TELENGTAN BROTHERS & SONS, INC., PETITIONER, VS. UNITED STATES LINES, INC. AND THE COURT OF APPEALS, RESPONDENTS.

Telengtan Brothers and Sons versus United States Lines

The Case

This is a petition for review on certiorari brought by Telengtan Brothers and Sons, Incorporated, a domestic corporation doing business as La Suerte Cigar and Cigarette Factory, against United States Lines, Incorporated, a foreign corporation engaged in overseas shipping. Telengtan seeks to reverse the decision of the Court of Appeals which affirmed the trial court's judgment holding it liable for demurrage and damages. The case matters because it teaches two enduring lessons: first, that a consignee who sleeps on its cargo bears the consequences, and second, that extraordinary inflation under Article 1250 of the Civil Code is never presumed and must be strictly proven. It is a favorite of examiners on both maritime commerce and the law on obligations.

Procedural History

On June 22, 1981, United States Lines filed a complaint for demurrage charges, interest, and damages against Telengtan before the Regional Trial Court of Manila, Branch 38. Telengtan answered with a compulsory counterclaim, disclaiming any contract on demurrage and alleging that United States Lines had stripped the container vans and stored the goods in warehouses, refusing release unless Telengtan paid 123,738.04 pesos. After trial, the Regional Trial Court rendered judgment on January 10, 1985, finding Telengtan liable for demurrage in the amount of 99,408 pesos with legal interest, attorney's fees of twenty percent of the total sum due, recomputed as of the date of payment in accordance with Article 1250 of the Civil Code, plus exemplary damages of 80,000 pesos, and dismissing the counterclaim. Telengtan appealed to the Court of Appeals, which, in its decision dated January 8, 1998, affirmed the trial court in full. Telengtan then came to the Supreme Court through a petition for review on certiorari under Rule 45.

Facts

Between 1979 and 1980, goods belonging to Telengtan, loaded in container vans aboard vessels of United States Lines, arrived in Manila from United States ports. The shipments were covered by seven bills of lading on a House to House Containers basis, meaning the carrier's vans were to be brought to the consignee's warehouse for loading, stowage, and count. Under the applicable Far East Conference Tariff, effective for vessels arriving on and after December 15, 1978, consignees who failed to take delivery of containerized cargo within the ten-day free period became liable for demurrage.

Telengtan did not withdraw its goods within the free period. United States Lines, after giving the consignee time, sought and obtained authority from the Bureau of Customs, evidenced by a van permit, to strip three of the container vans and deposit their contents in bonded warehouses. United States Lines then demanded payment of demurrage totaling 94,000 pesos, which Telengtan refused, prompting the suit.

Telengtan countered that it never agreed to any demurrage rule, and that United States Lines had violated its obligation to deliver by warehousing the goods and demanding 123,738.04 pesos before release. The trial court, however, found that Telengtan had paid demurrage on previous occasions, as shown by official receipts, and was therefore in estoppel to deny knowledge of the charge. It also found that the warehousing was done with customs authority and that Telengtan's unexplained delay smacked of bad faith.

Issues

• Whether or not the Court of Appeals erred in holding Telengtan at fault for failing to withdraw its cargo from the container vans within the ten-day free period, thereby making it liable for demurrage.
• Whether or not the Court of Appeals erred in affirming the recomputation of the judgment award as of the date of payment in accordance with Article 1250 of the Civil Code.

Applicable Provisions

Article 1250 of the Civil Code provides:

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

This is the provision the trial court and the Court of Appeals used to order recomputation of the award as of payment, and which the Supreme Court now construes and limits.

Section 17 of the Regular Long Form Inward Bill of Lading of United States Lines provides:

Also if the consignee does not take possession or delivery of the goods as soon as the goods are at the disposal of the consignee for removal, the goods shall be at their own risk and expense, delivery shall be considered complete and the carrier may, subject to carrier's liens, send the goods to store, warehouse, put them on lighters or other craft, put them in possession of authorities, dump, permit to lie where landed or otherwise dispose of them, always at the risk and expense of the goods, and the shipper and consignee shall pay and indemnify the carrier for any loss, damage, fine, charge or expense whatsoever suffered or incurred in so dealing with or disposing of the goods, or by reason of the consignee's failure or delay in taking possession and delivery as provided herein.

This clause authorized the carrier to warehouse the goods at the consignee's risk and expense once the consignee failed to take delivery, defeating Telengtan's claim that the warehousing was a breach.

Ruling

On the first issue, the Court ruled against Telengtan. The question of who was at fault, it held, is a question of fact, and the factual findings of the Court of Appeals confirming those of the trial court are binding on the Supreme Court absent the most compelling reasons. The Court found the appellate court's conclusion supported by the records: had Telengtan withdrawn its cargo within the ten-day free period, there would have been no need to warehouse it. The warehousing was done with prior authority from the Bureau of Customs, which indicated the good faith of the carrier and relieved it of its obligations under the bills of lading. The Court also noted that Telengtan was accustomed to paying demurrage, as shown by prior receipts, and that its unexplained delay in taking delivery was bad faith.

On the second issue, the Court ruled in favor of Telengtan. It held that there was no extraordinary inflation within the meaning of Article 1250. Extraordinary inflation exists only when there is an unusual increase in the purchasing power of the peso beyond common fluctuation, which could not have been reasonably foreseen by the parties. The Court stressed that extraordinary inflation can never be assumed; he who alleges it must prove it. United States Lines offered no evidence of extraordinary inflation, and the mere erosion of the peso's value over decades is characteristic of most currencies and does not satisfy Article 1250. Absent an official pronouncement of extraordinary inflation, and absent any agreement to the contrary in the bills of lading, the value of the currency at the time the obligation was established must control.

Doctrine

First, factual findings of the Court of Appeals that confirm those of the trial court are binding on the Supreme Court, save for the most compelling reasons, and the question of which party is at fault in failing to withdraw cargo is a question of fact. Second, a consignee who fails to take delivery of its goods within the free period bears the risk and expense, and the carrier may warehouse the goods with customs authority without liability. Third, under Article 1250 of the Civil Code, extraordinary inflation is never presumed; the party alleging it must prove an unusual and unforeseeable increase in the purchasing power of the currency, and absent proof or an agreement to the contrary, the value of the currency at the time the obligation was established is the basis of payment.

Disposition

The Court affirmed the decision of the Court of Appeals with the modification that the order for recomputation of the award as of the date of payment under Article 1250 of the Civil Code was deleted, with costs against Telengtan.

Remember This

Memorize this line: extraordinary inflation can never be assumed; he who alleges it must prove it, and absent proof or agreement, the peso value at the time the obligation was established controls. Examiners use this case to test Article 1250 of the Civil Code and the binding nature of factual findings on appeal.