Deadfreight and Demurrage in Charter Parties: NFA v. Hongfil Shipping

The Supreme Court's 1999 ruling in National Food Authority v. Hongfil Shipping Corporation (G.R. No. 96453) remains a key reference for Philippine shipping and contract law. The case clarifies two distinct concepts that often confuse parties to charter parties: deadfreight (payment for cargo space contracted but unused) and demurrage (payment for vessel detention beyond agreed laydays). It also addresses when corporate officers may be held personally liable for contracts entered on behalf of their corporation.

The Facts of the Case

The National Food Authority (NFA) entered into a "Letter of Agreement for Vessel/Barge Hire" with Hongfil Shipping Corporation for the shipment of 200,000 bags of corn grains from Cagayan de Oro to Manila. The agreement stated a quantity of "200,000 bags, more or less" and a freight rate of P7.30 per bag, totaling P1,460,000.00. The contract specified "Laydays: Customary Quick Dispatch" and, notably, "Demurrage/Dispatch: None."

Loading took 21 days due to a strike by arrastre workers, while unloading took 20 days due to berth congestion at Manila's North Harbor. Only 166,798 bags were actually unloaded—33,201 bags short of the contracted quantity. Hongfil sued NFA for deadfreight on the unshipped bags and demurrage for the delay.

The Issue

Three questions reached the Supreme Court: (1) Was NFA liable for deadfreight? (2) Was NFA liable for demurrage? (3) Could NFA's officers be held personally liable?

The Ruling on Deadfreight: The Charterer Pays for Unused Space

The Court held NFA liable for deadfreight in the amount of P242,367.30. Under Article 680 of the Code of Commerce, a charterer who fails to complete the full cargo it bound itself to ship must pay freightage for the amount it failed to ship.

The Court rejected NFA's argument that the phrase "200,000 bags, more or less" allowed it to pay only for what was actually loaded. The Court explained that the words "more or less," when used in relation to quantity, are words of safety and caution intended to cover some slight or unimportant inaccuracy—not to allow a substantial shortfall of over 33,000 bags.

Because the vessel was chartered for the whole vessel and could not accept other cargo without NFA's consent, NFA was liable for the full contracted amount. The deadfreight was computed as 33,201 bags at P7.30 per bag.

The Ruling on Demurrage: "Demurrage/Dispatch: None" Is a Waiver

The Court reversed the lower courts' award of P1,152,687.50 for demurrage. The Court noted that the Code of Commerce allows a captain to demand demurrage after the customary period for loading or unloading has passed where no express provision fixes the indemnity for delay. However, the Court found that the contract's express stipulation "Demurrage/Dispatch: NONE" controlled.

The Court reasoned that this provision was a waiver by Hongfil of its right to claim demurrage. Since the contract terms were clear and left no doubt as to the parties' intention, the literal meaning of the stipulation governs. Hongfil freely entered into the contract and could not escape the consequence of its own bargain.

Additionally, the Court found that the delays—a strike and port congestion—were not attributable to NFA's fault. The charterer is only required to exercise ordinary diligence in ensuring a berthing space; it is not an absolute insurer against unforeseeable events.

Personal Liability of Corporate Officers

The Court absolved NFA's officers of personal liability. Following MAM Realty v. NLRC, the Court reiterated that obligations incurred by corporate officers acting as agents are the corporation's responsibility, not theirs personally.

Personal liability attaches only in exceptional circumstances: when officers vote for or assent to patently unlawful acts, act in bad faith or with gross negligence, are guilty of conflict of interest, consent to watered stocks, contractually agree to be personally liable, or are made liable by specific provision of law. None of these applied, and the lower courts made no finding of bad faith or gross negligence.

Practical Takeaways

• "More or less" has limits. In charter parties, this phrase covers only minor variations. A substantial shortfall triggers deadfreight liability under Article 680 of the Code of Commerce.
• Deadfreight is computed on the contracted quantity, not the actual cargo loaded, when the vessel is chartered for its full capacity.
• Express "no demurrage" clauses are enforceable. A stipulation like "Demurrage/Dispatch: None" operates as a waiver of the shipowner's right to claim demurrage, even if delay occurs.
• "Customary Quick Dispatch" requires proof. Without evidence that loading or unloading exceeded a reasonable time under port conditions, demurrage cannot be recovered.
• Corporate officers are not automatically liable. Personal liability requires bad faith, gross negligence, or a specific contractual or statutory basis.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.