Keng Hua v. CA

Digest by: Jedd Hernandez D 2015 Obligations and Contracts Prof.J. Batongbacal

KENG HUA PAPER PRODUCTS CO. INC. v. COURT OF APPEALS (Remedies for Breach – Performance – To deliver all its accessions) February 12, 1998 Ponente: J. Panganiban FACTS: - Characters: a) Keng Hua Paper Products – consignee, receiver of shipment b) Sea-Land Service Inc. – shipping company, transporter of waste paper c) Ho Kee Waste Paper – shipper - Definitions: a) Bill of lading - document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. b) Demurrage – an allowance or compensation for the delay or detention of a ship/vessel; has reference to the ship’s expenses, wear and tear, and common employment. - Keng Hua purchased from Ho Kee fifty tons of waste paper, with partial shipment permitted. - On June 29, 1982, Sea-Land received at its Hong Kong terminal a sealed container containing 67 bales of unsorted waste paper for shipment to Keng Hua in Manila. A bill of lading to cover the shipment was issued by Sea-Land. - However, the June 29 shipment was 10 tons more than the remaining balance of the purchase/order, as manifested under the letter of credit. (Keng Hua ordered 50 tons. 10 tons na lang dapat yung kulang/balance. Pero yung June 29 shipment, 20 tons of waste paper.) - On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to Keng Hua but it failed to discharge the shipment from the container during the “free time” or grace period. The waste paper remained inside Sea-Land’s container from the expiration of the free time period (July 29) until the shipment was unloaded on November 22, 1983 (481 days). - During the 481-day period, demurrage charges accrued. Numerous demands for Keng Hua to pay but it refused to settle its obligation. PROCEDURAL HISTORY: - Sea-Land sued Keng Hua for collection and damages. - The Regional Trial Court of Manila rendered judgment in favor of Sea-Land, and ordered Keng Hua to pay P67,340 as demurrage charges with interest at the legal rate from the date of the extrajudicial demand. Also, Keng Hua must pay 10% of the total amount due as attorney’s fees/litigation expenses. - Court of Appeals affirmed in toto the RTC. ISSUES: 1) WoN Keng Hua accepted the bill of lading. 2) WoN the award of P67,340 to Sea-Land was proper 3) WoN Keng Hua was correct in not accepting the overshipment 4) WoN the award of legal interest from the date of Sea-Land’s extrajudicial demand was proper PETITIONER’S ARGUMENTS: - If Keng Hua accepted the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws. It would be tantamount to smuggling. It would make Keng Hua vulnerable to legal sanctions. - Sea-Land has no cause of action against Keng Hua because Keng Hua did not hire Sea-Land. The cause of action should be against the shipper, Ho Kee. The demurrage was a consequence of the shipper’s mistake of shipping more than wahat was bought.

Digest by: Jedd Hernandez D 2015 Obligations and Contracts Prof.J. Batongbacal

- Keng Hua duly notified Sea-Land about the wrong shipment through a letter dated January 24, 1983. - Keng Hua is not bound by the bill of lading because it never gave its consent. It admits “physical acceptance” of the bill of lading, but argues that its subsequent actions belie the finding that it accepted the terms. - Notice of Refused or On Hand Freight: proof that Keng Hua declined to accept the shipment. RESPONDENT’S ARGUMENTS: - None really, just that Keng Hua should pay demurrage charges since it delayed Sea-Land’s vessel by failing to unload the shipment during the free time period. RATIO: 1) YES, Keng Hua accepted and is thus bound by the bill of lading. - A bill of lading has two functions: a) receipt for the goods shipped, b) a contract by which three parties (shipper, carrier, and consignee) undertake specific responsibilities and assume stipulated obligations. - A bill of lading delivered and accepted constitutes the contract of carriage even though not signed because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all its terms and conditions of which the acceptor has actual or constructive notice. - Acceptance = perfect and binding contract - The bill of lading between Ho Kee, Keng Hua, and Sea-Land was a valid and PERFECTED contract. Section 17 of the bill of lading provides that the shipper and consignee were liable for demurrage charges for the failure to discharge the shipment within the grace period. - SC not persuaded by Keng Hua’s arguments. Keng Hua did not immediately object to or dissent from any term or stipulated in the bill of lading. It waited for SIX MONTHS to send a letter to Sea-Land saying that it would not accept the shipment. - The inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. - Re: Notice of Refused or On Hand Freight: said notice was not written by Keng Hua; it was sent by SeaLand to Keng Hua four months after it received the bill of lading. Its only significance is to highlight Keng Hua’s prolonged failure to object to the bill of lading. - Issue of WoN Keng Hua accepted the bill of lading is raised for the first time in the SC (not raised in the lower courts). Hence, it is barred by estoppel. - Prolonged failure to receive and discharge cargo -> violation of terms of bill of lading -> liability for demurrage 2) YES, it is proper - Keng Hua argued that Sea-Land made no demand for the sum of P67,340. Also, Sea-Land’s loss and prevention manager (P50,260) and its counsel (P37,800) asked for different amounts. - The amount fo P67,340 was a factual conclusion of the trial court, affirmed by the Court of Appeals, and is therefore binding on the SC. Such finding is supported by extant evidence. - Re: discrepancy in amounts demanded: result of the variance of dates when the demands were made. The longer the cargo remained unclaimed, the higher the demurrage. Thus when counsel demanded on April 24, 1983 P37,800, it already ballooned to P67,340 by November 22. 3) NO. - Re: violation of laws: mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible, cannot defeat Keng Hua’s obligations under the bill of lading. 4) NO.

Digest by: Jedd Hernandez D 2015 Obligations and Contracts Prof.J. Batongbacal

- Based on NCC 2209: interest rate is six percent per annum. - Bill of lading did not specify the amount of demurrage; this was only established during the trial court decision. Hence, the rate is 6% to be computed from the trial court decision (Sept. 28, 1990), plus 12% on the total then outstanding from the time judgment becomes final and executory until its satisfaction. * In a letter of credit, there are three distinct and independent contracts: a) contract of sale between buyer and seller b) contract of buyer with issuing bank c) letter of credit proper where bank promises to pay seller - These three are to be maintained in perpetual separation. - The contract of carriage in the bill of lading must be TREATED INDEPENDENTLY of the contract of sale and contract with issuing bank. Any discrepancy between the contract of sale and letter of credit will NOT AFFECT the validity of the contract of carriage in the bill of lading. - The carrier cannot be expected to go beyond the representation of the shipper in the bill of lading and to verify their accuracy vis-à-vis the contract of sale and the letter of credit. - Carrier had no knowledge of the contents of the container. DISPOSITIVE: - CA decision is AFFIRMED, legal interest MODIFIED to 6% to be computed from the trial court decision (Sept. 28, 1990), plus 12% on the total then outstanding from the time judgment becomes final and executory until its satisfaction