G.R. No. L-12872. April 29, 1960.
DELGADO BROS., INC., petitioner, vs. LI YAO & COMPANY, LUZON BROKERAGE, CO., INC. and THE COURT OF APPEALS, respondents.

FACTS

On or about June 26, 1952, respondent Li Yao & Company ordered 50,000 yards of rayon silk from Republic Textiles, Inc. in the USA, paying via a letter of credit from China Banking Corporation. The shipment of 49,998 3/8 yards, packed in 24 wooden boxes, arrived in Manila on September 1, 1952, aboard the SS/Belleville. The shipment was unloaded and delivered to petitioner Delgado Bros., Inc., who then delivered it to respondent Luzon Brokerage Co., Inc., the broker for China Banking Corporation. After Li Yao & Company paid the bank, Luzon Brokerage delivered the 24 boxes to Li Yao on September 2627, 1952. Upon delivery, seven boxes were found opened, and a shortage of 6,673 3/4 yards of rayon silk was discovered. Li Yao demanded payment from both Delgado Bros. and Luzon Brokerage for the loss. Both denied responsibility: Delgado Bros. claimed it delivered the boxes in the same condition as received from the ship, while Luzon Brokerage asserted the loss occurred before it received the shipment from Delgado Bros. The trial court and the Court of Appeals found that the preponderance of evidence supported Luzon Brokerage’s claim that the loss occurred while the cargo was in Delgado Bros.’ possession, noting that six boxes were already in bad order before delivery to Luzon Brokerage, as indicated by “Request for Bad Order Examination” forms. Delgado Bros. appealed, arguing that its liability should be limited to ₱500 per package under Paragraph 15 of its “Management or Arrastre Contract” with the Bureau of Customs, executed pursuant to Act No. 3002 , as amended.

ISSUE

Whether Paragraph 15 of the management contract between Delgado Bros. and the Bureau of Customs, limiting liability to ₱500 per package, is binding upon Li Yao & Company, which was not a party to the contract.

RULING

Yes, the liability limitation is binding upon Li Yao & Company. The Supreme Court, citing Northern Motors, Inc. vs. Prince Line, et al., held that Paragraph 15 of the management contract contains stipulations “pour autrui” (for the benefit of a third party), specifically importers or consignees like Li Yao. By virtue of this contract, Delgado Bros. was obligated to render services directly to importers. Li Yao, through its broker Luzon Brokerage, obtained a delivery permit and gate pass to receive the goods, which explicitly stated that issuance was subject to all terms and conditions of the management contract, including the liability limitation. Thus, by using these documents to demand delivery, Li Yao legally became a party to the contract and was bound by its terms, including the ₱500 per package liability cap. The Court modified the appealed judgment, reducing the amount payable by Delgado Bros. to Li Yao to ₱3,000 (representing the ₱500 limit for six boxes), with legal interest from the filing of the complaint, ₱1,000 as attorney’s fees, and costs.