R. No.

128064             March 4, 2004

R.V. MARZAN FREIGHT, INC., petitioner,

vs.
COURT OF APPEALS and SHIELA’S MANUFACTURING, INC., respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure of the Decision1 of
the Court of Appeals in CA-G.R. CV No. 49905 affirming with modification the Decision2 of the
Regional Trial Court of Rizal, Pasig, Branch 154, in Civil Case No. 61644.

THE FACTS

The petitioner RV Marzan Freight, Inc., owned and operated a customs-bonded warehouse located
at the Bachrach Corporation Building, where it accepted all forms of goods and merchandise for
storage and safekeeping. Private respondent Shiela’s Manufacturing, Inc., on the other hand, was a
corporation organized and existing under Philippines laws, and engaged in the garment business.

Philippine Fire and Marine Insurance Corporation (Philfire) issued Insurance Policy No. F-
8952/4358-HO dated December 11, 19893 in favor of the petitioner, covering its warehouse as well
as "stocks in trade of every kind and description usual to the warehouse operation of the Assured
and/or other interest that may appear during the currency of this policy whilst contained in the
building, known as BACHRACH CORP."

On April 12, 1989, raw materials consigned to the private respondent covered by Invoice No. TG-
891254 arrived in the Philippines from Keelung, Taiwan on board the vessel SS World Lion V-302W
owned by Sea-Land Service, Inc. from its supplier, Tricon Enterprises Ltd. The materials were
valued at US$32,006.93.5 The Bureau of Customs treated the raw materials as subject to ordinary
import taxes and were not immediately released to the private respondent. Moreover, the consignee
failed to file the requisite import entry6 and failed to claim the cargo.7

In a Letter8 to the Office of the District Collector of the Bureau of Customs dated July 24, 1989, Sea-
Land Service Inc. authorized the petitioner to take delivery of Container No. SEAU-462597
consigned to the private respondent for stripping and safekeeping.

In a Letter9 addressed to Bureau of Customs District Collector Emma M. Rosqueta dated September

11, 1989, the International Container Terminal Services, Inc. (ICTSI) requested for authority "to clear
the storage areas of cargoes which have been abandoned by their owners or seized by the Bureau
of Customs." Included in the request was the cargo of the private respondent. The District Collector
of Customs initiated Abandonment Proceedings No. 288-89 over the cargo. On September 29, 1989,
the District Collector issued a Notice10 to the consignee of various overstaying cargo, including that
of the private respondent, giving them fifteen (15) days from notice thereof to file entry of the
cargoes without prejudice to the right of the consignees to redeem articles pursuant to Section 1801
of the Tariff and Customs Code within the prescribed period therein; otherwise, the cargoes would
be deemed abandoned and sold at public auction. As ordered, the Notice of the Abandonment
Proceedings was posted on the Bureau’s bulletin board on September 29, 1980.11 No separate
notice was sent to the private respondent because per the ICTSI’s records, the address of the
consignee was unknown.
Earlier, on November 7, 1989, Leonardo S. Doctor, Chief of the Law Division of the Bureau of
Customs, issued a Memorandum12 informing the Chief for Auction and Cargo Disposal Division that
the declaration of abandonment in the aforestated proceedings had already become final and
executory as of October 30, 1989 and that the cargoes subject matter thereof should be inventoried
and sold at public auction.

However, before the inventory and sale at public auction of the goods could be accomplished, part of
the warehouse containing the shipment was burned on July 26, 1990. The private respondent’s
shipment was, likewise, burned and destroyed. The Philfire paid to the private respondent the
amount of P12,000,000, for which the latter was issued a receipt.

On March 19, 1991, the private respondent, through counsel, sent a letter to the petitioner
demanding payment of the value of the goods in the amount of US$32,006.93. However, the
petitioner rejected the demands. Meanwhile, on October 28, 1991, the petitioner executed a
"Release of Claim and Hold Harmless Undertaking."13

On December 26, 1991, or after the lapse of more than two years from the arrival of the cargo in the
Philippines, the private respondent filed a complaint for damages before the RTC of Pasig City,
Branch 154, against the petitioner. The private respondent alleged, inter alia, that its goods were
stored in the petitioner’s bonded warehouse due to the problem it encountered at the Bureau of
Customs; that the goods were gutted by fire on July 26, 1990 while stored in said bonded
warehouse; and, despite demands for the release of the goods, the petitioner refused to release the
same. The private respondent prayed that the petitioner and Philfire be held jointly and severally
liable to pay the following:

a) the sum of US$32,006.93 or its peso equivalent computed based on the rate of exchange
prevailing at the time of payment with interest thereon from the time of the filing of complaint
up to the time of actual payment;

b) the sum of P30,000.00 as and for attorney’s fees;

c) the costs of suit;14

In its answer, the petitioner interposed special and affirmative defenses. Aside from alleging that
there was no privity of contract between it and the private respondent, the petitioner also alleged that
the private respondent lost the right of action against it as it was not the real party-in-interest in the
case. The petitioner averred that the goods in question were received not from the private
respondent but from the Bureau of Customs, under Customs Administrative Order No. 102-88 dated
August 30, 1988, covering Forfeited Cargoes (FC), Abandoned Cargoes (AC) and Cargoes held
under Warrant/Seizure and Detention (CWSD). According to the petitioner, before the subject cargo
was destroyed by accidental fire, the private respondent had violated the Tariff and Customs Code
and related laws, rules and regulations, and failed to pay the corresponding taxes, duties and
penalties for the importation. Furthermore, the private respondent failed to make the corresponding
claim for the release of the said cargo, until the same was declared as "overstaying cargo," and later
as "abandoned cargo." The petitioner further asserted that the government, and not the private
respondent, was the owner thereof. As such, the private respondent was not entitled to the
insurance proceeds arising out of the fire policy covering the petitioner as a customs bonded
warehouse. Furthermore, considering that the cause of the loss of the subject cargo was a fortuitous
event, an "act of God," and the petitioner, having exercised the required due care under the
circumstances, cannot be held legally liable for such loss. Finally, the petitioner alleged that its
warehouse is legally considered as an "extension of the Bureau of Customs" and all goods
transferred therein continue to be in the custody of the Bureau of Customs, with all its legal
implications.15

Defendant Philfire, for its part, filed a motion to dismiss16 on the ground that it had no contractual
obligation to the private respondent; hence, the latter had no cause of action against it. The trial
court deferred the resolution of the said motion17 until the grounds appeared to be indubitable. In its
answer,18 Philfire alleged that there was no privity of contract between it and the private respondent,
considering that the petitioner was the insured party. Furthermore, the private respondent had no
insurable interest in the goods that were burned in the petitioner’s warehouse. Finally, Philfire
alleged that the obligation sought to be enforced by the private respondent had already been settled
when it paid its obligation under the insurance policy19 as shown in the "Release of Claim and Hold
Harmless Undertaking" dated October 28, 1991, executed and signed for and in behalf of the
petitioner by its Vice- President, Mr. Cesar D. Catalan.

The private respondent filed its pre-trial brief proposing that the following issues to be litigated by the
parties and resolved by the Court:

1. Corporate personality of the plaintiff;

2. Value of plaintiff’s goods stored in R.V. Marzan’s warehouse and which were destroyed by
fire;

3. Whether or not at the time of the fire on July 26, 1990. plaintiff’s goods were already
"abandoned goods" so that the plaintiff, at the time of the fire, was no longer the owner of the
said goods.

4. Attorney’s fees and damages;20

However, the trial court did not issue a pre-trial order.

During the trial, the petitioner presented Atty. Leonardo S. Doctor, the Law Division Chief of the
Bureau of Customs, as one of its witnesses to prove that the cargo had already been declared by
the District Collector of Customs as "abandoned cargo" in Abandonment Proceedings No. 288-89,
and that the cargo was destroyed by fire before it could be sold at public auction.

Thereafter, the private respondent filed its memorandum stating, inter alia, that it did not abandon
the goods because it did not receive the notice of abandonment of the cargo from the Bureau of
Customs. The petitioner insisted that upon the abandonment of the cargo under Section 1802 of the
Tariff and Customs Code of the Philippines (TCCP), it became, ipso facto, the property of the
government; hence, the private respondent had no right to claim the value of the shipment.

After trial, the court rendered judgment, the decretal portion of which reads:

WHEREFORE, foregoing premises considered, defendant RV Marzan is held solely liable for the
loss suffered by the plaintiff and is hereby ordered to pay the plaintiff the following:

1. The sum of US$32,006.93 or its peso equivalent computed on the rate of exchange
prevailing at the time of payment with 6% interest thereon from the time of filing of complaint
up to the time of actual payment;

2. The sum of P30,000.00 as and for attorney’s fees; and

 3. Costs of suit.

The complaint against Philfire, the counterclaim against Shiela’s and the cross-claim against R.V.
Marzan, are hereby dismissed.21

According to the trial court, the Bureau of Customs’ subsequent declaration that the subject
shipment was "abandoned cargo" was ineffective, as the private respondent was not sent a copy of
the September 29, 1989 Notice as required by Sec. 1801 of the Tariff and Customs Code. Under the
law, notice of the proceedings of abandonment should be given to the private respondent as the
consignee or its agent, to enable it to adduce evidence at a public hearing, conformably to the
requirement of due process. Since the private respondent was never notified of the abandonment
proceedings, it cannot, thus, be said that it impliedly abandoned the shipment and lost its ownership
over the same in favor of the government.

The trial court rejected the petitioner’s claim that it could not be held liable for the private
respondent’s loss because the fire that destroyed the subject cargo was an "act of God." According
to the trial court, this is precisely one of the reasons why a bonded warehouse is required by law to
insure the goods received and stored against fire; otherwise, persons dealing with a bonded
warehouse would not be afforded due protection. According to the court, the policy procured by the
petitioner inures equally and proportionately to the benefit of all the owners of the property insured,
even if the owner of the goods did not request or know of the insurance. Citing Section 1902 of the
Tariff and Customs Code, the trial court pointed out that the petitioner’s bonded warehouse is
considered as an extension of the Bureau of Customs only insofar as it continues with the storage
and safekeeping of goods transferred to it by the latter.

Finally, the trial court ruled that the private respondent had no cause of action against the insurer
Philfire, as it was not a party to the insurance contract between the petitioner and Philfire. Since the
terms of the insurance contract do not confer a benefit upon a third person as required by Article
1311 of the Civil Code, the private respondent had no right to the insurance proceeds.

The petitioner appealed the decision to the Court of Appeals, docketed as CA-G.R. CV No. 49905,
and assigned the following errors:

I – THE TRIAL COURT ERRED IN NOT DISMISSING THE COMPLAINT FOR LACK OF A VALID
CAUSE OF ACTION AND IN HOLDING THE DEFENDANT MARZAN LIABLE FOR THE LOSS
SUFFERED BY PLAINTIFF IN SPITE OF THE FACT THAT, LONG BEFORE THE FIRE OF JULY
26, 1990, WHICH GUTTED DEFENDANT’S WAREHOUSE, THE PLAINTIFF’S SHIPMENT HAS
ALREADY BEEN DECLARED ABANDONED BY FINAL ORDER OF THE BUREAU OF CUSTOMS.

II – THE TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEE[S] OF P30,000.00.22

The petitioner asserted that the private respondent renounced its interests over the cargo by its
continued failure and refusal, despite notice to it, to claim the cargo and pay the corresponding
duties and taxes. It disclaimed liability on the following grounds:

1. That contrary to the plaintiff’s submission, it was not exempt from the payment of customs
duties and taxes and hence, required to file entry within five (5) days from arrival of the
shipment as provided for under 1801 of the Tariff and Customs Code…;

2. The subject shipment was declared abandoned by the Bureau of Customs due to the
failure of the plaintiff-consignee to claim the same within the 15-day reglementary period
 from the date of posting of the notice to claim as provided in Section 1801(b) of Republic Act
No. 7651; and,

3. The abandonment of the cargo was already declared final as of October 30, 1989 in the
abandonment proceedings conducted by the Bureau of Customs, and, hence the plaintiff’s
shipment ipso facto became the property of the government pursuant to Section 1802 of the
same Act.

4. It was only on January 6, 1992, that plaintiff filed the present complaint against the
defendant or more than two years after the declaration of abandonment of subject shipment
became final and executory.23

Anent the award of attorney’s fees in favor of the private respondent, the petitioner averred that, as
there was no finding of malice or bad faith in its refusal to pay the private respondent, there was no
factual basis for the award.

In its brief, the private respondent contended that, as found by the trial court, there was no valid and
effective abandonment over the subject goods. It was also pointed out that if the petitioner’s claim
that the subject goods belonging to the private respondent had been declared abandoned cargo and
the same had become government property, then the government, through the Bureau of Customs,
should have intervened in the case, considering the private respondent’s vigorous stance in denying
it had ever abandoned its goods. Despite the fact that the Bureau of Customs was clearly apprised
of the case when the petitioner presented Atty. Doctor as its witness, there was no such attempt
from the government to intervene and claim ownership over the cargo. The private respondent also
pointed out that the petitioner’s refusal to satisfy a valid, just and demandable claim had compelled it
to litigate and incur expenses to protect its interest. The petitioner’s refusal to satisfy the private
respondent’s claim was in furtherance of an intention to unjustly enrich itself, and was evidence of
the latter’s gross and evident bad faith.

The Court of Appeals upheld the trial court’s ruling in its Decision dated January 31, 1997. The
appellate court held that the District Collector of Customs failed to give due notice of the
abandonment proceedings to the private respondent, and that the same constituted denial of due
process of law. Although notice of the declaration of abandonment was posted on the Bureau of
Customs bulletin board, the same was insufficient; such notice would be proper only in cases where
the owner or importer is unknown, pursuant to Section 2304 of the Tariff and Customs Code. The
appellate court averred that the private respondent is duly registered with the Garment and Textile
Export Board and with the Bureau of Customs as Garments Manufacturer and Exporter; as such, the
Bureau of Customs knew or should have known the address of the private respondent and should
have sent the required notice to it at said address. For the Collector of Customs’ failure to duly notify
the private respondent, the goods in question cannot be considered as impliedly abandoned cargo.

The decretal portion of the decision of the Court of Appeals reads, thus:

WHEREFORE, the appealed decision in Civil Case No. 61644 is hereby AFFIRMED by this Court,
with costs against defendant-appellant.24

The petitioner assails the decision of the Court of Appeals contending that:

I
The Court of Appeals erred in failing to consider the fact that the Regional Trial Court did not have
jurisdiction over the central issue of the case.

II

The Court of Appeals erred in not dismissing the Respondent’s Complaint outright for lack of cause
of action.25

The petitioner asserts that the private respondent had a cause of action against it for the value of the
shipment only if the latter was still the owner of the shipment when it was gutted by fire on July 26,
1990. The ultimate issues were as follows: whether the private respondent had impliedly abandoned
the cargo and whether the declaration of abandonment made by the Chief of the Law Division of the
Bureau of Customs in the abandonment proceedings had become final and executory. However,
according to the petitioner, the resolution of such issues is within the exclusive jurisdiction of the
District Collector of Customs, and within the appellate jurisdiction of the Court of Tax Appeals. Thus,
the RTC had no jurisdiction to delve into and resolve the issue of whether or not the private
respondent was duly served with a copy of the notice of the abandonment proceedings and to pass
upon the validity of the abandonment proceedings itself. The petitioner asserts that the Bureau of
Customs has exclusive and original jurisdiction to hear and decide cases concerning the
implementation of Customs Laws or any other law that the Bureau is charged to implement. Even if
there was a violation of due process in the seizure and forfeiture case, the Bureau retained
jurisdiction over the same, to the exclusion of the regular courts. According to the petitioner, it
behooved the RTC to dismiss the complaint of the private respondent for lack of jurisdiction, without
prejudice to the latter’s right to appeal the notice of abandonment to the Commissioner of Customs,
and, from an adverse ruling of the Commissioner of Customs, to the Court of Tax Appeals.

In its Comment, the private respondent avers that the petitioner raised for the first time only in this
Court the issue of the trial court’s jurisdiction, as well as the matter of its failure to appeal from the
declaration of abandonment of the District Collector of Customs with the Commissioner of Customs.
The private respondent never raised the issue in its pleading in the RTC and in the CA. Thus, the
petitioner is barred by laches from raising such issue in this case. The private respondent asserts
that the petitioner’s motive is clearly to assail the factual findings of the trial court as affirmed by the
CA and introduce new matters in the case. According to the private respondent, this runs counter to
established jurisprudence that the Supreme Court is not a trier of facts.

The private respondent also asserts that the RTC did not pass upon the validity or invalidity of the
administrative proceedings before the Collector of Customs, but merely applied the law, particularly
the last sentence of Sec. 1801 of the Tariff and Customs Code. Contrary to the private respondent’s
contention, the trial court had jurisdiction over its action. As admitted by the petitioner’s witness, Atty.
Leonardo Doctor, the private respondent was not furnished a notice giving it fifteen days to file the
appropriate import entry documents. Hence, the private respondent was not deemed to have
abandoned the cargo. The private respondent also posits that considering that actions of the
Collector of Customs are reviewable to the Court of Tax Appeals, which are, in turn, ultimately
reviewable by the Court of Appeals, the latter court, to which the petitioner’s appeal had eventually
found its way, would therefore be fully competent to pass upon the validity of the abandonment
proceedings. Furthermore, according to the private respondent, an appeal of the abandonment
proceedings before the District Collector of Customs would be a futile exercise as the goods had
already been burned and destroyed. The private respondent further posits that if, indeed, the goods
had been abandoned by the private respondent and became the property of the government, as
averred by the petitioner, the Bureau of Customs should have intervened in the case, pursuant to
Sec. 1, Rule 19 of the 1997 Rules of Civil Procedure. The fact that the government did not intervene
gives rise to doubts as to the petitioner’s claim that the subject goods had been declared abandoned
by the Bureau of Customs and, thus, became the property of the government. Finally, the private
respondent argued, the Bureau of Customs lost jurisdiction over the cargo when it was gutted by fire
before the sale at public auction.

In its reply, the petitioner insists that the defense of lack of jurisdiction may be interposed at any
time, during appeal or even after final judgment, conformably to the previous rulings of the Court.

THE ISSUE

The core issue raised by the petitioner for resolution in this case is whether or not the trial court had
jurisdiction to review and declare ineffective the declaration of the District Collector of Customs in
Abandonment Proceedings No. 288-89 that the subject shipment was abandoned cargo and that,
thenceforth, the government ipso facto became the owner thereof.

We uphold the contention of the petitioner. Irrefragably, the RTC had jurisdiction over the nature of
the private respondent’s action, which was one for the collection of the value of the cargo gutted by
fire, while under the custody and control of the petitioner preparatory to its sale at public auction by
the Bureau of Customs. The jurisdiction of the court or other tribunal is determined by the relevant
allegations of the complaint and the character of the relief sought, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims accorded therein. The jurisdiction of the
trial court does not depend upon the defenses in the answer or in a motion to dismiss.26 However,
the jurisdiction of the court or tribunal over the issues, as gleaned from the pleadings of the parties,
is determined by the law which is determinative and decisive of said issue.

As gleaned from the pleadings of the parties in the trial court, the core issue therein was whether or
not the private respondent was the owner of the cargo when it was gutted by fire, as claimed by the
private respondent, or owned by the government after it was declared by the District Collector of
Customs as abandoned cargo, as claimed by the petitioner. Indeed, the private respondent, in its
pre-trial brief, listed this as one of the issues to be resolved by the Court, thus:

1. Whether or not at the time of the fire on July 26, 1990. plaintiff’s goods were already "abandoned
goods" so that the plaintiff, at the time of the fire, was no longer the owner of said goods."27

If the government owned the cargo before it was gutted by fire, then the private respondent had no
cause of action against the petitioner. But the resolution of the issue is riveted to and intertwined with
the resolution of the issue of whether the RTC is vested with jurisdiction to review and nullify a
declaration made by the District Collector of Customs that the shipment was abandoned cargo and,
thus, ipso facto belonged to the government. The resolution of both issues involved the application
of Section 1801 and Section 1802 of the Tariff and Customs Code, which read:

SEC. 1801. Abandonment, Kinds and Effects of. – Abandonment is expressed when it is made direct
to the Collector by the interested party in writing, and is implied when, from the action or omission of
the interested party to file the import entry within five (5) days or an extension thereof from the
discharge of the vessel or aircraft, or having filed such entry, the interested party fails to claim his
importation within five (5) days thereafter or within an extension of not more than five (5) days shall
be deemed an implied abandonment. An implied abandonment shall not be effective until the article
shall be declared by the Collector to have been abandoned after notice thereof is given to the
interested party as in seizure cases.
Any person who abandons an article or who fails to claim his importation as provided for in the
preceding paragraph shall be deemed to have renounced all his interests and property rights therein.

SEC. 1802. Abandonment of Imported Articles.- The owner or importer of any articles may, within
ten days after filing of the import entry, abandon to the Government all or a part of the articles
included in an invoice, and, thereupon, he shall be relieved from the payment of duties, taxes and all
other charges and expenses due thereon: Provided, That the portion so abandoned is not less than
ten per cent of the total invoice and is not less than one package, except in cases of articles
imported for personal or family use. The articles so abandoned shall be delivered by the owner or
importer at such place within the port of arrival as the Collector shall designate, and upon his failure
to so comply, the owner or importer shall be liable for all expenses that may be incurred in
connection with the disposition of the articles.

Nothing in this section shall be construed as relieving such owner or importer from any criminal
liability which may arise from any violation of law committed in connection with the importation of the
abandoned article.

The resolution of the issue also calls for the application of Section 2601 of the said Code which
provides that the property in customs’ custody, including abandoned articles, shall be subject to sale
under the conditions provided therein. Indeed, the trial court resolved the issues under Section 1801
of the Tariff and Customs Code and found the petitioner liable to the private respondent, under
Section 190228 of the said Code.

The trial court held ineffective the declaration made by the District Collector of Customs that the
cargo was abandoned because the notice to the consignee as mandated by Section 1801 of the
Code was not complied with. Thus, according to the trial court, the private respondent owned the
cargo and had a cause of action against the petitioner:

In trying to avoid liability, RV Marzan admits that the plaintiff was the consignee of the cargo upon its
arrival in the Philippines. However, RV Marzan avers that at the time of the fire, the goods were
already the property of the government. Before the fire, RV Marzan received the cargo from the
Bureau of Customs pursuant to a Memorandum Order declaring it as "abandoned cargo." This
Memorandum Order which is in accordance with Sec. 1801 of the Tariff and Customs Code,
provides as follows:

An examination of the records reveal that the subject shipment was subsequently declared
abandoned by the Bureau of Customs as "abandoned cargo" for the plaintiff’s failure to file the
import entry.

This declaration is found by the Court to be ineffective. Under the law, notice of the proceedings of
abandonment was not given to the consignee or the plaintiff herein or his agent. The consignee in
this case being known, should have been notified of the abandonment of his property in favor of the
government and that he should have been given a chance at a public hearing to present evidence
and to be heard with respect to the cargo subject of abandonment. This is part of due process.29
Evidently, the resolution of the foregoing issues is within the exclusive competence of the District
Collector of Customs, the Commissioner of Customs and within the appellate jurisdiction of the Court
of Tax Appeals. Indeed, in Alemar’s, Inc. v. Court of Appeals,30 we held that:

Petitioner primarily seeks the annulment of the act of the Collector of Customs declaring the subject
importation abandoned and ordering it sold at public auction, claiming that the abandonment
proceeding held by the Collector of Customs was irregular since the latter did not give notice to
petitioner of the abandonment before declaring the importation abandoned.

Consequently, the case falls within the jurisdiction of the Commissioner of Customs and the Court of
Tax Appeals vis-à-vis the averments in the amended petition, not with the regional trial court.

In Jao v. Court of Appeals,31 we held that the RTC is devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs, and
to enjoin or otherwise interfere with the said proceedings even if the seizure was illegal. Such act
does not deprive the Bureau of Customs of jurisdiction thereon. Thus, we held:

There is no question that Regional Trial Courts are devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and
to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure
and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on
the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming
cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

It is likewise well-settled that the provisions of the Tariff and Customs Code and that of Republic Act
No. 1125, as amended, otherwise known as "An Act Creating the Court of Tax Appeals," specify the
proper fora and procedure for the ventilation of any legal objections or issues raised concerning
these proceedings. Thus, actions of the Collector of Customs are appealable to the Commissioner of
Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals and from there to the Court of Appeals.

The rule that Regional Trial Courts have no review powers over such proceedings is anchored upon
the policy of placing no unnecessary hindrance on the government’s drive, not only to prevent
smuggling and other frauds upon Customs, but more importantly, to render effective and efficient the
collection of import and export duties due the State, which enables the government to carry out the
functions it has been instituted to perform.

Even if the seizure by the Collector of Customs were illegal, which has yet to be proven, we have
said that such act does not deprive the Bureau of Customs of jurisdiction thereon.

"Respondents assert that respondent Judge could entertain the replevin suit as the seizure is illegal,
allegedly because the warrant issued is invalid and the seizing officer likewise was devoid of
authority. This is to lose sight of the distinction between the existence of the power and the regularity
of the proceeding taken under it. The governmental agency concerned, the Bureau of Customs, is
vested with exclusive authority. Even if it be assumed that in the exercise of such exclusive
competence a taint of illegality may be correctly imputed, the most that can be said is that under
certain circumstances the grave abuse of discretion conferred may oust it of such jurisdiction. It does
not mean, however, that correspondingly a court of first instance is vested with competence when
clearly in the light of the decisions the law has not seen fit to do so."

The allegations of petitioners regarding the propriety of the seizure should properly be ventilated
before the Collector of Customs. We have had occasion to declare:
"The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal expressly
vested by law with jurisdiction to hear and determine the subject matter of such proceedings without
any interference from the Court of First Instance (Auyong Hian v. Court of Tax Appeals, et al., 19
SCRA 10). The Collector of Customs of Sual-Dagupan in Seizure Identification No. 14-F-72
constituted itself as a tribunal to hear and determine among other things, the question of whether or
not the M/V Lucky Star I was seized within the territorial waters of the Philippines. If the private
respondents believe that the seizure was made outside the territorial jurisdiction of the Philippines, it
should raise the same as a defense before the Collector of Customs and if not satisfied, follow the
correct appellate procedures. A separate action before the Court of First Instance is not the remedy."

The trial court was incompetent to pass upon and nullify (1) the seizure of the cargo in the
abandonment proceedings, and (2) the declaration made by the District Collector of Customs that
the cargo was abandoned and ipso facto owned by the government. It, likewise, had no jurisdiction
to resolve the issue of whether or not the private respondent was the owner of the cargo before it
was gutted by fire. The trial court should have rendered judgment dismissing the complaint, without
prejudice to the right of the private respondent to ventilate the issue before the Commissioner of
Customs and/or to the Court of Tax Appeals as provided for in the Tariff and Customs Code.

The District Collector of Customs did not lose jurisdiction over the abandonment proceedings. The
loss of the cargo did not extinguish his incipient jurisdiction in the said proceedings, nor render
functus officio her declaration that the subject shipment had been abandoned.

The private respondent cannot argue that if its complaint against the petitioner is dismissed, the
latter would be enriching itself at the expense of the private respondent. In point of fact, the petitioner
is liable to the government for the duties and taxes due for the imported cargo under Section 1902 of
the Tariff and Customs Code, which reads:

SEC. 1902. Responsibility of Operators. – The operators of bonded warehouse in case of loss of the
imported articles stored shall be liable for the payment of duties and taxes due thereon.

The government assumes no legal responsibility in (sic) respect to the safekeeping of articles stored
in any customs warehouses, sheds, yards or premises.

Neither may the private respondent invoke estoppel, because the parties, in their pleadings in the
trial court and in the Court of Appeals, raised the same issues for resolution.

It must be stressed that the cargo arrived in the Philippines on April 12, 1989. The private
respondent failed to accomplish the required import entry declarations, pay the requisite taxes and
duties, if any, and take delivery of the cargo. It was only after the lapse of more than two years, or on
December 21, 1991, that the private respondent filed its complaint against the petitioner in the RTC.
By then, the cargo had been gutted by fire. The private respondent has not made any valid
justification for its silence thereon and its inaction. In can be said then that the private respondent
went to court with unclean hands.

The refusal of the Bureau of Customs to intervene in the trial court does not, in any way, fortify the
private respondent’s claim that it is the owner of the cargo. The government had no legal obligation
to intervene in the trial court considering that the latter had no jurisdiction over the complaint. It was
enough that then Bureau of Customs Law Division Chief Atty. Doctor testified that the cargo was
duly declared by the District Collector of Customs as abandoned property, that the said declaration
had become final, and that the government became ipso facto the owner of the cargo. The
government had every right to expect that the trial court would dismiss the complaint for lack of
jurisdiction over the issue raised therein.
IN THE LIGHT OF THE FOREGOING, the petition is GRANTED. The Decisions of the RTC and of
the Court of Appeals are SET ASIDE and REVERSED. The RTC is ORDERED to dismiss the
complaint of the private respondent against the petitioner, as well as the counterclaim of the latter
against the private respondent.

SO ORDERED.

Quisumbing, (Acting Chairman), Austria-Martinez, and Tinga, JJ., concur.

Puno, (Chairman), J., on leave.
.R. No. 95529               August 22, 1991

MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner,

vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG,
INC. respondents.

REGALADO, J.:

Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent
Court of Appeals in CA-G.R. CV No. 18781,  affirming in part the decision of the trial court,  the
1 2

dispositive portion of which reads:

Premises considered, the decision appealed from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount
of P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's
fees is deleted.3

The facts as found by respondent appellate court are as follows:

On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC)

entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans
for and in consideration of $23,220.00. As payment thereof, a letter of credit was issued to
plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then contracted F.E.
Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through
the other appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed
an on-board bill of lading and that transhipment is not allowed under the letter of credit (Exh.
B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges and secured
a copy of the bill of lading which was presented to Allied Bank. The bank then credited the
amount of US$23,220.00 covered by the letter of credit to appellant's account. However,
when appellant's president James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no on-board bill of lading,
and there was a transhipment of goods. As a result of the refusal of the buyer to accept,
upon appellant's request, the anahaw fans were shipped back to Manila by appellees, for
which the latter demanded from appellant payment of P246,043.43. Appellant abandoned
the whole cargo and asked appellees for damages.

In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of
136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at
Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of
Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was
delivered at the port of discharge on July 19, 1980, but was subsequently returned to Manila
after the consignee refused to accept/pay the same. 4

Elaborating on the above findings of fact of respondent court and without being disputed by herein
private respondents, petitioner additionally avers that:
 When petitioner informed private respondents about what happened, the latter issued a
certificate stating that its bill of lading it issued is an on board bill of lading and that there was
no actual transhipment of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same owner which was what
happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this
certification to Choju Co., Ltd., but the said company still refused to accept the goods which
arrived in Japan on July 19, 1980.

Private respondents billed petitioner in the amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of
P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner the option
of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover the cost of shipment and demurrages.
Petitioner opted to abandon the goods. However, in a letter dated June 22, 1981 private
respondents demanded for payment of P298,150.93 from petitioner which represents the
freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October
22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans
on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents
be ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting
to P174,150.00 and other damages like attorney's fees since private respondents are to
blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the
private respondents alleged that the bill of lading clearly shows that there will be a
transhipment and that petitioner was well aware that MV (Pacific) Despatcher was only up to
Hongkong where the subject cargo will be transferred to another vessel for Japan. Private
respondents also filed a counterclaim praying that petitioner be ordered to pay freight
charges from Japan to Manila and the demurrages in Japan and Manila amounting to
P298,150.93.

The lower court decided the case in favor of private respondents. It dismissed the complaint
on the ground that petitioner had given its consent to the contents of the bill of lading where
it is clearly indicated that there will be transhipment. The lower court also said that petitioner
is liable to pay to private respondent the freight charges from Japan to Manila and
demurrages since it was the former which ordered the reshipment of the cargo from Japan to
Manila.

On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a
transhipment of the goods was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight
charges and demurrages incurred in Japan but not for the demurrages incurred in Marta.
According to the respondent (court) the petitioner can not be held liable for the demurrages
incurred in Manila because Private respondents did not timely inform petitioner that the
goods were already in Manila in addition to the fact that private respondent had given
petitioner the option of abandoning the goods in exchange for the demurrages. 5

Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration
thereof having been denied, invokes the Court's review powers for the resolution of the issues as to
whether or not respondent court erred (1) in affirming the decision of the trial court which dismissed
petitioner's complaint; and (2) in holding petitioner liable to private respondents in the amount of
P52,102.45. 6
I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take
delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase
price of the said export items because of violation of the terms and conditions of the letter of credit
issued in favor of the former which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the
notation "received for shipment" and contained an entry indicating transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transhipment, petitioner
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher, the
feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transhipment because both vessels belong to the same shipping company, the private respondent
Orient Overseas Container Lines, Inc."  Petitioner emphatically goes on to say: "To be sure, there
7

was no actual transhipment of the Anahaw fans. The private respondents have executed a
certification to the effect that while the Anahaw fans were transferred from one vessel to another in
Hong Kong, since the two vessels belong to one and the same company then there was no
transhipment. 8

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in
another,"  or "the transfer of goods from the vessel stipulated in the contract of affreightment to
9

another vessel before the place of destination named in the contract has been reached,"  or "the
10

transfer for further transportation from one ship or conveyance to another."  Clearly, either in its
11

ordinary or its strictly legal acceptation, there is transhipment whether or not the same person, firm
or entity owns the vessels. In other words, the fact of transhipment is not dependent upon the
ownership of the transporting ships or conveyances or in the change of carriers, as the petitioner
seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to
another.

That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transhipment," which can only mean that transhipment actually took place.  This fact is
12

further bolstered by the certification  issued by private respondent F.E. Zuellig, Inc. dated July 19,
13

1980, although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount
of semantic juggling can mask the fact that transhipment in truth occurred in this case.

Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then
there is no occasion under which the petitioner can agree to the transhipment of the Anahaw fans
because there is nothing like that to agree to" and "(i)f there is no actual transhipment but there
appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a
mistake on the part of the private respondents. 14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private
respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it
reflects the terms of the contract between the parties, as an exception to the parol evidence rule,
and would therefore permit it to explain or present evidence to vary or contradict the terms of the
written agreement, that is, the bill of lading involved herein.

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations assumed by the
parties.  Being a contract, it is the law between the parties who are bound by its terms and
15

conditions provided that these are not contrary to law, morals, good customs, public order and public
policy.  A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper.
16

It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper
conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the
bill or not. 17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without
objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the
shipment is presumed to have accepted it as correctly stating the contract and to have assented to
its terms. In other words, the acceptance of the bill without dissent raises the presumption that all the
terms therein were brought to the knowledge of the shipper and agreed to by him and, in the
absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms.
This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of
its contents and acceptance under such circumstances makes it a binding contract. 18

In the light of the series of events that transpired in the case at bar, there can be no logical
conclusion other than that the petitioner had full knowledge of, and actually consented to, the terms
and conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be
heard to deny having assented thereto. As borne out by the records, James Cu himself, in his
capacity as president of MMMC, personally received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by voluntarry signing the document
which embodies the agreement. As found by the Court of Appeals —

Contrary to appellant's allegation that it did not agree to the transhipment, it could be
gleaned from the record that the appellant actually consented to the transhipment when it
received the bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly
appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an entry
"HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and
the corresponding check in payment of the freight (Exhibit D), implying that he consented to
the transhipment (Decision, p. 6, Rollo). 19

Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in
his testimony on crossexamination, categorically stated that he knew for a fact that the shipment was
to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother vessel,
the MV Oriental Researcher in this wise:

Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or
transhipped at the port of Hongkong?

A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if
they should not put a transhipment in Hongkong, that's why they even stated in the
certification.

x x x           x x x          x x x

Q In layman's language, would you agree with me that transhipment is the transfer of a
cargo from one vessel to the other?

A As a layman, yes.
 Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M.
V. Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental
Dispatcher, (sic) you know that for a fact?

A Yes, sir. (Emphasis supplied.) 20

Under the parol evidence rule,  the terms of a contract are rendered conclusive upon the parties,
21

and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement
embodied in a document, subject to well defined exceptions which do not obtain in this case. The
parol evidence rule is based on the consideration that when the parties have reduced their
agreement on a particular matter into writing, all their previous and contemporaneous agreements
on the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal
agreement is generally not admissible to vary, contradict or defeat the operation of a valid
instrument.  The mistake contemplated as an exception to the parol evidence rule is one which is a
22

mistake of fact mutual to the parties.  Furthermore, the rules on evidence, as amended, require that
23

in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings,
such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can
not later on be permitted to introduce parol evidence thereon.  Needless to say, the mistake
24

adverted to by herein petitioner, and by its own admission, was supposedly committed by private
respondents only and was raised by the former rather belatedly only in this instant petition. Clearly
then, and for failure to comply even only with the procedural requirements thereon, we cannot admit
evidence to prove or explain the alleged mistake in documentation imputed to private respondents
by petitioner.

Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have
agreed thereto even if it signed the bill of lading containing such entry because it had made known to
private respondents from the start that transhipment was prohibited under the letter of credit and
that, therefore, it had no intention to allow transhipment of the subject cargo. In support of its stand,
petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the
words appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former," as wen as the supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate Court, et
al.  that "where the literal interpretation of a contract is contrary to the evident intention of the
25

parties, the latter shall prevail."

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks
the first paragraph of the very article that he cites which provides that "(i)f the terms of the contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered."

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for
any interpretation. The intention of the parties which is the carriage of the cargo under the terms
specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of
the contract being conclusive upon the parties and judging from the contemporaneous and
subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and
paying the freight charges, there is no doubt that petitioner must necessarily be charged with full
knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be
bound thereby.
Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is made, is a violation of the contract
and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted.  It is highly improbable to suppose that private respondents,
26

having been engaged in the shipping business for so long, would be unaware of such a custom of
the trade as to have undertaken such transhipment without petitioner's consent and unnecessarily
expose themselves to a possible liability. Verily, they could only have undertaken transhipment with
the shipper's permission, as evidenced by the signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was
that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms
of the letter of credit issued in favor of petitioner. On cross-examination, it was likewise established
that petitioner, through its aforesaid president, was aware of this fact, thus:

Q If the container van, the loaded container van, was transported back to South Harbor on
June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

x x x           x x x          x x x

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

x x x           x x x          x x x

Q Do you know the difference between a "received for shipment bill of lading" and "on board
bill of lading"?

A Yes, sir.

Q What's the difference?

 A Received for shipment, you can receive the cargo even you don't ship on board, that is
placed in the warehouse; while on-board bill of lading means that is loaded on the vessel,
the goods.

x x x           x x x          x x x

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

x x x           x x x          x x x

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel
you can demand an on-board bill of lading not only a received for shipment bill of lading.?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of
lading with an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

x x x           x x x          x x x

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there
should be no transhipment and that it should also get an on board bill of lading.?

A Yes sir. 27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that
there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading
over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a
pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having
an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction
between an "on board" and a "received for shipment" bill of lading, as manifested by James Cu's
testimony. It is only to be expected that those long engaged in the export industry should be familiar
with business usages and customs.

In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw
fans were already on board MV Pacific Despatcher (which means that the bill of lading is an on-
board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of
lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...."  What the petitioner would
28

suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of
converting the original "received for shipment only" bill of lading into an "on board" bill of lading as
required by the buyer and was, therefore, by substantial compliance, not violative of the contract.
An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received for shipment bills of lading are issued whenever conditions
are not normal and there is insufficiency of shipping space.  An on board bill of lading is issued
29

when the goods have been actually placed aboard the ship with every reasonable expectation that
the shipment is as good as on its way.  It is, therefore, understandable that a party to a maritime
30

contract would require an on board bill of lading because of its apparent guaranty of certainty of
shipping as well as the seaworthiness of the vessel which is to carry the goods.

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading as required by the terms of the letter of
credit issued in favor of petitioner. For one, the certification was issued only on July 19, 1980, way
beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on
board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have
the effect of converting the received for shipment bill of lading into an on board of bill of lading, as
petitioner would have us believe, such an effect may be achieved only as of the date of its issuance,
that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was
presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate
retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it
would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against
private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear on
its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and
conditions are plainly worded and commonly understood by those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May
20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it
more than ample time to find a carrier that could comply with the requirements of shipment under the
letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However,
as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al.  and reiterated in Servando, et al.
31

vs. Philippine Steam Navigation Co.,  plane tickets as well as bills of lading are contracts not entirely
32

prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. The respondent court correctly observed in the present case that "when the
appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and
conditions as embodied therein. 33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly
violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to
conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of
credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the
indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring
that such violations may be overlooked, if not disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of
the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of
the petitioner's making for which it must bear the consequences. As finally averred by private
respondents, and with which we agree, "... the questions of whether or not there was a violation of
the terms and conditions of the letter of credit, or whether or not such violation was the cause or
motive for the rejection by petitioner's Japanese buyer should not affect private respondents therein
since they were not privies to the terms and conditions of petitioner's letter of credit and cannot
therefore be held liable for any violation thereof by any of the parties thereto." 34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial
court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the Court
of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return
shipment to Manila and the demurrage charges in Japan, the same is supported by
appellant's own letter request (Exh. 2) for the return of the shipment to Manila at its
(appellant's) expense, and hence, it should be held liable therefor. The amount of P831.43
was paid to the Manila International Port Terminal upon arrival of the shipment in Manila for
appellant's account. It should properly be charged to said appellant. 35

However, respondent court modified the trial court's decision by excluding the award for
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its
broader sense, damages in the nature of demurrage are recoverable for a breach of the implied
obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping contract.  Notice of arrival of
36

vessels or conveyances, or of their placement for purposes of unloading is often a condition

precedent to the right to collect demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of
arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by
Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a
witness for private respondents:

Q ... you will agree with me that before one could be charged with demurrage the shipper
should be notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of) such
arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

 A Yes sir. 37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980,
arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to
shoulder the same, as it was not at fault nor was it responsible for said demurrage charges.
Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October
1980, appellant was notified of said arrival only in March 1981. No explanation was given for
the delay in notifying appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the goods first.  Without
1âwphi1

such notification it could not- be so charged because there was no way by which it would
know that the goods had already arrived for it to take custody of them. Considering that it
was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods,
although the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14),
appellant cannot be charged for demurrage from October 1980 to March 1981. ... 38

While being satisfied with the exclusion of demurrage charges in Manila for the period from October
22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award of P52,102.43
in favor of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan
and P831.43 for charges paid at the Manila International Port Termninal.

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow
private respondents to sell the same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was released from liability for the sum of
P52,102.43 since such amount represents the shipping and demurrage charges from which it is
considered to have been released due to the abandonment of goods. It further argues that the
shipping and demurrage charges from which it was released by the exercise of the option to
abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to petitioner.
Private respondents would rebut this contention by saying in their memorandum that the
abandonment of goods by petitioner was too late and made in bad faith. 39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact
that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services. This is particularly true in this case where the
reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980. 40

However, in a letter dated March 20, 1981,  private respondents belatedly informed petitioner of the
41

arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:

Please can you advise within 15 days of receipt of this letter whether you intend to take
delivery of this shipment, as alternatively we will have to take legal proceedings in order to
have the cargo auctioned to recover the costs involved, as well as free the container which
are (sic) urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same
so that private respondents could sell them at public auction and thereafter apply the proceeds in
payment of the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision
to abandon to the goods in favor of private respondents with the specific instruction that any excess
of the proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter
was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on cross-examination.
42

Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent
a demand letter on June 22, 1981  insisting that petitioner should pay the entire amount of
43

P298,150.93 and, in another letter dated Apiril 30, 1981,  they stated that they win not accept the
44

abandonment of the goods and demanded that the outstanding account be settled. The testimony of
said Edwin Mabazza definitely admits and bears this out. 45

Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges. Having
given such option, especially since it was accepted by petitioner, private respondents are estopped
from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that option, are concluded by their
respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of
the option would be to countenance abuse of rights as an order of the day, doing violence to the long
entrenched principle of mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of

transported goods is sufficient ground for the abandonment of goods. By analogy, this can also
apply to maritime transportation. Further, with much more reason can petitioner in the instant case
properly abandon the goods, not only because of the unreasonable delay in its delivery but because
of the option which was categorically granted to and exercised by it as a means of settling its liability
for the cost and expenses of reshipment. And, said choice having been duly communicated, the
same is binding upon the parties on legal and equitable considerations of estoppel.

WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the

MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45 with
legal interest granted by respondent court on private respondents' counterclaim is SET ASIDE, said
counterclaim being hereby DISMISSED, without pronouncement as to costs.

SO ORDERED.