G.R. No. 152313; October 19, 2011
REPUBLIC FLOUR MILLS CORPORATION, Petitioner, vs. FORBES FACTORS, INC., Respondent.

FACTS

Petitioner Republic Flour Mills Corporation (RFM) purchased Canadian barley and soybean meal from Richco Rotterdam B.V. (Richco) in 1987. Respondent Forbes Factors, Inc. was the exclusive Philippine indent representative of Richco under a contract dated April 26, 1983, which required Forbes to assume the liabilities of Philippine buyers who failed to honor commitments on discharging operations, including demurrage. Richco chartered four vessels to transport the goods. Each sale was covered by a Contract of Sale between Forbes (as seller/authorized representative of Richco) and RFM (as buyer). These contracts referred to the charter party for demurrage rates and obligated RFM to settle any demurrage due within one month from Forbes’s presentation of the statement.
RFM failed to discharge the cargoes from the four vessels within the allowable period, incurring demurrage totaling US$193,937.41. Despite demands from Forbes on behalf of Richco, RFM refused to pay. Consequently, on October 20, 1991, Richco informed Forbes that the demurrage due from RFM had been debited from Forbes’s account. Forbes then filed a Complaint for demurrage and damages against RFM on February 12, 1992. The Regional Trial Court (RTC) of Makati City ruled in favor of Forbes, ordering RFM to pay the demurrage, legal interest, exemplary damages, and attorney’s fees. The Court of Appeals (CA) affirmed the RTC decision with modifications, reducing the exemplary damages and attorney’s fees. RFM filed the present Petition for Review, arguing that Forbes had no right to demand demurrage as it was not the shipowner, contesting the award of damages, and claiming denial of due process due to the RTC’s refusal to reset a hearing for its witness.

ISSUE

1. Whether respondent Forbes Factors, Inc. has the right to demand payment of demurrage from petitioner RFM.
2. Whether the award of damages (exemplary damages and attorney’s fees) in favor of Forbes was proper.
3. Whether RFM was denied due process when the RTC denied its motion to reset a hearing to present its witness.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals Decision.
1. On the right to demand demurrage: The Court held that Forbes had the legal right to demand payment. While demurrage is typically payable to a shipowner for vessel detention, the Contracts of Sale between Forbes and RFM expressly stipulated RFM’s obligation to pay demurrage. More importantly, when Richco debited Forbes’s account for the demurrage amount, legal subrogation occurred under Articles 1302 and 2067 of the Civil Code. Forbes, by paying RFM’s debt to Richco, was subrogated to Richco’s rights as a creditor against RFM. Thus, Forbes became the real party-in-interest to collect the demurrage, regardless of not being the shipowner.
2. On the award of damages: The Court found the awards proper. Exemplary damages were warranted due to RFM’s “wanton, fraudulent, reckless, oppressive or malevolent” refusal to pay its clear obligation despite repeated demands. Attorney’s fees were justified because Forbes was compelled to litigate to protect its interests. The Court upheld the CA’s reduction of the exemplary damages from ₱300,000 to ₱50,000 and attorney’s fees from ₱400,000 to ₱75,000, noting that such awards are not meant to enrich the creditor.
3. On the denial of due process: The Court found no denial of due process. RFM had ample opportunity to present its evidence. The RTC’s denial of a motion for postponement to present a witness was a matter of judicial discretion, and RFM failed to show any grave abuse of that discretion.
The delay in discharging the cargo was solely attributable to RFM’s failure to provide sufficient barges, as found by the RTC and affirmed by the CA. RFM’s obligations under the Contracts of Sale were clear and binding.