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

Batongbacal

KENG HUA PAPER PRODUCTS CO. INC. v. COURT OF APPEALS (Remedies for Brea ! " Performa# e " To de$iver a$$ i%s a essio#s& Fe'r(ar) *+, *--. Po#e#%e/ 0. Pa#1a#i'a# FACTS/ 2 C!ara %ers/ a) Keng Hua Paper Products consignee, receiver of shipment b) Sea-Land Service Inc. shipping company, transporter of aste paper c) Ho Kee !aste Paper shipper 2 Defi#i%io#s/ a) "i## of #ading - document issued by a carrier to a shipper, ac$no #edging that specified goods have been received on board as cargo for conveyance to a named p#ace for de#ivery to the consignee ho is usua##y identified. b) %emurrage an a##o ance or compensation for the de#ay or detention of a ship&vesse#' has reference to the ship(s e)penses, ear and tear, and common emp#oyment. - Keng Hua purchased from Ho Kee fifty tons of aste paper, ith partia# shipment permitted. - *n +une ,-, .-/,, Sea-Land received at its Hong Kong termina# a sea#ed container containing 01 ba#es of unsorted aste paper for shipment to Keng Hua in 2ani#a. 3 bi## of #ading to cover the shipment as issued by Sea-Land. - Ho ever, the 0(#e +- s!i3me#% 4as *5 %o#s more %!a# %!e remai#i#1 'a$a# e of %!e 3(r !ase6order, as manifested under the #etter of credit. 4Keng Hua ordered 56 tons. .6 tons na #ang dapat yung $u#ang&ba#ance. Pero yung +une ,- shipment, ,6 tons of aste paper.) - *n +u#y -, .-/,, the shipment as discharged at the 2ani#a Internationa# 7ontainer Port. 8otices of arriva# ere transmitted to Keng Hua but it fai#ed to discharge the shipment from the container during the 9free time: or grace period. ;he aste paper remained inside Sea-Land(s container from the e)piration of the free time period 4+u#y ,-) unti# the shipment as un#oaded on 8ovember ,,, .-/< 4=/. days). - %uring the =/.-day period, dem(rra1e !ar1es accrued. 8umerous demands for Keng Hua to pay but it refused to sett#e its ob#igation. PROCEDURAL HISTOR7/ - Sea-Land sued Keng Hua for co##ection and damages. - ;he >egiona# ;ria# 7ourt of 2ani#a rendered ?udgment in favor of Sea-Land, and ordered Keng Hua to pay P01,<=6 as demurrage charges ith interest at the #ega# rate from the date of the e)tra?udicia# demand. 3#so, Keng Hua must pay .6@ of the tota# amount due as attorney(s fees&#itigation e)penses. - 7ourt of 3ppea#s affirmed in toto the >;7. ISSUES/ .) !o8 Keng Hua accepted the bi## of #ading. ,) !o8 the a ard of P01,<=6 to Sea-Land as proper <) !o8 Keng Hua as correct in not accepting the overshipment =) !o8 the a ard of #ega# interest from the date of Sea-Land(s e)tra?udicia# demand as proper PETITIONER8S ARGU9ENTS/ - If Keng Hua accepted the shipment, it ou#d be vio#ating 7entra# "an$ ru#es and regu#ations and custom and tariff #a s. It ou#d be tantamount to smugg#ing. It ou#d ma$e Keng Hua vu#nerab#e to #ega# sanctions. - Sea-Land has no cause of action against Keng Hua because Keng Hua did not hire Sea-Land. ;he cause of action shou#d be against the shipper, Ho Kee. ;he demurrage as a conseAuence of the shipper(s mista$e of shipping more than ahat as bought.

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

- Keng Hua du#y notified Sea-Land about the rong shipment through a #etter dated +anuary ,=, .-/<. - Keng Hua is not bound by the bi## of #ading because it never gave its consent. It admits 9physica# acceptance: of the bi## of #ading, but argues that its subseAuent actions be#ie the finding that it accepted the terms. - 8otice of >efused or *n Hand BreightC proof that Keng Hua dec#ined to accept the shipment. RESPONDENT8S ARGU9ENTS/ - 8one rea##y, ?ust that Keng Hua shou#d pay demurrage charges since it de#ayed Sea-Land(s vesse# by fai#ing to un#oad the shipment during the free time period. RATIO/ *& 7ES, Ke#1 H(a a e3%ed a#d is %!(s 'o(#d ') %!e 'i$$ of $adi#1. - 3 bi## of #ading has t o functionsC a) receipt for the goods shipped, b) a contract by hich three parties 4shipper, carrier, and consignee) underta$e specific responsibi#ities and assume stipu#ated ob#igations. - 3 bi## of #ading de#ivered and accepted constitutes the contract of carriage even though not signed because the acceptance of a paper containing the terms of a proposed contract genera##y constitutes an acceptance of the contract and of a## its terms and conditions of hich the acceptor has actua# or constructive notice. - 3cceptance D perfect and binding contract - ;he bi## of #ading bet een Ho Kee, Keng Hua, and Sea-Land as a va$id a#d PERFECTED o#%ra %. Section .1 of the bi## of #ading provides that the shipper and consignee ere #iab#e for demurrage charges for the fai#ure to discharge the shipment ithin the grace period. - S7 not persuaded by Keng Hua(s arguments. Keng Hua did not immediate#y ob?ect to or dissent from any term or stipu#ated in the bi## of #ading. It aited for SIE 2*8;HS to send a #etter to Sea-Land saying that it ou#d not accept the shipment. - T!e i#a %io# for s( ! a $o#1 3eriod o#ve)s %!e $ear i#fere# e %!a% i% a e3%ed %!e %erms a#d o#di%io#s of %!e 'i$$ of $adi#1. - >eC 8otice of >efused or *n Hand BreightC said notice as not ritten by Keng Hua' it as sent by SeaLand to Keng Hua four months after it received the bi## of #ading. Its on#y significance is to high#ight Keng Hua(s pro#onged fai#ure to ob?ect to the bi## of #ading. - Issue of !o8 Keng Hua accepted the bi## of #ading is raised for the first time in the S7 4not raised in the #o er courts). Hence, it is barred by estoppe#. - Pro#onged fai#ure to receive and discharge cargo -F vio#ation of terms of bi## of #ading -F #iabi#ity for demurrage +& 7ES, i% is 3ro3er - Keng Hua argued that Sea-Land made no demand for the sum of P01,<=6. 3#so, Sea-Land(s #oss and prevention manager 4P56,,06) and its counse# 4P<1,/66) as$ed for different amounts. - ;he amount fo P01,<=6 as a factua# conc#usion of the tria# court, affirmed by the 7ourt of 3ppea#s, and is therefore binding on the S7. Such finding is supported by e)tant evidence. - >eC discrepancy in amounts demandedC resu#t of the variance of dates hen the demands ere made. ;he #onger the cargo remained unc#aimed, the higher the demurrage. ;hus hen counse# demanded on 3pri# ,=, .-/< P<1,/66, it a#ready ba##ooned to P01,<=6 by 8ovember ,,. :& NO. - >eC vio#ation of #a sC mere apprehension of vio#ating said #a s, ithout a c#ear demonstration that ta$ing de#ivery of the shipment has become #ega##y impossib#e, cannot defeat Keng Hua(s ob#igations under the bi## of #ading. ;& NO.

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

- "ased on 877 ,,6-C interest rate is si) percent per annum. - "i## of #ading did not specify the amount of demurrage' this as on#y estab#ished during the tria# court decision. Hence, the rate is 0@ to be computed from the tria# court decision 4Sept. ,/, .--6), p#us .,@ on the tota# then outstanding from the time ?udgment becomes fina# and e)ecutory unti# its satisfaction. G In a #etter of credit, there are three distinct and independent contractsC a) contract of sa#e bet een buyer and se##er b) contract of buyer ith issuing ban$ c) #etter of credit proper here ban$ promises to pay se##er - ;hese three are to be maintained in perpetua# separation. - ;he contract of carriage in the bi## of #ading must be ;>H3;H% I8%HPH8%H8;LI of the contract of sa#e and contract ith issuing ban$. 3ny discrepancy bet een the contract of sa#e and #etter of credit i## 8*; 3BBH7; the va#idity of the contract of carriage in the bi## of #ading. - ;he carrier cannot be e)pected to go beyond the representation of the shipper in the bi## of #ading and to verify their accuracy vis-J-vis the contract of sa#e and the #etter of credit. - 7arrier had no $no #edge of the contents of the container. DISPOSITI<E/ - 73 decision is 3BBI>2H%, #ega# interest 2*%IBIH% to 0@ to be computed from the tria# court decision 4Sept. ,/, .--6), p#us .,@ on the tota# then outstanding from the time ?udgment becomes fina# and e)ecutory unti# its satisfaction