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MAGELLAN MANUFACTURING MARKETING CORPORATION v. CA

FACTS:

Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for $23,220.00. MMMC contracted F.E. Zuellig, a shipping agent, to ship the fans through Orient Overseas Container Lines, Inc. (OOCL). MMMC specified that an on-board bill of lading was needed and that transhipment was not allowed under the letter of credit. MMMC paid F.E. Zuellig the freight charges and obtained a bill of lading, which was presented to Allied Bank for payment. However, the bank refused to pay because the buyer claimed there was no on-board bill of lading and transhipment occurred. The fans were then shipped back to Manila by OOCL, and MMMC was demanded to pay P246,043.43 by the shipping agent and OOCL. MMMC abandoned the cargo and sought damages. The parties admitted that the shipment was loaded at Manila and delivered at the port of discharge, but it was returned to Manila after the consignee refused to accept/pay the goods. MMMC presented a certification from the shipping agent stating that there was no actual transhipment, but the buyer still refused to accept the goods. The shipping agent billed MMMC for the shipment and demurrage charges in Japan. MMMC opted to abandon the goods. The shipping agent then demanded payment from MMMC for freight charges from Japan to Manila, demurrage in Japan and Manila, and charges for stripping the container van of the goods. MMMC filed a complaint seeking payment from the shipping agent and OOCL for the losses it incurred due to the refusal of the buyer. The trial court dismissed the complaint and awarded counter-claim to the shipping agent. The Court of Appeals affirmed the dismissal but reduced the amount of counter-claim.

The case involves a dispute between petitioner, Asia World Shipping Corporation, and private respondents, Oriental Overseas Container Lines, Inc. and Zuellig, Inc., regarding the refusal of petitioner's buyer to accept delivery of exported anahaw fans. Petitioner claims that private respondents violated the terms and conditions of the letter of credit by allowing transhipment of the goods, resulting in a loss for petitioner. Petitioner argues that there was no actual transhipment since both vessels involved belong to the same shipping company. However, the court determines that transhipment occurred based on the bill of lading and certification issued by private respondent Zuellig. Petitioner also argues that a mistake in documentation allows it to present evidence to vary or contradict the terms of the bill of lading. The court explains that a bill of lading serves as both a receipt and a contract, and the shipper is generally bound by its terms upon acceptance. The court further states that accepting the bill without objection raises the presumption that the shipper agreed to its terms.

The case involves a dispute between petitioner Manila Mining Corporation (MMMC) and respondents F.E. Zuellig and its insurer, regarding the shipment of mining machinery from Japan to the Philippines. MMMC claims that there was a breach of contract by Zuellig when it transshipped the cargo in Hong Kong instead of delivering it directly to the Philippines as agreed upon. Zuellig, on the other hand, argues that MMMC was aware of and consented to the transshipment as evidenced by the bill of lading which MMMC's president personally received and signed. The bill of lading indicated the transshipment in Hong Kong. MMMC claims that it only signed the bill of lading under protest and that transshipment was prohibited under the letter of credit. MMMC contends that the terms of the bill of lading should not be binding as they are contrary to the parties' intentions.

ISSUES:

  1. Whether parol evidence can be admitted to prove or explain a mistake of fact mutual to the parties.

  2. Whether the intention of the parties as stated in the bill of lading should prevail over the literal interpretation of a contract.

  3. Whether the carrier can undertake transhipment without the shipper's consent.

  4. Whether the bill of lading issued complied with the terms of the letter of credit.

  5. Whether the certification issued by F.E. Zuellig, Inc. can qualify the bill of lading as an on board bill of lading as required by the terms of the letter of credit.

  6. Whether the bill of lading is a contract of adhesion.

  7. Whether or not the petitioner can be held liable for the violation of the terms and conditions of the letter of credit.

  8. Whether or not the petitioner is liable for the freight, demurrage, and other charges during the time the goods were in Japan.

  9. Whether or not the petitioner is liable for the charges paid to the Manila International Port Terminal.

  10. Whether or not the petitioner is liable for the demurrage charges in Manila.

  11. Whether or not the petitioner's exercise of the option to abandon the goods releases it from liability.

  12. Whether or not the petitioner is liable for the freightage and demurrage charges.

  13. Whether or not the petitioner validly exercised its option to abandon the goods.

  14. Whether or not the private respondents are estopped from reneging on the option they gave to the petitioner.

  15. Whether or not the petitioner is entitled to be absolved from any liability and have the counterclaim dismissed.

RULING:

  1. Parol evidence cannot be admitted to prove or explain a mistake of fact mutual to the parties, unless said mistake is put in issue by the pleadings.

  2. The intention of the parties as stated in the bill of lading should prevail over the literal interpretation of a contract, as long as the terms of the contract are clear and leave no doubt upon the intention of the contracting parties.

  3. The carrier cannot undertake transhipment without the shipper's consent, as it is a violation of the contract and subjects the carrier to liability if the cargo is lost.

  4. The bill of lading issued was not an on board bill of lading, which violated the terms of the letter of credit.

  5. The certification issued by F.E. Zuellig, Inc. cannot qualify the bill of lading as an on board bill of lading. The certification was issued way beyond the expiry date specified in the letter of credit, and even if it could retroactively convert the received for shipment bill of lading into an on board bill of lading, it may only have effect from the date of its issuance onwards. Therefore, on the crucial date of June 30, 1980, no on board bill of lading was presented, resulting in a default and negating petitioner's entitlement to the proceeds of the letter of credit.

  6. The bill of lading is not a contract of adhesion. While bills of lading are considered contracts of adhesion, the party adhering to the contract is free to reject it entirely. By accepting the bill of lading, petitioner gave its consent and adhered to the terms and conditions therein. The bill of lading is clear on its face and there are no ambiguities or obscurities that need interpretation.

  7. The petitioner can be held liable for the violation of the terms and conditions of the letter of credit as it was the petitioner's own making, and the private respondents cannot be held liable for any violation since they were not privy to the terms and conditions.

  8. The petitioner is liable for the freight, demurrage, and other charges during the time the goods were in Japan as it requested for the return of the shipment to Manila at its own expense.

  9. The petitioner is liable for the charges paid to the Manila International Port Terminal.

  10. The petitioner is not liable for the demurrage charges in Manila from October 22, 1980, to June 18, 1981, as it was not notified of the arrival of the goods and should have been notified before being charged with demurrage.

  11. The exercise of the option to abandon the goods does not release the petitioner from liability for the shipping and demurrage charges.

  12. The petitioner is not liable for the freightage and demurrage charges.

  13. The petitioner validly exercised its option to abandon the goods.

  14. The private respondents are estopped from reneging on the option they gave to the petitioner.

  15. The petitioner is entitled to be absolved from any liability and have the counterclaim dismissed.

PRINCIPLES:

  • Parol evidence rule - Parol evidence cannot be admitted to vary the terms of a written contract, unless there is a mistake of fact mutual to the parties, which must be put in issue by the pleadings.

  • Literal interpretation of a contract - If the terms of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning of the stipulations shall control.

  • Intention of the parties - In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

  • Transhipment - Transhipment of freight without legal excuse is a violation of the contract and subjects the carrier to liability if the cargo is lost.

  • Compliance with contract terms - Parties must comply with the terms of a contract, such as the issuance of an on board bill of lading in accordance with the terms of a letter of credit.

  • An on board bill of lading is one in which it is stated that the goods have been received on board the vessel, while a received for shipment bill of lading is one in which it is stated that the goods have been received for shipment without specifying the vessel. Parties may require an on board bill of lading for the certainty of shipping and seaworthiness of the vessel.

  • A certification issued after the expiry date of a letter of credit cannot retroactively convert a received for shipment bill of lading into an on board bill of lading.

  • Bills of lading and other similar contracts are contracts of adhesion, but the party adhering to the contract is free to reject it entirely. Once accepted, the party gives consent and adheres to the terms and conditions of the contract.

  • Non-compliance with the terms and conditions of a letter of credit can result in liability for the party responsible for the violation. (Issue 1)

  • A party requesting the return of the shipment at its own expense can be held liable for the freight charges. (Issue 2)

  • The party responsible for the shipment is accountable for the charges paid to the port terminal upon arrival of the goods. (Issue 3)

  • A party cannot be charged with demurrage if it was not notified of the arrival of the goods. (Issue 4)

  • The exercise of the option to abandon goods does not release a party from liability for shipping and demurrage charges. (Issue 5)

  • The shipper is ordinarily liable for freightage due to the fact that the shipment was made for its benefit or under its direction. However, the carrier is entitled to collect charges for its shipping services. (Principle of liability for freightage)

  • A party who gives an option to another party and it is accepted by the latter is estopped from reneging on that option. (Principle of estoppel)

  • An unreasonable delay in the delivery of transported goods is sufficient ground for the abandonment of goods. (Principle of abandonment of goods)

  • The principle of mutuality of contracts prohibits either party from unilaterally backing out on an offer and the exercise of an option. (Principle of mutuality of contracts)