver by Hongfil of any right to claim demurrage. Even assuming Article 656 of the Code of Commerce could supply a default rule because laydays were stated as “Customary Quick Dispatch” without an indemnity rate, NFA was not at fault for the delays. The loading extension was caused by an arrastre workers’ strike, and the unloading delay by berth unavailability at a congested port — circumstances not attributable to NFA’s negligence or misdeed. A charterer’s duty is merely to exercise ordinary diligence to secure a berth; it does not guarantee against unforeseen or inevitable events. The detention therefore remained within the reasonable time contemplated by the “Customary Quick Dispatch” clause under the circumstances.
• Personal Liability of Officers: The individual officers were absolved. Obligations incurred by corporate officers acting as such are the direct accountability of the corporation, not their personal liabilities. The recognized exceptions — voting for patently unlawful acts, bad faith, gross negligence, conflict of interest, contractual stipulation of personal liability, or a specific statutory provision imposing personal liability — were not present. No finding of bad faith or gross negligence was made by either the trial court or the Court of Appeals. Bad faith requires a dishonest purpose or moral obliquity, not mere error in judgment; the record showed no such wrongful intent.

• Deadfreight (Article 680, Code of Commerce) — A charterer who does not complete the full cargo it bound itself to ship shall pay the freightage of the amount it fails to ship, if the captain does not take other freight to complete the load; if other freight is loaded, the charterer pays only the difference. Deadfreight is the compensation for the ship’s unused capacity that the charterer contracted for but failed to occupy.
• Interpretation of “more or less” in quantity clauses — The phrase is one of safety and caution, designed to cover slight or unimportant inaccuracies; it does not negate a definite quantity obligation when the parties’ real intention, as shown by other competent evidence, was to ship that exact quantity.
• Demurrage and contractual waiver — Demurrage in the strict sense exists only when expressly stipulated in the charter party. An express provision “Demurrage/Dispatch: NONE” is enforced according to its literal meaning and constitutes a waiver of any demurrage claim. Even where Article 656 of the Code of Commerce permits a claim for unreasonable delay under a “customary quick dispatch” clause, liability does not attach if the delay stems from causes beyond the charterer’s control and is not due to the charterer’s fault; the charterer is obliged only to exercise ordinary diligence to provide a berth, not to guarantee against port congestion or labor strikes.
• Personal liability of corporate officers — Corporate obligations incurred by officers acting within the scope of their authority are liabilities of the corporation alone. Personal civil liability arises only in exceptional cases: (1) assenting to patently unlawful acts, bad faith, gross negligence, or conflict of interest; (2) consenting to the issuance of watered stocks; (3) express contractual stipulation to be personally bound; or (4) a specific provision of law imposing personal liability. Bad faith imparts a dishonest purpose or moral obliquity, not simple bad judgment or negligence.

• “Under the law, the cargo not loaded is considered as deadfreight. It is the amount paid by or recoverable from a charterer of a ship for the portion of the ship's capacity the latter contracted for but failed to occupy.”
• “The words ‘more or less’ when used in relation to quantity or distance, are words of safety and caution, intended to cover some slight or unimportant inaccuracy. It allows an adjustment to the demands of circumstances which do not weaken or destroy the statements of distance and quantity when no other guides are available.”
• “The provision ‘Demurrage/Dispatch: NONE’ can be interpreted as a waiver by Hongfil of the right to claim for demurrages. Waiver is a renunciation of what has been established in favor of one or for his benefit, because he prejudices nobody thereby; if he suffers loss, he is the one to blame.”
• “Obligations incurred or contracted by them, acting as such corporate agents, are not theirs but the direct accountability of the corporation they represent.”
• “Bad faith does not simply mean bad judgment or negligence; it imparts a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest or ill-will; it partakes of the nature of fraud.”

• Coastwise Lighterage Corporation vs. Court of Appeals, 245 SCRA 796 — Distinguished a contract of affreightment, where the shipowner retains possession and control while the charterer merely uses the cargo space.
• Sta. Ines Melale Forest Products Corporation vs. Macaraig, G.R. No. 80849, December 2, 1998 — Supplied the controlling definition of “more or less” as words of safety covering slight inaccuracies.
• Magellan Manufacturing Marketing Corp. vs. Court of Appeals, 201 SCRA 102 — Established the rule that demurrage liability in its strict technical sense exists only upon express stipulation.
• O’Farrel y Cia vs. The Manila Electric Co., 54 Phil. 7 — Relied upon for the principle that a charterer may be liable for demurrage when agreed laydays are exceeded.
• MAM Realty vs. NLRC, 244 SCRA 797 — Applied the doctrine that corporate obligations are not the personal liabilities of officers.
• Santos vs. NLRC, 254 SCRA 673 — Enumerated the exceptions to the non-liability of corporate officers.
• Board of Liquidators vs. Kalaw, 20 SCRA 987 — Defined bad faith as requiring a dishonest purpose, not mere negligence or bad judgment.

• Article 680, Code of Commerce — Applied to impose liability on NFA for deadfreight on the unshipped cargo.
• Article 656, Code of Commerce — Discussed as the default provision allowing a claim for demurrage when no fixed laydays or indemnity is stipulated; held inapplicable because of the express waiver “Demurrage/Dispatch: NONE” and lack of fault on NFA’s part.
• Civil Code (implied application of rules on interpretation of contracts) — The Court relied on the principle that contracts clear and free from ambiguity must be given their literal meaning, giving effect to the stipulation “Demurrage/Dispatch: NONE.”

Melo, Vitug, Panganiban, and Gonzaga-Reyes, JJ.