CONTINENTAL CEMENT CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS AND MANILA INTEROCEAN LINES, INC., RESPONDENTS.

Continental Cement versus Manila Interocean Lines

The Case

This is a petition for certiorari brought by Continental Cement Corporation against Manila Interocean Lines, Incorporated, to review the majority decision of a division of the Court of Appeals. The dispute began as a complaint for damages filed by the shipper against the carrier after the carrier refused to release a reparations shipment until freight was paid in full, and it ended as a contest over a single receipt-voucher said to prove full payment. The case matters because it shows how the Supreme Court weighs a private receipt against a bare charge of falsification, and how the burden of proof falls on a defendant who sets up a counterclaim.

Procedural History

Continental Cement filed a complaint for damages with a prayer for injunction in the Court of First Instance of Rizal, Quezon City, Branch Four, against Manila Interocean Lines. The trial court issued a temporary restraining order upon the filing of a bond, and later, with the conformity of the plaintiff's counsel, dismissed the complaint upon the defendant's motion, leaving only the counterclaim for the balance of freight. The trial court found that full payment had not been shown by clear and convincing evidence, ordered Continental Cement to pay the balance of the freight in dollars with interest and attorney's fees, and ordered immediate execution pending appeal. Continental Cement appealed to the Court of Appeals, which, through a majority of a division of five, affirmed the trial court in all respects. Hence the petition for certiorari to review that majority decision.

Facts

Continental Cement was the awardee and end-user of heavy machinery and equipment for cement manufacture, received as reparations from Japan through the Philippine Reparations Commission. Manila Interocean Lines was a domestic shipping company and itself a recipient of inter-cargo vessels as reparations. In 1967, Continental Cement shipped on board the vessel Irene one thousand four hundred sixty-nine packages of cement machinery and equipment, which arrived at the Port of Manila on June 20, 1967. Under the contract of affreightment, the shipper was bound to pay freight of about 300,000 pesos within 120 days from arrival, with a rebate of not less than 30 percent on the basic freight rates.

When the shipment arrived, a dispute arose on the time and manner of payment. Continental Cement demanded that the cargo be unloaded shipside on barges for delivery to a customs bonded warehouse, invoking the 120-day period. Manila Interocean Lines refused to release the shipment until full payment, so the cargo was unloaded on the pier, and stevedoring, arrastre, storage and other charges accumulated. The carrier then gave notice by publication and proceeded to sell the reparations machinery at public auction to cover the alleged unpaid freight.

Continental Cement sued for damages and obtained a restraining order. Before a preliminary injunction issued, the parties entered into a partial compromise agreement: the shipper tendered 269,132.58 pesos as the net undisputed freight, and the carrier bound itself to issue the delivery permits upon receipt, without prejudice to the balance and to its lien. The shipment was then released. The carrier's original answer contained no claim for the balance of freight; only on February 23, 1971, more than a year later, did it amend its answer to add that counterclaim. At the hearing, the parties manifested that the only issue was the counterclaim, and the complaint was dismissed. The shipper relied on a voucher, Exhibit 6, showing receipt of 269,132.58 pesos as full payment; the carrier claimed the words of full payment were interpolated and spurious.

Issues

• Whether or not the petitioner had already paid in full the freight charges claimed by the private respondent in its counterclaim.
• Whether or not, assuming the payment was not by way of full payment, the lower court erred in ordering the petitioner to pay the dollar balance of the freight with interest, computed at the prevailing rate of exchange at the date of payment.
• Whether or not the lower court erred in not dismissing the counterclaim in the amended answer.

Applicable Provisions

Section 8 of Rule 8 of the Revised Rules of Court provides:

A party may set forth in his pleading any condition precedent, the performance or occurrence of which is intended to be contested. If the defendant does not deny under oath the genuineness and due execution of an actionable document, the same is deemed admitted.

This bears on the case because the carrier did not deny under oath the letter-agreement on freight, so its genuineness and due execution were deemed admitted.

Section 7 of Rule 130 of the Revised Rules of Court provides:

When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and there can be between the parties and their successors in interest no evidence of the terms of the agreement other than the contents of the writing.

This bears on the case because the letter-agreement was a complete contract of affreightment, and no evidence of its terms other than its contents could be received.

Section 5, paragraph a, of Rule 132 of the Revised Rules of Court provides:

In all criminal cases, the presumption of innocence shall be observed in favor of the accused.

This bears on the case because the carrier's charge of interpolation amounted to a charge of falsification, and the shipper was presumed innocent of crime or wrong.

Ruling

On the first issue, the Court held that the petitioner had fully paid the freight charges. The carrier, as counter-claimant, bore the burden of proving its claim for the alleged balance. Confronted with the receipt-voucher showing full payment, the carrier averred that the words of full payment were interpolated after signing, and presented only the uncertain testimony of its counsel and vice-president that when he signed the original it did not seem to bear those particulars. Against this stood the positive testimony of the shipper's executive assistant that the voucher represented full payment. The Court found the voucher regular on its face, with no indication in the spacing of the typewritten words that they were interpolated, and observed that if those words were eliminated the voucher would be incomplete. The carrier's failure to demand the alleged balance in its original answer, and its delay of one year and two months before amending, supported the conclusion that the payment was a full discharge. The Court also noted that the carrier had reneged on the contract by demanding full payment before releasing the shipment, and that the shipper had to pay customs storage and handling charges in the total amount of 100,598.46 pesos.

On the second and third issues, the Court found it no longer necessary to pass upon the other errors assigned, since the finding of full payment disposed of the counterclaim. The decision of the Court of Appeals was set aside, the decision of the trial court was reversed, and the counterclaim was dismissed.

Doctrine

A defendant who sets up a counterclaim bears the burden of proving it by a preponderance of evidence; a bare assertion that a receipt was altered, unsupported by clear proof, cannot overcome a voucher regular on its face and the presumption that a person is innocent of crime or wrong. Where a party fails to deny under oath the genuineness and due execution of an actionable document, the document is deemed admitted, and where the terms of an agreement are reduced to writing, the writing contains all the terms and no other evidence of its terms may be received between the parties. Finally, the unexplained failure to include a large claim in the original answer, followed by a late amendment, may be taken as evidence that no such claim in fact existed.

Disposition

The petition was granted; the decision of the Court of Appeals was set aside, the trial court's judgment ordering Continental Cement to pay the dollar balance and attorney's fees was reversed, the counterclaim of Manila Interocean Lines was dismissed without pronouncement as to costs, and the supersedeas bond was declared cancelled.

Remember This

The single line worth memorizing is that a receipt regular on its face, coupled with the presumption of innocence, prevails over a bare charge of interpolation. Examiners like to use this case on the burden of proof in counterclaims and on the rule that an actionable document not denied under oath is deemed admitted.