In Philippine law, a carrier’s duty to deliver goods doesn’t always require the surrender of the original bill of lading. The Supreme Court clarified that carriers can release goods under specific circumstances, such as when the consignee provides a receipt or an indemnity agreement exists. This means businesses involved in shipping need to understand the nuances of delivery obligations to avoid liability, especially when sellers retain the bill of lading until payment is made.

Who Bears the Risk? Examining Carrier Duties When Goods Are Released Without a Bill of Lading

Designer Baskets, Inc. (DBI), a Philippine exporter, sued Air Sea Transport, Inc. (ASTI) and Asia Cargo Container Lines, Inc. (ACCLI) to recover payment for goods released to a buyer without the surrender of the bill of lading. Ambiente, a foreign buyer, ordered goods from DBI but did not pay, leading DBI to seek recourse from the carriers, ASTI and ACCLI, alleging they breached their duty by releasing the shipment without receiving the original bill of lading. The central legal question was whether ASTI and ACCLI were liable for releasing the goods to Ambiente without the bill of lading, despite an indemnity agreement between Ambiente and ASTI.

The heart of the matter lies in the interpretation of a bill of lading, which serves as both a receipt for goods and a contract for their transport. Under Article 350 of the Code of Commerce, both shipper and carrier can demand a bill of lading. The court acknowledged that while the bill of lading defines the rights and liabilities of the parties, its terms must align with the law. DBI argued that ASTI and ACCLI were obligated to release the cargo only upon surrender of the original bill of lading, citing a supposed provision in Bill of Lading No. AC/MLLA601317. However, the court found no such explicit requirement in the bill of lading’s language. Instead, the bill of lading stated:

Received by the Carrier in apparent good order and condition unless otherwise indicated hereon, the Container(s) and/or goods hereinafter mentioned to be transported and/or otherwise forwarded from the Place of Receipt to the intended Place of Delivery upon and [subject] to all the terms and conditions appearing on the face and back of this Bill of Lading. If required by the Carrier this Bill of Lading duly endorsed must be surrendered in exchange for the Goods of delivery order.

The Supreme Court emphasized that this clause did not create an absolute obligation to demand the bill of lading’s surrender. Building on this, the Court turned to Article 353 of the Code of Commerce, which offers further guidance on the matter. This article provides exceptions to the general rule that the bill of lading must be returned to the carrier after the contract is fulfilled.

Article 353. The legal evidence of the contract between the shipper and the carrier shall be the bills of lading, by the contents of which the disputes which may arise regarding their execution and performance shall be decided, no exceptions being admissible other than those of falsity and material error in the drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall be returned to him, and by virtue of the exchange of this title with the thing transported, the respective obligations and actions shall be considered canceled, unless in the same act the claim which the parties may wish to reserve be reduced to writing, with the exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier, because of its loss or any other cause, he must give the latter a receipt for the goods delivered, this receipt producing the same effects as the return of the bill of lading.

The court highlighted that Article 353 allows for the release of goods even without the bill of lading’s surrender if the consignee provides a receipt. In this case, the indemnity agreement between Ambiente and ASTI acted as such a receipt. The agreement obligated ASTI to deliver the shipment without the bill of lading, with Ambiente agreeing to indemnify ASTI against any resulting liabilities. This approach aligns with established jurisprudence, as seen in Republic v. Lorenzo Shipping Corporation, where the court held that the surrender of the original bill of lading is not always a prerequisite for a carrier to be discharged of its obligations.

DBI also argued that ASTI and ACCLI failed to exercise extraordinary diligence as required by Articles 1733, 1734, and 1735 of the Civil Code. However, the Court clarified that these articles primarily concern the carrier’s responsibility for the loss, destruction, or deterioration of the goods. Since the goods were delivered to the intended consignee, these provisions did not apply. The applicable provision remained Article 353 of the Code of Commerce, which, as discussed, allows for exceptions to the bill of lading surrender rule. The Court also dismissed DBI’s reliance on Article 1503 of the Civil Code, which deals with the seller’s right to reserve possession of goods in a sales contract. The Court explained that Articles 1523 and 1503 of the Civil Code relate to contracts of sale, not contracts of carriage, and thus were inapplicable to the case at hand.

The Supreme Court underscored the distinction between a contract of sale and a contract of carriage. ASTI’s liability stemmed from the contract of carriage, not the sales agreement between DBI and Ambiente. As the carrier, ASTI’s obligation was to ensure the goods were delivered safely and on time. The Court supported the CA’s decision:

They are correct in arguing that the nature of their obligation with plaintiff [DBI] is separate and distinct from the transaction of the latter with defendant Ambiente. As carrier of the goods transported by plaintiff, its obligation is simply to ensure that such goods are delivered on time and in good condition.

Therefore, the Court found that ASTI and ACCLI were not liable to DBI for the non-payment of the goods, as their responsibilities were defined by the contract of carriage and the relevant provisions of the Code of Commerce. Only Ambiente, as the buyer, was held responsible for the value of the shipment. However, the legal rate of interest was modified to 6% per annum from the finality of the decision until full satisfaction, in line with prevailing jurisprudence.

FAQs

What was the key issue in this case?	The key issue was whether the carrier was liable for releasing goods without the surrender of the original bill of lading, despite an indemnity agreement with the consignee.
What is a bill of lading?	A bill of lading is a document that serves as a receipt for goods, a contract for their transport, and evidence of title. It outlines the terms and conditions under which the goods are to be carried.
Under what circumstances can goods be released without a bill of lading?	Goods can be released without the bill of lading if the consignee cannot return it due to loss or other cause, provided the consignee issues a receipt. An indemnity agreement can act as a receipt.
What is the significance of Article 353 of the Code of Commerce?	Article 353 provides the legal framework for the obligations of both shipper and carrier, particularly concerning the surrender of the bill of lading after the contract is fulfilled.
What is the difference between a contract of sale and a contract of carriage?	A contract of sale involves the transfer of ownership of goods from a seller to a buyer, while a contract of carriage involves the transportation of goods by a carrier. They are governed by different laws and create different sets of rights and obligations.
Are common carriers always required to demand the surrender of the bill of lading before releasing goods?	No, the surrender of the bill of lading is not an absolute requirement. Article 353 of the Code of Commerce allows for exceptions, such as when the consignee provides a receipt or an indemnity agreement is in place.
What duties do common carriers owe to shippers of goods?	Common carriers must exercise extraordinary diligence in the vigilance over the goods and ensure their safe and timely delivery to the designated consignee.
What was the final ruling of the Supreme Court in this case?	The Supreme Court ruled that ASTI and ACCLI were not liable to DBI, as their obligations were defined by the contract of carriage and the Code of Commerce. Only Ambiente, as the buyer, was liable for the value of the shipment.

This case highlights the importance of clearly defining the terms of carriage and understanding the exceptions to the bill of lading requirement. Businesses should ensure their contracts of carriage align with Philippine law to mitigate potential liabilities.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: DESIGNER BASKETS, INC. VS. AIR SEA TRANSPORT, INC. AND ASIA CARGO CONTAINER LINES, INC., G.R. No. 184513, March 09, 2016