G.R. No. L-14711; April 22, 1961
SMITH, BELL & CO., LTD., plaintiff-appellee, vs. MANILA PORT SERVICE and MANILA RAILROAD COMPANY, INC., defendants. MANILA PORT SERVICE, defendant-appellant.

FACTS

Smith, Bell & Co., Ltd. imported a “Crossley” diesel engine, which included a large, uncrated flywheel weighing approximately 600 pounds. The shipment arrived in Manila on board the SS Patroclus and was discharged into the custody of the arrastre operator, Manila Port Service, a subsidiary of Manila Railroad Company. During the unloading operation, the flywheel fell from a forklift operated by Manila Port Service employees, causing damage that rendered it a total loss. The trial court found the accident resulted from the use of a forklift not strong enough to lift the flywheel, constituting negligence.
Smith, Bell & Co. filed an action to recover the actual value of the damaged flywheel, amounting to P2,027.88. Manila Port Service admitted liability but invoked the liability limitation clause in its Management Contract with the Bureau of Customs, which limited its liability for loss or damage to P500 per package unless a higher value was declared and corresponding arrastre charges paid. The trial court ruled in favor of the importer for the full amount, holding that the management contract’s limitation was not binding on Smith, Bell & Co., as it was not a party or signatory to that contract.

ISSUE

Whether the liability limitation clause in the Management Contract between Manila Port Service and the Bureau of Customs is binding upon the consignee, Smith, Bell & Co., Ltd., thereby limiting recovery for the damaged flywheel to P500.

RULING

Yes. The Supreme Court reversed the trial court’s decision and limited the liability of Manila Port Service to P500. The Court applied its established jurisprudence, citing precedents such as Northern Motors, Inc. vs. Prince Line and Delgado Bros., Inc. vs. Li Yao & Company. The legal logic is that the Management Contract, particularly its clause limiting liability to P500 per package, contains stipulations pour autrui (for the benefit of a third party). The contract was entered into by the Bureau of Customs and the arrastre operator not merely for their own benefit but principally for the benefit of importers and consignees who avail themselves of the arrastre services.
By presenting its delivery permit and paying the arrastre charges, the consignee (Smith, Bell & Co.) accepted the services of the arrastre operator under the terms of that Management Contract, thereby becoming a beneficiary bound by its stipulations, including the liability limitation. Since the value of the flywheel was not specially declared in the bill of lading nor were higher arrastre charges paid, the recoverable amount is correctly limited to P500. The Court also noted that Manila Railroad Company, as the parent corporation, was equally liable, but since the plaintiff did not appeal the dismissal of the case against it, that aspect became final. The judgment was modified accordingly.