GR L 2038; (January, 1906) (Digest)
FACTS:
Plaintiff A.M. Essabhoy diverted a shipment of 50,000 bags of rice to Manila. Upon arrival, his agent contracted with defendant Smith, Bell & Co. to land and store the rice in a bonded warehouse. The defendants stored 40,000 bags in a bonded warehouse but placed the remaining 10,000 bags in their non-bonded godown in San Miguel. The plaintiff sold 4,000 bags from the bonded warehouse, paying the corresponding duties. He later decided to reship the remaining rice to Japan. The defendants delivered the rice from the bonded warehouse, which was reshipped duty-free. However, they refused to release the 10,000 bags stored in San Miguel unless the plaintiff reimbursed them for customs duties amounting to $6,000.55, which they had paid to the government without the plaintiff’s knowledge or consent. To regain possession of his property, the plaintiff paid the amount under protest and subsequently filed this action to recover it.
ISSUE:
Whether the defendants are entitled to reimbursement from the plaintiff for the customs duties they paid on the rice stored in a non-bonded warehouse, in violation of their storage contract.
RULING:
No. The defendants are not entitled to reimbursement. The court ruled that a warehouseman is entitled to reimbursement only for expenses incurred in the performance of the contract. Here, the contract expressly required storage in a bonded warehouse. By storing part of the rice in a non-bonded warehouse, the defendants violated the contract. The payment of customs duties was a direct consequence of this violation and was not an expense incurred in the performance of their contractual obligation. Therefore, the defendants had no right to demand reimbursement, either by retaining the goods or through a separate action. The payment exacted from the plaintiff was an unlawful demand. Since the plaintiff paid it under protest to recover his property, the defendants are obligated by law to return the money. The judgment of the lower court ordering the defendants to refund the amount was affirmed.