MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner, vs.

COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC. respondents.
Date: August 22,
Docket Number: G.R. No. 95529 Ponente:
1991
Topic: Duty to Deliver Created by: Shanon
Petitioner Respondents
MAGELLAN MANUFACTURING MARKETING COURT OF APPEALS, ORIENT OVERSEAS CONTAINER
CORPORATION LINES and F.E. ZUELLIG, INC.
Facts of the Case
1. Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of Yokohama,
Japan to export 136,000 anahaw fans. 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, to
ship the anahaw fans through the other appellee, Orient Overseas Container Lines, Inc., (OOCL).

2. MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented
to Allied Bank. 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.

3. Private respondents gave petitioner the option of paying the sum 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, private respondents demanded paymet from petitioner
which represents the freight charges from Japan to Manila, demurrage incurred in Japan and Manila.

4. Petitioner MMMC 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. since private respondents are to blame for
the refusal of Choju Co., Ltd. to accept the Anahaw fans;

5. 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;

6. 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.

7. 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.

8. RTC: in favor of private respondents; that petitioner had given its consent to the contents of the bill of
lading where it is clearly indicated that there will be transshipment

9. CA: affirmed RTC’s decision but modified the liability; It was which represents the freight charges and
demurrages incurred in Japan but not for the demurrages incurred in Marta; that petitioner cannot 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.
Issues Ruling
Whether or not the respondent court erred in affirming the decision of the trial court in
NO
holding petitioner liable to private respondents
Rationale/Analysis/Legal Basis
1. 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 another
vessel before the place of destination named in the contract has been reached," or "the transfer for
 further transportation from one ship or conveyance to another." Clearly, 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.
2. 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 exists only when expressly stipulated
in the contract.
3. 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.
4. 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.
5. 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,
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.
6. 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 when the
goods have been actually placed aboard the ship with every reasonable expectation that the shipment
is as good as on its way.
7. 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."
Disposition
WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the MODIFICATION that
petitioner is likewise absolved of any liability.