G.R. No. L-12138; February 27, 1962
OVERSEAS FACTORS, INC. and GERTRUDES CARLOS, plaintiffs-appellees, vs. SOUTH SEA SHIPPING CO., LTD., A. MAGSAYSAY, INC., THE CAPTAIN AND THE CREW OF THE S.S. OCEAN TRADER and THE COLLECTOR OF CUSTOMS OF MANILA, defendants-appellants. SOUTH SEA SURETY & INSURANCE CO., cross-claimant, vs. OVERSEAS FACTORS, INC. and GERTRUDES CARLOS, cross-defendants.

FACTS

Overseas Factors, Inc., with co-financier Gertrudes Carlos, contracted to supply rice to the National Rice and Corn Corporation (NARIC). To ship the rice from Pakistan, Overseas Factors chartered the S.S. Ocean Trader from South Sea Shipping Co., Ltd. The parties executed a formal charter party. To secure payment of freight and other charges, Overseas Factors and Carlos obtained a performance bond from South Sea Surety & Insurance Co. in favor of the shipping company. After the rice was loaded in Karachi, the vessel arrived in Manila. The ship’s captain refused to unload the cargo, asserting a lien for unpaid freight and demurrage. Overseas Factors and Carlos filed an action seeking to compel unloading, arguing that payments made in Pakistan constituted full settlement. The shipping company counterclaimed for unpaid balances. The trial court ruled largely in favor of the plaintiffs, leading to this appeal.

ISSUE

The primary issues were: (1) whether the shipping company validly exercised a lien on the cargo for unpaid freight; (2) whether the surety was released from its obligation due to novation of the charter party; and (3) the proper computation of the amounts due for freight and demurrage, including the set-off of payments made in Pakistan.

RULING

The Supreme Court modified the trial court’s judgment. It held that the shipping company did not lose its possessory lien on the cargo for unpaid freight under the charter party. The Court affirmed the legal principle that a shipowner has a lien on cargo for freight, which was properly exercised by refusing to discharge the cargo until payment. Regarding the surety, the Court ruled that an addendum to the charter party executed in Hongkong, which varied the terms on the rate and payment of freight without the surety’s consent, constituted a novation of the principal contract. Consequently, the obligation of South Sea Surety & Insurance Co. under the performance bond was extinguished. On the monetary claims, the Court ordered Overseas Factors and Carlos to pay the shipping company the balance of freightage and demurrage. However, it allowed a set-off for a specific sum paid in Pakistan rupees by the shipper’s agent for the account of the appellees, which had been received by the shipping company’s agent. This set-off was to be computed at the official exchange rate in Pakistan on the date of receipt. The balance after set-off would bear legal interest. The complaint and complaint in intervention against other defendants were dismissed.