[G.R. No. 101503. September 15, 1993.

PLANTERS PRODUCTS, INC., petitioner, vs. COURT

OF APPEALS, SORIAMONT STEAMSHIP AGENCIES
AND KYOSEI KISEN KABUSHIKI KAISHA,respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private
respondents.

DECISION

BELLOSILLO, J : p

Does a charter-party 1 between a shipowner and a charterer transform a

common carrier into a private one as to negate the civil law presumption
of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International
Corporation (MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons
(M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June
1974 aboard the cargo vessel M/V "Sun Plum" owned by private
respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska,
U.S.A., to Poro Point, San Fernando, La Union, Philippines, as
evidenced by Bill of Lading No. KP-1 signed by the master of the vessel
and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel
M/V "Sun Plum" pursuant to the Uniform General Charter 2 was entered
into between Mitsubishi as shipper/charterer and KKKK as shipowner, in
Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16
to 40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3
and 4 to the charter-party were also subsequently entered into on the
18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were
all presumably inspected by the charterer's representative and found fit to
take a load of urea in bulk pursuant to par. 16 of the charter-party which
reads:
"16. . . . At loading port, notice of readiness to be accomplished
by certificate from National Cargo Bureau inspector or
 substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense
and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime
commences" (emphasis supplied).
After the Urea fertilizer was loaded in bulk by stevedores hired by and
under the supervision of the shipper, the steel hatches were closed with
heavy iron lids, covered with three (3) layers of tarpaulin, then tied with
steel bonds. The hatches remained closed and tightly sealed throughout
the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel
pontoon hatches were opened with the use of the vessel's boom.
Petitioner unloaded the cargo from the holds into its steel-bodied dump
trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the
charter-party (which provided for an F.I.O.S. clause). 6 The hatches
remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with
tarpaulin before it was transported to the consignee's warehouse located
some fifty (50) meters from the wharf. Midway to the warehouse, the
trucks were made to pass through a weighing scale where they were
individually weighed for the purpose of ascertaining the net weight of the
cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's
warehouse was made of corrugated galvanized iron (GI) sheets, with an
opening at the front where the dump trucks entered and unloaded the
fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed
in-between and alongside the trucks to contain spillages of the fertilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July
to 18 July 1974 (except July 12th, 14th and 18th). 10 A private marine
and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by
taking draft readings of the vessel prior to and after discharge. 11 The
survey report submitted by CSCI to the consignee (PPI) dated 19 July
1974 revealed a shortage in the cargo of 106.726 M/T and that a
portion of the Urea fertilizer approximating 18 M/T was contaminated
with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which
showed that the cargo delivered was indeed short of 94.839 M/T and
 about 23 M/T were rendered unfit for commerce, having been polluted
with sand, rust and dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to
Soriamont Steamship Agencies (SSA), the resident agent of the carrier,
KKKK, for P245,969.31 representing the cost of the alleged shortage in
the goods shipped and the diminution in value of that portion said to have
been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the
consignee's claim for payment because, according to them, what they
received was just a request for shortlanded certificate and not a formal
claim, and that this "request" was denied by them because they "had
nothing to do with the discharge of the shipment." 14Hence, on 18 July
1975, PPI filed an action for damages with the Court of First Instance of
Manila. The defendant carrier argued that the strict public policy
governing common carriers does not apply to them because they have
become private carriers by reason of the provisions of the charter-party.
The court a quo however sustained the claim of the plaintiff against the
defendant carrier for the value of the goods lost or damaged when it ruled
thus: 15
". . . Prescinding from the provision of the law that a common
carrier is presumed negligent in case of loss or damage of the
goods it contracts to transport, all that a shipper has to do in a
suit to recover for loss or damage is to show receipt by the
carrier of the goods and delivery by it of less than what it
received. After that, the burden of proving that the loss or
damage was due to any of the causes which exempt him from
liability is shifted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted are
deemed valid, and the defendants considered private carriers, it
was still incumbent upon them to prove that the shortage or
contamination sustained by the cargo is attributable to the fault
or negligence on the part of the shipper or consignee in the
loading, stowing, trimming and discharge of the cargo. This they
failed to do. By this omission, coupled with their failure to
destroy the presumption of negligence against them, the
defendants are liable" (italics supplied).
On appeal, respondent Court of Appeals reversed the lower court and
absolved the carrier from liability for the value of the cargo that was lost or
damaged. 16 Relying on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc., 17 the appellate court ruled that the
cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a
private carrier and not a common carrier by reason of the time
charter-party. Accordingly, the Civil Code provisions on common carriers
which set forth a presumption of negligence do not find application in the
case at bar. Thus —
". . . In the absence of such presumption, it was incumbent upon
the plaintiff-appellee to adduce sufficient evidence to prove the
negligence of the defendant carrier as alleged in its complaint. It
is an old and well settled rule that if the plaintiff, upon whom
rests the burden of proving his cause of action, fails to show in a
satisfactory manner the facts upon which he bases his claim,
the defendant is under no obligation to prove his exception or
defense (Moran, Commentaries on the Rules of Court, Volume
6, p. 2, citing Belen v. Belen, 13 Phil. 202).
"But, the record shows that the plaintiff-appellee dismally failed
to prove the basis of its cause of action, i.e., the alleged
negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish
defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in
performing its obligations . . ." 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the
decision of the Court of Appeals. Petitioner theorizes that the Home
Insurance case has no bearing on the present controversy because the
issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods
caused by want of due diligence on its part or that of its manager to make
the vessel seaworthy in all respects, and not whether the presumption of
negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since
the possession and control of the vessel remain with the shipowner,
absent any stipulation to the contrary, such shipowner should be made
liable for the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence against
respondent carrier, and instead shifting the onus probandi on the shipper
to show want of due diligence on the part of the carrier, when he was not
even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier
becomes a private carrier by reason of a charter-party; in the negative,
whether the shipowner in the instant case was able to prove that he had
exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in
commercial cases. This being so, we find it fitting to first define important
terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some
principal part thereof, is let by the owner to another person for a specified
time or use; 20 a contract of affreightment by which the owner of a ship or
other vessel lets the whole or a part of her to a merchant or other person
for the conveyance of goods, on a particular voyage, in consideration of
the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased
by the owner in part or as a whole, to carry goods for others; and, (b)
charter by demise or bareboat charter, by the terms of which the whole
vessel is let to the charterer with a transfer to him of its entire command
and possession and consequent control over its navigation, including the
master and the crew, who are his servants. Contract of affreightment may
either be time charter, wherein the vessel is leased to the charterer for a
fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. 22 In both cases, the charter-party provides for the hire of
the vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay for
the wages of the master and the crew, and defray the expenses for the
maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art.
1732 of the Civil Code. 23 The definition extends to carriers either by land,
air or water which hold themselves out as ready to engage in carrying
goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a
"common or public carrier" and a "private or special carrier" lies in the
character of the business, such that if the undertaking is a single
transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation
offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by
reason of the nature of their business, should observe extraordinary
diligence in the vigilance over the goods they carry. 25 In the case of
private carriers, however, the exercise of ordinary diligence in the
carriage of goods will suffice. Moreover, in case of loss, destruction or
deterioration of the goods, common carriers are presumed to have been
at fault or to have acted negligently, and the burden of proving otherwise
rests on them. 26 On the contrary, no such presumption applies to private
carriers, for whosoever alleges damage to or deterioration of the goods
carried has the onus of proving that the cause was the negligence of the
carrier.
It is not disputed that respondent carrier, in the ordinary course of
business, operates as a common carrier, transporting goods
indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the
employ of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer, a
stranger to the crew and to the ship, with the duty of caring for his cargo
when the charterer did not have any control of the means in doing so.
This is evident in the present case considering that the steering of the
ship, the manning of the decks, the determination of the course of the
voyage and other technical incidents of maritime navigation were all
consigned to the officers and crew who were screened, chosen and hired
by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or
more persons, provided the charter is limited to the ship only, as in the
case of a time-charter or voyage-charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a
common carrier becomes private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a shipowner in a
time or voyage charter retains possession and control of the ship,
although her holds may, for the moment, be the property of the
charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co.
v. American Steamship Agencies, supra, is misplaced for the reason that
the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowner from liability for loss due to the
negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship
chartered by a single shipper to carry special cargo is not a common
carrier, 29 does not find application in our jurisdiction, for we have
observed that the growing concern for safety in the transportation of
passengers and/or carriage of goods by sea requires a more exacting
interpretation of admiralty laws, more particularly, the rules governing
common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned
barrister-at-law 30 —
"As a matter of principle, it is difficult to find a valid distinction
between cases in which a ship is used to convey the goods of
 one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her,
the case is different; the shipowner is not then a carrier. But
where her services only are let, the same grounds for imposing
a strict responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative
on board the ship; the same opportunities for fraud or collussion
occur; and the same difficulty in discovering the truth as to what
has taken place arises . . ."
In an action for recovery of damages against a common carrier on the
goods shipped, the shipper or consignee should first prove the fact of
shipment and its consequent loss or damage while the same was in the
possession, actual or constructive, of the carrier. Thereafter, the burden
of proof shifts to respondent to prove that he has exercised extraordinary
diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and
convincing proof, the prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his
deposition taken on 19 April 1977 before the Philippine Consul and
Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that
before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the
cargo in bulk in the ship's holds, the steel pontoon hatches were
closed and sealed with iron lids, then covered with three (3) layers of
serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the
weight of the steel covers made it impossible for a person to open
without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good
condition, foreclosing the possibility of spillage of the cargo into the sea or
seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded,
and in the presence of a representative of the shipowner, the foreman,
the stevedores, and a cargo surveyor representing CSCI, opened the
hatches and inspected the condition of the hull of the vessel. The
stevedores unloaded the cargo under the watchful eyes of the shipmates
who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of respondent carrier
has been efficaciously overcome by the showing of extraordinary zeal
and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus —
". . . Be that as it may, contrary to the trial court's finding, the
record of the instant case discloses ample evidence showing
that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of
plaintiff-appellee's own witnesses clearly show absence of
negligence by the defendant carrier; that the hull of the vessel at
the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the
cargo and the representatives of the vessel (TSN, 20 July 1977,
p. 14); that the cover of the hatches was made of steel and it
was overlaid with tarpaulins, three layers of tarpaulins and
therefore their contents were protected from the weather (TSN,
5 April 1978, p. 24); and, that to open these hatches, the seals
would have to be broken, all the seals were found to be intact
(TSN, 20 July 1977, pp. 15-16)" (italics supplied).
The period during which private respondent was to observe the degree of
diligence required of it as a public carrier began from the time the cargo
was unconditionally placed in its charge after the vessel's holds were duly
inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was re-examined by the consignee,
but prior to unloading. This is clear from the limitation clause agreed upon
by the parties in the Addendum to the standard "GENCON" time
charter-party which provided for an F.I.O.S., meaning, that the loading,
stowing, trimming and discharge of the cargo was to be done by the
charterer, free from all risk and expense to the carrier. 35 Moreover, a
shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him,
and therefore under his control and supervision, not when the same is
done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not
responsible for the loss, destruction or deterioration of the goods if
caused by the character of the goods or defects in the packaging or in the
containers. The Code of Commerce also provides that all losses and
deteriorations which the goods may suffer during the transportation by
reason of fortuitous event, force majeure, or the inherent defect of the
goods, shall be for the account and risk of the shipper, and that proof of
these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the
preceding causes if it is proved, as against him, that they arose through
his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the
characteristics of the fertilizer shipped and the expected risks of bulk
shipping. Mr. Estanislao Chupungco, a chemical engineer working with
Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as
fertilizer. Urea also contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not normally
evaporate even on a long voyage, provided that the temperature inside
the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco
further added that in unloading fertilizer in bulk with the use of a clamped
shell, losses due to spillage during such operation amounting to one
percent (1%) against the bill of lading is deemed "normal" or "tolerable."
The primary cause of these spillages is the clamped shell which does not
seal very tightly. Also, the wind tends to blow away some of the materials
during the unloading process.
The dissipation of quantities of fertilizer, or its deterioration in value, is
caused either by an extremely high temperature in its place of storage, or
when it comes in contact with water. When Urea is drenched in water,
either fresh or saline, some of its particles dissolve. But the salvaged
portion which is in liquid form still remains potent and usable although no
longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or
contaminated with foreign particles was made greater by the fact that the
fertilizer was transported in "bulk," thereby exposing it to the inimical
effects of the elements and the grimy condition of the various pieces of
equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly
improbable for sea water to seep into the vessel's holds during the
voyage since the hull of the vessel was in good condition and her hatches
were tightly closed and firmly sealed, making the M/V "Sun Plum" in all
respects seaworthy to carry the cargo she was chartered for. If there was
loss or contamination of the cargo, it was more likely to have occurred
while the same was being transported from the ship to the dump trucks
and finally to the consignee's warehouse. This may be gleaned from the
testimony of the marine and cargo surveyor of CSCI who supervised the
unloading. He explained that the 18 M/T of alleged "bad order cargo" as
contained in their report to PPI was just an approximation or estimate
made by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived
port and unloaded her cargo. It rained from time to time at the harbor area
while the cargo was being discharged according to the supply officer of
PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's
warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly
soluble goods like fertilizer carries with it the risk of loss or damage. More
so, with a variable weather condition prevalent during its unloading, as
was the case at bar. This is a risk the shipper or the owner of the goods
has to face. Clearly, respondent carrier has sufficiently proved the
inherent character of the goods which makes it highly vulnerable to
deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the
petitioner showing that the carrier was remiss in the exercise of due
diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the
Court of Appeals, which reversed the trial court, is AFFIRMED.
Consequently, Civil Case No. 98623 of the then Court of the First
Instance, now Regional Trial Court, of Manila should be, as it is hereby,
DISMISSED.
Costs against petitioner.
SO ORDERED.
Davide, Jr. and Quiason, JJ ., concur.

[G.R. No. 114167. July 12, 1995.]

COASTWISE LIGHTERAGE
CORPORATION, petitioner, vs. COURT OF APPEALS
and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents.

David & Associates Law Offices for petitioner.

Fajardo Law Offices for private respondent.

SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIER; KINDS
OF CHARTER PARTIES; CONTRACT OF AFFREIGHTMENT;
DISTINGUISHED FROM BAREBOAT OR DEMISE. — The distinction
between the two kinds of charter parties (i.e. bareboat or demise and
contract of affreightment) is more clearly set out in the case ofPuromines,
Inc. vs. Court of Appeals, wherein we ruled: "Under the demise or
bareboat charter of the vessel, the charterer will generally be regarded as
the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject
to liability to others for damages caused by negligence. To create a
demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer, anything
short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all. On the other hand a
contract of affreightment is one in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special
service to be rendered by the owner of the vessel and under such
contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the
space in the vessel in return for his payment of the charter hire. . . . An
owner who retains possession of the ship though the hold is the property
of the charterer, remains liable as carrier and must answer for any breach
of duty as to the care, loading and unloading of the cargo. . . ." Although a
charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two.
2. ID.; ID.; ID.; ID.; ID.; LIABLE AS A COMMON CARRIER. — Petitioner
admits that the contract it entered into with the consignee was one of
affreightment. We agree. Pag-asa Sales, Inc. only leased three of
petitioner's vessels, in order to carry cargo from one point to another, but
the possession, command and navigation of the vessels remained with
petitioner Coastwise Lighterage. Pursuant therefore to the ruling in the
aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such. The law and jurisprudence
on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at
the place of destination in bad order makes for a prima facie case against
the carrier. It follows then that the presumption of negligence that
attaches to common carriers, once the goods it transports are lost,
destroyed or deteriorated, applies to the petitioner. This presumption,
which is overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
3. ID.; ID.; ID.; ID.; ID.; MUST ALSO EXERCISE EXTRAORDINARY
DILIGENCE BY PLACING A PERSON WITH NAVIGATIONAL SKILLS.
— Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted
that he was not licensed. The Code of Commerce, which subsidiarily
governs common carriers (which are primarily governed by the provisions
of the Civil Code). Clearly, petitioner Coastwise Lighterage's embarking
on a voyage with an unlicensed patron violates this rule. It cannot safely
claim to have exercised extraordinary diligence, by placing a person
whose navigational skills are questionable, at the helm of the vessel
which eventually met the fateful accident. It may also logically, follow that
a person without license to navigate, lacks not just the skill to do so, but
also the utmost familiarity with the usual and safe routes taken by
seasoned and legally authorized ones. Had the patron been licensed, he
could be presumed to have both the skill and the knowledge that would
have prevented the vessel's hitting the sunken derelict ship that lay on
their way to Pier 18. As a common carrier, petitioner is liable for breach of
the contract of carriage, having failed to overcome the presumption of
negligence with the loss and destruction of goods it transported, by proof
of its exercise of extraordinary diligence.
4. ID.; DAMAGES; INSURANCE COMPANY SHALL BE SUBROGATED
TO THE RIGHTS OF THE INSURED AGAINST THE WRONGDOER. —
On the issue of subrogation, which petitioner contends as inapplicable in
this case, we once more rule against the petitioner. We have already
found petitioner liable for breach of the contract of carriage it entered into
with Pag-asa Sales, Inc. However, for the damage sustained by the loss
of the cargo which petitioner-carrier was transporting, it was not the
carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's
insurer, herein private respondent PhilGen. Article 2207 of the Civil Code
is explicit on this point. Containing the equitable principle of subrogation
has been applied in a long line of cases including Compania Maritima
v. Insurance Company of North America;Fireman's Fund Insurance
Company v. Jamilla & Company, Inc., and Pan Malayan Insurance
Corporation v. Court of Appeals, wherein this Court explained: "Article
2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer,
upon payment to the assured will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has
been obligated to pay. Payment by the insurer to the assured operated
as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the
insurer."

RESOLUTION

FRANCISCO, J : p

This is a petition for review of a Decision rendered by the Court

of Appeals, dated December 17, 1993, affirming Branch 35 of the
Regional Trial Court, Manila in holding that herein petitioner is liable to
pay herein private respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as attorney's fees and
the cost of the suit.cdasia

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport
molasses from the province of Negros to Manila with Coastwise
Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat MT
Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of
the barges, "Coastwise 9," struck an unknown sunken object. The
forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long." 1 As a
consequence, the molasses at the cargo tanks were contaminated
and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as
a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with
the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the
carrier, herein petitioner, Coastwise Lighterage. Coastwise
Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00,
representing the value of the damaged cargo of molasses. cdtai

In turn, PhilGen then filed an action against Coastwise

Lighterage before the Regional Trial Court of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa Sales,
Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to
all the contractual rights and claims which the consignee may have
against the carrier, which is presumed to have violated the contract of
carriage.
The RTC awarded the amount prayed for by PhilGen. On
Coastwise Lighterage's appeal to the Court of Appeals, the award was
affirmed.
Hence, this petition. cdt

There are two main issues to be resolved herein. First, whether

or not petitioner Coastwise Lighterage was transformed into a private
carrier, by virtue of the contract of affreightment which it entered into
with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence
to which a private carrier is in turn bound? Second, whether or not the
insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the
Court of Appeals erred in finding that it was a common carrier. It
stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to Manila
and refers to this contract as a "charter agreement." It then proceeds
to cite the case of Home Insurance Company vs. American
Steamship Agencies, Inc. 2 wherein this Court held: ". . . a common
carrier undertaking to carry a special cargo or chartered to a special
person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced.
In its entirety, the conclusions of the court are as follows: aisadc

"Accordingly, the charter party contract is one of

affreightment over the whole vessel, rather than a demise. As
such, the liability of the shipowner for acts or negligence of its
captain and crew, would remain in the absence of stipulation." 3

The distinction between the two kinds of charter parties (i.e.

bareboat or demise and contract of affreightment) is more clearly set
out in the case ofPuromines, Inc. vs. Court of Appeals, 4 wherein we
ruled:
"Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the voyage
or service stipulated. The charterer mans the vessel with his
own people and becomes the owner pro hac vice, subject to
liability to others for damages caused by negligence. To create
 a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete
transfer is a contract of affreightment (time or voyage charter
party) or not a charter party at all.
cdta

On the other hand a contract of affreightment is one in which the

owner of the vessel leases part or all of its space to haul goods
for others. It is a contract for special service to be rendered by
the owner of the vessel and under such contract the general
owner retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of the space in
the vessel in return for his payment of the charter hire. . . .
. . .. An owner who retains possession of the ship though the
hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care, loading
and unloading of the cargo. . . ."
Although a charter party may transform a common carrier into a
private one, the same however is not true in a contract of
affreightment on account of the aforementioned distinctions between
the two.cdasia

Petitioner admits that the contract it entered into with the

consignee was one of affreightment. 5 We agree. Pag-asa Sales, Inc.
only leased three of petitioner's vessels, in order to carry cargo from
one point to another, but the possession, command and navigation of
the vessels remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the
aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that
the mere proof of delivery of goods in good order to a carrier and the
subsequent arrival of the same goods at the place of destination in
bad order makes for a prima facie case against the carrier. cdtai

It follows then that the presumption of negligence that attaches

to common carriers, once the goods it transports are lost, destroyed or
deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
The records show that the damage to the barge which carried
the cargo of molasses was caused by its hitting an unknown sunken
object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational
hazard was the efficient cause of the accident. Further, it asserts that
the fact that the Philippine Coastguard "has not exerted any effort to
prepare a chart to indicate the location of sunken derelicts within
Manila North Harbor to avoid navigational accidents" 6 effectively
contributed to the happening of this mishap. Thus, being unaware of
the hidden danger that lies in its path, it became impossible for the
petitioner to avoid the same. Nothing could have prevented the event,
making it beyond the pale of even the exercise of extraordinary
diligence.
However, petitioner's assertion is belied by the evidence on
record where it appeared that far from having rendered service with
the greatest skill and outmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties. cdt

Jesus R. Constantino, the patron of the vessel "Coastwise 9"

admitted that he was not licensed. The Code of Commerce, which
subsidiarily governs common carriers (which are primarily governed
by the provisions of the Civil Code) provides:
"Article 609. — Captains, masters, or patrons of vessels must
be Filipinos, have legal capacity to contract in accordance with
this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established by
marine and navigation laws, ordinances or regulations, and
must not be disqualified according to the same for the discharge
of the duties of the position. . . ."
Clearly, petitioner Coastwise Lighterage's embarking on a
voyage with an unlicensed patron violates this rule. It cannot safely
claim to have exercised extraordinary diligence, by placing a person
whose navigational skills are questionable, at the helm of the vessel
which eventually met the fateful accident. It may also logically, follow
that a person without license to navigate, lacks not just the skill to do
so, but also the utmost familiarity with the usual and safe routes taken
by seasoned and legally authorized ones. Had the patron been
licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken
derelict ship that lay on their way to Pier 18.cdt

As a common carrier, petitioner is liable for breach of the

contract of carriage, having failed to overcome the presumption of
negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.
 On the issue of subrogation, which petitioner contends as
inapplicable in this case, we once more rule against the petitioner. We
have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the
damage sustained by the loss of the cargo which petitioner-carrier
was transporting, it was not the carrier which paid the value thereof to
Pag-asa Sales, Inc. but the latter's insurer, herein private respondent
PhilGen.
Article 2207 of the Civil Code is explicit on this point: aisadc

"Art. 2207. If the plaintiff's property has been insured, and he

has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who violated the contract. . . ."
This legal provision containing the equitable principle of
subrogation has been applied in a long line of cases
including Compania Maritima v. Insurance Company of North
America, 7 Firesman's Fund Insurance Company v. Jamilla &
Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of
Appeals, 9wherein this Court explained:
"Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured will
be subrogated to the rights of the assured to recover from the
wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operated as an
equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract
or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer." aisadc

Undoubtedly, upon payment by respondent insurer PhilGen of

the amount of P700,000.00 to Pag-asa Sales, Inc., the consignee of
the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all
the rights which Pag-asa Sales, Inc. may have had against the carrier,
herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED
and the appealed decision affirming the order of Branch 35 of the
 Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal
amount of P700,000.00 plus interest thereon at the legal rate
computed from March 29, 1989, the date the complaint was filed until
fully paid and another sum of P100,000.00 as attorney's fees and
costs" 10 is likewise hereby AFFIRMED. cdt

SO ORDERED.

[G.R. No. 131166. September 30, 1999.]

CALTEX (PHILIPPINES), INC., petitioner, vs. SULPICIO

LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO
S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO,
ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAÑEZAL AND
SOTERA E. CAÑEZAL, respondents.

Platon Martinez Flores San Pedro & Leano for petitioner.

Arturo D. Lim for Sulpicio Lines.
Reynaldo Umali for T. Cañezal, et al.
Cruz and Pascual for F. Soriano & Vector Shipping Corp.

SYNOPSIS

On December 19, 1987, the MV Doña Paz, a passenger ship

bound for Manila colided with motor tanker MT Vector. MT Vector carried
on board oil products owned by Caltex by virtue of a charter contract.
Numerous people died in that accident including public school teacher
Sebastian Cañezal and his 11 year old daughter. In 1989, Cañezal's wife
and mother filed a complaint for "Damages arising from Breach of
Contract of Carriage" against Sulpicio Lines, Inc. Sulpicio Lines, in turn,
filed a third party complaint against Vector Shipping, Inc. and Caltex Phils.
The trial court rendered decision against Sulpicio Lines and dismissed
the third-party complaint. On appeal, the Court of Appeals modified the
trial court's ruling and held Vector Shipping Co. and Caltex Phils., Inc.,
equally liable. Hence, this petition.
ATHCac
 Caltex Phils. and Vector entered into a contract of affreightment
also known as a voyage charter. In a voyage charter, the charter party
provides for the hire of the vessel only, the ship owner to supply the ship's
store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship. If the charter is a contract of
affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership
rest on the owner. The Charterer is free from liability to third persons in
respect of the ship.
The charterer of a vessel has no obligation before transporting all
legal requirements. The duty rests upon the common carrier simply for
being engaged in public service.

SYLLABUS

1. COMMERCIAL LAW; TRANSPORTATION; CONTRACT OF

CARRIAGE; RESPECTIVE RIGHTS AND DUTIES OF PARTIES, HOW
DETERMINED. — The respective rights and duties of a shipper and the
carrier depends not on whether the carrier is public or private, but on
whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the
other.
2. ID.; ID.; ID.; CHARTER PARTY DIFFERENTIATED FROM
CONTRACT OF AFFREIGHTMENT. — A charter party is a contract by
which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is
one by which the owner of a ship or other vessel lets the whole or part of
her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight.
3. ID.; ID.; ID.; CONTRACT OF AFFREIGHTMENT;
CATEGORIES. — A contract of affreightment may be either time charter,
wherein the leased vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single voyage. In
both cases, the charter-party provides for the hire of the vessel only,
either for a determinate period of time or for a single or consecutive
voyage, the ship owner to supply the ship's store, pay for the wages of
the master of the crew, and defray the expenses for the maintenance of
the ship.
4. ID.; ID.; ID.; ID.; WHERE CHARTER IS ONE OF
AFFREIGHTMENT, CHARTERER FREE FROM LIABILITY TO THIRD
PERSONS. — If the charter is a contract of affreightment, which leaves
the general owner in possession of the ship as owner for the voyage, the
rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship.
5. ID.; ID.; COMMON CARRIER; REMAINS AS SUCH
NOTWITHSTANDING CHARTER OF WHOLE OR PORTION OF
VESSEL. — In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a voyager
charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, we said: "It is therefore
imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons,
provided the charter is limited to the ship only, as in the case of a
time-charter or voyage charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds
may, for the moment, be the property of the charterer." Later, we ruled
in Coastwise Lighterage Corporation vs. Court of Appeals. "Although a
charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment . . ."
6. ID.; ID.; ID.; SEAWORTHINESS, IMPLIEDLY WARRANTED. —
A common carrier is a person or corporation whose regular business is to
carry passenger or property for all persons who may choose to employ
and to remunerate him. MT Vector fits the definition of a common carrier
under Article 1732 of the Civil Code. Thus, the carriers are deemed to
warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned
with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition the vessel involved in
its contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code. The provisions owed their conception to the
nature of the business of common carriers. This business is impressed
with a special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and safety of
the passengers, especially because with the modern development of
science and invention, transportation has become more rapid, more
complicated and somehow more hazardous. For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an
inspection of the ship and its crew, the carrier being obliged by law to
impliedly warrant its seaworthiness. IDAEHT
 7. ID.; ID.; ID.; NEGLIGENCE, CONSTRUED. — In Southeastern
College, Inc. vs. Court of Appeals, we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk
or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human
affairs, would do.
8. ID.; ID.; ID.; ID.; CHARTERER WITH NO OBLIGATION TO
ENSURE VESSEL COMPLIED WITH ALL LEGAL REQUIREMENTS. —
The charterer of a vessel has no obligation before transporting its cargo
to ensure that the vessel it chartered complied with all legal requirements.
The duty rests upon the common carrier simply for being engaged in
"public service." The Civil Code demands diligence which is required by
the nature of the obligation and that which corresponds with the
circumstances of the persons, the time and the place. Hence,
considering the nature of the obligation between Caltex and MT Vector,
the liability as found by the Court of Appeals is without basis.
9. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — The relationship
between the parties in this case is governed by special laws. Because of
the implied warranty of seaworthiness, shippers of goods, when
transacting with common carriers, are not expected to inquire into the
vessel's seaworthiness, genuineness of its licenses and compliance with
all maritime laws. To demand more from shippers and hold them liable in
case of failure exhibits nothing but the futility of our maritime laws insofar
as the protection of the public in general is concerned. By the same token,
we cannot expect passengers to inquire every time they board a common
carrier, whether the carrier possesses the necessary papers or that all
the carrier's employees are qualified. Such a practice would be an
absurdity in a business where time is always of the essence. Considering
the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal
requisites in its operation. Thus, the nature of the obligation of Caltex
demands ordinary diligence like any other shipper in shipping his
cargoes.

DECISION

PARDO, J : p
 Is the charterer of a sea vessel liable for damages resulting from a
collision between the chartered vessel and a passenger ship? Cdpr

When MT Vector left the port of Limay, Bataan, on December 19,

1987 carrying petroleum products of Caltex (Philippines), Inc.
(hereinafter Caltex) no one could have guessed that it would collide with
MV Doña Paz, killing almost all the passengers and crew members of
both ships, and thus resulting in one of the country's worst maritime
disasters.
The petition before us seeks to reverse the Court of Appeals
decision 1 holding petitioner jointly liable with the operator of MT Vector
for damages when the latter collided with Sulpicio Lines, Inc.'s passenger
ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan,
at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of
petroleum products shipped by petitioner Caltex. 2 MT Vector is a
tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such
as gasoline, kerosene, diesel and crude oil. During that particular voyage,
the MT Vector carried on board gasoline and other oil products owned by
Caltex by virtue of a charter contract between them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship MV
Doña Paz left the port of Tacloban headed for Manila with a complement
of 59 crew members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast Guard
Clearance. 4 The MV Doña Paz is a passenger and cargo vessel owned
and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/
Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a
week.
At about 10:30 p.m. of December 20, 1987, the two vessels
collided in the open sea within the vicinity of Dumali Point between
Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz
died, while the two survivors from MT Vector claimed that they were
sleeping at the time of the incident.
The MV Doña Paz carried an estimated 4,000 passengers; many
indeed, were not in the passenger manifest. Only 24 survived the tragedy
after having been rescued from the burning waters by vessels that
responded to distress calls. 5 Among those who perished were public
school teacher Sebastian Cañezal (47 years old) and his daughter
Corazon Cañezal (11 years old), both unmanifested passengers but
proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No.
653-87 after investigation found that the MT Vector, its registered
operator Francisco Soriano, and its owner and actual operator Vector
Shipping Corporation, were at fault and responsible for its collision with
MV Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal,
Sebastian Cañezal's wife and mother respectively, filed with the Regional
Trial Court, Branch 8, Manila, a complaint for "Damages Arising from
Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco
Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc.
Sulpicio alleged that Caltex chartered MT Vector with gross and evident
bad faith knowing fully well that MT Vector was improperly manned,
ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it
rammed against MV Doña Paz in the open sea setting MT Vector's highly
flammable cargo ablaze. llcd

On September 15, 1992, the trial court rendered decision

dismissing the third party complaint against petitioner. The dispositive
portion reads:
"WHEREFORE, judgment is hereby rendered in favor of
plaintiffs and against defendant - 3rd party plaintiff Sulpicio
Lines, Inc., to wit:
"1. For the death of Sebastian E. Cañezal and his 11-year old
daughter Corazon G. Cañezal, including loss of future
earnings of said Sebastian, moral and exemplary
damages, attorney's fees, in the total amount of
P1,241,287.44 and finally;
"2. The statutory costs of the proceedings.
"Likewise, the 3rd party complaint is hereby DISMISSED
for want of substantiation and with costs against the 3rd party
plaintiff.
"IT IS SO ORDERED.
"DONE IN MANILA, this 15th day of September 1992.
"ARSENIO M.
GONONG
"Judge" 7
 On appeal to the Court of Appeals interposed by Sulpicio Lines,
Inc., on April 15, 1997, the Court of Appeal modified the trial court's ruling
and included petitioner Caltex as one of the those liable for damages.
Thus:
"WHEREFORE, in view of all the foregoing, the judgment
rendered by the Regional Trial Court is hereby MODIFIED as
follows:
"WHEREFORE, defendant Sulpicio Lines, Inc., is
ordered to pay the heirs of Sebastian E. Cañezal and Corazon
Cañezal:
"1. Compensatory damages for the death of Sebastian E.
Cañezal and Corazon Cañezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
"2. Compensatory damages representing the unearned income
of Sebastian E. Cañezal, in the total amount of THREE
HUNDRED SIX THOUSAND FOUR HUNDRED
EIGHTY (P306,480.00) PESOS;
"3. Moral damages in the amount of THREE HUNDRED
THOUSAND PESOS (P300,000.00);
"4. Attorney's fees in the concept of actual damages in the
amount of FIFTY THOUSAND PESOS (P50,000.00);
"5. Costs of the suit.
"Third party defendants Vector Shipping Co. and Caltex
(Phils.), Inc. are held equally liable under the third party
complaint to reimburse/indemnify defendant Sulpicio Lines, Inc.
of the above-mentioned damages, attorney's fees and costs
which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for
the collision) and the other half by Caltex (Phils.), Inc. (being the
charterer that negligently caused the shipping of combustible
cargo aboard an unseaworthy vessel).
"SO ORDERED.
"JORGE S. IMPERIAL
"Associate Justice
"WE CONCUR:
"RAMON U. MABUTAS. JR. PORTIA ALIÑO HERMACHUELOS
"Associate Justice Associate Justice" 8
Hence, this petition.
 We find the petition meritorious.
First: The charterer has no liability for damages under Philippine
Maritime laws.
The respective rights and duties of a shipper and the carrier
depends not on whether the carrier is public or private, but on whether the
contract of carriage is a bill of lading or equivalent shipping documents on
the one hand, or a charter party or similar contract on the other. 9
Petitioner and Vector entered into a contract of affreightment, also
known as a voyage charter. 10
A charter party is a contract by which an entire ship, or some
principal part thereof, is let by the owner to another person for a specified
time or use; a contract of affreightment is one by which the owner of a
ship or other vessel lets the whole or part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight. 11
A contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time,
or voyage charter, wherein the ship is leased for a single voyage. In both
cases, the charter-party provides for the hire of the vessel only, either for
a determinate period of time or for a single or consecutive voyage, the
ship owner to supply the ship's store, pay for the wages of the master of
the crew, and defray the expenses for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the
charterer mans the vessel with his own people and becomes, in effect,
the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence. prLL

If the charter is a contract of affreightment, which leaves the

general owner in possession of the ship as owner for the voyage, the
rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or
bareboat, (2) time charter, (3) voyage charter. Does a charter party
agreement turn the common carrier into a private one? We need to
answer this question in order to shed light on the responsibilities of the
parties.
 In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a voyage
charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
"It is therefore imperative that a public carrier shall
remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter
is limited to the ship only, as in the case of a time-charter or
voyage charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a
ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be
the property of the charterer."
Later, we ruled in Coastwise Lighterage Corporation vs. Court of
Appeals: 15
"Although a charter party may transform a common
carrier into a private one, the same however is not true in a
contract of affreightment . . ."
A common carrier is a person or corporation whose regular
business is to carry passengers or property for all persons who may
choose to employ and to remunerate him. 16 MT Vector fits the definition
of a common carrier under Article 1732 of the Civil Code. In Guzman vs.
Court of Appeals, 17 we ruled:
"The Civil Code defines "common carriers" in the
following terms:
"ARTICLE 1732. Common carriers are persons,
corporations, firms or associations engaged in the business of
carrying or transporting passengers for passengers or goods or
both, by land, water, or air for compensation, offering their
services to the public."
"The above article makes no distinction between one
whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an
ancillary activity (in local idiom, as "a sideline"). Article 1732
also carefully avoids making any distinction between a person
or enterprise offering transportation service on a regular or
scheduled basis and one offering such services on a
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
 the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions. cdasia

"It appears to the Court that private respondent is

properly characterized as a common carrier even though he
merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a periodic,
occasional rather than regular or scheduled manner, and even
though respondent'sprincipal occupation was not the carriage
of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that the fee
frequently fell below commercial freight rates is not relevant
here."
Under the Carriage of Goods by Sea Act:
SECTION 3. (1) The carrier shall be bound before and
at the beginning of the voyage to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the
seaworthiness of the ship. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier
to maintain in seaworthy condition the vessel involved in its contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil
Code. 18
The provisions owed their conception to the nature of the business
of common carriers. This business is impressed with a special public duty.
The public must of necessity rely on the care and skill of common carriers
in the vigilance over the goods and safety of the passengers, especially
because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow
more hazardous. 19 For these reasons, a passenger or a shipper of goods
is under no obligation to conduct an inspection of the ship and its crew,
the carrier being obliged by law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages
under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
 We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly
combustible fuel cargo aboard an unseaworthy vessel such as the MT
Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of
inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr.
Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its
cargo despite these deficiencies:
1. The master of M/T Vector did not possess the required Chief
Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor
Patron, authorized to navigate only in bays and rivers
when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate
the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a
lookout; and
5. The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appeals relied

on Articles 20 and 2176 of the Civil Code, which provide:
"ARTICLE 20. Every person who contrary to law, willfully
or negligently causes damage to another, shall indemnify the
latter for the same.
"ARTICLE 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter."
And what is negligence?
The Civil Code provides: cdrep

"ARTICLE 1173. The fault or negligence of the obligor

consists in the omission of that diligence which is required by
the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
 When negligence shows bad faith, the provisions of Article 1171
and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required."
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that
negligence, as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be the failure to
observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which
ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its
cargo to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being
engaged in "public service." 22 The Civil Code demands diligence which
is required by the nature of the obligation and that which corresponds
with the circumstances of the persons, the time and the place. Hence,
considering the nature of the obligation between Caltex and MT Vector,
the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by
special laws. Because of the implied warranty of
seaworthiness, 23 shippers of goods, when transacting with common
carriers, are not expected to inquire into the vessel's seaworthiness,
genuineness of its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case of failure
exhibits nothing but the futility of our maritime laws insofar as the
protection of the public in general is concerned. By the same token, we
cannot expect passengers to inquire every time they board a common
carrier, whether the carrier possesses the necessary papers or that all
the carrier's employees are qualified. Such a practice would be an
absurdity in a business where time is always of the essence. Considering
the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal
requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary
diligence like any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had
reasons to believe that MT Vector could legally transport cargo that time
of the year.
 "Atty. Poblador: Mr. Witness, I direct your attention to this
portion here containing the entries here under "VESSEL'S
DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued
December 21, 1986, and Expires December 7, 1987", Mr.
Witness, what steps did you take regarding the impending
expiry of the C.I. or the Certificate of Inspection No. 1290-85
during the hiring of MT Vector?
"Apolinar Ng: At the time when I extended the Contract, I
did nothing because the tanker has a valid C.I. which will expire
on December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed
and Mr. Abalos, in turn, assured me they will renew the same.
"Q: What happened after that? LexLib

"A: On the first week of December, I again made a follow-up

from Mr. Abalos, and said they were going to send me a
copy as soon as possible, sir. 24
xxx xxx xxx
"Q: What did you do with the C.I.?
"A: We did not insist on getting a copy of the C.I. from Mr.
Abalos on the first place, because of our long business
relation, we trust Mr. Abalos and the fact that the vessel
was able to sail indicates that the documents are in
order. . . ." 25
On cross examination —
"Atty. Sarenas:
This being the case, and this being an admission by you, this
Certificate of Inspection has expired on December 7. Did
it occur to you not to let the vessel sail on that day
because of the very approaching date of expiration?
"Apolinar Ng:
No sir, because as I said before, the operation Manager
assured us that they were able to secure a renewal of the
Certificate of Inspection and that they will in time submit
us a copy." 26
Finally, on Mr. Ng's redirect examination:
"Atty. Poblador:
Mr. Witness, were you aware of the pending expiry of the
Certificate of Inspection in the coastwise license on
 December 7, 1987. What was your assurance for the
record that this document was renewed by the MT
Vector?
"Atty. Sarenas:
...
"Atty. Poblador:
The certificate of Inspection?
"A: As I said, firstly, we trusted Mr. Abalos as he is a long time
business partner; secondly, those three years, they were
allowed to sail by the Coast Guard. That are some that
make me believe that they in fact were able to secure the
necessary renewal.
"Q: If the Coast Guard clears a vessel to sail, what would that
mean?
"Atty. Sarenas:
Objection.
"Court:
He already answered that in the cross examination to the effect
that if it was allowed, referring to MV Vector, to sail,
where it is loaded and that it was scheduled for a
destination by the Coast Guard, it means that it has
Certificate of Inspection extended as assured to this
witness by Restituto Abalos. That in no case MV Vector
will be allowed to sail if the Certificate of Inspection is,
indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no
need to clarify the same in the re-direct examination." 27
Caltex and Vector Shipping Corporation had been doing business
since 1985, or for about two years before the tragic incident occurred in
1987. Past services rendered showed no reason for Caltex to observe a
higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to
presume that the ship was seaworthy as even the Philippine Coast Guard
itself was convinced of its seaworthiness. All things considered, we find
no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of
Appeals' decision, we limit our ruling to the liability of Caltex alone.
However, we maintain the Court of Appeals' ruling insofar as Vector is
concerned.
 WHEREFORE, the Court hereby GRANTS the petition and SETS
ASIDE the decision of the Court of Appeals in CA-G. R. CV No. 39626,
promulgated on April 15, 1997, insofar as it held Caltex liable under the
third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The
Court AFFIRMS the decision of the Court of Appeals insofar as it orders
Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and Corazon
Cañezal damages as set forth therein. Third-party defendant-appellee
Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages,
attorneys' fees and costs the latter is adjudged to pay plaintiffs-appellees
in the case.
No costs in this instance.
SO ORDERED. cdtai

PEDRO
DE GUZMAN, petitioner, vs. COURT OF APPEALS and
ERNESTO CENDAÑA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

SYLLABUS

1. CIVIL CODE; COMMON CARRIERS; ARTICLE 1732, DEFINITION

UNDER ARTICLE 1732 OF THE CODE. — The Civil Code defines
"common carriers" in the following terms: "Article 1732. Common carriers
are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land,
water, or air for compensation, offering their services to the public." The
above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in
local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public,"
i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population.
We think that Article 1733 deliberately refrained from making such
distinctions.
2. ID.; ID.; ID.; LAW ON COMMON CARRIERS SUPPLEMENTED BY
THE PUBLIC SERVICE ACT; SCOPE OF PUBLIC SERVICE. — So
understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
"public service" includes: ". . . every person that now or hereafter may
own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations
and other similar public services . . ." (Emphasis supplied) It appears to
the Court that private respondent is properly characterized as a common
carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled manner, and
even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently
fell below commercial freight rates is not relevant here.
3. ID.; ID.; ID.; ID.; CERTIFICATE OF PUBLIC CONVENIENCE; NOT A
REQUISITE FOR INCURRING LIABILITY AS A COMMON CARRIER;
NATURE OF THE BUSINESS OF A COMMON CARRIER. —
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common
carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or
firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable
regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier.
The law imposes duties and liabilities upon common carriers for the
safety and protection of those who utilize their services and the law
cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and
authorizations.
4. ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF, COMMON
CARRIERS. — Common carriers, "by the nature of their business and for
reasons of public policy," are held to a very high degree of care and
diligence ("extraordinary diligence") in the carriage of goods as well
as of passengers. The specific import of extraordinary diligence in the
care of goods transported by a common carrier is, according to Article
1733, "further expressed in Articles 1734, 1735 and 1745, numbers 5, 6
and 7" ofthe Civil Code.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIERS. — Article 1734
establishes the general rule that common carriers are responsible for the
loss, destruction or deterioration of the goods which they carry,
"unless the same is due to any of the following causes only: (1) Flood,
storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil; (3) Act or
omission of the shipper or owner of the goods; (4) The character of the
goods or defects in the packing or in the containers; and (5) Order
or act of competent public authority." It is important to point out that the
above list of causes of loss, destruction or deterioration which exempt
the common carrier for responsibility therefor, is a closed list. Causes
falling outside the foregoing list, even if they appear to constitute a
species of force majeure, fall within the scope of Article 1735, which
provides as follows: "In all cases other than those mentioned in numbers
1, 2, 3, 4 and 5of the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733." (Emphasis supplied)
6. ID.; ID.; ID.; ID.; COMMON CARRIER'S ARE NOT ABSOLUTE
INSURERS AGAINST ALL RISKS; NO LIABILITY ATTACHES IN
CASE OF FORTUITOUS EVENTS. — Under Article 1745 (6) above, a
common carrier is held responsible — and will not be allowed to divest or
to diminish such responsibility — even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave
or irresistible threat, violence or force." We believe and so hold that the
limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or
force." In these circumstances, we hold that the occurrence of the loss
must reasonably be regarded as quite beyond the control of the common
carrier and properly regarded as a fortuitous event. It is necessary to
recall that even common carriers are not made absolute insurers against
all risks oftravel and of transport of goods, and are not held liable for acts
or events which cannot be foreseen or are inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.

DECISION

FELICIANO, J : p

Respondent Ernesto Cendaña, a junk dealer, was engaged in buying up

used bottles and scrap metal in Pangasinan. Upon gathering sufficient
quantities of such scrap material, respondent would bring such material
to Manila for resale. He utilized two (2) six-wheeler trucks which he
owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants
wanted delivered to differing establishments in Pangasinan. For that
service, respondent charged freight rates which were commonly lower
than regular commercial rates. llcd

Sometime in November 1970, petitioner Pedro de Guzman, a merchant

and authorized dealer of General Milk Company (Philippines), Inc. in
Urdaneta, Pangasinan, contracted with respondent for the hauling of 750
cartons of Liberty filled milk from a warehouse of General Milk in Makati,
Rizal, to petitioner's establishment in Urdaneta on or before 4 December
1970. Accordingly, on 1 December 1970, respondent loaded in Makati
the merchandise on to his trucks: 150 cartons were loaded on a truck
driven by respondent himself; while 600 cartons were placed on board
the other truck which was driven by Manuel Estrada, respondent's driver
and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The
other 600 boxes never reached petitioner, since the truck which carried
these boxes was hijacked somewhere along the MacArthur Highway in
Paniqui, Tarlac, by armed men who took with them the truck, its driver,
his helper and the cargo.
On 6 January 1971, petitioner commenced action against private
respondent in the Court of First Instance of Pangasinan, demanding
payment of P22,150.00, the claimed value of the lost merchandise, plus
damages and attorney's fees. Petitioner argued that private respondent,
being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the
value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier

and argued that he could not be held responsible for the value of the lost
goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision' finding private
respondent to be a common carrier and holding him liable for the
value of the undelivered goods (P22,150.00) as well as for P4,000.00 as
damages and P2,000.00 as attorney's fees. cdrep

On appeal before the Court of Appeals, respondent urged that the

trial court had erred in considering him a common carrier; in finding that
he had habitually offered trucking services to the public; in not exempting
him from liability on the ground of force majeure; and in ordering him to
pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held
that respondent had been engaged in transporting return loads of freight
"as a casual occupation — a sideline to his scrap iron business" and not
as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as
errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure;
and
3. that respondent was not liable for the value of the
undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto
Cendaña may, under the facts earlier set forth, be properly characterized
as a common carrier.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms
or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public."
The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in
local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public,"
i.e., the general community or population, and one who offers services or
solicits business only from a narrowsegment of the general population.
We think that Article 1733 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under Article 1732 may
be seen to coincide neatly with the notion of "public service," under the
Public Service Act(Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b)of the Public Service Act,
"public service" includes:
". . . every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other
similar public services . . ." (Emphasis supplied)
It appears to the Court that private respondent is properly characterized
as a common carrier even though he merely "back-hauled" goods for
other merchants from Manila to Pangasinan, although such backhauling
was done on a periodic or occasional rather than regular or scheduled
manner, and even though private respondent'sprincipal occupation was
not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common
carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or
firm acts as a common carrier, without regard to whether or not such
carrier has also complied with the requirements of the applicable
regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier.
The law imposes duties and liabilities upon common carriers for the
safety and protection of those who utilize their services and the law
cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and
authorizations.cdphil

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for
reasons of public policy," 2 are held to a very high degree of care and
diligence ("extraordinary diligence") in the carriage of goods as well
as of passengers. The specific import of extraordinary diligence in the
care of goods transported by a common carrier is, according to Article
1733, "further expressed in Articles 1734, 1735 and 1745, numbers 5, 6
and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are
responsible for the loss, destruction or deterioration of the goods which
they carry, "unless the same is due to any of the following causes only:
 (1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in
the containers; and
(5) Order or act of competent public authority."
It is important to point out that the above list of causes of loss,
destruction or deterioration which exempt the common carrier for
responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force
majeure, fall within the scope of Article 1735, which provides as
follows:
"In all cases other than those mentioned in numbers 1, 2, 3, 4
and 5 of the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733."
(Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that
the specific cause alleged in the instant case — the hijacking of the
carrier's truck - does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow,
therefore, that the hijacking of the carrier's vehicle must be dealt with
under the provisions of Article 1735, in other words, that the private
respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown
by proof of extraordinary diligence on the part of private respondent. cdll

Petitioner insists that private respondent had not observed extraordinary

diligence in the care of petitioner's goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a
security guard presumably to ride with the truck carrying the 600
cartons of Liberty filled milk. We do not believe, however, that in the
instant case, the standard of extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage
brigands in a fire fight at the risk of his own life and the lives of the driver
and his helper.
The precise issue that we address here relates to the specific
requirements of the duty of extraordinary diligence in the vigilance over
the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over
goods is, under Article 1733, given additional specification not only by
Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and
6, Article 1745 provides in relevant part:
"Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be
responsible for the acts or omissions of his or its
employees;
(6) that the common carrier's liability for acts
committed by thieves, or of robbers who
do not act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible
for the loss, destruction or deterioration of goods on
account of the defective condition of the car, vehicle,
ship, airplane or other equipment used in the
contract of carriage." (Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible —

and will not be allowed to divest or to diminish such responsibility — even
for acts of strangers like thieves or robbers, except where such thieves
or robbers in fact acted "with grave or irresistible threat, violence or
force." We believe and so hold that the limits ofthe duty of extraordinary
diligence in the vigilance over the goods carried are reached where the
goods are lost as a result of a robbery which is attended by "grave or
irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by
private respondent which carried petitioner's cargo. The record shows
that an information for robbery in band was filed in the Court of First
Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled
"People of the Philippines v. Felipe Boncorno, Napoleon Presno,
Armando Mesina, Oscar Oria and one John Doe." There, the accused
were charged with willfully and unlawfully taking and carrying away with
them the second truck, driven by Manuel Estrada and loaded with the 600
cartons of Liberty filled milk destined for delivery at petitioner's store in
Urdaneta, Pangasinan. The decision ofthe trial court shows that the
accused acted with grave, if not irresistible, threat, violence or
force. 3 Three (3) of the five (5) hold-uppers were armed with firearms.
The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and
later releasing them in another province (in Zambales). The hijacked
truck was subsequently found by the police in Quezon City.
The Court of First Instance convicted all the accused of robbery, though
not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must
reasonably be regarded as quite beyond the control of the common
carrier and properly regarded as a fortuitous event. It is necessary to
recall that even common carriers are not made absolute insurers against
all risks of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that
they shall have complied with the rigorous standard of extraordinary
diligence.prLL

We, therefore, agree with the result reached by the Court of Appeals that
private respondent Cendaña is not liable for the value of the undelivered
merchandise which was lost because of an event entirely beyond private
respondent's control.
ACCORDINGLY, the Petition for Review on Certiorari is hereby DENIED
and the Decision of the Court of Appeals dated 3 August 1977 is
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 91228. March 22, 1993.]

PUROMINES, INC., petitioner, vs. COURT OF APPEALS

and PHILIPP BROTHERS OCEANIC, INC., respondents.

SYLLABUS

1.CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING

FROM CARRIAGE AND DELIVERY. — We agree with the court a quo
that the sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. As a general
rule, the seller has the obligation to transmit the goods to the buyer, and
concomitant thereto, the contracting of a carrier to deliver the same.
2.COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME
COMMERCE; CHARTER PARTIES, CONSTRUED. — American
jurisprudence defines charter party as a contract by which an entire ship
or some principal part thereof is let by the owner to another person for a
specified time or use. Charter or charter parties are of two kinds. Charter
of demise or bareboat and contracts of affreightment.
3.ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. —
Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise the owner of a vessel must
completely and exclusively relinquish possession, anything short of such
a complete transfer is a contract of affreightment (time or voyage charter
party) or not a charter party at all.
4.ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED.
— A contract of affreightment is in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for a special
service to be rendered by the owner of the vessel and under such
contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the
space in the vessel in return for his payment of the charter hire. If the
charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights,
responsibilities of ownership rest on the owner and the charterer is
usually free from liability to third persons in respect of the ship.
5.ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS
SHIPPED ON BOARD A VESSEL. — Responsibility to third persons for
goods shipped on board a vessel follows the vessel's possession and
employment; and if possession is transferred to the charterer by virtue of
a demise, the charterer, and not the owner, is liable as carrier on the
contract of affreightment made by himself or by the master with third
persons, and is answerable for loss, damage or non-delivery of goods
received for transportation. An owner who retains possession of the ship,
though the hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care, loading or
unloading of the cargo.
6.ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION
THEREOF, CONSIDERED AND RESPECTED. — Whether the liability
of respondent should be based on the same contract or that of the bill of
lading, the parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or the bill of lading. Petitioner being
a signatory and party to the sales contract cannot escape from his
obligation under the arbitration clause as stated therein. Arbitration has
been held valid and constitutional. Even before the enactment
of Republic Act No. 876, this Court has countenanced the settlement of
disputes through arbitration. The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the parties,
which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only interfere with great reluctance to
anticipate or nullify the action of the arbitrator. As pointed out in the case
ofMindanao Portland Cement Corp. v. McDough Construction Company
of Florida 18 wherein the plaintiff sued defendant for damages arising
from a contract, the Court said: "Since there obtains herein a written
provision for arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to proceed to their
arbitration in accordance with the terms of their agreement (Sec.
6 Republic Act 876). Respondent's arguments touching upon the merits
of the dispute are improperly raised herein. They should be addressed to
the arbitrators. This proceeding is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the court in this case is not to
resolve the merits of the parties' claims but only to determine if they
should proceed to arbitration or not. And although it has been ruled that a
frivolous or patently baseless claim should not be ordered to arbitration it
is also recognized that the mere fact that a defense exist against a claim
does not make it frivolous or baseless."
7.REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT;
ANNEXES ATTACHED THEREOF, PART OF THE RECORD. —
Petitioner contend that the arbitration provision in the bills of lading
should not have been discussed as an issue in the decision of the Court
of Appeals since it was not raised as a special or affirmative defense. The
three bills of lading were attached to the complaint as Annexes "A," "B,"
and "C," and are therefore parts thereof and may be considered as
evidence although not introduced as such. Hence, it was then proper for
the court a quo to discuss the contents of the bills of lading, having been
made part of the record.

DECISION

NOCON, J : p

This is a special civil action for certiorari and prohibition to annul and set
aside the Decision of the respondent Court of Appeals dated November
16, 1989 1 reversing the order of the trial court and dismissing petitioner's
compliant in Civil Case No. 89-47403, entitled Puromines, Inc. v.
Maritime Factors, Inc. and Philipp Brothers Oceanic, Inc.
Culled from the records of this case, the facts show that petitioner,
Puromines, Inc. (Puromines for brevity) and Makati Agro Trading, Inc.
(not a party in this case) entered into a contract with private respondents
Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The
Sales Contract No. S151.8.01018 provided, among others an arbitration
clause which states, thus:
"9.Arbitration
"Any disputes arising under this contract shall be settled by
arbitration in London in accordance with the Arbitration Act
1950 and any statutory amendment or modification thereof.
Each party is to appoint an Arbitrator, and should they be
unable to agree, the decision of an Umpire appointed by them to
be final. The Arbitrators and Umpire are all to be commercial
men and resident in London. This submission may be made a
rule of the High Court of Justice in England by either party." 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on
board at Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in
bulk complete and in good order and condition for transport to Iloilo and
Manila, to be delivered to petitioner. Three bills of lading were issued by
the ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of
Lading No. dated May 12, 1988 covering 10,000 metric tons for
discharge Manila; Bill of Lading No. 2 of even date covering 4,000 metric
tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May
12, 1988, covering 1,500 metric tons likewise for discharged in Manila
The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City
complete and in good order and condition. However, the shipments
covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in bad
order and condition, caked, hardened and lumpy, discolored and
contaminated with rust and dirt. Damages were valued at P683, 056. 29
including additional discharging expenses.
Consequently, petitioner filed a complaint 3 with the trial court 4 for
breach of contract of carriage against Maritime Factors Inc. (which was
not included as respondent in this petition) as ship-agent in the
Philippines for the owners of the vessel MV "Liliana Dimitrova," while
private respondent, Philipp Brothers Oceanic Inc., was impleaded as
charterer of the said vessel and proper party to accord petitioner
complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint,
while private respondent filed a motion to dismiss, dated February 9,
1989, on the grounds that the complaint states no cause of action; that it
was prematurely filed; and that petitioner should comply with the
arbitration clause in the sales contract. 6
The motion to dismiss was opposed by petitioner contending the
inapplicability of the arbitration clause inasmuch as the cause of action
did not arise from a violation of the terms of the sales contract but rather
for claims of cargo damages where there is no arbitration agreement. On
April 26, 1989, the trial court denied respondent's motion to dismiss in
this wise:
"The sales contract in question states in part:
'Any disputes arising under this contract shall be
settled by arbitration . . .(emphasis supplied)
"A perusal of the facts alleged in the complaint upon which the
question of sufficiency of the cause of action of the complaint
arose from a breach of contract of carriage by the vessel
chartered by the defendant Philipp Brothers Oceanic, Inc. Thus,
the aforementioned arbitration clause cannot apply to the
dispute in the present action which concerns plaintiff's claim for
cargo loss/damage arising from breach of contract of carriage.
"That the defendant is not the ship owner or common carrier
and therefore plaintiff does not have legal right against it since
every action must be brought against the real party in interest
has no merit either for by the allegations in the complaint the
defendant herein has been impleaded as charterer of the vessel,
hence, a proper party." 7

Elevating the matter to the Court of Appeals, petitioner's complaint was

dismissed. The appellate court found that the arbitration provision in the
sales contract and/or the bills of lading is applicable in the present case.
Said the court:
"An examination of the sales contract No. S151.8.01018 shows
that it is broad enough to include the claim for damages arising
from the carriage and delivery of the goods subject-matter
thereof.
"It is also noted that the bills of lading attached as Annexes 'A',
'B' and 'C' to the complaint state, in part, 'any dispute arising
under this Bill of Lading shall be referred to arbitration of the
Maritime Arbitration Commission at the USSR Chamber of
Commerce and Industry, 6 Kuibyshevskaia Str., Moscow,
USSR, in accordance with the rules of procedure of said
commission.'
Considering that the private respondent was one of the
signatories to the sales contract . . . all parties are obliged o
 respect the terms and conditions of the said sales contract,
including the provision thereof on 'arbitration.' "
Hence, this petition The issue raised is: Whether the phrase "any dispute
arising under this contract" in the arbitration clause of the sales contract
covers a cargo claim against the vessel (owner and/or charterers) for
breach of contract of carriage.
Petitioner states in its complainants that Philipp Brothers "was the
charterer of the vessel MV 'Liliana Dimitrova' which transported the
shipment from Yuzhny USSR to Manila." Petitioner further alleged that
the caking and hardening, wetting and melting, and contamination by rust
and dirt of the damaged portions of the shipment were due to the
improper ventilation and inadequate storage facilities of the vessel; that
the wetting of the cargo was attributable to the failure of the crew to close
the hatches before and when it rained while the shipment was being
unloaded in the Port of Manila; and that as a direct and natural
consequence of the unseaworthiness and negligence of the vessel (sic),
petitioner suffered damages in the total amount of P683, 056.29
Philippine currency." 8 (Emphasis supplied)
Moreover, in its Opposition to the Motion to Dismiss, petitioner said that
"[t]he cause of action of the complaint arose from breach of contract of
carriage by the vessel that was chartered by defendant Philipp
Brothers." 9
In the present petition, petitioner argues that the sales contract does not
include the contract of carriage which is a different contract entered into
by the carrier with the cargo owners. That it was an error for the
respondent court to touch upon the arbitration provision of the bills lading
in its decision inasmuch as the same was not raised as an issue by
private respondent who was not a party in the bills of lading (emphasis
Ours). Petitioner contradicts itself.
We agree with the court a quo that the sales contract is comprehensive
enough to include claims for damages arising from carriage and delivery
of the goods. As a general rule, the seller has the obligation to transmit
the goods to the buyer, and concomitant thereto, the contracting of a
carrier to deliver the same. Art. 1523 of the Civil Code provides:
"Art. 1523.Where in pursuance of a contract of sale, the seller in
authorized or required to send the goods to the buyer, delivery
of the goods to a carrier, whether named by the buyer or not, for
the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, except in the cases provided
for in article 1503, first, second and third paragraphs, or unless
a contrary intent appear.
 "Unless otherwise authorized by the buyer, the seller must take
such contract with the carrier on behalf of the buyer as may be
reasonable, having regard to the nature of the goods and the
other circumstances of the case. If the seller omit so to do, and
the goods are lost or damaged in course of transit, the buyer
may decline to treat the delivery to the carrier as a delivery to
himself,, or may hold the seller responsible in damages."
xxx xxx xxx
The disputed sales contact provides for conditions relative to
the delivery of goods, such as date of shipment, demurrage, weight as
determined by the bill of lading at load port and more particularly the
following provisions:
"3.Intention is to ship in one bottom, approximately 5,000
metrics tons to Puromines and approximately 15,000 metric
tons to Makati Agro. However, Sellers to have right to ship
material as partial shipment or co-shipment in addition to above.
In the event of co-shipment to a third party within Philippines
same to be discussed with and acceptable to both Puromines
and Makati Agro.
"4.Sellers to appoint neutral survey for Seller's account to
conduct initial draft survey at first discharge port and final
survey at last discharge port. Surveyors results to be binding
and final. In the event draft survey results show a quantity less
than the combined Bills of Lading quantity for both Puromines
and Makati Agro, Sellers to refund the difference. In the event
that draft survey results show a quantity in excess of combined
Bills of Lading of quantity of both Puromines and Makati Agro
then Buyers to refund the difference.
"5.It is expressly and mutually agreed that neither Sellers nor
vessel's Owners have any liability to separate cargo or to deliver
cargo separately or to deliver minimum/maximum quantities
stated on individual Bills of Lading. At each port vessel is to
discharge in accordance with Buyers local requirements and it
is Buyer's responsibility to separate individual quantities
required by each of them at each port during or after
discharged."
As argued by respondent on its motion to dismiss, "the
(petitioner) derives his right to the cargo from the bill of lading which is
the contract of affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the provisions and terms of
said bill of lading and of the arbitration clause incorporated in the sales
contract."
 Assuming arguendo that the liability of respondent is not based
on the sales contract, but rather on the contract of carriage, being the
charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be
material to show what kind of charter party the respondent had with
the shipowner to determine respondent's liability.
American jurisprudence defines charter party as a contract by
which an entire ship or some principal part thereof is let by the owner
to another person for a specified time or use. 10 Charter or charter
parties are of two kinds. Charter of demise or bareboat and contracts
of affreightment.
Under the demise or bareboat charter of the vessel, the
charterer will generally be considered as owner for the voyage or
service stipulated. The charterer mans the vessel with his own people
and becomes, in effect, the owner pro hac vice, subject to liability to
others for damages caused by negligence. 11 To create a demise the
owner of a vessel must completely and exclusively relinquish
possession, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at
all.
On the other hand, a contract of affreightment is in which the
owner of the vessel leases part or all of its space to haul goods for
others. It is a contract for a special service to be rendered by the
owner of the vessel 12 and under such contract the general owner
retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. 13 If the charter is a contract
of affreightment, which leaves the general owner in possession of the
ship as owner for the voyage, the rights, responsibilities of ownership
rest on the owner and the charterer is usually free from liability to third
persons in respect of the ship. 14
Responsibility to third persons for goods shipped on board a
vessel follows the vessel's possession and employment; and if
possession is transferred to the charterer by virtue of a demise, the
charterer, and not the owner, is liable as carrier on the contract of
affreightment made by himself or by the master with third persons,
and is answerable for loss, damage or non-delivery of goods received
for transportation. An owner who retains possession of the ship,
though the hold is the property of the charterer, remains liable as
carrier and must answer for any breach of duty as to the care, loading
or unloading of the cargo. 15
 Assuming that in the present case, the charter party is a demise
or bareboat charter, then Philipp Brothers is liable to Puromines, Inc.,
subject to the terms and conditions of the sales contract. On the other
hand, if the contract between respondent and the owner of the vessel
MV "Liliana Dimitrova" was merely that of affreightment, then it cannot
be held liable for the damages caused by the breach of contract of
carriage, the evidence of which is the bills of lading
In any case, whether the liability of respondent should be based
on the same contract or that of the bill of lading, the parties are
nevertheless obligated to respect the arbitration provisions on the
sales contract and/or the bill of lading. Petitioner being a signatory and
party to the sales contract cannot escape from his obligation under the
arbitration clause as stated therein.
Neither can petitioner contend that the arbitration provision in
the bills of lading should not have been discussed as an issue in the
decision of the Court of Appeals since it was not raised as a special or
affirmative defense. The three bills of lading were attached to the
complaint as Annexes "A," "B," and "C," and are therefore parts
thereof and may be considered as evidence although not introduced
as such. 16 Hence, it was then proper for the court a quo to discuss
the contents of the bills of lading, having been made part of the record.

Going back to the main subject of this case, arbitration has

been held valid and constitutional. Even before the enactment
of Republic Act No. 876, this Court has countenanced the settlement
of disputes through arbitration. The rule now is that unless the
agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts will
look with favor upon such amicable arrangements and will only
interfere with great reluctance to anticipate or nullify the action of the
arbitrator. 17
As pointed out in the case of Mindanao Portland Cement Corp.
v. McDonough Construction Company of Florida 18 wherein the
plaintiff sued defendant for damages arising from a contract, the Court
said:
"Since there obtains herein a written provision for arbitration as
well as failure on respondent's part to comply therewith, the
court a quo rightly ordered the parties to proceed to their
arbitration in accordance with the terms of their agreement (Sec.
6 Republic Act 876). Respondent's arguments touching upon
the merits of the dispute are improperly raised herein. They
should be addressed to the arbitrators. This proceeding is
 merely a summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the merits of
the parties' claims but only to determine if they should proceed
to arbitration or not. And although it has been ruled that a
frivolous or patently baseless claim should not be ordered to
arbitration it is also recognized that the mere fact that a defense
exist against a claim does not make it frivolous or baseless." 19
In the case of Bengson v. Chan, 20 We upheld the provision of a
contract which required the parties to submit their disputes to
arbitration and We held as follows:
"The trial court sensibly said that 'all the causes of action
alleged in the plaintiffs amended complaint are based upon the
supposed violations committed by the defendants of the
'Contract of Construction of a Building' and that 'the provisions
of paragraph 15 hereof leave a very little room for doubt that the
said causes of action are embraced within the phrase 'any and
all questions, disputes or differences between the parties hereto
relative to the construction of the building,' which must be
determined by arbitration of two persons and such
determination by the arbitrators shall be 'final, conclusive and
binding upon both parties unless they to court, in which the case
the determination by arbitration is a condition precedent 'for
taking any court action."
xxx xxx xxx
"We hold that the terms of paragraph 15 clearly express
the intention of the parties that all disputes between them
should first be arbitrated before court action can be taken by the
aggrieved party." 21
Premises considered, We uphold the validity and applicability
of the arbitration clause as stated in Sales Contract No. S151.8.01018
to the present dispute.
WHEREFORE, petition is hereby DISMISSED and decision of
the court a quo is AFFIRMED.
SO ORDERED.
||| [G.R. No. 13695. October 18, 1921.]

STANDARD OIL COMPANY OF NEW

YORK, plaintiff-appellee, vs. MANUEL
LOPEZ CASTELO, defendant-appellant.

Gabriel La O for appellant.

 Lawrence & Ross for appellee.

SYLLABUS

1. GENERAL AVERAGE; COASTWISE TRADE;

JETTISON OF DECK CARGO — When, in conformity
with marine regulations, cargo is carried on the deck of
a steamer engaged in coastwise trade, the jettison of
such cargo upon occasion of peril makes a case for
general average.
2. JETTISON; LIQUIDATION OF GENERAL
AVERAGE; OMISSION OF CAPTAIN TO
DISTRIBUTE LOSS. — When jettison of cargo occurs
it is the duty of the captain to effect the adjustment,
liquidation, and distribution of the general average; and
his omission to take these steps constitutes an
actionable dereliction of duty.
3. ID.; ID.; ID.; LIABILITY OF SHIPOWNERS. —
For this omission not only is the captain personally
liable to the shipper of the jettisoned goods, but the
latter may go at once upon the owner, since the captain
of the ship is the representative of the owner, and the
latter is civilly liable for the acts of the former.

DECISION

STREET, J :p

By contract of charter dated February 8, 1915,

Manuel Lopez Castelo, as owner, let the small
interisland steamer Batangueñofor the term of one year
to Jose Lim Chumbuque for use in the conveying of
cargo between certain ports of the Philippine Islands In
this contract it was stipulated that the officers and crew
of the Batangueño should be supplied by the owner,
and that the charterer should have no other control over
the captain, pilot, and engineers than to specify the
voyages that they should make and to require the
owner to discipline or relieve them as soon as possible
in case they should fail to perform the duties
respectively assigned to them.
 While the boat was being thus used by the
charterer in the interisland trade,
the Standard Oil Company delivered to the agent of the
boat in Manila a quantity of petroleum to be conveyed
to the port of Casiguran, in the Province of Sorsogon.
For this consignment a bill of lading of the usual form
was delivered, with the stipulation that freight should be
paid at the destination. Said bill of lading contained no
provision with respect to the storage of the petroleum,
but it was in fact placed upon the deck of the ship and
not in the hold.
While the boat was on her way to the port
mentioned, and off the western coast of Sorsogon, a
violent typhoon passed over that region, and while the
storm was at its height the captain was compelled for
the safety of all to jettison the entire consignment of
petroleum consisting of two hundred cases. When the
storm abated the ship made port, and thirteen cases of
the petroleum were recovered, but the remainder was
wholly lost.
To recover the value of the petroleum thus
jettisoned but not recovered, the present action was
instituted by the Standard OilCompany against the
owner of the ship in the Court of First Instance of Manila,
where judgment was rendered in favor of the plaintiff.
From this judgment the defendant appealed.
No question is made upon the point that the
captain exercised proper discretion in casting this
petroleum overboard, as a step necessary to the
salvation of the ship; and in fact it appears that even
after the vessel was thus eased, the was with difficulty
prevented from capsizing, so great was the intensity of
the storm.
The first question for discussion is whether the
loss of this petroleum was a general average loss or a
particular loss to be borne solely by the owner of the
cargo. Upon this point it will be observed that the cargo
was carried upon deck; and it is a general rule, both
under the Spanish Commercial Code and under the
doctrines prevailing in the courts of admiralty of
England and America, as well as in other countries, that
ordinarily the loss of cargo carried on deck shall not be
considered a general average loss. This is clearly
expressed in Rule I of the York-Antwerp Rules, as
follows: "No jettison of deck cargo shall be made good
as general average." The reason for this rule is found in
the fact that deck cargo is in an extra hazardous
position and, if on a sailing vessel, its presence is likely
to obstruct the free action of the crew in managing the
ship. Moreover, especially in the case of small vessels,
it renders the boat top-heavy and thus may have to be
cast overboard sooner than would be necessary if it
were in the hold; and naturally it is always the first cargo
to go over in case of emergency. Indeed, in subsection
1 of article 815 of the Code of Commerce, it is
expressly declared that deck cargo shall be cast
overboard before cargo stowed in the hold.
But this rule, denying deck cargo the right to
contribution by way of general average in case of
jettison, was first made in the days of sailing vessels;
and with the advent of the steamship as the principal
conveyer of cargo by sea, it has been felt that the
reason for the rule has become less weighty, especially
with reference to coastwise trade; and it is now
generally held that jettisoned goods carried on deck,
according to the custom of trade, by steam vessels
navigating coastwise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L.,
1419).
Recognition is given to this idea in two different
articles in the Spanish Code of Commerce. In the first it
is in effect declared that, if the marine ordinances allow
cargo to be laden on deck in coastwise navigation, the
damages suffered by such merchandise shall not be
dealt with as particular average (art. 809 [3], Comm.
Code); and in the other it is stated that merchandise
laden on the upper deck of the vessel shall contribute in
the general average if it should be saved; but that there
shall be no right to indemnity if it should be lost by
reason of being jettisoned for the general safety, except
when the marine ordinances allow its shipment in this
manner in coastwise navigation (art 855, Comm.
Code).
The Marine Regulations now in force in these
Islands contain provisions recognizing the right of
vessels engaged in the interisland trade to carry deck
cargo; and express provision is made as to the manner
in which it shall be bestowed and protected from the
elements (Phil. Mar. Reg. [1913], par. 23) . Indeed,
there is one commodity, namely, gasoline, which from
its inflammable nature is not permitted to be carried in
the hold of any passenger vessel, though it may be
carried on the deck if certain precautions are taken.
There is no express provision declaring that petroleum
shall be carried on deck in any case; but having regard
to its inflammable nature and the known practices of
the interisland boats, it cannot be denied that this
commodity also, as well as gasoline, may be lawfully
carried on deck in our coastwise trade.
The reason for adopting a more liberal rule with
respect to deck cargo on vessels used in the coastwise
trade than upon those used for ordinary ocean borne
traffic is to be found of course in the circumstance that
in the coastwise trade the boats are small and voyages
are short, with the result that the coasting vessel can
use more circumspection about the condition of the
weather at the time of departure; and if threatening
weather arises, she can often reach a port of safety
before disaster overtakes her. Another consideration is
that the coastwise trade must as a matter of public
policy be encouraged, and domestic traffic must be
permitted under such conditions as are practically
possible, even if not altogether ideal.
From what has been said it is evident that the
loss of this petroleum is a general and not a special
average, with the result that the plaintiff is entitled to
recover in some way and from somebody an amount
bearing such proportion to its total loss as the value of
both the ship and the saved cargo bears to the value of
the ship and entire cargo before the jettison was
effected. Who is the person, or persons, who are liable
to make good this loss, and what are the conditions
under which the action can be maintained?
That the owner of the ship is a person to whom
the plaintiff in this case may immediately look for
reimbursement to the extent above stated is deducible
not only from the general doctrines of admiralty
jurisprudence but from the provisions of the Code of
Commerce applicable to the case. It is universally
recognized that the captain is primarily the
representative of the owner; and article 586 of the Code
of Commerce expressly declares that both the owner of
the vessel and the naviero, or charterer, shall be civilly
liable for the acts of the master. In this connection, it
may be noted that there is a discrepancy between the
meaning of naviero, in article 586 of the Code of
Commerce, where the word is used in contradistinction
to the term "owner of the vessel" (propietario), and in
article 587 where it is used alone, and apparently in a
sense broad enough to include the owner.
Fundamentally the word "naviero" must be understood
to refer to the person undertaking the voyage, who in
one case may be the owner and in another the
charterer. But this is not vital to the present discussion.
The real point to which we direct attention is that, by the
express provision of the Code, the owner of the vessel
is civilly liable for the acts of the captain; and he can
only escape from this civil liability by abandoning his
property in the ship and any freight that he may have
earned on the voyage (arts. 587, 588, Code of Comm.).
Now, by article 852 of the Code of
Commerce-the captain is required to initiate the
proceedings for the adjustment, liquidation, and
distribution of any gross average to which the
circumstances of the voyage may have given origin;
and it is therefore his duty to take the proper steps to
protect any shipper whose goods may have been
jettisoned for the general safety. In ordinary practice
this, we suppose, would be primarily accomplished by
requiring the consignees of other cargo, as a condition
precedent to the delivery of their goods to them, to give
a sufficient bond to respond for their proportion of the
general average. But it is not necessary here to inquire
into details. It is sufficient to say that the captain is
required to take the necessary steps to effect the
adjustment, liquidation, and distribution of the general
average. In the case before us the captain of the vessel
did not take those steps; and we are of the opinion that
the failure of the captain to take those steps gave rise to
a liability for which the owner of the ship must answer.
But it is said — and the entire defense seems to
be planted upon this proposition — that the liquidation
of the general average is, under article 852 and related
provisions, a condition precedent to the liability of the
defendant, and that at any rate the defendant, as owner
of the ship, should only be held liable for his proportion
of the general average. It is also suggested that if the
plaintiff has any right of action at all upon the state of
facts here presented, it is against the captain, who has
been delinquent in performing the duty which the law
imposes on him.
This argument involves, we think, a
misconception of the true import of the provisions
relating to the adjustment and liquidation of general
average. Clearly, for one thing, those provisions are
intended to supply the shipowner, acting of course in
the person of the captain, with a means whereby he
may escape bearing the entire burden of the loss and
may distribute it among all the persons who ought to
participate in sharing it; but the making of the liquidation
is not a condition precedent to the liability of the
shipowner to the shipper whose property has been
jettisoned.
It is true that if the captain does not comply with
the article relating to the adjustment, liquidation, and
distribution of the general average, the next article (852)
gives to those concerned — whether shipowner
(naviero) or shipper — the right to maintain an action
against the captain for indemnification for the loss; but
the recognition of this right of action does not by any
means involve the suppression of the right of action
which is elsewhere recognized in the shipper against
the ship's owner. The shipper may in our opinion go at
once upon the owner and the latter, if so minded, may
have his recourse for indemnization against his
captain.
In considering the question now before us it is
important to remember that the owner of the ship
ordinarily has vastly more capital embarked upon a
voyage than has any individual shipper of cargo.
Moreover, the owner of the ship, in the person of the
captain, has complete and exclusive control of the crew
and of the navigation of the ship, as well as of the
disposition of the cargo at the end of the voyage. It is
therefore proper that any person whose property may
have been cast overboard by order of the captain
should have a right of action directly against the ship's
owner for the breach of any duty which the law may
have imposed on the captain with respect to such cargo.
To adopt the interpretation of the law for which the
appellant contends would place the shipowner in a
position to escape all responsibility for a general
average of this character by means of the delinquency
of his own captain. This cannot be permitted. The
evident intention of the Code, taken in all of its
provisions, is to place the primary liability upon the
person who has actual control over the conduct of the
voyage and who has most capital embarked in the
venture, namely, the owner of the ship, leaving him to
obtain recourse, as it is very easy to do, from other
individuals who have been drawn into the venture as
shippers.
It results that the plaintiff is entitled to recover in
this action; and the only additional point to be inquired
into is the amount that should be awarded. In this
connection it appears that the total value of the
jettisoned cargo, belonging partly to the plaintiff and
partly to another shipper, was P880.35, of which
P719.95 represented the value of the plaintiff's
petroleum. Upon the apportionment of this total loss
among the different interests involved, to wit, value of
ship, value of cargo, and the earned but lost freight, it
appears that the amount of the loss apportionable to
the plaintiff is P11.28. Deducting this from the value of
the petroleum, we have as a result, the amount of
P708.67, which is the amount for which judgment
should be given.
Accordingly, modifying the judgment appealed
from to this extent, we affirm the same, with costs. So
ordered.
Johnson, and Villamor, JJ., concur.
Mapa, C.J., concurs in the result.

Separate Opinions
ARAULLO, J., with whom concurs AVANCEÑA, J.,
dissenting:

As the loss of the petroleum shipped by the

plaintiff company on board the vessel Batangueño,
which belongs to the defendant, constitutes gross
average and, as the latter, being, according to the law,
an agent, all of which is admitted in the foregoing
decision, the provisions applicable to the case and
which should be taken into consideration in deciding
the appeal before this court are those of various articles
in sections 1 of title 4 and sections 1, 2, and 3, of title 5,
of Book 3 of the Code of Commerce.
 Article 811 defines gross or general averages as
damages and expenses which are deliberately caused
in order to save the vessel, her cargo, or both at the
same time, from a real and known risk, and particularly,
such as goods jettisoned to lighten the vessel, whether
they belong to the vessel, to the cargo, or to the crew,
and the damage suffered through said act by the goods
on board; the damage caused to the vessel by scuttling
or entering her hold in order to save the cargo; and the
expenses of the liquidation of the average. Article 812
provides that in order to satisfy the amount of the gross
or general average, all persons having an interest in the
vessel and cargo at the time of the occurrence of the
average shall contribute. Article 846 provides that the
persons interested in the proof and liquidation of
averages may mutually agree and bind themselves at
any time with regard to the liability, liquidation and
payment thereof, and that, in the absence of
agreements, the proof of the average shall take place in
the port where the repairs are made, should any be
necessary, or in the port of unloading; that the
liquidation shall take place in the port of unloading
should it be a Spanish port (now Filipino); that should
the average have occurred outside of the jurisdictional
waters of the Philippines or should the cargo have been
sold in a foreign port by reason of the arrival of the
vessel under stress in said port, liquidation shall be
made in the port of arrival; and, finally, if the average
should have occurred near the port of destination, and
that port is made, the proceedings for the proof and
liquidation above-mentioned shall be had there.
Article 847 provides that when the liquidation of
the averages is made privately by virtue of agreement,
as well as when a judicial authority takes part therein at
the request of any of the parties interested who do not
agree thereto, all of them shall be cited and heard,
should they not have renounced this right; that should
they not be present or not have a legitimate
representative, the liquidation shall be made by the
consul in said port, and where there is none, by the
judge or court of competent jurisdiction, according to
the laws of the country, and for the account of the
proper person; and, finally, desiring to furnish all
possible means to effect the liquidation, the legislator
provides in the last part of said article that, when the
representative is a person well-known in the place
where the liquidation takes place, his intervention shall
be admitted and will produce legal effect, even though
he be authorized only by a letter of the shipowner,
freighter, or underwriter; and as to general or gross
averages, he lays down concrete and conclusive rules
in articles 853, 854, and 858, with respect to the form
and mode in which the experts appointed by the
interested parties or by the court shall fulfill their duties,
as to the examination of the vessel, the repairs and the
appraisement of their cost, as well as to the
appraisement of the goods which are to contribute to
the gross average and those which constitute the
average, likewise providing in article 857 that, after the
appraisement by the experts of the goods saved, lost,
and those which constitute the gross average, and after
the repairs have been made to the vessel, should any
be necessary, and in such case, after the approval of
the accounts by the persons interested or by the court,
the entire record shall be turned over to the liquidator
appointed, in order that he may proceed with the pro
rata distribution of the average among the contributing
values, after fixing the amount mentioned in said article
of the contributing capital: (1) By the value of the cargo,
according to the rules established in article 854; (2) by
the value of the vessel in her actual condition,
according to a statement of experts; (3) by 50 per cent
of the amount of the freight, deducting the remaining 50
per cent for wages and maintenance of the crew.
Lastly, in relation to said provisions, article 851
authorizes the captain to proceed privately, upon the
agreement of the parties interested, in the adjustment,
liquidation, and distribution of the gross average, and
for this purpose, it is his duty to call, within forty hours
following the arrival of the vessel at the port, the
persons interested in order that they may decide
whether the adjustment or liquidation of the gross
average is to be made by experts and liquidators
appointed by themselves, in which case this shall be
done should the persons interested agree, and said
article also provides that should an agreement not be
possible, the captain shall apply to the judge or court of
Competent jurisdiction, who shall be the one of the port
where the proceedings are to be held in accordance
with the provisions of the Code of Commerce, to the
consul of Spain (now of the United States), should
there be one, or otherwise to the local authority when
the proceedings are to be held in a foreign port. And
finally, the next article, 852, says: "If the captain should
not comply with the provisions contained in the
foregoing article, the shipowner or agent or the
freighters shall demand the liquidation, without
prejudice to the action they may bring to demand
indemnity from him."
It is therefore beyond question that the action of
the plaintiff to recover indemnity for the damages which
it claims to have suffered by reason of the failure of the
captain of the vessel Batangueño to proceed with the
liquidation and distribution of the gross average in
which it was a contributor, and by reason of his act in
delivering to the other shippers their respective goods,
without first requiring them to give bond, should have
been brought not against the shipowner or agent, who
is the defendant in this case, but against the captain
himself of the vessel Batangueño.
Although in the preceding decision it is clearly
recognized that the captain should have begun the
proceedings for the adjustment, liquidation, and
distribution of the gross average in question, and that it
was his duty to take the proper steps to protect any
shipper whose goods may have been jettisoned for the
common security, it is also stated that in ordinary
practice this is supposed to be complied with by
requiring the consignees of the other cargoes, as a
condition precedent to the delivery thereof, to give a
sufficient bond to answer proportionally for the gross
average, and, lastly, that the failure of the captain to
take the necessary steps to effect the adjustment,
liquidation, and distribution of said average gave rise to
the responsibility which should be enforced against the
defendant shipowner, against whom the shipper may
immediately institute his action, the former having in
turn, if he so desires, the right to bring suit against the
captain. The majority opinion attempts to support the
last proposition and invokes articles 586, 587, and 588.
First of all, according to articles 866, 867, and
888 of the same Code, a bond should be required of the
shippers by the captain after the liquidation is already
approved, if the contributors should fail to pay the
amount of the quota by the third day after having been
required to do so, and before delivering to them the
goods saved, — the captain having the right, upon
failure to give the bond, to delay the delivery of the
goods until the shippers pay their part of the gross
average corresponding to each of them — and not
before proceeding with the liquidation, for the simple
reason that the amount of the bond may only be fixed
after the determination of the amount which each of the
shippers may be obliged to contribute to the payment of
the average, and this is so clear and evident that in
article 867 the captain is authorized to attach the goods
saved until the shippers should pay the amount, if they
should fail to do so by the third day after demand upon
them. And since the captain may require bond, he may
delay the delivery of the goods saved to the shippers
until they make the payment. In the case at bar, no step
having as yet been taken for the adjustment and
liquidation of the gross average in question, the fact
that the captain of the Batangueño delivered the
respective cargoes of the other shippers without
previously requiring a bond, can not constitute the
basis for making the captain responsible, much less the
owner of the vessel, as the trial court has erroneously
held in the judgment appealed from and as this court is
given to understand in referring to said filing of the bond
as a prerequisite to the delivery of the cargo. This is
because the time was not opportune when the captain
should and could exact the bond and the law neither
requires such bond to be filed before proceeding with
the liquidation, inasmuch as the shipowner or agent, as
well as the shippers, being interested in proceeding
with the liquidation, the Code authorizes them, first, to
demand it from the captain and later to institute the
action corresponding to them against him to recover
indemnity if he should not comply with the provisions
upon the subject, that is, if he should fail to effect the
liquidation, or if, in lieu thereof, he should deliver the
respective cargoes to the shippers or permit them to
dispose of the same, in which case the responsibility
may be fixed upon the captain and not upon the agent
upon this ground, and for not requiring the shippers to
give said bond.
In the second place, although it is true that the
captain is, as stated in the decision, primarily the
representative of the shipowner or agent, it cannot in all
cases, as the decision gives us to understand, be
deduced that the ship. owner must be civilly
responsible for all the acts of the captain.
 The Code of Commerce clearly and positively
specifies the cases in which such responsibility is
demandable from the agent or shipowner, and the
cases in which he is not responsible, the responsibility
attaching only to the captain. These cases can not be
confused in view of the clear and positive provisions of
said Code, in relation to the method adopted in the
exposition thereof and following the order of the
subjects contained in this law.
Articles 586, 587, and 588, invoked in the
decision in question in order to maintain that theory, are
found in title 2 of Book 3 of said Code which treats of
the persons who intervene in maritime commerce, that
is, as may be seen in sections 1, 2, and 3 thereof, the
shipowners and agents, the captains and masters of
vessels and the officers and crew thereof, respectively.
Articles 806 to 818 and 846 to 849, and consequently,
article 862, invoked in said decision and which refer to
the gross or general average and to the simple or
particular average, are found in titles 4 and 5 of the
same Book 3 which, respectively, deal with the risks,
damages, and accidents of maritime commerce and
with the proof and liquidation of the averages; and they
contain all the provisions of the law relative to said
subjects and to the rights and obligations which arise
from the averages.
There is no relation whatever between said
articles 586, 587, and 588, invoked in the decision, and
those which treat of averages. The first of said articles
establishes the civil responsibility of the shipowner and
agent for the acts of the captain and the obligations
incurred by the latter for the repair, equipment, and
provisioning of the vessel. The second, that is, article
587, establishes the same responsibility of the agent
for indemnities, in favor of third persons. which may
arise from the conduct of the captain in the care of the
goods which the vessel may carry, from which he may
exempt himself by abandoning the vessel with all her
equipment and the freight he may have earned during
the voyage. In the present case it is not the conduct of
the captain in the care of the goods which has given
rise to the right to exact the corresponding civil
responsibility, but, according to article 862, the failure
of the captain to comply with the provisions of article
851, with respect to the adjustment, liquidation, and
distribution of the gross average and the failure to
attend to the claims which the agent or the shippers
may or should have made, inasmuch as said article 852
clearly so declares, in referring to the agent or the
shippers in the following words: "Without prejudice to
the action they may bring to demand indemnity from
him." The care of the goods to which article 857 refers
consists in the placing of the goods in the proper and
adequate place for their transportation and due
preservation during the voyage, in such manner that
they may not suffer damages or deterioration nor be
taken away, for, according to article 618, which bears
some relation to said article 587, the captain is civilly
responsible to the agent and the latter to third persons,
who may have contracted with him, for all damages
which may have occurred to the vessel and the cargoes
due to lack of skill or to negligence on his part and for
the substraction or theft committed by the crew,
reserving his right to proceed against the guilty Parties;
and, according to article 619, he shall be liable for the
cargo from the time it is turned over to him at the deck
or afloat alongside the vessel at the port of loading until
he delivers it on the shore or on the discharging wharf
of the port of unloading, unless the contrary has been
expressly agreed upon; and, finally, according to No. 5
of the same article 618, he shall be liable for those
damages arising from an undue use of the powers and
nonfulfillment of the obligations which are his in
accordance with articles 610 and 612, one of which, the
fifth mentioned in the last article, is to remain constantly
on board the vessel during the time the freight is taken
on board and carefully watch the stowage thereof,
which acts, as is well-known, constitute the means for
the effective custody of the goods which may be
shipped on board.
In the present case, if the consignees or owners
of the cargo on board the vessel Batangueño took
away with them their respective cargoes or disposed of
them upon arriving at port, after part thereof, which
included the petroleum boxes belonging to the plaintiff,
had been jettisoned, it was not because the captain of
said vessel had not fulfilled his duty with respect to the
care of the cargo, but because he did not proceed in
accordance with the provision of article 851 already
cited, in the adjustment, liquidation, and distribution of
the gross average caused by that accident, and did not,
as he should have done, according to article 852,
require the liquidation either of the agent or the
shippers. Therefore to them alone, including the
plaintiff, and not to the conduct of the captain in the
custody of the cargo, is the fact attributable that the
shippers were able to carry away and dispose of the
cargo saved upon the arrival of the vessel at port.
The third of said articles, that is, 588, cited also in
the same decision, far from making the shipowner or
the agent responsible for the obligations incurred by the
captain, exempts them from all responsibility, if the
captain should have exceeded the powers and
privileges which are his by reason of his position or
have been conferred upon him by the former, excepting
the case, which bears no relation whatever to that in
question, in which the amounts claimed were made use
of for the benefit of the vessel.
Lastly, although this point has not been touched
at all in the decision now under discussion, according to
article 618, No. 5, the captain shall be civilly liable to the
agent, and the latter to third persons with whom he may
have contracted, for the damages arising from an
undue use of his powers and the nonfulfillment of his
obligations, but it adds that such liability shall be "in
accordance with articles 610 and 612." These articles,
as may be seen, refer to the powers and obligations
inherent in the position of captain with respect to the
appointment, contract, and command of the crew,
direction of the vessel to the port of destination, the
imposition of punishments for crimes committed on
board, contracts for the charter of the vessel, its
preservation and repair, the supplying of books of
navigation, and others, which are mentioned in said last
article, the equipping of the vessel and the receiving of
the cargo, etc., among which obligations there is none
which bears the slightest relation to those which the
same Code imposes upon the captain with respect to
the adjustment, liquidation, and distribution of the gross
average.
On the other hand, in the various sections of title
4 of Book 3, and in section 1 of title 5, the Code, in
treating of the risks, damages, and accidents of
maritime commerce, specifically indicates the cases in
which the responsibility of the captain is enforcible,
those in which that of the agent or shipowner is
demandable and those in which that responsibility is
joint among them, as well as those cases in which no
responsibility may be demanded of the agent or
shipowner but only of the captain.
In effect, article 841 of section 3 of said title 4
provides that if the wreck or stranding should arise
through the malice, or lack of skill of the captain, or
because the vessel put to sea insufficiently repaired
and prepared, the captain shall be responsible for the
indemnification of damages caused to the vessel or the
cargo by the accident, Which liability may be
demanded by the agent or the shippers; but there is in
said section no provision whatever by which the agent
or shipowner is made responsible.
In article 826 of section 3 of the same title, which
deals with collisions, it is provided that the agent of the
vessel at fault shall indemnify the losses and damages
suffered after an expert appraisal, if a vessel should
collide with another through the fault, negligence, or
lack of skill of the captain, sailing mate, or any other
member of the complement, and, according to article
831, if a vessel should be forced to collide with another
by a third vessel, the agent of the third vessel shall
indemnify for the losses and damages caused, the
captain being civilly liable to said agent, this liability
being understood to be limited to the value of the vessel
with all equipment and freight earned.
In treating of arrivals under stress, section 2 of
the same title, in article 821, declares that when such
arrival is not legitimate, the agent and the captain shall
be jointly liable for the expenses incurred.
In treating averages, article 809, No. 8, in section
1 of the same title, which includes, in simple averages,
the damage suffered by the vessel or cargo by reason
of an impact or collision with another, declares that if
the accident occurred through the fault or negligence of
the captain, he shall be responsible for all the damages
caused, and in No. 9 of the same article, that the owner
of the cargo who is injured as a result of the fault,
negligence, or barratry of the captain or the crew may
demand indemnity from the captain, the vessel and
freight, a rule which is based upon No. 1 of article 618,
already mentioned, according to which the captain shall
be civilly responsible to the agent and the latter to the
third persons, for all damages suffered by the vessel
and its cargo by reason of the want of skill or
negligence on his part, a provision which, as is well
known, cannot refer to the case in which the owners of
the cargo, having the right to demand the adjustment,
liquidation, and distribution of the gross aver age, upon
the arrival of the vessel at port, should dispose of the
cargo saved. Such case, as already stated, is the
subject of the express and positive provisions of
articles 861 and 852, in relation to articles 866, 867,
and 868, included in section 2 of the same title, as is
shown by the fact that the first of said articles declares
that the captain is responsible to the owners of the
goods averaged for the losses they may have suffered
through his delay or negligence in collecting the
amount of the contribution after the liquidation is
approved, and by the fact that the last of said articles,
that is, 868, declares that the captain may exact from
the shippers a bond sufficient to answer for the amount
corresponding to the gross average for the purpose of
delaying the delivery to them of the goods saved until
they pay said amount.
It is by these special provisions and not by the
general provisions contained in sections 1, 2, and 3, of
title 2, of Book 3 of said Code, that we must be
governed when dealing with the risks, damages, and
accidents of maritime commerce; and gross average
being among them, then, for the failure of the captain of
the vessel Batangueño to comply with the provisions
relating to the adjustment, liquidation, and distribution,
the defendant owner of the vessel can not and should
not be made liable, but only the captain, for article 852,
already cited, is clear and positive to the effect that in
said case the agent or the shippers shall demand of the
captain the liquidation and may exercise against him
the action to recover the proper indemnity, a provision
which excludes in such case all responsibility of the
agent or owner of the vessel, for the reason that, the
latter being, according to the same article, one of those
who, jointly with the shippers, may ask the captain for
the liquidation and institute against him the
corresponding action for indemnification, it would be
absurd to pretend and maintain that the shippers may
also institute the same action against the agent or
owner of the vessel, in this manner converting him from
plaintiff into defendant.
 But, as if it is still possible to put under discussion
and interpret so clear and positive a provision as that of
said article 852, and those related to it which, as has
already been mentioned, are also of the same
character, it is argued in the decision of this court that
as "the owner of the ship ordinarily has vastly more
capital embarked upon a voyage than has any
individual shipper of cargo, and more over, as the
owner of the ship, in the person of the captain, has
complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of
the cargo at the end of the voyage, the evident intention
of the Code, taken in all of its provisions, is to place the
primary liability upon . . . the owner of the ship, leaving
him to obtain recourse, as it is very easy to do, from
other individuals who have been drawn into the venture
as shippers, for, to adopt another interpretation of the
law would place the shipowner in a position to escape
all responsibility for a general average of this character
by means of the delinquency of his own captain. And it
is therefore proper that any person whose property may
have been cast overboard by order of the captain
should have a right of action directly against the ship's
owner for the breach of any duty which the law may
have imposed on the captain with respect to such
cargo."
Such reasoning, however, is not convincing. In
the first place, it is not true that the average in question
was occasioned by the fault of the captain of the
vessel Batangueño, for on this point there is no
evidence in the record, but because of the necessity of
throwing overboard part of the cargo of said vessel to
save it from the danger then threatening it; secondly,
the purpose of the adjustment and liquidation of the
gross average is to secure contribution from the parties
interested in the vessel and cargo 'existing at the time
of the occurrence thereof in order to pay the amount of
such average (art. 812, Code of Commerce), for which
purpose article 858 defines the procedure for the
distribution of the value of the average, stating that
there must be taken into consideration, as already
stated by us, when we were discussing this article, the
contributing capital determined by the value of the
cargo, that of the vessel in her actual condition and the
percentage of the amount of the freight reduced by 50
percent for wages and maintenance of the crew, and
further declaring that after the determination of the
amount of the average, it shall be distributed pro rata
among the contributing values and then paid to the
proper parties, after the persons interested therein, that
is, the agent or owner of the vessel and the shippers
have consented thereto, or in default thereof, after the
liquidation is duly approved; and, lastly, as repeatedly
stated by us, according to the same articles, the owner
of the vessel, or the agent, is also one of the interested
parties and coparticipants in the adjudication of the
average and its pro rata distribution among the
contributing values. From what has just been said it
results that no purpose is served by considering
whether or not he has put in the voyage or undertaking
a capital greater than that of any individual shipper for
the purpose of making him principally liable, that is
compelling him to pay to the shippers what each of the
latter as well as he himself has the right to be paid for in
proportion to the amount of the respective capital fixed
according to the rules already stated in the distribution
of the average. This is because, however great the
value of the vessel may be, there cannot be conceded
to the shippers in the adjudication a greater value than
that corresponding to them in the adjudication and
distribution of the average, according to the capital
determined by the value of the cargo of each, in
conformity with the rules established in article 854 for
the assessment of the same cargo and of the goods
which have to contribute to said average, nor can there
be conceded to the owner of the vessel a value greater
than that which may correspond to him in said
adjudication and distribution, based upon the value of
the vessel in its actual condition, according to a
statement of experts and the rules for assessment
thereof found in Nos. 6 and 7 of said article 854, from
which it is necessarily inferred that it is notoriously
unjust, — because the law does not authorize it and it
would be a violation of its positive provisions — to
compel the owner of the vessel, by the mere fact of
having put a greater capital in the undertaking, to pay to
the shippers the quota which corresponds to each of
them which, in this case, according to the majority
opinion, is that which should correspond, without a
previous liquidation, to the
plaintiff, Standard Oil Company, saving to him,
however, the right afterwards to bring action or proceed
against the other shippers, as expressed in the same
decision. In short, it would amount to absolutely
ignoring the provisions of the law, which are so clear,
express, and positive with respect not only to the
adjustment, liquidation, and distribution of the gross
average, but also to the procedure for effecting the
same and the rights and obligations of those who
should contribute to the average. And it is very clear
that error has been committed, because in the same
decision, two paragraphs before that in which the
theory already discussed is made, it is stated that there
has been "a misconception of the true import of the
provisions relating to the adjustment and liquidation of
general average," in arguing that the right of action
should be "against the captain, who has been
delinquent in performing the duty which the law
imposes on him," for "clearly," says the same decision,
"those provisions are intended to supply the shipowner,
acting of course in the person of the captain, with a
means whereby he may escape bearing the entire
burden of the loss and may distribute it among all the
persons who ought to participate in sharing it; but the
making of the liquidation is not a condition precedent to
the liability of the shipowner to the shipper whose
property has been jettisoned."
As is clearly seen, what has just been stated
gives us to understand that the owner of the vessel
must suffer all the loss in case of gross average, and
that the provisions relating to the adjustment,
liquidation, and distribution thereof are for the purpose
of furnishing him the means for evading and enabling
himself to distribute it between the persons who should
participate in the average. This is erroneous, because
these provisions, which intentionally are extensively
mentioned in this opinion, do not have that object, for
the reason that the shipowner is not the person who
should suffer all the loss in case of gross average, but it
should be partitioned and distributed between the
shipowner or agent and the shippers, in proportion to
their interests and the respective value of the cargo and
vessel, which should be fixed according to article 850
and the rules for their assessment, stated in article 854
previously cited, after the liquidation and approval
thereof, and after hearing the interested parties or their
representatives; and all of these proceedings would
surely be useless and unnecessary if the shipowner or
the agent should have to suffer all loss but may
afterwards distribute it among those participants
therein, or, what is the same thing, if he should be
compelled by law to pay the total value of the average
and then partition it among the shippers or owners of
the cargo, as is maintained in said decision. And there
is no doubt that this is what is maintained in the
decision, as the basis of the pronouncements made
therein, because, as already stated, in the paragraph
now under discussion, it is clearly stated that the
liquidation is not a condition precedent to the
enforcement of the liability of the shipowner to the
shipper, whose goods may have been jettisoned. And
this is not what the law says just as it does not say that
the shipowner shall be liable to the shipper or owner of
the goods, but that, on the contrary, it says that the
shipowner or agent as well as the shippers may
demand liquidation from the captain and institute
against him the corresponding action to recover
indemnity, that is, that he has the same right as the
shippers to demand liquidation from the captain and, in
default thereof, to recover indemnification, from which it
is clearly inferred that the liquidation is a condition
precedent, not to the liability of the shipowner to the
shipper whose goods may have been jettisoned, as
stated in the decision in question, but to the partition
which must be made between the agent or shipowner
and the shippers of the respective amount of the
average. This partition, and not that the shipowner
should suffer all loss but may afterwards evade and
distribute it among all persons who should share in the
average, is the real interpretation of the provisions to
which reference is made in the same decision.
Neither is it true that. as stated in said decision,
the shipowner has, through the captain, the complete
and exclusive control of the crew and the sailing of the
vessel, as well as of the destination of the cargo at the
end of the voyage, and that, for this reason, the
principal liability for the payment of the gross average
must fall upon the shipowner.
That he does not have the complete and
exclusive control of the crew is shown, among other
provisions of the same Code of Commerce, by the
following articles: First, article 610, according to which,
among others, it is an inherent power in the captain to
appoint or make contracts with the crew in the absence
of the agent and to propose said crew if said agent be
present, but without any right on the part of the latter to
employ any individual against the captain's express
refusal. This provision necessarily implies the absolute
power of the captain to take on and contract the crew,
and article 634 confirms it, according to which the
captain may make up his crew with the number he may
consider advisable, taking on resident foreigners, in the
absence of nationals, their number not to exceed
one-fifth of the total crew, and may even, with the
consent of the consul or marine authorities, complete
his crew with foreigners in foreign ports if he should not
find sufficient number of nationals, the captain being
obliged to execute the contract with said members of
the crew and others who compose the complement of
the vessel; and finally, article 637 which empowers the
captain, for sufficient cause, to discharge a sailor
during the time of his contract and to refuse, before
setting out on a voyage without giving any reason
whatever, to permit a sailor he may have engaged from
going on board, in which case he will be obliged to pay
him his wages as if he had rendered services, this
indemnity to be paid from the funds of the vessel only if
the captain had acted for reasons of prudence and in
the interests of safety and good service of the vessel;
but, should this not be the case, says said article, it
shall be paid by the captain personally. And, if in all that
has just been stated the captain may act independently,
it is obvious that the owner of the vessel or the agent
does not have, through the captain, complete and
exclusive control of the crew. In short, the captain
directly exercises exclusively personal powers with
respect to the crew and, for this reason, he is
personally and particularly responsible for his acts,
except in the only case already mentioned, in which he
may have acted for the benefit of the vessel.
Another power inherent in the position of captain,
according to article 610, is that of directing the vessel to
the port of its destination, according to the instructions
he may have received from the agent, but from this it
cannot be inferred that the shipowner or agent has,
through the captain, complete and exclusive control of
the navigation of the vessel, for the simple reason that
the captain may not obey said instructions and may act
freely adjusting his decisions according to the
circumstances of each case, as would occur in the case
of risks, damages, and accidents which we have
previously discussed, cases in which the law imposes
upon the captain the obligations to which titles 4 and 5
of Book 3 refer and indicates those cases which we
have heretofore minutely discussed, in some of which
he is personally responsible, in others the agent or
shipowner, or the latter jointly with the captain, and still
in others, in which the agent is not responsible but only
the captain.
Nor is it true that the shipowner, through the
captain, has the complete and exclusive control of the
destination of the cargo at the end of the voyage, for
article 619 says textually that the captain shall be liable
for the cargo from the time it is turned over to him at the
dock, or afloat alongside the ship, at the port of loading,
until he delivers it on the shore or on the discharging
wharf, of the port of unloading, unless the contrary has
been expressly agreed upon, and that, according to
article 620, he is not liable for the damages caused to
the vessel or to the cargo by reason of force majeure,
and article 625 adds that the captain, under his
personal liability, as soon as he arrives at the port of
destination, upon obtaining the necessary permission
from the health and customs officers and fulfilling the
other formalities required by the regulations of the
administration, shall turn over the cargo, without any
defalcation, to the consignees and, in a proper case,
the vessel, rigging, and freights to the agent. And if the
captain is personally responsible, according to the clear
and positive text of said article, for the delivery of the
cargo to the consignees and, of the vessel, rigging, and
freight, to the agent or shipowner, it is clear that the
latter does not have complete and exclusive control of
the destination of the cargo at the end of the voyage,
because the obligation to deliver is a personal
obligation of the captain, and the agent or shipowner,
just as any of the consignees, may demand said liability
with respect to the vessel, rigging, and freight from the
captain. And that responsibility of the captain cannot be
confused with the provision contained in article 618 of
the same Code in favor of the agent, and that of the
latter in favor of third persons who may have contracted
with him, because in said article 618 are specifically
mentioned the cases of responsibility to which the
same article refers, and the responsibility of the captain
from the moment the cargo is delivered to him until its
unloading is specially declared in article 619 and even
more particularly in article 625 which says that said
responsibility is a personal responsibility of the captain.
It cannot, therefore, be inferred from all the
provisions of the Code. that the evident intention
thereof is to impose the principal responsibility upon the
shipowner, as stated in the decision of the majority; and,
if the law is to be complied with, it is useless effort to
show its truth, by invoking the general provisions of the
Code of Commerce, which govern the relations
between the captain and the shipowner or the agent
and those of one or the other or both with third persons
who may have contracted with either of them, or by
invoking those which deal with gross averages, as one
of the damages and accidents of maritime commerce,
because, in the first, there is no declaration expressly
made upon the subject, and, in the second, what is
established and declared is precisely the contrary, for
the shipowner or agent has, just as the shippers, the
right of action against the captain to enforce his
responsibility and to be indemnified by him for the
damages occasioned to them by reason of the failure of
the captain to comply with the obligations imposed
upon him by law with respect to the adjustment,
liquidation, and distribution of the average, and with
respect to the disposition and delivery of the goods
saved to the shippers, before the payment by the latter
of their aliquot part in the partition of the average, or
without their having filed a sufficient bond to answer for
the cargo, for the reason that, according to article 619,
he is responsible for the cargo from the moment he
takes charge thereof at the port of loading until its
delivery at the port of unloading and, according to
article 625, he is, under his personal liability, obliged to
deliver the cargo, without defalcation, to the
consignees or shippers and, in the proper case, the
vessel, rigging, and freight to the agent upon the arrival
at the port of destination. This shows, in relation to the
provisions of articles 866 and 868, already cited, that
the captain of the vessel should be personally liable to
the owners of the goods averaged for the damages
which were incurred by them, by reason of his delay or
negligence in requiring a bond of the shippers before
delivery to them of the goods saved, — this supposing
that they are obliged to do so, — instead of proceeding
 to the adjustment, liquidation, and distribution of the
gross average, inasmuch as the purpose of the law is to
exact said personal responsibility for the due delivery to
the consignees or shippers of the cargo.
The plaintiff, therefore, should have brought said
action, if he had any, for the recovery of the amount
claimed in the complaint, not against the defendant,
owner of the vessel Batangueño, but against the
captain thereof, and said defendant cannot and should
not be sentenced to pay to the plaintiff the sum stated in
the decision of this court which, with some modification
as to the amount thereof, affirms the judgment of the
trial court; and there is more reason for this assertion
because that sum is, according to said decision, what
the plaintiff should receive in the partition and
distribution of the gross average in question and, yet, it
does not appear that the corresponding liquidation, and,
consequently, the division and distribution of said
average, has already been made, as required by the
provisions of the Code of Commerce in the articles
mentioned at the beginning.
Regretting that I have to dissent from the
respectable opinion of the majority, I am of the opinion,
for the reasons above stated, that the judgment
appealed from should be reversed and the defendant
should be absolved from the complaint.
[G.R. No. L-48264. February 21, 1980.]

SWITZERLAND GENERAL INSURANCE COMPANY,

LTD., petitioner, vs. HON. PEDRO A. RAMIREZ, Presiding
Judge of the Court of First Instance of Manila, Branch XXX,
OYAMA LINES, CITADEL LINES and MABUHAY
BROKERAGE CO., INC., respondents.

Manuel N. Camacho, for petitioner.

Bito, Misa & Lozada for respondents Oyama Lines and Citadel
Lines.
Gregorio Gonzales for respondent Company.

DECISION
ANTONIO, J : p

Petition for review of the decision, dated February 24, 1978 of the Court
of First Instance of Manila in Civil Case No. 100704, entitled "Switzerland
General Insurance Co., Ltd. v. Oyama Lines and Citadel Lines, and/or
Mabuhay Brokerage Co., Inc."
On December 24, 1975, petitioner, a foreign insurance company
authorized to do business in the Philippines thru its agent, F. E:. Zuellig,
Inc., filed an admiralty case (Civil Case No. 100704) against private
respondents Oyama Shipping Co., Ltd. (referred to as Oyama Lines), a
foreign firm doing business in the Philippines, and Citadel Lines, Inc.
which is the local agent of private respondent Oyama Shipping Co., Inc.
and/or Mabuhay Brokerage Co., Inc. LLpr

The complaint alleged that on December 21, 1974, 60,000 bags of Urea
Nitrogen were shipped from Niihama, Japan, on board the S/S "St
Lourdes", claimed to be owned and operated by defendant Citadel Lines,
Inc. The goods were consigned to Borden International Phils., Inc., and
insured by petitioner for the sum of P9,319,105.00 against all risks.
The shipment was discharged from the vessel S/S "St. Lourdes" shipside
into lighters owned by Mabuhay Brokerage Company, Inc., but when the
same was subsequently delivered to and received by the consignee, it
was found to have sustained losses and/or damage amounting to
P38.698.94. This amount was paid by petitioner insurance company to
the consignee/assured, by virtue of which payment it became subrogated
to the rights of the latter.
Petitioner made repeated demands against herein private respondents
for payment of the aforesaid losses or damaged but no payment was
made and, uncertain in whose custody the goods were damaged,
impleaded the private respondents as alternative defendants to
determine their respective liability.
Defendant Citadel Lines, Inc. filed an Answer with Compulsory
Counterclaim and Cross-claim, interposing special and affirmative
defenses and alleging that defendant Citadel Lines was merely the civil
agent in the Philippines for the Japanese firm Oyama Shipping Co., Ltd.,
which was the charterer of the vessel S/S "St. Lourdes", said vessel
being owned by Companie Maritime de Brios, Sociedad Anonima, a
Panamanian corporation. It was further alleged that the principal agency
relationship between the said Oyama Shipping Co., Ltd. and defendant
Citadel Lines, Inc. was terminated on August 21, 1975 when the Tokyo
District Court declared and decreed the insolvency of the said Oyama
Shipping Co., Ltd.
It was argued that defendant Citadel Lines "has always acted as an agent
of a disclosed principal and, therefore, the herein defendant is without
any liability at all" in connection with the plaintiff's claim.
By way of cross-claim, defendant Citadel Lines alleged that the
loss/damaged to the cargo took place while the latter was being delivered
to the consignee thereof by the Mabuhay Brokerage, Inc. and said
corporation should be held liable therefor, as well as for all damages
suffered and expenses incurred by defendant Citadel Lines as a result of
the filing of the suit. Defendant likewise interposed a counterclaim for
damages against plaintiff Switzerland General Insurance Company, Ltd.
(herein petitioner).
Defendant Oyama Shipping Co. Ltd. likewise filed its Answer, denying
the material averments of the complaint, alleging that it ceased to be
represented in the Philippines upon the declaration of its insolvency by
the Tokyo Court; that it was a mere charterer of the S/S "St. Lourdes"
which is owned by Companie Maritime de Brios, Sociedad Anonima, a
Panamanian corporation; that due to the insolvency of Oyama Shipping
Co. Ltd., the case as against it should be dismissed, the remedy for the
plaintiff being to file its claim before the insolvency court in Tokyo, Japan.
Further, it imputed the loss or damage to the shipment to the shipper,
Sumitomo Shoji Kaisha, Ltd. for failing to provide seaworthy packages for
the goods, and/or the Mabuhay Brokerage for failure to exercise utmost
diligence after it took possession of the cargo from the vessel S/S "St.
Lourdes". Finally, it was averred that plaintiff's reinsurer had already paid
the plaintiff's claim and, hence, said reinsurer is the real party to the
action, and that assuming defendant Oyama Shipping Co., Ltd. to be
liable, its liability is limited to the amount of the loss in relation to the total
amount of the freight of the goods, which if computed, would be a much
lower amount. It was prayed that the complaint be dismissed as against
this defendant. cdrep

After trial on the merits, respondent court rendered a decision, dated

February 23, 1978, in favor of petitioner as against therein defendant
Oyama Shipping Co., Ltd., but absolving Citadel Lines, Inc. and Mabuhay
Brokerage Co., Inc. from liability. The decision reads, in part, as follows:
"Since in the case at bar there is no question that the shipment
in question has suffered loss or damage while in the custody of
the carrier, the herein defendant Oyama Line, but it has not
adduced evidence to prove that it was caused by any of those
factors or reasons exempting it from liability, particularly that the
bags became torn or burst and the contents spilled because of
the character of the shipment or defects in the packing or in the
containers, or the nature or defect of the article itself, the
 defendant Oyama Line, as carrier, cannot avoid liability to the
consignee or its subrogee, the plaintiff herein.
"The defendant Oyama Line pleads prescription of the plaintiff's
cause of action under Article 366 of the Code of Commerce.
The defense is untenable. To begin with, the required claim that
the owner of merchandise is supposed to make within 24 hours
from receipt is but in the nature of a limitation upon his right to
recovery and the burden of proof is accordingly on the carrier to
show that the limitation is reasonable and in proper form or
without the time stated (Southern Lines, Inc. vs. Court of
Appeals, 4 SCRA 258, 261-262). And it is incumbent upon the
said defendant to prove its defense, particularly that no such
claim was filed within the required period. Without such proof of
a negative allegation, which it has failed to adduce, the pleader
must suffer defeat under the rules of evidence (section 1, Rule
131, Revised Rules of Court). Be that as it may, the survey
report submitted in evidence by the plaintiff states that after
completion of delivery the consignee signified its intention to file
a claim for the full value of the loss sustained by the shipment'
(Exhibits 1, I-1 to I-5), a fact that has not at all been refuted by
the defendant Oyama Line.
"The fact that the defendant Oyama Line has been declared insolvent by
the Tokyo District Court of Japan since August 21, 1975, is no defense at
all. For such declaration of insolvency, even under Philippine Laws, does
not bar recovery of damages based on contract. Neither can it
successfully ward off liability on a claim that it is a mere charterer of the
carrying vessel, having represented on the face of the bill of lading as the
carrier itself (Exhibit A; Exhibit 1-Oyama). And even if it is but a charterer
of the vessel that it claims it is, it cannot avoid its liability as a carrier for
loss and damage suffered by the goods it has transported.
"As a mere agent in the Philippines of the defendant Oyama Line, the
defendant Citadel Line (see paragraph 1, complaint) cannot be held
liable for the damages recoverable from its principal. But for failure to
substantiate it, its counterclaim against the plaintiff should be dismissed.
So must its cross-claim against its co-defendant brokerage company be
dismissed since it has not at all been held liable to the plaintiff.
"Neither can the defendant Mabuhay Brokerage Company, Inc. be held
answerable for the loss and damage sustained by the cargo in question
while still in custody of the carrying vessel, for obvious reasons. Nor can it
be made liable, jointly and severally, with the defendant Oyama Line for
further loss and damage to the contents of the torn or burst bags turned
over to its custody in that condition in view of the required extraordinary
diligence that it has observed to prevent further loss or damage to them.
According to the defendant brokerage's witness, Virgilio de Jesus, as
soon as the bags in bad order were received from the lighters they were
tied and the torn parts sewed, the falsity of which the plaintiff has failed to
prove.
"WHEREFORE, the Court hereby renders judgment in favor of the
plaintiff Switzerland General Insurance Company, Ltd. and against the
defendant Oyama Line, ordering the latter to pay the former the amount
of P38,698.94, with interest thereon at the legal rate from the date of the
filing of the complaint on December 24, 1975, until fully paid, P5,000.00
as attorney's fees and the costs of the suit. The plaintiff's complaint
against the defendants Citadel Line and Mabuhay Brokerage Company,
Inc. are dismissed. So is the defendant Citadel Lines' counterclaim
against the plaintiff and cross-claim against its co-defendant brokerage
company dismissed."
Petitioner filed a Motion for Reconsideration of the aforesaid decision
insofar as it absolves respondents Citadel Lines, Inc. and Mabuhay
Brokerage Co., Inc. from liability, but said Motion for Reconsideration was
denied on April 21, 1979; hence, the instant petition for review. cdphil

The main issue raised in the instant petition is whether or not respondent
Citadel Lines, Inc., the local agent of a foreign ocean going vessel, the
S/S "St. Lourdes", may be held primarily liable for the loss/damage found
to have been sustained by subject shipment while on board and/or still in
the custody of the said vessel.

Petitioner contends that respondent Citadel Lines, Inc., being the ship
agent for the vessel S/S "St. Lourdes", is liable under the pertinent
provisions of the Code of Commerce and applicable jurisprudence.
Respondent Citadel Lines, Inc., in its Comment to the petition, alleges
that the lower court had made a finding that it is a mere agent of Oyama
Shipping Co., Ltd., and not a ship agent, and this, being a finding of fact,
can no longer be questioned in the instant proceedings. Further, it argues
that the provisions of the Code of Commerce relied upon by petitioner are
applicable to a ship agent, but not to a mere agent like private respondent,
and that granting that it is a ship agent, it contends that it should not be
held liable because the principal, Oyama Shipping Co., Ltd. has been
declared insolvent. It is claimed that petitioner, upon being informed of
the insolvency of the Oyama Shipping Co., Ltd., should have filed its
claim before the Trustee of the Oyama Shipping Co., Ltd. in Japan.
In fine, private respondents do not dispute that a ship agent is liable to
third persons under certain circumstances as provided in the Code of
Commerce, but insists that it is not a ship agent but a mere agent and
hence, not liable.
We find the instant petition meritorious. The error of the lower court lies in
its application of the general rule on agency to the case a quo, when the
applicable law is contained in the pertinent provisions of the Code of
Commerce as applied in relevant decisions of this Court. Its finding,
therefore, that respondent Citadel Lines, Inc. was a mere agent of Oyama
Shipping Co., Ltd. was a result of its erroneous application of the law on
agency to the instant case. Considering the peculiar relationship of the
parties, respondent Citadel Lines, Inc. cannot be considered as a "mere
agent" under the civil law on agency as distinguished from a ship agent,
within the context of the Code of Commerce. In Yu Biao Sontua &
Co. v. Ossorio 1 for example, it was held that the doctrines having
reference to the relations between principal and agent cannot be applied
in the case of ship agents and ship owners. For this reason, respondent
cannot validly claim that the court a quo made a finding of fact which is
conclusive upon this Court. A ship agent, according to Article 586 of the
Code of Commerce, is "the person entrusted with the provisioning of a
vessel, or who represents her in the port in which she happens to be."
(Emphasis supplied.)
It is not disputed by the private respondent that it is the local
representative in the Philippines of the Oyama Shipping Co., Ltd. and, as
alleged by petitioner, upon arrival of the vessel S/S "St. Lourdes" in
Manila, it took charge of the unloading of the cargo and issued cargo
receipts (or tally sheets) in its own name, for the purpose of evidencing
discharge of cargoes and the conditions thereof from the vessel to the
arrastre operators and/or unto barges/lighters, and that claims against
the vessel S/S "St. Lourdes" for losses/damages sustained by shipments
were in fact filed and processed by respondent Citadel Lines, Inc. These
facts point to the inevitable conclusion that private respondent is the
entity that represents the vessel in the port of Manila and hence is a ship
agent within the meaning and context of Article 586 of the Code of
Commerce.
The Code of Commerce provides, among others, that the ship agent shall
also be liable for the indemnities in favor of third persons which arise from
the conduct of the captain in the care of the goods which the vessel
carried; but he may exempt himself therefrom by abandoning the vessel
with all her equipments and the freightage he may have earned during
the voyage. (Article 587).
In addition, Article 618 of the same Code states:
 "Art. 618. The captain shall be civilly liable to the ship agent and
the latter to the third persons who may have made contracts
with the former —
"1. For all the damages suffered by the vessel and its cargo by
reason of want of skill or negligence on his part. If a
misdemeanor or crime has been committed he shall be liable in
accordance with the Penal Code.
"2. For all the thefts and robberies committed by the crew,
reserving his right of action against the guilty parties.
"3. For the losses, fines, and confiscations imposed on account
of violation of the laws and regulations of customs, police,
health, and navigation.
"4. For the losses and damages caused by mutinies on board
the vessel, or by reason of faults committed by the crew in the
service and defense of the same, if he does not prove that he
made full use of his authority to prevent or avoid them.
"5. For those arising by reason of a misuse of powers and
non-fulfillment of the duties which pertain to him in accordance
with Articles 610 and 612.
"6. For those arising by reason of his going out of his course or
taking a course which, in the opinion of the officers of the vessel
at a meeting attended by the shippers or supercargoes who
may be on board, he should not have taken without sufficient
cause.
"No exception whatsoever shall exempt him from his obligation.
"7. For those arising by reason of his voluntarily entering a port
other than his destination, with the exception of the cases or
without the formalities referred to in Article 612.
"8. For those arising by reason of the non-observance of the
provisions contained in the regulations for lights and maneuvers
for the purpose of preventing collisions."
The foregoing provisions have been repeatedly applied by this Court in
various cases, among them: Pons y Compañia v. La Compañia
Maritima; 2 Behn, Meyer & Co. v.McMicking, et al. 3 Yu Biao Sontua &
Co. v. Ossorio; 4 Wing Kee Compradoring
Co. v. Bark "Monongahela", 5 and The American Insurance Co.,
Inc. v. Macondray & Co., Inc. 6
In Pons v. La Compania Maritima, supra, it was held that for damages
resulting to merchandize in transit due to negligence of the officers of the
ship, a cause of action arises against the owners or agents of the vessels
which may be prosecuted by the shipper or consignor of the damaged
goods. LexLib

At any rate, the liabilities of the ship agent are not disputed by private
respondent. It appearing that the Citadel Lines is the ship agent for the
vessel S/S "St. Lourdes" at the port of Manila, it is, therefore, liable to the
petitioner, solidarily with its principal, Oyama Shipping Co., Ltd., in an
amount representing the value of the goods lost and or damaged,
amounting to P38,698.94, which was likewise the amount paid by
petitioner, as insurer, to the insured/consignee. As found by the court a
quo, there has been no proof presented to show that the officers of the
vessel, in whose custody the goods were lost or damaged, are exempt
from liability therefrom and that the damage was caused by factors and
circumstances exempting them from liability.
The insolvency of Oyama Lines has no bearing on the instant case
insofar as the liability of Citadel Lines, Inc. is concerned. The law does
not make the liability of the ship agent dependent upon the solvency or
insolvency of the ship owner.
WHEREFORE, the decision appealed from is modified, and private
respondent Citadel Lines, Inc. is hereby ordered to pay, solidarily with its
principal, Oyama Lines (Oyama Shipping Co., LTD.), the amount of
P38,698.94, with interest thereon at the legal rate from the date of the
filing of the complaint on December 24, 1975 until fully paid, P5,000.00 as
attorney's fees and the costs of suit. The rest of the decision is affirmed.
No pronouncement as to costs.
SO ORDERED.
||| [G.R. No. 4602. October 4, 1909. ]

JUAN CO, by Martin M. Levering, his curator ad litem, Plaintiff-Appellant, v. JAMES J. RAFFERTY,
collector of customs, Defendant-Appellee.

Martin M. Levering for Appellant.

Solicitor-General Harvey for Appellee.

SYLLABUS

1. IMMIGRATION LAWS; CHINESE IMMIGRANTS. — Held, That the Chinese immigration laws are
enforced in these Islands by the customs officials, and their decision that a person seeking to enter these
Islands is not a citizen is final when no abuse of authority by such officials is shown.

2. ID.; ID. — Held, That the status of a Chinaman and his right to enter these Islands are to be
determined as of the time when he presents himself for entry, and not by events which subsequently
transpired.

3. ID.; ID. — Where a Chinaman presented himself for entry in these Islands, claiming a right to enter,
and, upon his being refused entry, gave a bond to the customs authorities conditioned that if his claim to
enter was disallowed he would present himself for deportation, and upon giving said bond was allowed to
land, and while in the Islands under and by virtue of said bond, he was adopted as a son by another
Chinaman, domiciled in the Islands, by virtue of proceeding for such adoption had in accordance with the
laws of these Islands: Held, That such adoption had no effect upon his right to enter or remain in the
Islands.

DECISION

MORELAND, J. :

On or about the 18th day of February, 1905, Juan Co, the plaintiff in this action, arrived on board a vessel
in the harbor of Cebu direct from China and sought to land. Disembarkation was refused by the customs
authorities on the ground that he was a subject of China and as such was not entitled to enter the
Philippine Islands. He alleged that he was 17 years of age and a native of the Philippine Islands; that he
was the illegitimate son of a Filipino woman and of a Chinese merchant, both residents of Cebu at the
time of his birth; that he was taken to China by his father when he was 6 or 7 years of age; and that his
father had not since that time returned to the Philippine Islands, but had remained continuously in China;
that, on arriving at an age where he could care for himself, he had left his father in China and returned
to the Philippine Islands, desiring to resume a residence in the country where he was born. These claims
of the plaintiff were duly and personally investigated by the defendant in the case, who was then, as now,
collector of customs of the city of Cebu. At hearings appointed for the purpose the defendant heard the
declarations and the testimony of the plaintiff, of his alleged mother, and of all other witnesses whom the
plaintiff desired to produce in favor of his contentions. Thereafter the defendant appointed a commission
to investigate the allegations of the plaintiff as to his right to land and his claim to citizenship in the
Philippine Islands. that Commission heard the proofs and declarations by the plaintiff, and of his alleged
mother and all other witnesses whom the plaintiff desired to produce, and, after having carefully
investigated the merits of the case, rendered a decision in which they found that the contentions of the
plaintiff were not sustained and that he was not entitle to land in the Philippine Islands.

A careful investigation of the record in this case discloses that the plaintiff has not been deprived of any
opportunity to present such proofs as he desired and has been denied no privilege which the law confers.
He was given every opportunity to protect his rights. A fair and impartial hearing was given him in the
manner prescribed by law, and, after due deliberation upon the part of those authorities, based upon the
proofs of the case, it was found as a fact that the plaintiff was not born in the Philippine Islands, but was
born in China, and that he had no right to be admitted into the Philippine Islands. the proceedings
referred to were duly transmitted to the defendant by the commission, and he, after having personally
investigated the matter himself, approved the findings of the commission and ordered the deportation of
the plaintiff. After having been passed upon by the defendant, the matter, with all the record, was
transmitted to the Collector of Customs for the Philippine Islands, who, after a careful review of the whole
case, in a written opinion, approved the action of the defendant and of the commission appointed by him.
Late the matter was presented, at the request of the plaintiff, to the Secretary of Finance and Justice,
who, after a careful review of the whole proceedings, approved the same.

While the proceedings above mentioned were being carried on, the plaintiff was permitted to land in the
City of Cebu upon giving a bond conditioned that he would hold himself ready for deportation if it should
finally be determined that he was not entitled to land. While enjoying the privileges thus given to him in
the city of Cebu, the plaintiff on or about the 27th day of February, 1905, caused proceedings to be
instituted in the Court of First Instance of the city of Cebu having for their abject the adoption of the
plaintiff by a Chinese resident of the city of Cebu named Co. Kip Jat. Such proceedings were carried to a
successful issue and the plaintiff was on said date duly adopted as a son of the said Co Kip Jat pursuant
to the laws of the Philippine Islands, under which said proceedings were brought.

The claims of the plaintiff as to the right to land having been defeated by the decision of the customs
authorities above referred to, the plaintiff, by his attorney, Martin M. Levering, on or about the 28th day
of February, 1907, instituted the action at bar, in which the plaintiff asked that the court decree an order
of perpetual prohibition preventing the defendant from deporting the plaintiff from the Philippine Islands.
He alleges two grounds as the basis of such action: chanrob1es v irt ual 1aw l ibra ry

First. That the plaintiff was born in the city of Cebu of a Chinese father and a Filipino mother and that he
was a natural-born citizen of the Philippine Islands.

Second. That having been duly adopted as a son of Co Kip Jat in the proceedings above referred to, he,
upon the successful termination of those proceedings, became a citizen of the Philippine Islands and had
the right to remain therein.

That action was brought to trial before the Court of First Instance of the city of Cebu on the 20th day of
April, 1907. Substantially the same evidence was produced by the plaintiff in this case as was produced
by him before the collector of customs and his commission above referred to. The only substantial
difference was the testimony relative to the adoption of the plaintiff by Co Kip Jat. At the conclusion of the
trial the court rendered a decision adverse to the plaintiff’s claim. From that judgment the plaintiff
appealed to this court.

As to the claim of the plaintiff that he has a right in the Philippine Islands because of his having been born
here under the circumstances above set forth, it must be, and is, denied. That question has been settled
adversely to plaintiff’s claims by the Supreme Court of the United States and by the Supreme Court of the
Philippine Islands. In the case of Ngo-Ti v. W. Morgan Shuster, Collector of Customs (7 Phil. Rep., 355),
the court, in discussing the precise question presented here, says (p. 358): jgc:chanroble s.com. ph

"The principal and important question, whether the decision of the administrative officers is final or not
upon question of citizenship has, we think, been decided in the case of the United States v. Ju-Toy (198
U.S., 253). In that case the court said: jgc:chanro bles. com.ph

"‘It is established, as we have said, that the act purports to make the decision of the Department final,
whatever the ground on which the right to enter the country is claimed, as well when it is citizenship as
when it is domicile, and the belonging to a class excepted from the exclusion acts. . . . If, for the purpose
of argument, we assume that the fifth amendment applies to him, and that to deny entrance to a citizen
is to deprive him of liberty, we nevertheless, are of opinion that with regard to him due process of law
does not require judicial trial.’

"In the case of Pearson v. Williams (202 U.S., 281), the court said at page 286: jgc:chanro bles. com.ph

"But the matter which was before the mind of Congress presumably was that which had been before it on
the former occasion, which had been the subject of judicial discussion (Lem Moon Sing v. United States,
105 U.S., 538; Fok Yung Yo v. United States, 185 U.S. 296), and which was not quite disposed of until the
last term of this court. (United States v. Ju-Toy, U.S. 253.) ’

"According to this judgment, the decision of the administrative officers upon the question of citizenship
is final where no abuse of authority of any kind on their part is alleged. there is no allegation of that
character in this case."cralaw virtua 1aw lib rary

While an abuse of discretion and authority upon the part of the customs officials in the proceedings
referred to is alleged by the plaintiff, no proof sustaining that allegation appears in the record. There is
not a scintilla of evidence indicating that the customs officials in any way abused their authority or
discretion.

As to the other contention of the plaintiff, viz, that, having been adopted by a person domiciled in the
Philippine Islands, he himself thereupon became a citizen of the Philippine Islands in the sense that he
was not subject to deportation but had a perfect right to remain here regardless of the conditions upon
which he was allowed to land, I am of the opinion that that claim must also be disallowed. The status and
right of the plaintiff to enter the Philippine Islands under the circumstances of this case are to be
determined as of the time when he presented himself for entry and not by events that subsequently
transpired. (U.S. v. Ju-Toy, 198 U. S., 253, 263.) If he was not entitled to land in the Philippine Islands
of right at the time he was admitted under bond, he could not while in them under that bond do anything
which would render valid and unconditional his original entry.

For the reasons above expressed, the judgment of the lower court must be, and hereby is, affirmed, with
costs against the Appellant.

[G.R. No. L-49407. August 19, 1988.]

NATIONAL DEVELOPMENT COMPANY, Petitioner-Appellant, v. THE COURT OF APPEALS and

DEVELOPMENT INSURANCE & SURETY CORPORATION, Respondents-Appellees.

[G.R. No. L-49469. August 19, 1988.]

MARITIME COMPANY OF THE PHILIPPINES, Petitioner-Appellant, v. THE COURT OF APPEALS

and DEVELOPMENT INSURANCE & SURETY CORPORATION, Respondents-Appellees.

Balgos & Perez Law Office for private respondent in both cases.
 SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; LIABILITY FOR GOODS; GOVERNING LAW; CASE OF EASTERN
SHIPPING LINES INC. V. INTERMEDIATE APPELLATE COURT CITED. — This issue has already been laid to
rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held
under similar circumstances that "the law of the country to which the goods are to be transported
governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753,
Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not
regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of
Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a
special law, is merely suppletory to the provisions of the Civil Code.

2. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, it has been established that the goods in
question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they
were lost or damaged due to a collision which was found to have been caused by the negligence or fault
of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as
Ise Bay, Japan.

3. ID.; ID.; DUTY; EXTRAORDINARY DILIGENCE IN HANDLING GOODS; DEFENSE IN OVERCOMING

PRESUMPTION OF NEGLIGENCE. — Under Article 1733 of the Civil Code, common carriers from the
nature of their business and for reasons of public policy are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by them according to all
circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than
those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or
to have acted negligently, unless it proves that it has observed the extraordinary diligence required by
law.

4. ID.; ID.; COLLISION OF VESSELS; GOVERNED BY THE CODE OF COMMERCE. — It appears, however,
that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error
can be found in respondent court’s application to the case at bar of Articles 826 to 839, Book Three of the
Code of Commerce, which deal exclusively with collision of vessels.

5. MERCANTILE LAW; CODE OF COMMERCE; COLLISION OF VESSELS; LIABILITY FOR DAMAGES

SUFFERED. — More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and
damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the
same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own
damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

6. ID.; ID.; ID.; ID.; PRIMARY LIABILITY OF SHIPOWNER OF CARRIER. — Significantly, under the
provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not
exempt from liability for damages arising from collision due to the fault or negligence of the captain.
Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine
that the shipmaster or captain is merely the representative of the owner who has the actual or
constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia
& Co., 12 Phil. 751 [1909]).

7. ID.; ID.; APPLICABILITY OF THE CODE OF COMMERCE; NOT REPEALED NOR LIMITED BY THE
CARRIAGE OF GOODS BY SEA ACT. — There is, therefore, no room for NDC’s interpretation that the Code
of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the
Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision,
said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea
to and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided that
"nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which
is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only
recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.

8. CIVIL LAW; COMMON CARRIERS; LIABILITY FOR LOSS OF GOODS; SOLIDARY LIABILITY OF THE
OWNER AND AGENT OF THE OFFENDING VESSEL. — It is well settled that both the owner and agent of
the offending vessel are liable for the damage done where both are impleaded; that in case of collision,
both the owner and the agent are civilly responsible for the acts of the captain; that while it is true that
the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the
Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code
but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover,
the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable,
since the obligation which is the subject of the action had its origin in a tortious act and did not arise from
contract. Consequently, the agent, even though he may not be the owner of the vessel, is liable to the
shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo,
without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the
vessel, its equipment, and the freight.

9. ID.; ID.; ID.; WHERE LIABILITY FOR LOSS OF GOODS CANNOT BE LIMITED. — MCP’s contention is
devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less
by invoices offered as evidence during the trial. Besides, common carriers, in the language of the court
in Juan Ysmael & Co., Inc. v. Barretto Et. Al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a
less of goods where such injury or loss was caused by its own negligence." Negligence of the captains of
the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of
the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law
on averages (Articles 806 to 818, Code of Commerce).

DECISION

PARAS, J.:

These are appeals by certiorari from the decision ** of the Court of Appeals in CA G.R. No. L-46513-R
entitled "Development Insurance and Surety Corporation plaintiff-appellee v. Maritime Company of the
Philippines and National Development Company defendant-appellants," affirming in toto the decision ***
in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive
portion of which reads: jgc:chanro bles.c om.ph

"WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company
and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development
Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED
FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364, 915.86) with the legal interest thereon from the filing
of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (P10,000.00) by way
of damages as and for attorney’s fee.

"On defendant Maritime Company of the Philippines’ cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development Company to
pay the cross-claimant Maritime Company of the Philippines may voluntarily or by compliance to a writ of
execution pay to the plaintiff pursuant to the judgment rendered in this case.

"With costs against the defendant Maritime Company of the Philippines." cralaw virtua1aw l ibra ry

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows: jgc:chanrob les.com. ph

"The evidence before us shows that in accordance with a memorandum agreement entered into between
defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of
three ocean going vessels including one with the name ‘Doña Nati’ appointed defendant MCP as its agent
to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964
the E. Philipp Corporation of New York loaded on board the vessel ‘Doña Nati’ at San Francisco, California,
a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation,
Manila and the People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also
loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to
the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases
of aluminum foil (Exhs. M&M-1). En route to Manila the vessel Doña Nati figured in a collision at 6:04 a.m.
on April 15, 1964 at Ise Bay, Japan with a Japanese vessel ‘SS Yasushima Maru’ as a result of which 550
bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as
damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and
15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth
P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of
the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A-2, N-3
and R-3). Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd.,
consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila. The total loss
was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading
(Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the
consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this
complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent
respectively, of the said ‘Doña Nati’ vessel." (Rollo, L-49469, p. 38).

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First
Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney’s fees of
P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has
prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 714). DISC filed an
Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24).
On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the
merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and
cross-claim against NDC.

NDC, for its part, filed its answer to DISC’s complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It
also filed an answer to MCP’s cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on
October 16, 1965, NDC’s answer to DISC’s complaint was stricken off from the record for its failure to
answer DISC’s written interrogatories and to comply with the trial court’s order dated August 14, 1965
allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said
order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31,
1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its
order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered
a decision ordering the defendants MCP and NDC to pay jointly and solidarily to DISC the sum of
P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22,
1965, until fully paid and attorney’s fees of P10,000.00. Likewise, in said decision, the trial court granted
MCP’s cross-claim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after
its motion to set aside the decision was denied by the trial court in its order dated February 13, 1970.

On November 17, 1978, the Court of Appeals promulgated its decision affirming in toto the decision of
the trial court.

Hence these appeals by certiorari.

NDC’s appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On
July 25, 1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,
1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on
February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error: chanrob1es vi rt ual 1aw li brary

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS
BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION
OF ITS VESSEL "DOÑA NATI" WITH THE YASUSHIMA MARU" OCCURRED AT ISE BAY, JAPAN OR OUTSIDE
THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR REIMBURSEMENT FILED BY
THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN
PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96,
Rollo).

On its part, MCP assigned the following alleged errors: chanrob1es v irt ual 1aw l ibra ry

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT
INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER
MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST
HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF
LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS

EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DOÑA NATI
AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT
THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS
OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS
DOÑA NATI.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE
PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS
DOÑA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT
SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR
DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE
YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE
CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF
P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF
LADING AND ALSO IN HOLDING THAT PARAGRAPH 10 OF THE BILLS OF LADING HAS NO APPLICATION
IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND MARITIME COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE
SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID
PLUS P10,000.00 AS AND FOR ATTORNEY’S FEES INSTEAD OF SENTENCING SAID PRIVATE
RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY
WAY OF ATTORNEY’S FEES AND THE COSTS.

(pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo).

The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well
as the rules of prescription provided thereunder.

The main thrust of NDC’s argument is to the effect that the Carriage of Goods by Sea Act should apply to
the case at bar and not the Civil Code or the Code of Commence. Under Section 4 (2) of said Act, the
carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master,
mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus,
NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both
pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under
the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both
NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the
consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA
469-470 [1987]) where it was held under similar circumstances that "the law of the country to which the
goods are to be transported governs the liability of the common carrier in case of their loss, destruction
or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes
transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil
Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage
of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which
was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under
the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the
collision actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons
of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them according to all circumstances of each case. Accordingly,
under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the
common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so
that no reversible error can be found in respondent court’s application to the case at bar of Articles 826
to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred
after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which
provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both
shall be solidarily responsible for the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the
universally accepted doctrine that the shipmaster or captain is merely the representative of the owner
who has the actual or constructive control over the conduct of the voyage (Yeung Sheng Exchange and
Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC’s interpretation that the Code of Commerce should apply only to
domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com.
Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms,
restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade." Under Section 1 thereof, it is explicitly provided that "nothing in this Act shall be construed
as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its
application." By such incorporation, it is obvious that said law not only recognizes the existence of the
Code of Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers
have either the ownership or special property right or beneficial interest in the cargo in question; neither
was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they
could not possibly have transferred any right of action to said plaintiff-appellee in this case. (Brief for the
Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly
endorsed bills of lading covering the shipments in question and an examination of the invoices in
particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff-appellee paid the total amount of P364,915.86 to said consignees
for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action
to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo,
p. 43).

MCP next contends that it can not be liable solidarily with NDC because it is merely the manager and
operator of the vessel Doña Nati, not a ship agent. As the general managing agent, according to MCP, it
can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13,
1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the
concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of
the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12;
Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case
of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard
Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of
the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of
Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but
more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the
Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since
the obligation which is the subject of the action had its origin in a tortious act and did not arise from
contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent,
even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo
transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his
rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the
freight (Behn, Meyer Y Co. v. McMicking Et. Al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package
or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law
on averages should be applied in determining their liability.

MCP’s contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence during the trial. Besides, common carriers, in the
language of the court in Juan Ysmael & Co., Inc. v. Barretto Et. Al., (51 Phil. 90 [1927]) "cannot limit its
liability for injury to a less of goods where such injury or loss was caused by its own negligence."
Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not
being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals
acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP’s claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima
Maru and not to the Japanese Coast pilot navigating the vessel Doña Nati, need not be discussed lengthily
as said claim is not only at variance with NDC’s posture, but also contrary to the factual findings of the
trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their
excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow
trans-shipment of the cargo, which simply means that the date of arrival of the ship Doña Nati on April
18, 1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive
on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in
consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive
in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had
the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates.
Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse
of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of
Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of
the respondent Appellate Court is AFFIRMED.

SO ORDERED.

[G.R. No. 10195. December 29, 1916.]

YU CON, plaintiff-appellee, vs. GLICERIO IPIL,

NARCISO LAURON, and JUSTO
SOLAMO, defendants-appellants.

Felix Sevilla y Macam for appellants.

Juan Singson and Dionisio Jakosalem for appellee.

SYLLABUS

1. SHIPPING; LIABILITY OF MASTER AND SUPERCARGO

OF VESSEL FOR LOSS OF MONEY ENTRUSTED TO THEIR CARE.
— A certain sum of money was delivered by Y to G and J, master and
supercargo, respectively, of a small craft engaged in the coastwise
trade in the waters of the Philippine Islands, to be carried together with
various merchandise from the port of Cebu to the town of Catmon of
the Province of Cebu, upon payment of a fixed sum. This money
disappeared from said craft, and it was not proven nor was there any
indication that it was stolen by persons not belonging to the boat, nor
that its disappearance or loss was due to a fortuitous cause or to force
majeure. Held: That, as G and J, the carriers of said sum received
from Y for its delivery to a shop in the town of Catmon where it had
been consigned, were vested with the character of depositories of the
same, and as they failed to exercise, in its safe-keeping, the diligence
required by the nature of the obligation assumed by them and required
by the circumstances of the time and the place, they are liable,
pursuant to the provisions of articles 1601 and 1602, in relation to
articles 1783, 1784, and 1770 of the Civil Code, for its loss or
misplacement, and are obliged to deliver it to Y, with the
corresponding interest thereon as an indemnity for the damage
caused him through loss of the same.
 2. ID.; WHAT CONSTITUTES A VESSEL. — A minor craft used
for the transportation of merchandise by sea and to make voyages
from one port to another of these Islands, equipped and victualed for
this purpose by its owner, is a vessel, within the purview of the law and
for the determination of the character and effect of the relations
created between the owners of the merchandise laden on it and its
owner, according to the meaning and construction given to the
word vessel by the Mercantile Code in treating of maritime commerce
under Title 1, Book 3.
3. ID.; LIABILITY OF SHIPOWNER FOR LOSSES CAUSED
BY CAPTAIN. — The owner of a minor craft who has equipped and
victualed it for the purpose of using it in the transportation of
merchandise from one port to another of these Islands is under the
law a shipowner, and the master of the craft is to be considered as its
captain in the legal acceptation of this word, and the former must be
held civilly liable for indemnities in favor of third parties to which the
conduct of the latter of them may give rise in the custody of the effects
laden on the craft, and for all losses which, through his fault or
negligence, may occur to the merchandise or effects delivered to him
for that transportation as well as for the damages suffered by their
transportation, as those who contracted with him, in consequence of
misdemeanors and crimes committed by him or by the members of
the crew of the craft.

DECISION

ARAULLO, J : p

The purpose of the action brought in these proceedings is to

enable the plaintiff to recover from the defendants jointly and severally
the sum of P450, which had been delivered by the plaintiff to the first
and third of the above-named defendants, master and supercargo,
respectively, of a banca named Maria belonging to the second
defendant, to be carried, together with various merchandise belonging
to the plaintiff, from the port of Cebu to the town of Catmon of the
Province of Cebu. By virtue of the contract executed between the said
second defendant and the plaintiff, the money and merchandise were
to be transported by the said craft between the points above-named in
consideration of the payment of a certain sum for each voyage. The
money disappeared from said craft during the night of October 18,
1911, while it was anchored in the port of Cebu and ready to sail for its
destination, Catmon, and was not afterwards found. The plaintiff
based his action on the charge that the disappearance of said sum
was due to the abandonment, negligence, or voluntary breach, on the
part of the defendants, of the duty they had in respect to the
safe-keeping of the aforementioned sum.
The defendants, besides denying the allegations of the
complaint, pleaded in special defense that the plaintiff, at his own
expense and under his exclusive responsibility, chartered the
said banca, the property of the defendant Lauron, for the fixed period
of three days, at the price of P10 per diem, and that, through the
misfortune, negligence, or abandonment of the plaintiff himself, the
loss complained of occurred, while said banca was at anchor in the
port of Cebu, and was caused by theft committed by unknown thieves.
They further alleged that said defendant Lauron, the owner of
the banca merely placed this craft at the disposal of the plaintiff for the
price and period agreed upon, and did not go with the banca on its
voyage from Catmon to Cebu. As a counterclaim, the defendants also
asked that the plaintiff be ordered to pay the freight agreed upon,
which had not yet been paid, amounting to P80, plus the sum of P70,
as an indemnity for the losses and damages caused them by the
attachment of the banca, issued at the instance of the plaintiff upon
filing his complaint. They also prayed for the additional sum of P100,
for the deterioration of the said banca, and also that of P200 for other
deterioration suffered by the same since November, 1911, and which
had not been paid for. Finally, the defendants asked to be absolved
from the complaint.
Before commencing the hearing of this case, the defendants
made a verbal motion asking that the plaintiff be declared in default,
with respect to the counterclaim filed by them in their answer. On the
same date, the plaintiff presented his answer to said counterclaim,
denying each and all of the allegations thereof and of the defendants'
special defense. The aforementioned motion was overruled by the
court, and the defendants excepted.
At the termination of the trial, the court, in view of the evidence
adduced, held that there was no room to doubt that the sole cause of
the disappearance of the money from the said banca was the
negligence of the master and the supercargo, the defendants Ipil and
Solamo, respectively, and that the defendant Narciso Lauron was
responsible for that negligence, as owner of the banca, pursuant to
articles 586, 587, and 618 of the Code of Commerce, the plaintiff
therefore being entitled to recover the amount lost. Judgment was
rendered on April 20, 1914, in favor of the plaintiff and against the
defendants jointly and severally for the sum of P450, with interest
thereon at the rate of 6 per cent per annum from the date of filing of the
complaint, October 24, 1911, with costs. The plaintiff was absolved
from the defendant's counterclaim. From this judgment the
defendants excepted and at the same time moved for a new trial.
Their motion was denied, to which ruling they also excepted, and,
through the proper bill of exceptions, entered an appeal to this
Supreme Court. In their brief they allege that the trial court erred:
1. In applying articles 586, 587, and 618 of the Code of
Commerce in favor of the plaintiff;
2. In overruling the motion for default presented by the
defendants and in sentencing the defendants jointly and severally to
pay the plaintiff the amount mentioned in the judgment; and
3. In absolving the plaintiff from the defendants' counterclaim.
The evidence shows that the plaintiff Yu Con, a merchant and a
resident of the town of San Nicolas, of the city of Cebu, engaged in the
sale of cloth and domestic articles and having a share in a shop, or
small store, situated in the town of Catmon, of said province, had
several times chartered from the defendant Narciso Lauron, a banca
named Maria belonging to the latter, of which Glicerio Ipil was master
and Justo Solamo, supercargo, for the transportation of certain
merchandise and some money to and from the said town and the port
of Cebu, that, on or about the 17th of October, 1911, the plaintiff
chartered the said bancafrom the defendant Lauron for the
transportation of various merchandise from the port of Cebu to
Catmon, at the price of P45 for the round trip, which merchandise was
loaded on board the said craft which was then at anchor in front of one
of the graded fills of the wharf of said port; that in the afternoon of the
following day, he delivered to the other two defendants, Ipil, and
Solamo, master and supercargo, respectively, of the
aforenamed banca, the sum of P450, which was in a trunk belonging
to the plaintiff and was taken charge of by said two defendants, who
received this money from the plaintiff, for the purpose of its delivery to
the latter's shop in Catmon for the purchase of corn in this town; that
while the money was still in said trunk aboard the vessel, on the night
of the said 18th of October, the time scheduled for the departure of
the Maria from the port of Cebu, said master and said supercargo
transferred the P450 from the plaintiff's trunk, where it was, to theirs,
which was in a stateroom of the banca, from which stateroom both the
trunk and the money disappeared during that same night, and that the
investigations, made to ascertain their whereabouts, produced no
result.
 The facts are also admitted by the aforementioned master and
supercargo, two of the defendants, that they received from the plaintiff
said P450, which sum was in the latter's own trunk which was placed
outside the stateroom of the banca, for the reason, as they said, that
there was no room for it inside the stateroom; that these defendants
therefore transferred said money to their trunk, which was inside the
stateroom, and that this trunk and the P450 therein contained
disappeared from the boat during the night of that same day; that said
sum had not been found or returned to the plaintiff; that the plaintiff,
being on the banca in the afternoon of that day, when his trunk
containing the P450 was carried aboard, and seeing that said two
defendants, who had the key of the trunk, had removed said sum to
their trunk inside the stateroom, charged them to take special care of
the money; that the master Ipil assured the plaintiff that there was no
danger of the money being lost; and that, finally, during the night in
question, both the master and the supercargo and four cabin-boys
were aboard the banca.
It was likewise proven by the affidavits made by the master Ipil,
the supercargo Solamo, and the cabin-boys of said vessel, Juan
Quiamco and Gabriel Basang, before the provincial fiscal of Cebu on
the day following the commission of the theft, which affidavits were
presented at the trial as Exhibits A, 3, 4, and 5, and by the testimony
given at the trial by the defendants Ipil and Solamo, that both said
cabin-boys and the other two, Simeon Solamo, and Eulalio Quiamco,
knew of the existence of the money in the trunk inside the stateroom
and witnessed its removal to said trunk from the plaintiff's; that the last
two cabin-boys above-named, in company with the master and the
supercargo, conveyed the plaintiff's trunk, in which the money was
previously contained, from the plaintiff's shop to the banca;and that no
person not belonging to the vessel knew that the money was in the
trunk inside said stateroom.
According to the testimony of the master Ipil himself he slept
outside the stateroom that night, but a cabin-boy named Gabriel slept
inside. The latter, however, was not presented by the defendants to be
examined in regard to this point, nor does it appear that he testified in
respect thereto in his affidavit, Exhibit 5, before referred to, presented
by the defendants' own counsel. The master Ipil and the supercargo
Solamo also testified that they left the cabin-boy Simeon Solamo on
guard that night; but this affirmation was not corroborated by Solamo
at the trial, for he was not introduced as a witness, and only his
affidavit Exhibit 2, taken before the fiscal of Cebu on the day following
the commission of the crime, was presented by the defendants. This
affidavit, which should have been admitted and not rejected, as was
done by the court and excepted to by the defendants, shows that
Simeon Solamo stated that he was not designated to do guard duty
that night, but that on the morning of the said 19th of October, that is,
the next day, all agreed that affiant should say that he was on guard,
though it was not true that he was.
Finally, said two defendants, the master and the supercargo,
gave no satisfactory explanation in regard to the disappearance of the
trunk and the money therein contained, from the stateroom in which
the trunk was, nor as to who stole or might have stolen it. The master
of the banca merely testified that they, he and the supercargo, did not
know who the robbers were, for, when the robbery was committed,
they were sound asleep, as they were tired, and that he believed that
the guard Simeon also fell asleep because he, too, was tired. The
second defendant gave the same testimony. Both of them testified
that the small window of the stateroom had been broken, and the first
of them, i. e., the master, stated that all the window-blinds had been
removed from the windows, as well as part of the partition in which
they were and that the trunk in which the money was contained could
have been passed through said small window, because, as this
witness himself had verified, the Chinaman's trunk, which differed but
a little from the one stolen, could be passed through the same opening.
The chief pilot of the harbor of Cebu, Placido Sepeda, who officially
visited the said banca, also stated that the small wooden window of
the stateroom was broken, and that he believed that in breaking it
much noise must have been produced. However, no evidence
whatever was offered by counsel for the defendants to prove that it
might have been possible to remove the trunk from the stateroom
through the opening made by the breaking of the small window,
neither was the size of the trunk proven, in relation to the Chinaman's
to which the defendant master referred in his testimony, so that it
might be verified whether the statement made by the latter was true,
viz., that it might have been possible to remove from the stateroom
through said opening the trunk in which the P450 were contained,
which sum, the same as the trunk, its container, had not been found,
in spite of the investigation made for the purpose. Furthermore, it was
not proven, nor is there any circumstantial evidence to show, that the
robbery in question was committed by persons not belonging to the
craft.
It is therefore beyond all doubt that the loss or disappearance,
on the night aforementioned, of the P450, the property of the plaintiff,
which, were in the possession of the defendants, the master and the
supercargo of the banca Maria, occurred through the manifest fault
and negligence of said defendants, for, not only did they fail to take the
necessary precautions in order that the stateroom containing the trunk
in which they kept the money should be properly guarded by members
of the crew and put in such condition that it would be impossible to
steal the trunk from it or that persons not belonging to the vessel might
force an entrance into the stateroom from the outside, but also they
did not expressly station some person inside the stateroom for the
guarding and safe-keeping of the trunk, for it was not proven that the
cabin-boy Gabriel slept there, as the master of the vessel, Ipil, stated,
nor that the other cabin-boy, Simeon Solamo, was on guard that night,
for the latter contradicted the statements made by the two defendants
on this point. On the contrary, it was proven by the master's own
statement that all the people on the vessel, including himself and the
supercargo Solamo, slept soundly that night; which fact cannot, in any
manner, serve them as an excuse, nor can it be accepted as an
explanation of the statement that they were not aware of what was
then occurring on board. if the trunk was actually stolen by outsiders
and removed through the small window of the stateroom, a detail
which also was not proven, but, on the contrary, increases their
liability, because it is very strange that none of them who were six and
were around or near the stateroom, should have heard the noise
which the robbers must have made in breaking its window. All of these
circumstances, together with that of its having been impossible to
know who took the trunk and the money and the failure to recover the
one or the other, make the conduct of the two defendants and of the
other members of the crew of the banca, eminently suspicious and
prevent our holding that the disappearance or loss of the money was
due to a fortuitous event, to force majeure, or that it was an
occurrence which could not have been foreseen, or which, if foreseen,
was inevitable.
It is unquestionable that the defendants Glicerio Ipil and Justo
Solamo were the carriers of the said P450 belonging to the plaintiff,
and that they received this sum from the latter for the purpose of
delivering it to the store of the town of Catmon, to which it had been
consigned. Under such circumstances, said defendants were the
depositories of the money.
Manresa, in his Commentaries on the Civil Code (Vol. 10 p.
773), in treating of the provisions of the said code concerning
transportation by sea and by land of both persons and things, says:
''Liability of carriers. — In order that a thing may be
transported, it must be delivered to the carrier, as the Code says.
 From the time it is delivered to the carrier or shipper until it is
received by the consignee, the carrier has it in his possession,
as a necessary condition for its transportation, and is obliged to
preserve and guard it; wherefore it is but natural and logical that
he should be responsible for it.
"The Code discovers in the relation of all these elements
the factors which go to make up the conception of a trust. and,
taking into account that the delivery of the thing on the part of
the shipper is unavoidable, if the transportation is to take place,
esteems that, at least in certain respects, such trusts are
necessary."
The said two defendants being the depositaries of the sum in
question, and they having failed to exercise for its safe-keeping the
diligence required by the nature of the obligation assumed by them
and by the circumstances of the time and the place, it is evident that,
in pursuance of the provisions of articles 1601 and 1602, in their
relation to articles 1783 and 1784, and as prescribed in article 1770, of
the Civil Code, they are liable for its loss or misplacement and must
restore it to the plaintiff, together with the corresponding interest
thereon as an indemnity for the losses and damages caused him
through the loss of the said sum.
With respect to the other defendant, Narciso Lauron, as he was
the owner of the vessel in which the loss or misplacement of the P450
occurred, of which vessel, as aforestated, Glicerio Ipil was master and
Justo Solamo, supercargo, both of whom were appointed to, or
chosen for, the positions they held, by the defendant himself, and, as
the aforementioned sum was delivered to the said master, Ipil, and the
merchandise to be transported by means of said vessel from the port
of Cebu to the town of Catmon was laden by virtue of a contract
executed by and between the plaintiff and the owner of the vessel,
Narciso Lauron, it behooves us to examine whether the latter, also,
should be held to be liable, as requested by the plaintiff in his
complaint.
Said vessel was engaged in the transportation of merchandise
by sea and made voyages to and from the port of Cebu to Catmon,
and had been equipped and victualed for this purpose by its owner,
Narciso Lauron, with whom, as aforesaid, the plaintiff contracted for
the transportation of the merchandise which was to be carried, on the
date hereinabove mentioned, from the port of Cebu to the town of
Catmon.
For legal purposes, that is, for the determination of the nature
and effect of the relations created between that plaintiff, as owner of
the merchandise laden on said craft and of the money that was
delivered to the master, Ipil, and the defendant Lauron, as owner of
the craft, the latter was a vessel, according to the meaning and
construction given to the word vessel in the Mercantile Code, in
treating of maritime commerce, under Title 1, Book 3.
"The word vessel serves to designate every kind of craft
by whatever particular or technical name it may now be known
or which nautical advancements may give it in the future."
(Commentaries on the Code of Commerce, in the General
Review of Legislation and Jurisprudence, founded by D. Jose
Reus y Garcia, Vol. 2, p. 136.)
According to the Dictionary of Legislation and Jurisprudence by
Escriche, a vessel is any kind of craft, considering solely the hull.
Blanco, the commentator on mercantile law, in referring to the
grammatical meaning of the words "ship" and "vessels," says, in his
work aforecited, that these terms designate every kind of craft, large
or small, whether belonging to the merchant marine or to the navy.
And referring to their juridical meaning, he adds: "This does not differ
essentially from the grammatical meaning; the words 'ship' and
'vessel' also designate every craft, large or small, so long as it be not
an accessory of another, such as the small boat of a vessel, of greater
or less tonnage. This definition comprises both the craft intended for
ocean or for coastwise navigation, as well as the floating docks, mud
lighters, dredges, dumpscows or any other floating apparatus used in
the service of an industry or in that of maritime commerce. . . ." (Vol. 1,
p. 389.)
According to the foregoing definitions, then, we hold that
the banca called Maria, chartered by the plaintiff Yu Con from the
defendant Narciso Lauron, was a "vessel", pursuant to the meaning
this word has in mercantile law, that is, in accordance with the
provisions of the Code of Commerce in force.
Glicerio Ipil, the master of the said banca, Maria, must also be
considered as its captain, in the legal acceptation of this word.
The same Code of Commerce in force in these Islands
compares, in its article 609, masters with captains. It is co be noted
that in the Code of Commerce of Spain the denomination
of arraeces is not included in said article as equivalent to that of
masters, as it is in the Code of these Islands.
Commenting on said article, the aforementioned General
Review of Legislation and Jurisprudence says:
 "The name of captain or master is given, according to the
kind of vessel, to the person in charge of it.
"The first denomination is applied to those who govern
vessels that navigate the high seas or ships of large dimensions
and importance, although they be engaged in the coastwise
trade.
"Masters are those who command smaller ships
engaged exclusively in the coastwise trade.
"For the purposes of maritime commerce, the words
'captain' and 'master' have the same meaning; both being the
chiefs or commanders of ships." (Vol. 2, p. 168.)
Article 587 of the Code of Commerce in force provides:
"The agent shall be civilly liable for the indemnities in
favor of third persons which arise from the conduct of the
captain in the care of the goods which the vessel carried; but he
may exempt himself herefrom by abandoning the vessel with all
her equipments and the freight he may have earned during the
trip."
Article 618 of the same Code also prescribes:
"The captain shall be civilly liable to the agent and the
latter to the third persons who may have made contracts with
the former —
"1. For all the damages suffered by the vessel and its
cargo by reason of want of skill or negligence on his part, If a
misdemeanor or crime has been committed he shall be liable in
accordance with the Penal Code.
"2. For all the thefts committed by the crew, reserving his
right of action against the guilty parties."
The Code of Commerce previous to the one now in force, to wit,
that of 1829, in its article 624, provided that the agent or shipowner
should not be liable for any excesses which, during the navigation,
might be committed by the captain and crew, and that, for the reason
of such excesses it was only proper to bring action against the
persons and property of those found guilty.
Estasen, in his work on the Institutes of Mercantile Law (Vol. 4,
p. 280), makes the following remarks, in referring to the exposition of
reasons presented by the Code Commission which prepared and
presented for approval the Code of Commerce now in force, in which
exposition of reasons were set forth the fundamental differences
between the provisions contained in both codes, with respect to the
subject-matter now under discussion.. He says:
 "Another very important innovation introduced by the
Code is that relative to the liability for misdemeanors and crimes
committed by the captain or by members of the crew This is a
matter of the greatest importance on which a variety of opinions
has been expressed by different juris-consults.
"The old code declares the captain civilly liable for all
damage sustained by the vessel or its cargo through lack of skill
or care on his part, through violations of the law, or through
unlawful acts committed by the crew. As regards the agent or
shipowner, it declares in unmistakable terms that he shall in no
wise be liable for any excesses which, during the navigation,
may be committed by the captain and the crew.
"Upon an examination, in the light of the principles of
modern law, of the standing legal doctrine on the nonliability of
the shipowner for the unlawful acts, that is, the crimes or quasi
crimes, committed by the captain and the crew, it is observed
that it cannot by maintained in the absolute and categorical
terms in which it is formulated.
"It is well and good that the shipowner be not held
criminally liable for such crimes or quasi crimes; but he cannot
be excused from liability for the damage and harm which, in
consequence of those acts, may be suffered by the third parties
who contracted with the captain, in his double capacity of agent
and subordinate of the shipowner himself. In maritime
commerce, the shippers and passengers in making contracts
with the captain do so through the confidence they have in the
shipowner who appointed him; they presume that the owner
made a most careful investigation before appointing him, and,
above all, they themselves are unable to make such an
investigation, and even though they should do so, they could
not obtain complete security, inasmuch as the shipowner can,
whenever he sees fit, appoint another captain instead.
"The shipowner is in the same case with respect to the
members of the crew, for, though he does not appoint directly,
yet, expressly or tacitly, he contributes to their appointment.
"On the other hand, if the shipowner derives profits from
the results of the choice of the captain and the crew, when the
choice turns out successful, it is also just that he should suffer
the consequences of an unsuccessful appointment, by
application of the rule of natural law contained in the Partidas,
viz., that he who enjoys the benefits derived from a thing must
likewise suffer the losses that ensue therefrom.
"Moreover, the Penal Code contains a general principle
that resolves the question under consideration, for it declares
 that such persons as undertake and carry on any industry shall
be civilly liable, in default of those who may be criminally liable,
for the misdemeanors and crimes committed by their
subordinates in the discharge of their duties.
"The Code of Commerce in force omits the declaration of
non-liability contained in the old code, and clearly makes the
shipowner liable civilly for the loss suffered by those who
contracted with the captain, in consequence of the
misdemeanors and crimes committed by the latter or by the
members of the crew."
It is therefore evident that, in accordance with the provisions of
the Code of Commerce in force, which are applicable to the instant
case, the defendant Narciso Lauron, as the proprietor and owner of
the craft of which Glicerio Ipil was the master and in which, through
the fault and negligence of the latter and of the supercargo Justo
Solamo, there occurred the loss, theft, or robbery of the P450 that
belonged to the plaintiff and were delivered to said master and
supercargo, a theft which, on the other hand, as shown by the
evidence, does not appear to have been committed by a person not
belonging to the craft, should, for said loss or theft, be held civilly liable
to the plaintiff, who executed with said defendant Lauron the contract
for the transportation of the merchandise and money aforementioned
between the port of Cebu and the town of Catmon, by means of the
said craft.
Therefore, the trial court did not err in so holding in the judgment
appealed from.
The plaintiff having filed his answer to the cross-complaint as
soon as the defendant presented their motion for a declaration of the
plaintiff's default in connection with said cross-complaint, and it being
optional with the court to make in such cases the declaration of default,
as provided in section 129 of the Code of Civil Procedure, the said
court did not incur the second error assigned by the appellants in their
brief.
Lastly, as the banca Maria did not make the trip she should
have made from the port of Cebu to the town of Catmon, on the
occasion in question, through causes chargeable, as has been seen,
to the captain and the supercargo of said banca, to wit, because of the
loss, theft or robbery of the P450 belonging to the plaintiff, and as a
contract was made for the transportation of the said sum and the
merchandise from one of said points to the other, for the round trip,
and not through payment by the plaintiff of the wages due the crew for
each day, as alleged by the defendants, for the proofs presented by
 the latter in regard to this point were insufficient, as the trial court so
held, neither did the latter incur error in overruling the cross-complaint
formulated by the defendants in their answer against the plaintiff.
Therefore, and for all the reasons above set forth, we affirm the
judgment appealed from, with the costs of this instance against the
appellants. So ordered.
[G.R. No. 92735. June 8, 2000.]

MONARCH INSURANCE CO., INC., TABACALERA

INSURANCE CO., INC. and Hon. Judge AMANTE
PURISIMA, petitioners, vs. COURT OF APPEALS and
ABOITIZ SHIPPING CORPORATION, respondents.

[G.R. No. 94867. June 8, 2000.]

ALLIED GUARANTEE INSURANCE

COMPANY, petitioner, vs. COURT OF APPEALS,
Presiding Judge, RTC Manila, Br. 24 and ABOITIZ
SHIPPING CORPORATION, respondents.

[G.R. No. 95578. June 8, 2000.]

EQUITABLE INSURANCE CORPORATION, petitioner,

vs. COURT OF APPEALS, Former First Division
Composed of Hon. Justices RODOLFO NOCON,
PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ
SHIPPING CORPORATION, respondents.

Guevarra Law Office for petitioner in 92735.

Dollete Blanco Ejercito & Associates for petitioners in 94867 &
95578.
Napoleon Rama for private respondent Aboitiz.
Sycip Salazar Hernandez & Gatmaitan for private respondent in
94867 & 95578.

SYNOPSIS

All three cases herein arose from the loss of cargoes of various
shippers when the M/V P. Aboitiz, a common carrier owned and operated
by Aboitiz, sank on her voyage from Hong Kong to Manila in 1980.
Seeking indemnification for the loss of their cargoes, the shippers, their
successors-in-interest, and the cargo insurers such as the petitioners
herein filed separate suits against Aboitiz before the Regional Trial
Courts. The claims numbered one hundred and ten (110) for the total
amount of P41,230,115.00 plus earned freight of P500,000.00 according
to Aboitiz. Some of these claims, including those of herein petitioners,
had not been settled. A Court Resolution consolidated these three
petitions in 1991 on the ground that the petitioners had identical causes
of action against the same respondent and similar reliefs were prayed for.
The threshold issue in these consolidated petitions is the applicability of
the limited liability rule in maritime law in favor of Aboitiz in order to stay
the execution of judgments for full indemnification of the losses suffered
by the petitioners as a result of the sinking of the M/V P. Aboitiz.
According to the Supreme Court, the failure of Aboitiz to present
sufficient evidence to exculpate itself from the fault and/or negligence in
the sinking of its vessel constrained the Court to hold that Aboitiz was
concurrently at fault with the ship captain and crew of the vessel.
However, the failure of Aboitiz to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence
should not mean that the limited liability rule would not be applied to the
present cases. The latest ruling should be applied in these cases wherein
the claimants should be treated as creditors in an insolvent corporation
whose assets are not enough to satisfy the totality of claims against it.
Hence, the Court affirmed the decisions of the Court of Appeals. However,
because Aboitiz showed bad faith in not seeking the consolidation of all
the claims against it, the Court ordered the payment of petitioners herein
of moral damages, attorney's fees and treble costs. CAIaDT

SYLLABUS

1. REMEDIAL LAW; ACTIONS; NOMINAL PARTY; JUDGES

HAVE NO LEGAL STANDING TO FILE PETITION IN ANY LITIGATION
THEY RESOLVED. — The Court takes note of the fact that in G.R.
No. 92735, Judge Amante Purisima, whose decision in the Regional Trial
Court is sought to be upheld, is named as a co-petitioner. InCalderon
v. Solicitor General, where the petitioner in the special civil action
of certiorari and mandamus was also the judge whose order was being
assailed, the Court held that said judge had no standing to file the petition
because he was merely a nominal or formal party-respondent under
Section 5 of Rule 65 of the Rules of Court. He should not appear as a
party seeking the reversal of a decision that is unfavorable to the action
taken by him. The Court there said: "Judge Calderon should be reminded
of the well-known doctrine that a judge should detach himself from cases
where his decision is appealed to a higher court for review. The raison
d'etre for such doctrine is the fact that a judge is not an active combatant
in such proceeding and must leave the opposing parties to contend their
individual positions and for the appellate court to decide the issues
without his active participation. By filing this case, petitioner in a way
ceased to be judicial and has become adversarial instead." While the
petition in G.R. No. 92735 does not expressly show whether or not Judge
Purisima himself is personally interested in the disposition of this petition
or he was just inadvertently named as petitioner by the real parties in
interest, the fact that Judge Purisima is named as petitioner has not
escaped this Court's notice. Judges and litigants should be reminded of
the basic rule that courts or individual judges are not supposed to be
interested "combatants" in any litigation they resolve.
2. ID.; ID.; JUDGMENT; SUSPENSION THEREOF ALLOWED
ONLY IN CASES OF SPECIAL AND EXCEPTIONAL NATURE; CASE
AT BAR. — The rule that once a decision becomes final and executory, it
is the ministerial duty of the court to order its execution, is not an absolute
one. The Court has allowed the suspension of execution in cases of
special and exceptional nature when it becomes imperative in the higher
interest of justice. The unjust and inequitable effects upon various other
claimants against Aboitiz should the Court allow the execution of
judgments for the full indemnification of petitioners' claims impel this
court to uphold the stay of execution as ordered by the respondent Court
of Appeals. The Court reiterates its pronouncement in Aboitiz Shipping
Corporation vs. General Accident Fire and Life Assurance
Corporation on this very same issue. "This brings us to the primary
question herein which is whether or not respondent court erred in
granting execution of the full judgment award in Civil Case No. 14425
(G.R. No. 89757), thus effectively denying the application of the limited
liability enunciated under the appropriate articles of the Code of
Commerce. . . . . Collaterally, determination of the question of whether
execution of judgments which have become final and executory may be
stayed is also an issue. ". . . This Court has always been consistent in its
stand that the very purpose for its existence is to see the accomplishment
of the ends of justice. Consistent with this view, a number of decisions
have originated herefrom, the tenor of which is that no procedural
consideration is sacrosanct if such shall result in the subverting of justice.
The right to execution after finality of a decision is certainly no exception
to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1885]), this Court ruled
that: '. . . every court having jurisdiction to render a particular judgment
has inherent power to enforce it, and to exercise equitable control over
such enforcement. The court has authority to inquire whether its
judgment has been executed, and will remove obstructions to the
enforcement thereof. Such authority extends not only to such orders and
such writs as may be necessary to prevent an improper enforcement of
the judgment. If a judgment is sought to be perverted and made a
medium of consummating a wrong the court on proper application can
prevent it."
3. ID.; ID.; ID.; JUDGMENT OF DEFAULT; NATURE AND
FUNCTION THEREOF. — It should be noted that Aboitiz was declared
as in default not for its failure to file an answer but for its absence during
pre-trial and the trial proper. A judgment of default does not imply a
waiver of rights except that of being heard and presenting evidence in
defendant's favor. It does not imply admission by the defendant of the
facts and causes of action of the plaintiff, because the codal section
requires the latter to adduce evidence in support of his allegations as an
indispensable condition before final judgment could be given in his favor.
Nor could it be interpreted as an admission by the defendant that the
plaintiff's causes of action find support in the law or that the latter is
entitled to the relief prayed for. This is especially true with respect to a
defendant who had filed his answer but had been subsequently declared
in default for failing to appear at the trial since he has had an opportunity
to traverse, via his answer, the material averments contained in the
complaint. Such defendant has a better standing than a defendant who
has neither answered nor appeared at trial. The former should be allowed
to reiterate all affirmative defenses pleaded in his answer before the
Court of Appeals. Likewise, the Court of Appeals may review the
correctness of the evaluation of the plaintiffs evidence by the lower court.
4. COMMERCIAL LAW; CODE OF COMMERCE; PRINCIPLE OF
LIMITED LIABILITY; CONSTRUED. — The principle of limited liability is
enunciated in the following provisions of the Code of Commerce: Art. 587.
The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care
of goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all the equipments and the
freight it may have earned during the voyage. Art. 590. The co-owners of
a vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art.
587. Each co-owner may exempt himself from his liability by the
abandonment, before a notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed
in this section, shall be understood as limited to the value of the vessel
with all its appurtenances and the freightage served during the voyage.
Article 837 applies the principle of limited liability in cases of collision,
hence, Arts. 587 and 590 embody the universal principle of limited liability
in all cases. In Yangco v. Laserna, (73 Phil. 330 [1941]) this Court
elucidated on the import of Art. 587 as follows: "The provision accords a
shipowner or agent the right of abandonment; and by necessary
implication, his liability is confined to that which he is entitled as of right to
abandon — 'the vessel with all her equipments and the freight it may
have earned during the voyage.' It is true that the article appears to deal
only with the limited liability of the shipowners or agents for damages
arising from the misconduct of the captain in the care of the goods which
the vessel carries, but this is a mere deficiency of language and in no way
indicates the true extent of such liability. The consensus of authorities is
to the effect that notwithstanding the language of the aforequoted
provision, the benefit of limited liability therein provided for, applies in all
cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain." "No vessel, no liability," expresses
in a nutshell the limited liability rule. The shipowner's or agent's liability is
merely co-extensive with his interest in the vessel such that a total loss
thereof results in its extinction. The total destruction of the vessel
extinguishes maritime liens because there is no longer any res to which it
can attach. This doctrine is based on the real and hypothecary nature of
maritime law which has its origin in the prevailing conditions of the
maritime trade and sea voyages during the medieval ages, attended by
innumerable hazards and perils. To offset against these adverse
conditions and to encourage shipbuilding and maritime commerce, it was
deemed necessary to confine the liability of the owner or agent arising
from the operation of a ship to the vessel, equipment, and freight, or
insurance, if any.
5. ID.; ID.; ID.; EXCEPTIONS. — This is not to say, however, that
the limited liability rule is without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the shipowner, or to
the concurring negligence of the shipowner and the captain; (2) where
the vessel is insured; and (3) in workmen's compensation claims.
6. CIVIL LAW; DAMAGES; MORAL DAMAGES; WHEN AWARD
THEREOF PROPER; CASE AT BAR. — Well aware of the 110 claimants
against it, Aboitiz preferred to litigate the claims singly rather than exert
effort towards the consolidation of all claims. Consequently, courts have
arrived at conflicting decisions while claimants waited over the years for a
resolution of any of the cases that would lead to the eventual resolution of
the rest. Aboitiz failed to give the claimants their due and to observe
honesty and good faith in the exercise of its rights. Aboitiz' blatant
disregard of the order of this Court in Aboitiz Shipping Corporation
v. General Accident Fire and Life Assurance Corporation, Ltd. cannot be
anything but willful on its part. An act is considered willful if it is done with
knowledge of its injurious effect; it is not required that the act be done
purposely to produce the injury. Aboitiz is well aware that by not
instituting the said suit, it caused the delay in the resolution of all claims
against it. Having willfully caused loss or injury to the petitioners in a
manner that is contrary to morals, good customs or public policy, Aboitiz
is liable for damages to the latter. Thus, for its contumacious act of
defying the order of this Court to file the appropriate action to consolidate
all claims for settlement, Aboitiz must be held liable for moral damages
which may be awarded in appropriate cases under the Chapter on
human relations of the Civil Code (Articles 19 to 36). DaTICc

DECISION

DE LEON, JR., J : p

Before us are three consolidated petitions. G.R. No. 92735 is a

petition for review filed under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals dated March 29, 1990 in CA-G.R. SP.
Case No. 17427 which set aside the writ of execution issued by the lower
court for the full indemnification of the claims of the petitioners, Monarch
Insurance Company (hereafter "Monarch") and Tabacalera Insurance
Company, Incorporated (hereafter "Tabacalera") against private
respondent, Aboitiz Shipping Corporation (hereafter "Aboitiz") on the
ground that the latter is entitled to the benefit of the limited liability rule in
maritime law; G.R. No. 94867 is a petition for certiorari under Rule 65 of
the Rules of Court to annul and set aside the decision of the Court of
Appeals dated August 15, 1990 in CA-G.R. SP No. 20844 which ordered
the lower court to stay the execution of the judgment in favor of the
petitioner, Allied Guarantee Insurance Company (hereafter "Allied")
against Aboitiz insofar as it impairs the rights of the other claimants to
their pro-rata share in the insurance proceeds from the sinking of the M/V
P. Aboitiz, in accordance with the rule on limited liability; and G.R. No.
95578 is a petition for review under Rule 45 of the Rules of Court seeking
a reversal of the decision of the Court of Appeals dated August 24, 1990
and its resolution dated October 4, 1990 in C.A. G.R. Civil Case No.
15071 which modified the judgment of the lower court by applying the
hypothecary rule on limited liability to limit the lower court's award of
actual damages to petitioner Equitable Insurance Corporation (hereafter
"Equitable") to its pro-rata share in the insurance proceeds from the
sinking of the M/V P. Aboitiz.
All cases arose from the loss of cargoes of various shippers when
the M/V P. Aboitiz, a common carrier owned and operated by Aboitiz,
sank on her voyage from Hong Kong to Manila on October 31, 1980.
Seeking indemnification for the loss of their cargoes, the shippers, their
successors-in-interest, and the cargo insurers such as the instant
petitioners filed separate suits against Aboitiz before the Regional Trial
Courts. The claims numbered one hundred and ten (110) for the total
amount of P41,230,115.00 which is almost thrice the amount of
insurance proceeds of P14,500,000.00 plus earned freight of
P500,000.00 according to Aboitiz. To this day, some of these claims,
including those of herein petitioners, have not yet been settled.
G.R. No. 92735.
Monarch and Tabacalera are insurance carriers of lost cargoes.
They indemnified the shippers and were consequently subrogated to
their rights, interests and actions against Aboitiz, the cargo
carrier. 1 Because Aboitiz refused to compensate Monarch, it filed two
complaints against Aboitiz, docketed as Civil Cases Nos.
82-2767and 82-2770. For its part, Tabacalera also filed two complaints
against the same defendant, docketed as Civil Cases Nos.
82-2768 and 82-2769. As these four (4) cases had common causes of
action, they were consolidated and jointly tried. 2
In Civil Case No. 82-2767 where Monarch also named Malaysian
International Shipping Corporation and Litonjua Merchant Shipping
Agency as Aboitiz's co-defendants, Monarch sought recovery of
P29,719.88 representing the value of three (3) pallets of glass tubing that
sank with the M/V P. Aboitiz, plus attorney's fees of not less than
P5,000.00, litigation expenses, interest at the legal rate on all these
amounts, and cost of suit. 3 Civil Case No. 82-2770 was a complaint filed
by Monarch against Aboitiz and co-defendants Compagnie Maritime des
Chargeurs Reunis and F.E. Zuellig (M), Inc. for the recovery of
P39,579.66 representing the value of one case of motor vehicle parts
which was lost when the M/V P. Aboitiz sank on her way to Manila, plus
attorney's fees of not less than P10,000.00 and cost of suit. 4
Tabacalera sought against Franco Belgian Services, F. E. Zuellig
and Aboitiz in Civil Case No. 82-2768 the recovery of P284,218.00
corresponding to the value of nine (9) cases of Renault spare parts,
P213,207.00 for the value of twenty-five (25) cases of door closers and
P42,254.00 representing the value of eighteen (18) cases of plastic
spangle, plus attorney's fees of not less than P50,000.00 and cost of
suit. 5 In Civil Case No. 82-2769, Tabacalera claimed from Hong Kong
Island Shipping Co., Ltd., Citadel Lines and Aboitiz indemnification in the
amount of P75,058.00 for the value of four (4) cartons of motor vehicle
parts that foundered with the M/V P. Aboitiz, plus attorney's fees of not
less than P20,000.00 and cost of suit. 6
In its answer with counterclaim, Aboitiz rejected responsibility for
the claims on the ground that the sinking of its cargo vessel was due
to force majeure or an act of God. 7 Aboitiz was subsequently declared
as in default for its failure to appear during the pre-trial. Its counsel filed a
motion to set aside the order of default with notice of his withdrawal as
such counsel. Before the motion could be acted upon, Judge Bienvenido
Ejercito, the presiding judge of the trial court, was promoted to the then
Intermediate Appellate Court. The cases were thus re-raffled to Branch
VII of the RTC of Manila presided by Judge Amante P. Purisima, the
co-petitioner in G.R. No.92735. Without resolving the pending motion to
set aside the order of default, the trial court set the cases for hearing.
However, since Aboitiz had repeatedly failed to appear in court, the trial
court denied the said motion and allowed Monarch and Tabacalera to
present evidence ex-parte. 8
Monarch and Tabacalera proffered in evidence the survey of
Perfect Lambert, a surveyor commissioned to investigate the possible
cause of the sinking of the cargo vessel. The survey established that on
her voyage to Manila from Hong Kong, the vessel did not encounter
weather so inclement that Aboitiz would be exculpated from liability for
losses. In his note of protest, the master of M/V P. Aboitiz described the
wind force encountered by the vessel as from ten (10) to fifteen (15) knots,
a weather condition classified as typical and moderate in the South China
Sea at that particular time of the year. The survey added that the
seaworthiness of the vessel was in question especially because the
breaches of the hull and the serious flooding of two (2) cargo holds
occurred, simultaneously in "seasonal weather." 9
In due course, the trial court rendered judgment against Aboitiz but
the complaint against all the other defendants was dismissed. Aboitiz
was held liable for the following: (a) in Civil Case No. 82-2767,
P29,719.88 with legal interest from the filing of the complaint until fully
paid plus attorney's fees of P30,000.00; and cost of suit; (b) in Civil Case
No. 82-2768, P539,679.00 with legal interest of 12% per annum from
date of filing of the complaint until fully paid, plus attorney's fees of
P30,000.00, litigation expenses and cost of suit; (c) in Civil Case No.
82-2769, P75,058.00 with legal interest of 12% per annum from date of
filing of the complaint until fully paid, plus P5,000.00 attorney's fees,
litigation expenses and cost of suit, and (d) in Civil Case No. 82-2770,
P39,579.66 with legal interest of 12% per annum from date of filing of the
complaint until fully paid, plus attorney's fees of P5,000.00, litigation
expenses and cost of suit. CDHcaS

Aboitiz filed a motion for reconsideration of the decision and/or for

new trial to lift the order of default. The court denied the motion on August
27, 1986. 10 Aboitiz appealed to the Court of Appeals but the appeal was
dismissed for its failure to file appellant's brief. It subsequently filed an
urgent motion for reconsideration of the dismissal with prayer for the
admission of its attached appellant's brief. The appellate court denied
that motion for lack of merit in a resolution dated July 8, 1988. 11
Aboitiz thus filed a petition for review before this Court. Docketed
as G.R. No. 84158, the petition was denied in the Resolution of October
10, 1988 for being filed out of time. Aboitiz's motion for the
reconsideration of said Resolution was similarly denied. 12 Entry of
judgment was made in the case. 13
Consequently, Monarch and Tabacalera moved for execution of
judgment. The trial court granted the motion on April 4, 1989 14 and
issued separate writs of execution. However, on April 12, 1989, Aboitiz,
invoking the real and hypothecary nature of liability in maritime law, filed
an urgent motion to quash the writs of execution. 15 According to Aboitiz,
since its liability is limited to the value of the vessel which was insufficient
to satisfy the aggregate claims of all 110 claimant, to indemnify Monarch
and Tabacalera ahead of the other claimants would be prejudicial to the
latter. Monarch and Tabacalera opposed the motion to quash. 16
On April 17, 1989, before the motion to quash could be heard, the
sheriff levied upon five (5) heavy equipment owned by Aboitiz for public
auction sale. At said sale, Monarch was the highest bidder for one (1) unit
FL-151 Fork Lift (big) and one (1) unit FL-25 Fork Lift (small). Tabacalera
was also the highest bidder for one (1) unit TCH TL-251 Hyster Container
Lifter, one (1) unit Hyster Top Lifter (out of order), and one (1) unit
ER-353 Crane. The corresponding certificates of sale 17 were issued to
Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to
quash, Aboitiz filed a supplement to its motion, to add the fact that an
auction sale had taken place. On April 19, 1989, Judge Purisima issued
an order denying the motion to quash but freezing execution proceedings
for ten (10) days to give Aboitiz time to secure a restraining order from a
higher court. 18 Execution was scheduled to resume to fully satisfy the
judgment when the grace period shall have lapsed without such
restraining order having been obtained by Aboitiz.
 Aboitiz filed with the Court of Appeals a petition for certiorari and
prohibition with prayer for preliminary injunction and/or temporary
restraining order under CA-G.R. No. SP-17427. 19 On March 29, 1990,
the appellate court rendered a Decision the dispositive portion of which
reads:
"WHEREFORE, the writ of certiorari is hereby granted,
annulling the subject writs of execution, auction sale,
certificates of sale, and the assailed orders of respondent Judge
dated April 4 and April 19, 1989 insofar as the money value of
those properties of Aboitiz, levied on execution and sold at
public auction, has exceeded the pro-rata shares of Monarch
and Tabacalera in the insurance proceeds of Aboitiz in relation
to the pro-rata shares of the 106 other claimants.
"The writ of prohibition is also granted to enjoin
respondent Judge, Monarch and Tabacalera from proceeding
further with execution of the judgments in question insofar as
the execution would satisfy the claims of Monarch and
Tabacalera in excess of their pro-rata shares and in effect
reduce the balance of the proceeds for distribution to the other
claimants to their prejudice.
"The question of whether or how much of the claims of
Monarch and Tabacalera against the insurance proceeds has
already been settled through the writ of execution and auction
sale in question, being factual issues, shall be threshed out
before respondent Judge.
"The writ of preliminary injunction issued in favor of
Aboitiz, having served its purpose, is hereby lifted. No
pronouncement as to costs.
"SO ORDERED" 20
Hence, the instant petition for review on certiorari where
petitioners Monarch, Tabacalera and Judge Purisima raise the following
assignment of errors:
1. The appellate court grievously erred in re-opening the
Purisima decisions, already final and executory, on the
alleged ground that the issue of real and hypothecary
liability had not been previously resolved by Purisima,
the appellate court, and this Hon. Supreme Court;
2. The appellate court erred when it resolved that Aboitiz is
entitled to the limited real and hypothecary liability of a
ship owner, considering the facts on record and the law
on the matter.
 3. The appellate court erred when it concluded that Aboitiz does
not have to present evidence to prove its entitlement to
the limited real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz
Shipping Corporation v. CA and Allied Guaranty
Insurance Co., Inc." (G.R. No. 88159), decided by this
Honorable Supreme Court as early as November 13,
1989, considering that said case, now factual and
executory, is in pari materia with the instant case.
5. The appellate court erred in not concluding that irrespective
of whether Aboitiz is entitled to limited hypothecary
liability or not, there are enough funds to satisfy all the
claimants.
6. The appellate court erred when it concluded that Aboitiz had
made an "abandonment" as envisioned by Art. 587 of the
Code of Commerce.
7. The appellate court erred when it concluded that other
claimants would suffer if Tabacalera and Monarch would
be fully paid.
8. The appellate court erred in concluding that certiorari was the
proper remedy for Aboitiz. 21
G.R. NOS. 94867 & 95578
Allied as insurer-subrogee of consignee Peak Plastic and Metal
Products Limited, filed a complaint against Aboitiz for the recovery of
P278,536.50 representing the value of 676 bags of PVC compound and
10 bags of ABS plastic lost on board the M/V P. Aboitiz, with legal interest
from the date of filing of the complaint, plus attorney's fees, exemplary
damages and costs. 22 Docketed as Civil Case No. 138643, the case was
heard before the Regional Trial Court of Manila, Branch XXIV, presided
by Judge Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of
consignee-assured Axel Manufacturing Corporation, filed an amended
complaint against Franco Belgian Services, F.E. Zuellig, Inc. and Aboitiz
for the recovery of P194,794.85 representing the value of 76 drums of
synthetic organic tanning substances and 1,000 kilograms of optical
bleaching agents which were also lost on board the M/V P. Aboitiz, with
legal interest from the date of filing of the complaint, plus 25% attorney's
fees, exemplary damages, litigation expenses and costs of
suit. 23 Docketed as Civil Case No. 138396, the complaint was assigned
to the Regional Trial Court of Manila, Branch VIII.
 In its answer with counterclaim in the two cases, Aboitiz disclaimed
responsibility for the amounts being recovered, alleging that the loss was
due to a fortuitous event or an act of God. It prayed for the dismissal of
the cases and the payment of attorney's fees, litigation expenses plus
costs of suit. It similarly relied on the defenses of force majeure,
seaworthiness of the vessel and exercise of due diligence in the carriage
of goods as regards the cross-claim of its co-defendants. 24
In support of its position, Aboitiz presented the testimonies of Capt.
Gerry N. Racines, master mariner of the M/V P. Aboitiz, and Justo C.
Iglesias, a meteorologist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA). The gist of the
testimony of Capt. Racines in the two cases follows:
The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the
evening of October 29, 1980 after securing a departure clearance from
the Hong Kong authority. The departure was delayed for two hours
because he (Capt. Racines) was observing the direction of the storm that
crossed the Bicol Region. He proceeded with the voyage only after being
informed that the storm had abated. At about 8:00 o'clock in the morning
of October 30, 1980, after more than (12) hours of navigation, the vessel
suddenly encountered rough seas with waves about fifteen to twenty-five
feet high. He ordered his chief engineer to check the cargo holds. The
latter found that sea water had entered cargo hold Nos. 1 and 2. He
immediately directed that water be pumped out by means of the vessel's
bilge pump, a device capable of ejecting 180 gallons of water per minute.
They were initially successful in pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines received
a report from his chief engineer that the water level in the cargo holds was
rapidly rising. He altered the vessel's course and veered towards the
northern tip of Luzon to prevent the vessel from being continuously
pummeled by the waves. Despite, diligent efforts of the officers and crew,
however, the vessel, which was approximately 250 miles away from the
eye of the storm, began to list on starboard side at 27 degrees. Capt.
Racines and his crew were not able to make as much headway as they
wanted because by 12:00 noon of the same day, the cargo holds were
already flooded with sea water that rose from three to twelve feet,
disabling the bilge pump from containing the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at
latitude 18 degrees North, longitude 170 degrees East in the South China
Sea in between Hong Kong, the Philippines and Taiwan with the nearest
land being the northern tip of Luzon, around 270 miles from Cape
Bojeador, Bangui, Ilocos Norte. Responding to the captain's distress call,
the M/V Kapuas (Capuas) manned by Capt. Virgilio Gonzales rescued
the officers and crew of the ill-fated M/V P. Aboitiz and brought them to
Waileen, Taiwan where Capt. Racines lodged his marine protest dated
November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness of
Aboitiz, testified in both cases that during the inclusive dates of October
28-31, 1980, a stormy weather condition prevailed within the Philippine
area of responsibility, particularly along the sea route from Hong Kong to
Manila, because of tropical depression "Yoning." 25 PAGASA issued
weather bulletins from October 28-30, 1980 while the storm was still
within Philippine territory. No domestic bulletins were issued the following
day when the storm which hit Eastern Samar, Southern Quezon and
Southern Tagalog provinces, had made its exit to the South China Sea
through Bataan.
Allied and Equitable refuted the allegation that the M/V P. Aboitiz
and its cargo were lost due to force majeure, relying mainly on the marine
protest filed by Capt. Racines as well as on the Beaufort Scale of Wind. In
his marine protest under oath, Capt. Racines affirmed that the wind force
on October 29-30, 1980 was only ten (10) to fifteen (15) knots. Under the
Beaufort Scale of Wind, said wind velocity falls under scale No. 4 that
describes the sea condition as "moderate breeze," and "small waves
becoming longer, fairly frequent white horses." 26
To fortify its position Equitable presented Rogelio T. Barboza who
testified that as claims supervisor and processor of Equitable, he
recommended payment to Axel Manufacturing Corporation as evidenced
by the cash voucher, return check and subrogation receipt. Barboza also
presented a letter of demand to Aboitiz which, however, the latter
ignored. 27
On April 24, 1984, the trial court rendered a decision that disposed
of Civil Case No. 138643 as follows:
"WHEREFORE, judgment is hereby rendered ordering
defendant Aboitiz Shipping Company to pay plaintiff Allied
Guarantee Insurance Company, Inc. the sum of P278,536.50,
with legal interest thereon from March 10, 1981, then date of the
filing of the complaint, until fully paid, plus P30,000.00 as
attorney's fees, with costs of suit.
"SO ORDERED." 28
A similar decision was arrived at in Civil Case No. 138396, the
dispositive portion of which reads:
 "WHEREFORE, in view of the foregoing, this Court
hereby renders judgment in favor of plaintiff and against
defendant Aboitiz Shipping Corporation, to pay the sum of
P194,794.85 with legal rate of interest thereon from February
27, 1981 until fully paid; attorney's fees of twenty-five (25%)
percent of the total claim, plus litigation expenses and costs of
litigation.
SO ORDERED." 29
In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals
under CA-G.R. CV No. 04121. On March 23, 1987, the Court of Appeals
affirmed the decision of the lower court. A motion for reconsideration of
the said decision was likewise denied by the Court of Appeals on May 3,
1989. Aggrieved, Aboitiz then filed a petition for review with this Court
docketed as G.R. No. 88159 which was denied for lack merit. Entry of
judgment was made and the lower court's decision in Civil Case No.
138643 became final and executory. Allied prayed for the issuance of a
writ of execution in the lower court which was granted by the latter on
April 4, 1990. To stay the execution of the judgment of the lower court,
Aboitiz file a petition for certiorari and prohibition with preliminary
injunction with the Court of Appeals docketed as CA-G.R. SP No.
20844. 30 On August 15, 1990, the Court of Appeals rendered the
assailed decision, the dispositive portion of which reads as follows: ADaSEH

"WHEREFORE, the challenged order of the respondent

Judge dated April 4, 1990 granting the execution is hereby set
aside. The respondent Judge is further ordered to stay the
execution of the judgment insofar as it impairs the rights of the
100 other claimants to the insurance proceeds including the
rights of the petitioner to pay more than the value of the vessel
or the insurance proceeds and to desist from executing the
judgment insofar as it prejudices the pro-rata share of all
claimants to the insurance proceeds. No pronouncement as to
costs.
"SO ORDERED." 31
Hence, Allied filed the instant petition for certiorari, mandamus and
injunction with preliminary injunction and/or restraining order before this
Court alleging the following assignment of errors:
1. Respondent Court of Appeals gravely erred in staying
the immediate execution of the judgment of the
lower court as it has no authority nor jurisdiction to
directly or indirectly alter, modify, amend, reverse or
invalidate a final judgment as affirmed by the
Honorable Supreme Court in G.R. No. 88159.
 2. Respondent Court of Appeals with grave abuse of
discretion amounting to lack or excess of jurisdiction,
brushed aside the doctrine in G.R. No. 88159 which
is now the law of the case and observance of time
honored principles of stare decisis, res
adjudicata and estoppel by judgment.
3. Real and hypothecary rule under Articles 587, 590 and
837 of the Code of Commerce which is the basis of
the questioned decision (Annex "C" hereof) is
without application in the face of the facts found by
the lower court, sustained by the Court of Appeals in
CA-G.R. No. 04121 and affirmedin toto by the
Supreme Court in G.R. No. 88159.
4. Certiorari as a special remedy is unavailing for private
respondent as there was no grave abuse of
discretion nor lack or excess of jurisdiction for Judge
Mabunay to issue the order of April 4, 1990 which
was in accord with law and jurisprudence, nor were
there intervening facts and/or supervening events
that will justify respondent court to issue a writ
of certiorari or a restraining order on a final and
executory judgment of the Honorable Supreme
Court. 32
From the decision of the trial court in Civil Case No. 138396 that
favored Equitable, Aboitiz likewise appealed to the Court of Appeals
through CA-G.R. CV No. 15071. On August 24, 1990, the Court of
Appeals rendered the Decision quoting extensively its Decision in
CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the
appeal as follows:
"WHEREFORE, we hereby affirm the trial court's awards
of actual damages, attorney's fees and litigation expenses, with
the exception of legal interest, in favor of plaintiff-appellee
Equitable Insurance Corporation as subrogee of the consignee
for the loss of its shipment aboard the M/V 'P. Aboitiz' and
against defendant-appellant Aboitiz Shipping Corporation.
However, the amount and payment of those awards shall be
subject to a determination of the pro-rata share of said appellee
in relation to the pro-rata shares of the 109 other claimants,
which determination shall be made by the trial court. This case
is therefore hereby ordered remanded to the trial court which
shall reopen the case and receive evidence to determine
 appellee's pro-rata share as aforesaid. No pronouncement as to
costs.
"SO ORDERED." 33
On September 12, 1990, Equitable moved to reconsider the Court
of Appeals' Decision. The Court of Appeals denied the motion for
reconsideration on October 4, 1990. 34 Consequently, Equitable filed with
this Court a petition for review alleging the following assignment of errors:
1. Respondent Court of Appeals, with grave abuse of discretion
amounting to lack or excess of jurisdiction, erroneously
brushed aside the doctrine in G.R. No. 88159 which is
now the law of the case as held in G.R. No. 89757
involving the same and identical set of facts and cause of
action relative to the sinking of the M/V 'P. Aboitiz' and
observance of the time honored principles of stare
decisis, and estoppel by judgment.
2. Real and hypothecary rule under Articles 587, 590 and 837 of
the Code of Commerce which is the basis of the assailed
decision and resolution is without application in the face
of the facts found by the trial court which conforms to the
conclusion and finding of facts arrived at in a similar and
identical case involving the same incident and parties
similarly situated in G.R. No. 88159 already declared as
the 'law of the case' in a subsequent decision of this
Honorable Court in G.R. No. 89757 promulgated on
August 6, 1990.
3. Respondent Court of Appeals gravely erred in concluding
that limited liability rule applies in case of loss of cargoes
when the law itself does not distinguish; fault of the
shipowner or privity thereto constitutes one of the
exceptions to the application of limited liability under
Article 587, 590 and 837 of the Code of Commerce, Civil
Code provisions on common carriers for breach of
contract of carriage prevails. 35
These three petitions in G.R. Nos. 92735, 94867 and 95578 were
consolidated in the Resolution of August 5, 1991 on the ground that the
petitioners "have identical causes of action against the same respondent
and similar reliefs are prayed for." 36
The threshold issue in these consolidated petitions is the
applicability of the limited liability rule in maritime law in favor of Aboitiz in
order to stay the execution of the judgments for full indemnification of the
losses suffered by the petitioners as a result of the sinking of the M/V P.
Aboitiz. Before we can address this issue, however, there are procedural
matters that need to be threshed out.
First. At the outset, the Court takes note of the fact that in G.R.
No. 92735, Judge Amante Purisima, whose decision in the Regional Trial
Court is sought to be upheld, is named as a co-petitioner. In Calderon v.
Solicitor General, 37 where the petitioner in the special civil action
of certiorari and mandamus was also the judge whose order was being
assailed, the Court held that said judge had no standing to file the petition
because he was merely a nominal or formal party-respondent
underSection 5 of Rule 65 of the Rules of Court. He should not appear as
a party seeking the reversal of a decision that is unfavorable to the action
taken by him. The Court there said:
"Judge Calderon should be reminded of the well-known
doctrine that a judge should detach himself from cases where
his decision is appealed to a higher court for review. The raison
d'etre for such doctrine is the fact that a judge is not an active
combatant in such proceeding and must leave the opposing
parties to contend their individual positions and for the appellate
court to decide the issues without his active participation. By
filing this case, petitioner in a way ceased to be judicial and has
become adversarial instead." 38
While the petition in G.R. No. 92735 does not expressly show
whether or not Judge Purisima himself is personally interested in the
disposition of this petition or he was just inadvertently named as
petitioner by the real parties in interest, the fact that Judge Purisima is
named as petitioner has not escaped this Court's notice. Judges and
litigants should be reminded of the basic rule that courts or individual
judges are not supposed to be interested "combatants" in any litigation
they resolve.
Second. The petitioners contend that the inapplicability of the
limited liability rule to Aboitiz has already been decided on by no less than
this Court in G.R. No. 88159 as early as November 13, 1989 which was
subsequently declared as "law of the case" in G.R. No. 89757 on August
6, 1990. Herein petitioners cite the aforementioned cases in support of
their theory that the limited liability rule based on the real and
hypothecary nature of maritime law has no application in the cases at bar.
The existence of what petitioners insist is already the "law of the
case" on the matter of limited liability is at best illusory. Petitioners are
either deliberately misleading this Court or profoundly confused. As
elucidated in the case of Aboitiz Shipping Corporation vs. General
Accident Fire and Life Assurance Corporation, 39
 "An examination of the November 13, 1989 Resolution in
G.R. No. 88159 (pp. 280-282, Rollo) shows that the same
settles two principal matters, first of which is that the doctrine of
primary administrative jurisdiction is not applicable therein; and
second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of
common carriers.
"It should be pointed out, however, that the limited
liability discussed in said case is not the same one now in issue
at bar, but an altogether different aspect. The limited liability
settled in G.R. No. 88159 is that which attaches to cargo by
virtue of stipulations in the Bill of Lading, popularly known as
package limitation clauses, which in that case was contained in
Section 8 of the Bill of Lading and which limited the carrier's
liability to US$500.00 for the cargo whose value was therein
sought to be recovered. Said resolution did not tackle the matter
of the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law, which was not raised
therein, and which is the principal bone of contention in this
case. While the matters threshed out in G.R. No. 88159,
particularly those dealing with the issues on primary
administrative jurisdiction and the package liability limitation
provided in the Bill of Lading are now settled and should no
longer be touched, the instant case raises a completely different
issue." 40
Third. Petitioners asseverate that the judgments of the lower courts,
already final and executory, cannot be directly or indirectly altered,
modified, amended, reversed or invalidated.
The rule that once a decision becomes final and executory, it is the
ministerial duty of the court to order its execution, is not an absolute one.
We have allowed the suspension of execution in cases of special and
exceptional nature when it becomes imperative in the higher interest of
justice. 41 The unjust and inequitable effects upon various other claimants
against Aboitiz should we allow the execution of judgments for the full
indemnification of petitioners' claims impel us to uphold the stay of
execution as ordered by the respondent Court of Appeals. We reiterate
our pronouncement in Aboitiz Shipping Corporation vs. General Accident
Fire and Life Assurance Corporation on this very same issue.
"This brings us to the primary question herein which is
whether or not respondent court erred in granting execution of
the full judgment award in Civil Case No. 14425 (G.R. No.
89757), thus effectively denying the application of the limited
liability enunciated under the appropriate articles of the Code of
 Commerce. . . . . Collaterally, determination of the question of
whether execution of judgments which have become final and
executory may be stayed is also an issue.
"We shall tackle the latter issue first. This Court has
always been consistent in its stand that the very purpose for its
existence is to see the accomplishment of the ends of justice.
Consistent with this view, a number of decisions have originated
herefrom, the tenor of which is that no procedural consideration
is sacrosanct if such shall result in the subverting of justice. The
right to execution after finality of a decision is certainly no
exception to this. Thus, in Cabrias v. Adil (135 SCRA 355
[1885]). this Court ruled that:
'xxx xxx xxx
' . . . every court having jurisdiction to render a
particular judgment has inherent power to enforce it, and
to exercise equitable control over such enforcement. The
court has authority to inquire whether its judgment has
been executed, and will remove obstructions to the
enforcement thereof. Such authority extends not only to
such orders and such writs as may be necessary to
prevent an improper enforcement of the judgment. If a
judgment is sought to be perverted and made a medium
of consummating a wrong the court on proper application
can prevent it." 42
Fourth. Petitioners in G.R. No. 92735 aver that it was error for the
respondent Court of Appeals to allow Aboitiz the benefit of the limited
liability rule despite its failure to present evidence to prove its entitlement
thereto in the court below. Petitioners Monarch and Tabacalera remind
this Court that from the inception of G.R. No.92735 in the lower court and
all the way to the Supreme Court, Aboitiz had not presented an iota of
evidence to exculpate itself from the charge of negligence for the simple
reason that it was declared as in default. 43
It is true that for having been declared in default, Aboitiz was
precluded from presenting evidence to prove its defenses in the court a
quo. We cannot, however, agree with petitioners that this circumstance
prevents the respondent Court of Appeals from taking cognizance of
Aboitiz' defenses on appeal.
It should be noted that Aboitiz was declared as in default not for its
failure to file an answer but for its absence during pre-trial and the trial
proper. In Aboitiz' answer with counterclaim, it claimed that the sinking of
the M/V P. Aboitiz was due to an act of God or unforeseen event and that
the said ship had been seaworthy and fit for the voyage. Aboitiz also
alleged that it exercised the due diligence required by law, and that
considering the real and hypothecary nature of maritime trade, the
sinking justified the extinguishment of its liability for the lost shipment. 44
A judgment of default does not imply a waiver of rights except that
of being heard and presenting evidence in defendant's favor. It does not
imply admission by the defendant of the facts and causes of action of the
plaintiff, because the codal Section 45 requires the latter to adduce
evidence in support of his allegations as an indispensable condition
before final judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the plaintiff's causes of
action find support in the law or that the latter is entitled to the relief
prayed for. 46 This is especially true with respect to a defendant who had
filed his answer but had been subsequently declared in default for failing
to appear at the trial since he has had an opportunity to traverse, via his
answer, the material averments contained in the complaint. Such
defendant has a better standing than a defendant who has neither
answered nor appeared at trial. 47 The former should be allowed to
reiterate all affirmative defenses pleaded in his answer before the Court
of Appeals. Likewise, the Court of Appeals may review the correctness of
the evaluation of the plaintiffs evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue of
its entitlement to the limited liability rule for the first time on appeal thus,
the respondent Court of Appeals may properly rule on the same.
However, whether or not the respondent Court of Appeals erred in
finding, upon review, that Aboitiz is entitled to the benefit of the limited
liability rule is an altogether different matter which shall be discussed
below.
Rule on Limited Liability. The petitioners assert in common that the
vessel M/V P. Aboitiz did not sink by reason of force majeure but
because of its unseaworthiness and the concurrent fault and/or
negligence of Aboitiz, the captain and its crew, thereby barring Aboitiz
from availing of the benefit of the limited liability rule.
The principle of limited liability is enunciated in the following
provisions of the Code of Commerce:
ARTICLE 587. The ship agent shall also be civilly liable
for the indemnities in favor of third persons which may arise
from the conduct of the captain in the care of goods which he
loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all the equipments and the freight it
may have earned during the voyage.
 ARTICLE 590. The co-owners of a vessel shall be civilly
liable in the proportion of their interests in the common fund for
the results of the acts of the captain referred to in Art. 587. EHDCAI

Each co-owner may exempt himself from his liability by

the abandonment, before a notary, of the part of the vessel
belonging to him.
ARTICLE 837. The civil liability incurred by shipowners
in the case prescribed in this section, shall be understood as
limited to the value of the vessel with all its appurtenances and
the freightage served during the voyage.
Article 837 applies the principle of limited liability in cases of
collision, hence, Arts. 587 and 590 embody the universal principle of
limited liability in all cases. InYangco v. Laserna, 48 this Court elucidated
on the import of Art. 587 as follows:
"The provision accords a shipowner or agent the right of
abandonment; and by necessary implication, his liability is
confined to that which he is entitled as of right to abandon —
'the vessel with all her equipments and the freight it may have
earned during the voyage.' It is true that the article appears to
deal only with the limited liability of the shipowners or agents for
damages arising from the misconduct of the captain in the care
of the goods which the vessel carries, but this is a mere
deficiency of language and in no way indicates the true extent of
such liability. The consensus of authorities is to the effect that
notwithstanding the language of the aforequoted provision, the
benefit of limited liability therein provided for, applies in all cases
wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain." 49
"No vessel, no liability," expresses in a nutshell the limited liability
rule. The shipowner's or agent's liability is merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction.
The total destruction of the vessel extinguishes maritime liens because
there is no longer any res to which it can attach. 50 This doctrine is based
on the real and hypothecary nature of maritime law which has its origin in
the prevailing conditions of the maritime trade and sea voyages during
the medieval ages, attended by innumerable hazards and perils. To
offset against these adverse conditions and to encourage shipbuilding
and maritime commerce, it was deemed necessary to confine the liability
of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any. 51
Contrary to the petitioners' theory that the limited liability rule has
been rendered obsolete by the advances in modern technology which
considerably lessen the risks involved in maritime trade, this Court
continues to apply the said rule in appropriate cases. This is not to say,
however, that the limited liability rule is without exceptions, namely: (1)
where the injury or death to a passenger is due either to the fault of the
shipowner, or to the concurring negligence of the shipowner and the
captain; 52 (2) where the vessel is insured; and (3) in workmen's
compensation claims. 53
We have categorically stated that Article 587 speaks only of
situations where the fault or negligence is committed solely by the captain.
In cases where the ship owner is likewise to be blamed, Article 587 does
not apply. Such a situation will be covered by the provisions of the Civil
Code on common carriers. 54
A finding that a fortuitous event was the sole cause of the loss of
the M/V P. Aboitiz would absolve Aboitiz from any and all liability
pursuant to Article 1734(1) of the Civil Code which provides in part that
common carriers are responsible for the loss, destruction, or deterioration
of the goods they carry, unless the same is due to flood, storm,
earthquake, lightning, or other natural disaster or calamity. On the other
hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or
negligence of Aboitiz, the ship captain and crew of the M/V P. Aboitiz
would render inapplicable the rule on limited liability. These issues are
therefore ultimately questions of fact which have been subject of
conflicting determinations by the trial courts, the Court of Appeals and
even this Court.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after
receiving Monarch's and Tabacalera's evidence, the trial court found that
the complete loss of the shipment on board the M/V P. Aboitiz when it
sank was neither due to a fortuitous event nor a storm or natural cause.
For Aboitiz' failure to present controverting evidence, the trial court also
upheld petitioners' allegation that the M/V P. Aboitiz was
unseaworthy. 55 However, on appeal, respondent Court of Appeals
exculpated Aboitiz from fault or negligence and ruled that:
" . . . even if she (M/V P. Aboitiz) was found to be
unseaworthy, this fault (distinguished from civil liability) cannot
be laid on the shipowner's door. Such fault was directly
attributable to the captain. This is so, because under Art. 612 of
the Code of Commerce, among the inherent duties of a captain,
are to examine the vessel before sailing and to comply with the
laws on navigation." 56 ;
and that:
 " . . . although the shipowner may be held civilly liable for
the captain's fault . . . having abandoned the vessel in question,
even if the vessel was unseaworthy due to the captain's fault,
Aboitiz is still entitled to the benefit under the rule of limited
liability accorded to shipowners by the Code of Commerce." 57
Civil Case No. 138396 (now G.R. No. 95578) was similarly
resolved by the trial court, which found that the sinking of the M/V P.
Aboitiz was not due to an act of God or force majeure. It added that the
evidence presented by the petitioner Equitable demonstrated the
negligence of Aboitiz Shipping Corporation in the management and
operation of its vessel M/V P. Aboitiz. 58
However, Aboitiz' appeal was favorably acted upon by the
respondent Court of Appeals which reiterated its ruling in G.R.
No. 92735 that the seaworthiness of the M/V P. Aboitiz was not a fault
directly attributable to Aboitiz but to the captain, and that Aboitiz is
entitled to the benefit of the limited liability rule for having abandoned its
ship. 59
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial
court held that the M/V P. Aboitiz was not lost due to a fortuitous event
or force majeure, and that Aboitiz had failed to satisfactorily establish that
it had observed extraordinary diligence in the vigilance over the goods
transported by it. 60
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled
against Aboitiz and found that the sinking of the vessel was due to its
unseaworthiness and the failure of its crew and master to exercise
extraordinary diligence. 61 Subsequently, however, Aboitiz' petition
before the Court of Appeals, docketed as CA-G.R. SP No. 20844 (now
G.R. No. 94867) to annul and set aside the order of execution issued by
the lower court was resolved in favor of Aboitiz. The Court of Appeals
brushed aside the issue of Aboitiz' negligence and/or fault and proceeded
to allow the application of the limited liability rule "to accomplish the aims
of justice." 62 It elaborated thus: "To execute the judgment in this case
would prejudice the substantial right of other claimants who have filed
suits to claim their cargoes that was lost in the vessel that sank and also
against the petitioner to be ordered to pay more than what the law
requires. 63
It should be pointed out that the issue of whether or not the M/V P.
Aboitiz sank by reason of force majeure is not a novel one for that
question has already been the subject of conflicting pronouncements by
the Supreme Court. In Aboitiz Shipping Corporation v. Court of
Appeals, 64 this Court approved the findings of the trial court and the
appellate court that the sinking of the M/V P. Aboitiz was not due to the
waves caused by tropical storm "Yoning" but due to the fault and
negligence of Aboitiz, its master and crew. 65 On the other hand, in the
later case of Country Bankers Insurance Corporation v. Court of
Appeals, 66 this Court issued a Resolution on August 28, 1991 denying
the petition for review on the ground that the Court of Appeals committed
no reversible error, thereby affirming and adopting as its own, the findings
of the Court of Appeals that force majeure had caused the M/V P. Aboitiz
to founder.
In view of these conflicting pronouncements, we find that now is
the opportune time to settle once and for all the issue of whether or
not force majeure had indeed caused the M/V P. Aboitiz to sink. After
reviewing the records of the instant cases, we categorically state that by
the facts on record, the M/V P. Aboitiz did not go under water because of
the storm "Yoning."
It is true that as testified by Justo Iglesias, meteorologist of
Pag-Asa, during the inclusive dates of October 28-31, 1980, a stormy
weather condition prevailed within the Philippine area of responsibility,
particularly along the sea route from Hong Kong to Manila, because of
tropical depression "Yoning." 67 But even Aboitiz' own evidence in the
form of the marine protest filed by Captain Racines affirmed that the wind
force when the M/V P. Aboitiz foundered on October 31, 1980 was only
ten (10) to fifteen (15) knots which, under the Beaufort Scale of Wind,
falls within scale No. 4 that describes the wind velocity as "moderate
breeze," and characterizes the waves as "small . . . becoming longer,
fairly frequent white horses." 68 Captain Racines also testified in open
court that the ill-fated M/V P. Aboitiz was two hundred (200) miles away
from storm "Yoning" when it sank. 69
The issue of negligence on the part of Aboitiz, and the captain and
crew of the M/V P. Aboitiz has also been subject of conflicting rulings by
this Court. In G.R. No. 100373, Country Bankers Insurance Corporation v.
Court of Appeals, this Court found no error in the findings of the Court of
Appeals that the M/V P. Aboitiz sank by reason of force majeure, and that
there was no negligence on the part of it officers and crew. In direct
contradiction is this Court's categorical declaration in Aboitiz Shipping
Corporation v. Court of Appeals, 70 to wit:
"The trial court and the appellate court found that the
sinking of the M/V P. Aboitiz was not due to the waves caused
by tropical storm "Yoning" but due to the fault and negligence of
petitioner, its master and crew. The court reproduces with
approval said findings . . . . " 71
 However, in the subsequent case of Aboitiz Shipping Corporation v.
General Accident Fire and Life Assurance Corporation, Ltd., 72 this Court
exculpated Aboitiz from fault and/or negligence while holding that the
unseaworthiness of the M/V P. Aboitiz was only attributable to the
negligence of its captain and crew. Thus,
"On this point, it should be stressed that
unseaworthiness is not a fault that can be laid squarely on
petitioner's lap, absent a factual basis for such conclusion. The
unseaworthiness found in some cases where the same has
been ruled to exist is directly attributable to the vessel's crew
and captain, more so on the part of the latter since Article 612 of
the Code of Commerce provides that among the inherent duties
of a captain is to examine a vessel before sailing and to comply
with the laws of navigation. Such a construction would also put
matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain
and crew of the vessel was not sustained for lack of basis, the
finding therein contained to the effect that the vessel was
seaworthy deserves merit. Despite appearances, it is not totally
incompatible with the findings of the trial court and the Court of
Appeals, whose finding of "unseaworthiness" clearly did not
pertain to the structural condition of the vessel which is the
basis of the BMI's findings, but to the condition it was in at the
time of the sinking, which condition was a result of the acts of
the captain and the crew." 73
It therefore becomes incumbent upon this Court to answer with
finality the nagging question of whether or not it was the concurrent fault
and/or negligence of Aboitiz and the captain and crew of the ill-fated
vessel that had caused it to go under water.
Guided by our previous pronouncements and illuminated by the
evidence now on record, we reiterate our findings in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd., 74 that the unseaworthiness of the M/V P. Aboitiz had caused it to
founder. We, however, take exception to the pronouncement therein that
said unseaworthiness could not be attributed to the ship owner but only to
the negligent acts of the captain and crew of the M/V P. Aboitiz. On the
matter of Aboitiz' negligence, we adhere to our ruling in Aboitiz Shipping
Corporation v. Court of Appeals, 75 that found Aboitiz, and the captain
and crew of the M/V P. Aboitiz to have been concurrently negligent.
During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R.
No. 92735) petitioners Monarch and Tabacalera presented a survey from
Perfect Lambert, a surveyor based in Hong Kong that conducted an
investigation on the possible cause of the sinking of the vessel. The said
survey established that the cause of the sinking of the vessel was the
leakage of water into the M/V P. Aboitiz which probably started in the
forward part of the No. 1 hull, although no explanation was proffered as to
why the No. 2 hull was likewise flooded. Perfect Lambert surmised that
the flooding was due to a leakage in the shell plating or a defect in the
water tight bulk head between the Nos. 1 and 2 holds which allowed the
water entering hull No. 1 to pass through hull No. 2. The surveyor
concluded that whatever the cause of the leakage of water into these
hulls, the seaworthiness of the vessel was definitely in question because
the breaches of the hulls and serious flooding of the two cargo holds
occurred simultaneously in seasonal weather. 76
We agree with the uniform finding of the lower courts that Aboitiz
had failed to prove that it observed the extraordinary diligence required of
it as a common carrier. We therefore reiterate our pronouncement
in Aboitiz Corporation v. Court of Appeals 77 on the issue of Aboitiz'
liability in the sinking of its vessel, to wit:
"In accordance with Article 1732 of the Civil Code, the
defendant common carrier from the nature of its business and
for reasons of public policy, is bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to all circumstances of
the case. While the goods are in the possession of the carrier, it
is but fair that it exercise extraordinary diligence in protecting
them from loss or damage, and if loss occurs, the law presumes
that it was due to the carrier's fault or negligence; that is
necessary to protect the interest of the shipper which is at the
mercy of the carrier . . . . In the case at bar, the defendant failed
to prove that the loss of the subject cargo was not due to its fault
or negligence." 78
The failure of Aboitiz to present sufficient evidence to exculpate
itself from fault and/or negligence in the sinking of its vessel in the face of
the foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of the
M/V P. Aboitiz. This is in accordance with the rule that in cases involving
the limited liability of shipowners, the initial burden of proof of negligence
or unseaworthiness rests on the claimants. However, once the vessel
owner or any party asserts the right to limit its liability, the burden of proof
as to lack of privity or knowledge on its part with respect to the matter of
negligence or unseaworthiness is shifted to it. 79 This burden, Aboitiz had
unfortunately failed to discharge. That Aboitiz failed to discharge the
burden of proving that the unseaworthiness of its vessel was not due to
its fault and/or negligence should not however mean that the limited
liability rule will not be applied to the present cases. The peculiar
circumstances here demand that there should be no strict adherence to
procedural rules on evidence lest the just claims of shippers/insurers be
frustrated. The rule on limited liability should be applied in accordance
with the latest ruling in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd., 80 promulgated on January 21,
1993, that claimants be treated as "creditors in an insolvent corporation
whose assets are not enough to satisfy the totality of claims against
it." 81 To do so, the Court set out in that case the procedural guidelines:
"In the instant case, there is, therefore, a need to collate
all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having
completed its action earlier than the rest. Thus, execution of
judgment in earlier completed cases, even those already final
and executory must be stayed pending completion of all cases
occasioned by the subject sinking. Then and only then can all
such claims be simultaneously settled, either completely or
pro-rata should the insurance proceeds and freightage be not
enough to satisfy all claims. cDHAaT

xxx xxx xxx

"In fairness to the claimants, and as a matter of
equity, the total proceeds of the insurance and pending
freightage should now be deposited in trust. Moreover,
petitioner should institute the necessary limitation and
distribution action before the proper admiralty court within 15
days from finality of this decision, and thereafter deposit with it
the proceeds from the insurance company and pending
freightage in order to safeguard the same pending final
resolution of all incidents, for final pro-rating and settlement
thereof." 82 (emphasis supplied.).
There is no record that Aboitiz has instituted such action or that it
has deposited in trust the insurance proceeds and freightage earned.
The pendency of the instant cases before the Court is not a reason for
Aboitiz to disregard the aforementioned order of the Court. In fact, had
Aboitiz complied therewith, even these cases could have been
terminated earlier. We are inclined to believe that instead of filing the suit
as directed by this Court, Aboitiz tolerated the situation of several
complainants waiting to get hold of its insurance proceeds, which, if
correctly handled must have multiplied in amount by now. By its failure to
abide by the order of this Court, it had caused more damage to the
claimants over and above that which they have endured as a direct
consequence of the sinking of the M/V P. Aboitiz. It was obvious that from
among the many cases filed against it over the years, Aboitiz was waiting
for a judgment that might prove favorable to it, in blatant violation of the
basic provisions of the Civil Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to
litigate the claims singly rather than exert effort towards the consolidation
of all claims. Consequently, courts have arrived at conflicting decisions
while claimants waited over the years for a resolution of any of the cases
that would lead to the eventual resolution of the rest. Aboitiz failed to give
the claimants their due and to observe honesty and good faith in the
exercise of its rights. 83
Aboitiz' blatant disregard of the order of this Court in Aboitiz
Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd. 84 cannot be anything but willful on its part. An act is
considered willful if it is done with knowledge of its injurious effect; it is not
required that the act be done purposely to produce the injury. 85 Aboitiz is
well aware that by not instituting the said suit, it caused the delay in the
resolution of all claims against it. Having willfully caused loss or injury to
the petitioners in a manner that is contrary to morals, good customs or
public policy, Aboitiz is liable for damages to the latter. 86
Thus, for its contumacious act of defying the order of this Court to
file the appropriate action to consolidate all claims for settlement, Aboitiz
must be held liable for moral damages which may be awarded in
appropriate cases under the chapter on human relations of the Civil Code
(Articles 19 to 36). 87
On account of Aboitiz' refusal to satisfy petitioners' claims in
accordance with the directive of the Court in Aboitiz Shipping Corporation
v. General Accident Fire and Life Assurance Corporation, Ltd., it acted in
gross and evident bad faith. Accordingly, pursuant to Article 2208 of the
Civil Code, 88 petitioners should be granted attorney's fees.
WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and
95578 are DENIED. The decisions of the Court of Appeals in CA-G.R. No.
SP-17427 dated March 29, 1990, CA-G.R. SP No. 20844 dated August
15, 1990, and CA-G.R. CV No. 15071 dated August 24, 1990 are
AFFIRMED with the MODIFICATION that respondent Aboitiz Shipping
Corporation is ordered to pay each of the respective petitioners the
amounts of P100,000.00 as moral damages and P50,000.00 as
attorney's fees, and treble the cost of suit.
Respondent Aboitiz Shipping Corporation is further directed to
comply with the Order promulgated by this Court on January 21, 1993
in Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd., G.R. No. 100446, January 21, 1993, to (a)
institute the necessary limitation and distribution action before the proper
Regional Trial Court, acting as admiralty court, within fifteen (15) days
from the finality of this decision, and (b) thereafter to deposit with the said
court the insurance proceeds from the loss of the vessel, M/V P. Aboitiz,
and the freightage earned in order to safeguard the same pending final
resolution of all incidents relative to the final pro-rating thereof and to the
settlement of all claims.
SO ORDERED.
Bellosillo (Acting C.J.), Mendoza, Quisumbing and Buena,
JJ., concur.

||| [G.R. No. 51165. June 21, 1990.]

HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF

ERNANIE DELOS SANTOS, HEIRS OF AMABELLA
DELOS SANTOS, HEIRS OF LENNY DELOS SANTOS,
HEIRS OF MELANY DELOS SANTOS, HEIRS OF
TERESA PAMATIAN, HEIRS OF DIEGO SALEM, AND
RUBEN REYES, petitioners, vs. HONORABLE COURT
OF APPEALS AND COMPANIA
MARITIMA, respondents.

Severino Z. Macavinta, Jr. for petitioners.

Dinglasan Law Office for private respondent.

SYLLABUS

1. COMMERCIAL LAW; MARITIME COMMERCE; LIABILITY OF SHIP

AGENT; RULE AND EXCEPTION. — Under Art. 587 of the Code of
Commerce, a shipowner or agent has the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled
as of right to abandon — "the vessel with all her equipment's and the
freight it may have earned during the voyage" (Yangco v. Laserna, et al.,
73 Phil. 330, 332). Notwithstanding the passage of the New Civil Code,
Article 587 of the Code of Commerce is still good law. The reason lies in
the peculiar nature of maritime law is which is "exclusively real and
hypothecary that operates to limit such liability to the value of the vessel,
or to the insurance thereon, if any (Yangco v. Laserna, ibid). As correctly
stated by the appellate court, "(t)his rule is found necessary to offset
against the innumerable hazards and perils of a sea voyage and to
encourage shipbuilding and marine commerce. (Decision, Rollo, p. 29).
Contrary to the petitioners' supposition, the limited liability doctrine
applies not only to the goods but also in all cases like death or injury to
passengers wherein the shipowner or agent may properly be held liable
for the negligent or illicit acts of the captain (Yangco v. Laserna, ibid). It
must be stressed at this point that Article 587 speaks only of situations
where the fault or negligence is committed solely by the captain.
2. CIVIL LAW; COMMON CARRIER; TASKED TO OBSERVE
EXTRA-ORDINARY DILIGENCE IN THE VIGILANCE OVER THE
GOODS AND SAFETY OF ITS PASSENGERS. — In cases where the
shipowner is likewise to be blamed, Article 587 does not apply (see
Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38). Such
a situation will be covered by the provisions of the New Civil Code on
Common Carriers. Owing to the nature of their business and for reasons
of public policy, common carriers are tasked to observe extraordinary
diligence in the vigilance over the goods and for the safety of its
passengers (Article 1733, New Civil Code). Further, they are bound to
carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances (Article 1755, New Civil Code).
Whenever death or injury to a passenger occurs, common carriers are
presumed to have been at fault or to have acted negligently unless they
prove that they observed extraordinary diligence as prescribed by
Articles 1733 and 1755 (Article 1756, New Civil Code).
3. ID.; ID.; ID.; NOT OBSERVED IN CASE AT BAR. — Maritime presents
evidence of the seaworthy condition of the ship prior to its departure to
prove that it exercised extraordinary diligence in this case. M/V Mindoro
was dry-docked for about a month. Necessary repairs were made on the
ship. Life saving equipment and navigational instruments were installed.
While indeed it is true that all these things were done on the vessel,
Maritima, however, could not present evidence that it specifically
installed a radar which could have allowed the vessel to navigate safely
for shelter during a storm. Consequently, the vessel was left at the mercy
of 'Welming' in the open sea because although it was already in the
vicinity of the Aklan river, it was unable to enter the mouth of Aklan River
to get into New Washington, Aklan due to darkness and the Floripon
Lighthouse at the entrance of the Aklan River was not functioning or
could not be seen at all (Exh. 3-H, Index of Exhibits, p. 192-195; see also
Exh. 2-A, ibid, p. 160). Storms and typhoons are not strange occurrences.
In 1967 alone before 'Welming,' there were about 17 typhoons that hit the
country (Exh. M, Index of Exhibits, p. 115), the latest of which was
typhoon Uring which occurred on October 20-25, which cost so much
damage to lives and properties. With the impending threat of 'Welming,'
an important device such as the radar could have enabled the ship to
pass through the river and to safety. The foregoing clearly demonstrates
that Maritima's lack of extraordinary diligence coupled with the
negligence of the captain as found by the appellate court were the
proximate causes of the sinking of M/V Mindoro. Hence, Maritima is liable
for the deaths and injury of the victims.
4. ID.; MORAL DAMAGES; RECOVERY THEREOF IN AN ACTION
BASED ON BREACH OF CONTRACT OF TRANSPORTATION; RULE
AND EXCEPTION; CASE AT BAR. — Reyes' claim for moral damages
cannot be granted inasmuch as the same is not recoverable in damage
action based on the breach of contract of transportation under Articles
2219 and 2220 of the New Civil Code except (1) where the mishap
resulted in the death of a passenger and (2) where it is proved that the
carrier was guilty of fraud or bad faith, even if death does not result (Rex
Taxicab Co., Inc. v. Bautista, 109 Phil. 712). The exceptions do not apply
in this case since Reyes survived the incident and no evidence was
presented to show that Maritima was guilty of bad faith. Mere
carelessness of the carrier does not per se constitute or justify an
inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v.
Bautista, supra).

DECISION

MEDIALDEA, J : p

This petition for review on certiorari seeks to set aside the decision of the
Court of Appeals in CA-G.R. No. 58118-R affirming the decision in Civil
Case No. 74593 of the then Court of First Instance (now Regional Trial
Court), Branch XI, Manila which dismissed the petitioners' claim for
damages against Compania Maritima for the injury to and death of the
victims as a result of the sinking of M/V Mindoro on November 4, 1967.
The trial court found the antecedent facts to be as follows:
"This is a complaint originally filed on October 21, 1968 (p. 1,
rec.) and amended on October 24, 1968 (p. 16 rec.) by the heirs
of Delos Santos and others as pauper litigants against the
Compania Maritima, for damages due to the death of several
passengers as a result of the sinking of the vessel of defendant,
the M/V 'Mindoro', on November 4, 1967.
"There is no dispute in the record that the M/V 'Mindoro' sailed
from pier 8 North Harbor, Manila, on November 2, 1967 at about
2:00 (should have been 6:00 p.m.) in the afternoon bound for
New Washington, Aklan, with many passengers aboard. It
appears that said vessel met typhoon 'Welming' on the Sibuyan
Sea, Aklan, at about 5:00 in the morning of November 4, 1967
causing the death of many of its passengers, although about
136 survived.
"Mauricio delos Santos declared that on November 2, 1967 he
accompanied his common-law wife, Amparo delos Santos, and
children, namely: Romeo, Josie, Hernani, who was 10 years old,
Abella, 7 years old, Maria Lemia, 5 years old and Melany, 5
months old, to pier 8, North Harbor, Manila, to board the M/V
'Mindoro' bound for Aklan. It appears that Amparo delos Santos
and the aforesaid children brought all their belongings, including
household utensils valued at P1,000.00, with the intention of
living in Aklan permanently.
"As already stated, the boat met typhoon 'Welming' and due to
the strong waves it sank causing the drowning of many
passengers among whom were Amparo delos Santos and all
the aforesaid children. It appears also that Teresa Pamatian
and Diego Salim, who were also passengers also drowned.
Plaintiff Ruben Reyes was one of the survivors.
"The plaintiffs presented the birth and death certificates of
Amparo delos Santos and the children (Exhs. I, I-1, J, J-1, K,
K-1, L, L-1, O to S, pp. 180 to 194 rec.). They also presented
copies of the manifest of passengers of the M/V 'Mindoro' on
November 2, 1967 (Exhs. B & C, pp. 163 to 161 rec.).
"Eliadora Crisostomo de Justo, one of the survivors,
corroborated the testimony of Mauricio delos Santos that he
accompanied Amparo delos Santos and her children to the port
to board the M/V Mindoro. She is a cousin of Amparo delos
Santos' husband. According to her, when she boarded the
second deck of the vessel, she saw about 200 persons therein.
She tried to see whether she could be accommodated in the
third deck or first deck because the second deck was very
crowded. She admitted that she was not included in the
manifest because she boarded the boat without a ticket, but she
purchased one in the vessel. She testified further that the boat
was not able to reach its destination due to its sinking. During
the typhoon before the vessel sunk, she was able to board a
'balsa.'
"Ruben Reyes, the other survivor, declared that he paid for his
ticket before boarding the M/V Mindoro. At that time he had with
him personal belongings and cash all in the amount of
P2,900.00. It appears that Felix Reyes Jakusalem, Teresa
Pamatian and Amparo delos Santos drowned during the sinking
of the vessel. He was able to swim on (sic) an island and was
with the others, rescued later on and brought to the hospital.
The survivors were then taken ashore (Exh. M, p. 188, rec.).
"Dominador Salim declared that Teresa Pamatian, his aunt and
Diego Salim, his father, drowned along with the sinking of the
M/V Mindoro. This witness declared that he accompanied both
his father and his aunt to the pier to board the boat and at the
time Teresa Pamatian was bringing cash and personal
belongings of about P250.00 worth. His father brought with him
P200.00 in cash plus some belongings. He admitted that when
his father boarded the vessel he did not have yet a ticket.
"The plaintiffs further submitted in evidence a copy of a
Radio-gram stating among other things that the M/V Mindoro
was loaded also with 3,000 cases of beer, one dump truck and
292 various goods (Exhs. D and D-1, p. 162 rec).

"In alleging negligence on the part of the vessel, plaintiffs

introduced in evidence a letter sent to the Department of Social
Welfare concerning the resurvey of the M/V 'Mindoro' victims
(Exh. F, p. 169 rec.) and a telegram to the Social Welfare
Administration (Exh. G, p. 170 rec.), are survey of the M/V
'Mindoro' victims (Exh. H, p. 171 rec.), a complete list of the M/V
'Mindoro' victims (Exhs. H-1 to H-8, pp. 172-179 rec.), a certified
true copy of the Special Permit to the Compania Maritima
issued by the Bureau of Customs limiting the vessel to
only 193 passengers (Exh. X, p. 318 rec.).
"It appears that in a decision of the Board of Marine Inquiry,
dated February 2, 1970, it was found that the captain and some
officers of the crew were negligent in operating the vessel and
imposed upon them a suspension and/or revocation of their
license certificates. It appears, however, that this decision
cannot be executed against the captain who perished with the
vessel (Exhs. E, E-1, E-1-A, E-2 to E-9, pp. 163-168 rec.).
"Upon agreement of the parties, the plaintiffs also introduced in
evidence the transcript of stenographic notes of the testimony of
Boanerjes Prado before Branch I of this Court (Exh. U, pp.
203-220) and that of Felimon Rebaño in the same branch (Exh.
V, pp. 225-260 rec.).
"The defendant alleges that no negligence was ever
established and, in fact, the ship owners and their officers took
all the necessary precautions in operating the vessel.
Furthermore, the loss of lives as a result of the drowning of
some passengers, including the relatives of the herein plaintiffs,
was due to force majeure because of the strong typhoon
'Welming.' It appears also that there was a note of marine
protest in connection with the sinking of the vessel as
substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-D, 3-E, 3-F
and 3-G rec.). On this score Emer Saul, member of the PC
Judge Advocate General's Office, brought to Court records of
this case which were referred to their office by the Board of
Marine Inquiry. According to him the decision referred to by the
plaintiffs was appealed to the Department of National Defense,
although he did not know the result of the appeal. At any rate,
he knew that the Department of National Defense remanded the
case to the Board of Marine Inquiry for further investigation. In
the second indorsement signed by Efren I. Plana,
Undersecretary of National Defense, it is stated, among other
things, that the hearings of the Board of Marine Inquiry wherein
the Philippine Coast Guard made the decision lacked the
necessary quorum as required by Section 827 of the Tariff and
Customs Code. Moreover, the decision of the Commandant of
the Philippine Coast Guard relied principally on the findings
reached by the Board of Officers after an ex-parte investigation
especially in those aspects unfavorable to the captain (Exh. 1,
folder of exhibits).
"It appears also that there were findings and recommendations
made by the Board of Marine Inquiry, dated March 5, 1968,
recommending among other things that the captain of the M/V
'Mindoro,' Felicito Irineo, should be exonerated. Moreover,
Captain Irineo went down with the vessel and his lips are
forever sealed and could no longer defend himself. This body
also found that the ship's compliment (sic) and crew were all
complete and the vessel was in seaworthy condition. If the M/V
'Mindoro' sank, it was through force majeure (Exhs. 2 & 2-A,
folder of exhibits).
"Defendant also introduced in evidence the transcripts of
stenographic notes of the testimony of Francisco Punzalan,
marine officer, as well as of Abelardo F. Garcia, Harbor Pilot in
Zamboanga City, in Civil Case No. Q-12473 of Branch XXVIII,
Court of First Instance of Rizal, Quezon City Branch (Exhs. 3-H
& 10-H, folder of exhibits), and of Arturo Ilagan, boat captain, in
Civil Case No. Q-15962 of Branch V, of the same Court (Exh. 9
folder of exhibits).
 "It appears that five other vessels left the pier at Manila on
November 2, 1967, aside from the M/V 'Mindoro' (Exhs 4 & 4-A).
A certification of the Weather Bureau indicated the place of
typhoon 'Welming' on November 2, 1967 (Exh. 6). A certification
of the shipyard named El Varadero de Manila stated among
other things that the M/V 'Mindoro' was dry-docked from August
25 to September 6, 1967 and was found to be in a seaworthy
condition (Exh. 5), and that the said M/V 'Mindoro' was duly
inspected by the Bureau of Customs (Exhs. 7, 7-A & 7-B).
Another certification was introduced stating among other things
that the Bureau of Customs gave a clearance to the M/V
'Mindoro' after inspection (Exh. 8 folder of exhibits)." (CFI
Decision, Records, pp. 468-471)
On the basis of these facts, the trial court sustained the position of private
respondent Compania Maritima (Maritima, for short) and issued a
decision on March 27, 1974, to wit:
"WHEREFORE, the Court finds that in view of lack of sufficient
evidence, the case be, as it is hereby DISMISSED.
For lack of evidence, the counterclaim is also hereby
DISMISSED.
IT IS SO ORDERED." (Records, p. 474)
Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court
of Appeals. As earlier mentioned, the appellate court affirmed the
decision on appeal. While it found that there was concurring negligence
on the part of the captain which must be imputable to Maritima, the Court
of Appeals ruled that Maritima cannot be held liable in damages based on
the principle of limited liability of the shipowner or ship agent under Article
587 of the Code of Commerce.
The heirs and Reyes now come to Us with the following assignment of
errors:
"ERROR I
THE HONORABLE RESPONDENT COURT OF APPEALS
ERRED IN NOT CONCENTRATING TO (sic) THE PROVISION
OF LAW IN THE NEW CIVIL CODE AS EXPRESSED IN, —
'Art. 1766. In all matters not regulated by this Code, the
rights and obligations of common carriers shall be
governed by the Code of Commerce and by special
laws.'
ERROR II
 RESPONDENT COURT OF APPEALS ERRED IN NOT
REVERSING THE DECISION OF THE LOWER COURT OF
ORIGIN AFTER FINDING A SERIES OF FAULTS AND
NEGLIGENCE AND IN NOT ORDERING ITS
CO-RESPONDENT COMPANIA MARITIMA TO PAY THE
DAMAGES IN ACCORDANCE WITH THE LAW.
ERROR III
THE HONORABLE RESPONDENT COURT OF APPEALS
ERRED TO NOTE, OBSERVE AND COMPREHEND THAT
ART. 587 OF THE CODE OF COMMERCE IS ONLY FOR THE
GOODS WHICH THE VESSEL CARRIED AND DO NOT
INCLUDE PERSONS." (Rollo, p.8).
The petition has merit. At the outset, We note that there is no dispute as
to the finding of the captain's negligence in the mishap. The present
controversy centers on the questions of Maritima's negligence and of the
application of Article 587 of the Code of Commerce. The said article
provides:
"Art. 587. The ship agent shall also be civilly liable for
indemnities in favor of third persons which may arise from the
conduct of the captain in the care of the goods which he loaded
on the vessel, but he may exempt himself therefrom by
abandoning the vessel with all her equipment's and the freight it
may have earned during the voyage."
Under this provision, a shipowner or agent has the right of
abandonment; and by necessary implication, his liability is confined to
that which he is entitled as of right to abandon — "the vessel with all
her equipment's and the freight it may have earned during the voyage"
(Yangco v. Laserna, et al., 73 Phil. 330, 332). Notwithstanding the
passage of the New Civil Code, Article 587 of the Code of Commerce
is still good law. The reason lies in the peculiar nature of maritime law
is which is "exclusively real and hypothecary that operates to limit
such liability to the value of the vessel, or to the insurance thereon, if
any (Yangco v. Laserna, ibid). As correctly stated by the appellate
court, "(t)his rule is found necessary to offset against the innumerable
hazards and perils of a sea voyage and to encourage shipbuilding and
marine commerce. (Decision, Rollo, p. 29). Contrary to the petitioners'
supposition, the limited liability doctrine applies not only to the goods
but also in all cases like death or injury to passengers wherein the
shipowner or agent may properly be held liable for the negligent or
illicit acts of the captain (Yangco v. Laserna, ibid). It must be stressed
at this point that Article 587 speaks only of situations where the fault or
negligence is committed solely by the captain. In cases where the
 shipowner is likewise to be blamed, Article 587 does not apply (see
Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38).
Such a situation will be covered by the provisions of the New Civil
Code on Common Carriers. Owing to the nature of their business and
for reasons of public policy, common carriers are tasked to observe
extraordinary diligence in the vigilance over the goods and for the
safety of its passengers (Article 1733, New Civil Code). Further, they
are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances (Article 1755,
New Civil Code). Whenever death or injury to a passenger occurs,
common carriers are presumed to have been at fault or to have acted
negligently unless they prove that they observed extraordinary
diligence as prescribed by Articles 1733 and 1755 (Article 1756, New
Civil Code).
Guided by the above legal provisions, We painstakingly reviewed the
records of the case and found imprints of Maritima's negligence which
compel Us to reverse the conclusion of the appellate court.
Maritima claims that it did not have any information about typhoon
'Welming' until after the boat was already at sea. Modern technology
belie such contention. The Weather Bureau is now equipped with modern
apparatus which enables it to detect any incoming atmospheric
disturbances. In his summary report on tropical cyclone 'Welming' which
occurred within the Philippine Area of Responsibility, Dr. Roman L.
Kintanar, Weather Bureau Director, stated that during the periods of
November 1-5, 1967, the Bureau issued a total of seventeen (17)
warnings or advisories of typhoon 'Welming' to shipping companies.
Additionally, he reported that:

"By 11:15 a.m. of November 1st, or in less than twenty four

hours, the storm intensified into a typhoon. It was by then
located at 8.7 N 137.3 E with sea level pressure of 978 millibars,
an eye diameter of about 18.53 kilometers and a maximum
surface wind of 139 kilometers per hour.
"As it moved along in the open sea, it intensified further and by
11:07 a.m. of November 2, when its center was at 103 N 131.4
E, it had attained surface winds of about 240 kilometers per
hour . . ." (Exh. Z, p. 131, Index of Exhibits, p. 115, emphasis
ours).
Considering the above report and the evidence on record showing the
late departure of the ship at 6:00 p.m. (instead of the scheduled 2:00
 p.m. departure) on November 2, 1967, We find it highly improbable
that the Weather Bureau had not yet issued any typhoon bulletin at
any time during the day to the shipping companies. Maritima
submitted no convincing evidence to show this omission. It's evidence
showing the Weather Bureau's forecast of November 3, 1967 is not
persuasive. It merely indicated the weather bulletin of that day.
Nowhere could We find any statement therein from the Weather
Bureau that it had not issued any forecast on November 1 and 2, 1967
(Exh. 6, Records, p. 257). Significantly, the appellate court found that
the ship's captain through his action showed prior knowledge of the
typhoon. The court said:
". . . It cannot be true that he was apprised of the typhoon only at
about 11:00 o'clock the following morning on November 3, 1967
when the Weather report was transmitted to him from the
Weather Bureau at which time he plotted its position. For in his
radiogram sent to defendant-appellee's office in Manila as early
as 8:07 in the morning of November 3, 1967 (Exh. D) he states
in the concluding portion 'still observing weather condition.'
thereby implicitly suggesting that he had known even before
departure of the unusual weather condition . . ." (Decision, Rollo,
p. 26)
If the captain knew of the typhoon beforehand, it is inconceivable for
Maritima to be totally in the dark of 'Welming.' In allowing the ship to
depart late from Manila despite the typhoon advisories, Maritima
displayed lack of foresight and minimum concern for the safety of its
passengers taking into account the surrounding circumstances of the
case.
While We agree with the appellate court that the captain was negligent for
overloading the ship, We, however, rule that Maritima shares equally in
his negligence. We find that while M/V Mindoro was already cleared by
the Bureau of Customs and the Coast Guard for departure at 2:00 p.m.
the ship's departure was, however, delayed for four hours. Maritima could
not account for the delay because it neither checked from the captain the
reasons behind the delay nor sent its representative to inquire into the
cause of such delay. It was due to this interim that the appellate court
noted that "(i)indeed there is a great probability that unmanifested cargo
(such as dump truck, 3 Toyota cars, steel bars, and 6,000 beer cases)
and passengers (about 241 more than the authorized 193 passengers)
were loaded during the four (4) hour interval" (Decision, p. 13, Rollo, p.
26). Perchance, a closer supervision could have prevented the
overloading of the ship. Maritima could have directed the ship's captain to
immediately depart in view of the fact that as of 11:07 in the morning of
November 2, 1967, the typhoon had already attained surface winds of
about 240 kilometers per hour. As the appellate court stated, "(v)erily, if it
were not for this delay, the vessel could have reached (its) destination
and thereby have avoided the effects of the storm" (Decision, Rollo p. 26).
This conclusion was buttressed by evidence that another ship, M/V
Mangaren, an inter island vessel, sailed for New Washington, Aklan on
November 2, 1967, ahead of M/V Mindoro and took the same route as the
latter but it arrived safely (Exh. BB-2, Index of Exhibits, pp. 143-144 and
Exh. 4-A, ibid, p. 254).
Maritima presents evidence of the seaworthy condition of the ship prior to
its departure to prove that it exercised extraordinary diligence in this case.
M/V Mindoro was dry-docked for about a month. Necessary repairs were
made on the ship. Life-saving equipment and navigational instruments
were installed.
While indeed it is true that all these things were done on the vessel,
Maritima, however, could not present evidence that it specifically
installed a radar which could have allowed the vessel to navigate safely
for shelter during a storm. Consequently, the vessel was left at the mercy
of 'Welming' in the open sea because although it was already in the
vicinity of the Aklan river, it was unable to enter the mouth of Aklan River
to get into New Washington, Aklan due to darkness and the Floripon
Lighthouse at the entrance of the Aklan River was not functioning or
could not be seen at all (Exh. 3-H, Index of Exhibits, p. 192-195; see also
Exh. 2-A, ibid, p. 160). Storms and typhoons are not strange occurrences.
In 1967 alone before 'Welming,' there were about 17 typhoons that hit the
country (Exh. M, Index of Exhibits, p. 115), the latest of which was
typhoon Uring which occurred on October 20-25, which cost so much
damage to lives and properties. With the impending threat of 'Welming,'
an important device such as the radar could have enabled the ship to
pass through the river and to safety.
The foregoing clearly demonstrates that Maritima's lack of extraordinary
diligence coupled with the negligence of the captain as found by the
appellate court were the proximate causes of the sinking of M/V Mindoro.
Hence, Maritima is liable for the deaths and injury of the victims.
With the above finding, We now come to the amount of damages due to
the petitioners. Ordinarily, We would remand the case to the trial court for
the reception of evidence. Considering however, that this case has been
pending for almost twenty-three (23) years now and that since all the
evidence had already been presented by both parties and received by
the trial court, We resolve to decide the corresponding damages due to
petitioners (see Samal v. Court of Appeals, 99 Phil. 230; Del Castillo v.
Jaymalin, L-28256, March 17, 1982, 112 SCRA 629).
In their complaint filed with the Court of First Instance, petitioners prayed
for moral, actual and exemplary damages, as well as for attorney's fees
plus costs.
Under Article 1764 in relation to Article 2206 of the New Civil Code, the
amount of damages for the death of a passenger caused by the breach of
contract by a common carrier is at least three thousand pesos
(P3,000.00). The prevailing jurisprudence has increased the amount of
P3,000.00 to P30,000.00 (De Lima v. Laguna Tayabas Co., L-35697-99,
April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the
civil indemnity of P30,000.00 to the heirs of each of the victims. For
mental anguish suffered due to the deaths of their relatives, Maritima
should also pay to the heirs the sum of P10,000.00 each as moral
damages.
In addition, it was proven at the trial that at the time of death, (1) Amparo
delos Santos had with her cash in the sum of P1,000.00 and personal
belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum of
P250.00 and personal belongings worth P200.00; and (3) Diego Salem,
cash in the sum of P200.00 and personal belongings valued at P100.00.
Likewise, it was established that the heirs of Amparo delos Santos and
her deceased children incurred transportation and incidental expenses in
connection with the trial of this case in the amount of P500.00 while
Dominador Salem, son of victim Diego Salem and nephew of victim
Teresa Pamatian spent about P100.00 for expenses at the trial. With
respect to petitioner Reyes, the evidence shows that at the time of the
disaster, he had in his possession cash in the sum of P2,900.00 and
personal belongings worth P100.00. Further, due to the disaster, Reyes
was unable to work for three months due to shock and he was earning
P9.50 a day or in a total sum of P855.00. Also, he spent about P100.00
for court expenses. For such losses and incidental expenses at the trial of
this case, Maritima should pay the aforestated amounts to the petitioners
as actual damages.
Reyes' claim for moral damages cannot be granted inasmuch as the
same is not recoverable in damage action based on the breach of
contract of transportation under Articles 2219 and 2220 of the New Civil
Code except (1) where the mishap resulted in the death of a passenger
and (2) where it is proved that the carrier was guilty of fraud or bad faith,
even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109 Phil.
712). The exceptions do not apply in this case since Reyes survived the
incident and no evidence was presented to show that Maritima was guilty
of bad faith. Mere carelessness of the carrier does not per se constitute
or justify an inference of malice or bad faith on its part (Rex Taxicab Co.,
Inc. v. Bautista, supra).
Anent the claim for exemplary damages, We are not inclined to grant the
same in the absence of gross or reckless negligence in this case.
As regards the claim for attorney's fees, the records reveal that the
petitioners engaged the services of a lawyer and agreed to pay the sum
of P3,000.00 each on a contingent basis (see TSN's, July 21, 1971, p. 24;
November 3, 1971, pp. 18 and 29). In view hereof, We find the sum of
P10,000.00 as a reasonable compensation for the legal services
rendered.
ACCORDINGLY, the appealed decision is hereby REVERSED and
judgment is hereby rendered sentencing the private respondent to pay
the following: (1) P30,000.00 as indemnity for death to the heirs of each
of the victims; (2) P10,000.00 as moral damages to the heirs of each of
the victims; (3) P6,805.00 as actual damages divided among the
petitioners as follows: heirs of Amparo Delos Santos and her deceased
children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego
Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00 as
attorney's fees; and (5) the costs.

SO ORDERED.
||| [CA-No. 773 . December 17, 1946.]

DIONISIA ABUEG, ET AL., plaintiffs-appellees, vs.

BARTOLOME SAN DIEGO, defendant-appellant.

[CA-No. 774 . December 17, 1946.]

MARCIANA DE SALVACION, ET
AL., plaintiffs-appellees, vs.
BARTOLOME SAN DIEGO, defendant-appellant.

[CA-No. 775 . December 17, 1946.]

ROSARIO OCHING, ET AL., plaintiffs-appellees, vs.

BARTOLOME SAN DIEGO, defendant-appellant.

Lichauco, Picazo & Mejia, for appellant.

 Cecilio I. Lim and Roberto P. Ancog, for appellees.

SYLLABUS

1. MARITIME LAW; SHIPOWNER OR AGENT, ORIGIN OF

REAL AND HYPOTHECARY NATURE OF LIABILITY OF. — The real
and hypothecary nature of the liability of the shipowner or agent
embodied in provisions of the Maritime Law, Book III, Code of
Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by
innumerable hazards and perils. To offset against these adverse
conditions and to encourage shipbuilding and maritime commerce, it
was deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment, and
freight, or insurance, if any, so that if the shipowner or agent
abandoned the ship, equipment, and freight, his liability was
extinguished.
2. WORKMEN'S COMPENSATION ACT; PROVISIONS OF
CODE OF COMMERCE REGARDING MARITIME COMMERCE
WITHOUT EFFECT IN APPLICATION OF. — The provisions of the
Code of Commerce regarding maritime commerce have no room in
the application of the Workmen's Compensation Act which seeks to
improve, and aims at the amelioration of, the condition of laborers and
employees. Said Act creates a liability to compensate employees and
laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the heirs
and dependents of such laborers and employees in the event of death
caused by their employment.
3. ID.; INDUSTRIAL EMPLOYEES; OFFICERS OF MOTOR
SHIPS ENGAGED IN FISHING EXCEPTIONS. — The officers of
motor ships engaged in fishing are industrial employees within the
purview of section 39, paragraph (d), as amended, for industrial
employment "includes all employment or work at a trade, occupation
or profession exercised by an employer for the purpose of gain." The
only exceptions recognized by the Workmen's Compensation Act are
agriculture, charitable institutions and domestic service. Even
employees engaged in agriculture for the operation of mechanical
implements, are entitled to the benefits of the Workmen's
Compensation Act.
4. ID.; COASTWISE AND INTERISLAND TRADE, MEANING
OF; FISHING, WHEN A TRADE . — The term "coastwise and
 interisland trade" does not have such a narrow meaning as to confine
it to the carriage for hire of passengers and/or merchandise on
vessels between ports and places in the Philippines because while
fishing is an industry, if the catch is brought to a port for sale, it is at the
same time a trade.

DECISION

PADILLA, J : p

This is an appeal from a judgment rendered by the Court of First

Instance of Manila in the above-entitled cases awarding plaintiffs the
compensation provided for in the Workmen's Compensation Act.
The record of the cases was forwarded the Court of Appeals for
review, but as there was no question of fact involved in the appeal,
said court forwarded the record to this Court. The appeal was pending
when the Pacific War broke out, and continued pending until after
liberation, because the record of the cases was destroyed as a result
of the battle waged by the forces of liberation against the enemy. As
provided by law, the record was reconstituted and we now proceed to
dispose of the appeal.
Appellant, who was the owner of the motor ships San Diego II
and Bartolome S, states in his brief the following:
There is no dispute as to the facts involved in these
cases and they may be gathered from the pleadings and the
decision of the trial Court. In case CA-G. R. No. 773,
Dionisia Abueg is the widow of the deceased, Amado Nuñez;
who was a machinist on board the M/S San Diego II belonging
to the defendant-appellant. In case CA-G. R. NO.
774, plaintiff-appellee, Marciana S. dc Salvacion, is the widow
of the deceased, Victoriano Salvacion, who was a machinist on
board the M/S Bartolome S also belonging to the
defendant-appellant. In case CA-G. R. NO. 775, the
plaintiff-appellee, Rosario R. Oching is the widow of Francisco
Oching who was captain or patron of the defendant-appellant's
M/S Bartolome S.
The M/S San Diego II and the M/S Bartolome, while
engaged in fishing operations around Mindoro Island on Oct. 1,
1941 were caught by a typhoon as a consequence of which they
were sunk and totally lost. Amado Nuñez, Victoriano Salvacion
 and Francisco Oching while acting in their capacities perished
in the shipwreck(Appendix A, p. IV).
It is also undisputed that the above-named vessels were
not covered by any insurance. (Appendix A, p. IV.)
Counsel for the appellant cite article 587 of the Code of
Commerce which provides that if the vessel together with all her tackle
and freight money earned during the voyage are abandoned, the
agent's liability to third persons for tortuous acts of the captain in the
care of the goods which the ship carried is extinguished (Yangco vs.
Laserna, 73 Phil., 330); article 837 of the same Code which provides
that in cases of collision, the shipowners' liability is limited to the value
of the vessel with all her equipment and freight during the voyage
(Philippines Shipping Company vs. Garcia, 6 Phil., 281); and article
643 of the same Code which provides that if the vessels and freight
are totally lost, the agent's liability for wages of the crew is
extinguished. From these premises counsel draw the conclusion that
appellant's liability, as owner of the two motor ships lost or sunk as a
result of the typhoon that lashed the island of Mindoro on October 1,
1941, was extinguished.
The real and hypothecary nature of the liability of the shipower
or agent embodied in the provisions of the Maritime Law, Book III,
Code of Commerce, had its origin in the prevailing conditions of the
maritime trade and sea voyages during the medieval ages, attended
by innumerable hazards and perils. to offset against these adverse
conditions and to encourage shipbuilding and maritime commerce it
was deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment, and
freight, or insurance, if any, so that if the shipowner or agent
abandoned the ship, equipment, and freight, his liability was
extinguished.
But the provisions of the Code of Commerce invoked by
appellant have no room in the application of the Workmen's
Compensation Act which seeks to improve, and aims at the
amelioration of, the condition of laborers and employees. It is not the
liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of
the ship; nor the liability for the loss of the ship as a result of collision;
nor the responsibility for w ages of the crew, but a liability created by a
statute to compensate employees and laborers in cases of injury
received by or inflicted upon them, while engaged in the performance
of their work or employment, or the heirs and dependents of such
laborers and employees in the event of death caused by their
employment Such Compensation has nothing to do with the
provisions of the Code of Commerce regarding maritime commerce. It
is an item in the costs of production which must be included in the
budget of any well-managed industry.
Appellant's assertion that in the case of Francisco vs. Dy Liaco
(57 Phil., 446), and Murillo vs. Mendoza (66 Phil., 689), the question
of the extinction of the shipowner's liability due to abandonment of the
ship by him was not fully discussed, as in the case of Yangco vs.
Laserna, supra, is not entirely correct. In the last mentioned case, the
limitation of the shipowner's liability to the value of the ship, equipment,
freight, and insurance, if any, was the lis mota. In the case of
Franciscovs. Dy-Liacco, supra, the application of the Workmen's
Compensation Act to a master or patron who perished as a result of
the sinking of the motorboat of which he was the master, was the
controversy submitted to the court for decision. This Court held in that
case that "It has been repeatedly stated that the Workmen's
Compensation Act was enacted to abrogate the common law and our
Civil Code upon culpable acts and omissions, and that the employer
need not be guilty of neglect or fault, in order that responsibility may
attach to him" (pp. 449-450); and that the shipowner was liable to pay
compensation provided for in the Workmen's Compensation Act,
notwithstanding the fact that the motorboat was totally lost. In the case
of Murillo vs. Mendoza, supra, this Court held that "The rights and
responsibilities defined in said Act must be governed by its own
peculiar provisions in complete disregard of other similar provisions of
the civil as well as the mercantile law. If an accident is compensable
under the Workmen's Compensation Act, it must be compensated
even when the workman's right is not recognized by or is in conflict
with other provisions of the Civil Code or of the Code of Commerce.
The reason behind this principle is that the Workmen's Compensation
Act was enacted by the Legislature in abrogation of the other existing
laws." This quoted part of the decision is in answer to the contention
that it was not the intention of the Legislature to repeal articles 643
and 837 of the Code of Commerce with the enactment of the
Workmen's Compensation Act.
In the memorandum filed by counsel for the appellant, a new
point not relied upon in the court below is raised. They contend that
the motorboats engaged in fishing could not be deemed to be in the
coastwise and interisland trade, as contemplated in section 38 of the
Workmen's Compensation Act (No. 3428), as amended by Act No.
3812, in as much as, according to counsel, a craft engaged in the
coastwise and interisland trade is one that carries passengers and/or
merchandise for hire between ports and places in the Philippine
Islands.

This new point raised by counsel for the appellant is

inconsistent with the first, for, if the motor ships in question while
engaged in fishing, were to be considered as not engaged in
interisland and coastwise trade, the provisions or the Code of
Commerce invoked by them regarding limitation of the shipowner's
liability or extinction thereof when the shipowner abandons the ship,
cannot be applied Lopez vs. Duruelo, 52 Phil., 229). Granting
however, that the motor ships run and operated by the appellant were
not engaged in the coastwise and interisland trade, as contemplated
in section 38 of the Workmen's compensation Act, as amended, still
the deceased officers of the motor ships in question were industrial
employees within the purview of section 39, paragraph (d), as
amended, for industrial employment "includes all employment or work
at a trade, occupation or profession exercised by an employer for the
purpose of gain." The only exceptions recognized by the Act are
agriculture, charitable institutions and domestic service. Even
employees engaged in agriculture for the operation of mechanical
implements, are entitled to the benefits of the Workmen's
Compensation Act Francisco vs. Consing, 63 Phil., 354). In Murillo vs.
Mendoza, supra, this Court held that "our Legislature has deemed it
advisable to include in the Workmen's Compensation Act all accidents
that may occur to workmen or employees in factories, shops and other
industrial and agricultural workplaces as well as in the interisland seas
of the Archipelago." But we do not believe that the term "coastwise
and interisland trade" has such a narrow meaning as to confine it to
the carriage for hire of passengers and/or merchandise, on vessels
between Ports and Places in the Philippines, because while fishing is
an industry, if the catch is brought to a port for sale, it is at the same
time a trade.
Finding no merit in the appeal filed in these cases, we affirm the
judgment of the lower court, with costs against the appellant.
Moran, C.J., Feria, Pablo, Perfecto, Hilado Bengzon,
Briones and Tuazon, JJ., concur.
||| [G.R. No. 106999. June 20, 1996.]

PHILIPPINE HOME ASSURANCE

CORPORATION, petitioner, vs. COURT OF APPEALS
and EASTERN SHIPPING LINES, INC., respondents.
 Diosdado Z. Reloj, Jr. for petitioner.
Del Rosario & Del Rosario for private respondent.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF TRIAL COURT,

GENERALLY RESPECTED; EXCEPTIONS. — While it is well-settled
rule that only questions of law may be raised in a petition for review under
Rule 45 of the Rules of Court, it is equally well-settled that the same
admits of the following exceptions, namely: (a) when the conclusion is a
finding grounded entirely on speculation, surmises or conjectures; (b)
when the inference made is manifestly mistaken, absurd or impossible; (c)
where there is a grave abuse of discretion; (d) when the judgment is
based on a misapprehension of facts; (e) when the findings of fact are
conflicting; (f) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee; (g) when the findings of the Court of
Appeals are contrary to those of the trial court; (h) when the findings of
fact are conclusions without citation of specific evidence on which they
are based; (i) when the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents;
and (j) when the finding of fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by the evidence on
record. Thus, if there is a showing, as in the instant case, that the findings
complained of are totally devoid of support in the records, or that they are
so glaringly erroneous as to constitute grave abuse of discretion, the
same may be properly reviewed and evaluated by this Court.
2. COMMERCIAL LAW; COMMON CARRIER; LIABILITY FOR
EXPENSES IN SALVAGE OPERATION AND TRANSSHIPMENT OF
GOODS VIA DIFFERENT CARRIER; CASE AT BAR. — What is at issue
here is who, among the carrier, consignee or insurer of the goods, is
liable for the additional charges or expenses incurred by the owner of the
ship in the salvage operations and in the transshipment of the
goods via a different carrier. In our jurisprudence, fire may not be
considered a natural disaster or calamity since it almost always arises
from some act of man or by human means. It cannot be an act of God
unless caused by lightning or a natural disaster or casualty not
attributable to human agency. In the case at bar, it is not disputed that a
small flame was detected on the acetylene cylinder and that by reason
thereof, the same exploded despite efforts to extinguish the fire. Neither
is there any doubt that the acetylene cylinder, obviously fully loaded, was
stored in the accommodation area near the engine room and not in a
storage area considerably far, and in a safe distance, from the engine
room. Moreover, there was no showing, and none was alleged by the
parties, that the fire was caused by a natural disaster or calamity not
attributable to human agency. On the contrary, there is strong evidence
indicating that the acetylene cylinder caught fire because of the fault and
negligence of respondent ESLI, its captain and its crew. As a rule,
general or gross averages include all damages and expenses which are
deliberately caused in order in order to save the vessel, its cargo, or both
at the same time, from a real and known risk. While the instant case may
technically fall within the purview of the said provision, the formalities
prescribed under Articles 813 and 814 of the Code of Commerce in order
to incur the expenses and cause the damage corresponding to gross
average were not complied with. Consequently, respondent ESLI's claim
for contribution from the consignees of the cargo at the time of the
occurrence of the average turns to naught. Hence, cargo consignees
cannot be made liable to respondent carrier for additional freight and
salvage charges. Respondent carrier must refund the amount paid under
protest for additional freight and salvage charges.
3. REMEDIAL LAW; EVIDENCE; RULES OF ADMISSIBILITY;
TESTIMONY GENERALLY CONFINED TO PERSONAL KNOWLEDGE;
HEARSAY EXCLUDED. — The Statement of Facts and the Marine Note
of Protest issued by Captain Licaycay are hearsay evidence. He who
issued the said documents was not presented in court to testify to the
truth of the facts he stated therein. Section 36, Rule 130 of the Rules of
Court provides that any evidence, whether oral or documentary, is
hearsay if its probative value is not based on the personal knowledge of
the witness but on the knowledge of some other person not on the
witness stand. Consequently, hearsay evidence, whether objected to or
not, has no probative value unless the proponent can show that the
evidence falls within the exceptions to the hearsay evidence rule. It is
excluded because the party against whom it is presented is deprived of
his right and opportunity to cross-examine the persons to whom the
statements or writings are attributed.

DECISION

KAPUNAN, J : p

Eastern Shipping Lines, Inc. (ESLI) loaded on board SS

Eastern Explorer in Kobe, Japan, the following shipment for carriage
to Manila and Cebu, freight pre-paid and in good order and
condition, viz: (a) two (2) boxes internal combustion engine parts,
consigned to William Lines, Inc. under Bill of Lading No. 042283; (b)
ten (10) metric tons (334 bags) ammonium chloride, consigned to
Orca's Company under Bill of Lading No. KCE-12; (c) two hundred
(200) bags Glue 300, consigned to Pan Oriental Match Company
under Bill of Lading No. KCE-8; and (d) garments, consigned to Ding
Velayo under Bills of Lading Nos. KMA-73 and KMA-74.
While the vessel was off Okinawa, Japan, a small flame was
detected on the acetylene cylinder located in the accommodation area
near the engine room on the main deck level. As the crew was trying
to extinguish the fire, the acetylene cylinder suddenly exploded
sending a flash of flame throughout the accommodation area, thus
causing death and severe injuries to the crew and instantly setting fire
to the whole superstructure of the vessel. The incident forced the
master and the crew to abandon the ship.
Thereafter, SS Eastern Explorer was found to be a constructive
total loss and its voyage was declared abandoned.
Several hours later, a tugboat under the control of Fukuda
Salvage Co. arrived near the vessel and commenced to tow the
vessel for the port of Naha, Japan.
Fire fighting operations were again conducted at the said port.
After the fire was extinguished, the cargoes which were saved were
loaded to another vessel for delivery to their original ports of
destination. ESLI charged the consignees several amounts
corresponding to additional freight and salvage charges, as follows: (a)
for the goods covered by Bill of Lading No. 042283, ESLI charged the
consignee the sum of P1,927.65, representing salvage charges
assessed against the goods; (b) for the goods covered by Bill of
Lading No. KCE-12, ESLI charged the consignee the sum of
P2,980.64 for additional freight and P826.14 for salvage charges
against the goods; (c) for the goods covered by Bill of Lading No.
KCE-8, ESLI charged the consignee the sum of P3,292.26 for
additional freight and P4,130.68 for salvage charges against the
goods; and (d) for the goods under Bills of Lading Nos. KMA-73 and
KMA-74, ESLI charged the consignee the sum of P8,337.06 for
salvage charges against the goods.
The charges were all paid Philippine Home Assurance
Corporation (PHAC) under protest for and in behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a
complaint before the Regional Trial Court of Manila, Branch 39,
against ESLI to recover the sum paid under protest on the ground that
the same were actually damages directly brought about by the fault,
negligence, illegal act and/or breach of contract of ESLI.
In its answer, ESLI contended that it exercised the diligence
required by law in the handling, custody and carriage of the shipment;
that the fire was caused by an unforeseen event; that the additional
freight charges are due and demandable pursuant to the Bill of
Lading; 1 and that salvage charges are properly collectible under Act
No. 2616, known as the Salvage Law.
The trial court dismissed PHAC's complaint and ruled in favor of
ESLI ratiocinating thus:
The question to be resolved is whether or not the fire on
the vessel which was caused by the explosion of an acetylene
cylinder loaded on the same was the fault or negligence of the
defendant.
Evidence has been presented that the SS "Eastern
Explorer" was a seaworthy vessel (Deposition of Jumpei Maeda,
October 23, 1980, p. 3) and before the ship loaded the
Acetylene Cylinder No. NCW 875, the same has been tested,
checked and examined and was certified to have complied with
the required safety measures and standards (Deposition of
Senjei Hayashi, October 23, 1980, pp. 2-3). When the fire was
detected by the crew, fire fighting operations was immediately
conducted but due to the explosion of the acetylene cylinder,
the crew were unable to contain the fire and had to abandon the
ship to save their lives and were saved from drowning by
passing vessels in the vicinity. The burning of the vessel
rendering it a constructive total loss and incapable of pursuing
its voyage to the Philippines was, therefore, not the fault or
negligence of defendant but a natural disaster or calamity which
nobody would like to happen. The salvage operations
conducted by Fukuda Salvage Company (Exhibits "4-A" and
"6-A") was perfectly a legal operation and charges made on the
goods recovered were legitimate charges.
Act No. 2616, otherwise known as the Salvage Law, is
thus applicable to the case at bar. Section 1 of Act No.
2616 states:
"Section 1. When in case of shipwreck, the vessel
or its cargo shall be beyond the control of the crew, or
shall have been abandoned by them, and picked up and
conveyed to a safe place by other persons, the latter
shall be entitled to a reward for the salvage.
 Those who, not being included in the above
paragraph, assist in saving a vessel or its cargo from
shipwreck, shall be entitled to like reward."
In relation to the above provision, the Supreme Court has
ruled in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd.,
34 Phil. 178, that three elements are necessary to a valid
salvage claim, namely (a) a marine peril (b) service voluntarily
rendered when not required as an existing duty or from a
special contract and (c) success in whole or in part, or that the
service rendered contributed to such success.
The above elements are all present in the instant case.
Salvage charges may thus be assessed on the cargoes saved
from the vessel. As provided for in Section 13 of the Salvage
Law, "The expenses of salvage, as well as the reward for
salvage or assistance, shall be a charge on the things salvaged
or their value." In Manila Railroad Co. v. Macondray Co., 37 Phil.
583, it was also held that "when a ship and its cargo are saved
together, the salvage allowance should be charged against the
ship and cargo in the proportion of their respective values, the
same as in a case of general average . . ." Thus, the
"compensation to be paid by the owner of the cargo is in
proportion to the value of the vessel and the value of the cargo
saved." (Atlantic Gulf and Pacific Co. v. Uchida Kisen Kaisha,
42 Phil. 321). (Memorandum for Defendant, Records, pp.
212-213).
With respect to the additional freight charged by defendant from
the consignee of the goods, the same are also validly demandable.
As provided by the Civil Code:
"Article 1174. Except in cases expressly specified by law,
or when it is otherwise declared by stipulation, or when the
nature of the obligation require the assumption of risk, no
person shall be responsible for those events which could not be
foreseen, or which though foreseen, were inevitable."
"Article 1266. The debtor in obligations to do shall also
be released when the prestation becomes legally or physically
impossible without the fault of the obligor."
The burning of "EASTERN EXPLORER" while off Okinawa
rendered it physically impossible for defendant to comply with its
obligation of delivering the goods to their port of destination pursuant to
the contract of carriage. Under Article 1266 of the Civil Code, the physical
impossibility of the prestation extinguished defendant's obligation.
 It is but legal and equitable for the defendant therefore, to demand
additional freight from the consignees for forwarding the goods from
Naha, Japan to Manila and Cebu City on board another vessel, the
"EASTERN MARS." This finds support under Article 844 of the Code of
Commerce which provides as follows:
"Article 844. A captain who may have taken on board the
goods saved from the wreck shall continue his course to the
port of destination; and on arrival should deposit the same, with
judicial intervention at the disposal of their legitimate
owners. . . .
The owners of the cargo shall defray all the expenses of
this arrival as well as the payment of the freight which, after
taking into consideration the circumstances of the case, may be
fixed by agreement or by a judicial decision."
Furthermore, the terms and conditions of the Bill of Lading
authorize the imposition of additional freight charges in case of forced
interruption or abandonment of the voyage. At the dorsal portion of the
Bills of Lading issued to the consignees is this stipulation:
"12. All storage, transshipment, forwarding or other
disposition of cargo at or from a port of distress or other place
where there has been a forced interruption or abandonment of
the voyage shall be at the expense of the owner, shipper,
consignee of the goods or the holder of this bill of lading who
shall be jointly and severally liable for all freight charges and
expenses of every kind whatsoever, whether payable in
advance or not that may be incurred by the cargo in addition to
the ordinary freight, whether the service be performed by the
named carrying vessel or by carrier's other vessels or by
strangers. All such expenses and charges shall be due and
payable day by day immediately when they are incurred."
The bill of lading is a contract and the parties are bound by its
terms (Govt. of the Philippine Islands vs. Ynchausti and Co., 40 Phil. 219).
The provision quoted is binding upon the consignee.
Defendant therefore, can validly require payment of additional
freight from the consignee. Plaintiff can not thus recover the additional
freight paid by the consignee to defendant. (Memorandum for Defendant,
Record, pp. 215-216). 2
On appeal to the Court of Appeals, respondent court affirmed
the trial court's findings and conclusions, 3 hence, the present petition
for review before this Court on the following errors:
 I. THE RESPONDENT COURT ERRONEOUSLY
ADOPTED WITH APPROVAL THE TRIAL COURT'S FINDING
THAT THE BURNING OF THE SS "EASTERN EXPLORER",
RENDERING IT A CONSTRUCTIVE TOTAL LOSS, IS A
NATURAL DISASTER OR CALAMITY WHICH NOBODY
WOULD LIKE TO HAPPEN, DESPITE EXISTING
JURISPRUDENCE TO THE CONTRARY.
II. THE RESPONDENT COURT ARBITRARILY RULED
THAT THE BURNING OF THE SS "EASTERN EXPLORER"
WAS NOT THE FAULT AND NEGLIGENCE OF
RESPONDENT EASTERN SHIPPING LINES.
III. THE RESPONDENT COURT COMMITTED GRAVE
ABUSE OF DISCRETION IN RULING THAT DEFENDANT
HAD EXERCISED THE EXTRAORDINARY DILIGENCE IN
THE VIGILANCE OVER THE GOODS AS REQUIRED BY
LAW.
IV. THE RESPONDENT COURT ARBITRARILY RULED
THAT THE MARINE NOTE OF PROTEST AND STATEMENT
OF FACTS ISSUED BY THE VESSEL'S MASTER ARE NOT
HEARSAY DESPITE THE FACT THAT THE VESSEL'S
MASTER, CAPT. LICAYLICAY WAS NOT PRESENTED IN
COURT, WITHOUT EXPLANATION WHATSOEVER FOR HIS
NON-PRESENTATION, THUS, PETITIONER WAS
DEPRIVED OF ITS RIGHT TO CROSS-EXAMINE THE
AUTHOR THEREOF.
V. THE RESPONDENT COURT ERRONEOUSLY
ADOPTED WITH APPROVAL THE TRIAL COURT'S
CONCLUSION THAT THE EXPENSES OR AVERAGES
INCURRED IN SAVING THE CARGO CONSTITUTE
GENERAL AVERAGE.
VI. THE RESPONDENT COURT ERRONEOUSLY
ADOPTED THE TRIAL COURT'S RULING THAT PETITIONER
WAS LIABLE TO RESPONDENT CARRIER FOR
ADDITIONAL FREIGHT AND SALVAGE CHARGES. 4
It is quite evident that the foregoing assignment of errors
challenges the findings of fact and the appreciation of evidence made
by the trial court and later affirmed by respondent court. While it is a
well-settled rule that only questions of law may be raised in a petition
for review under Rule 45 of the Rules of Court, it is equally well-settled
that the same admits of the following exceptions, namely: (a) when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; (b) when the inference made is manifestly mistaken,
absurd or impossible; (c) where there is a grave abuse of discretion; (d)
when the judgment is based on a misapprehension of facts; (e) when
the findings of fact are conflicting; (f) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee; (g) when
the findings of the Court of Appeals are contrary to those of the trial
court; (h) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (i) when the facts set forth
in the petition as well as in the petitioners' main and reply briefs are
nor disputed by the respondents; and (j) when the finding of fact of the
Court of Appeals is premised on the supposed absence of evidence
and is contradicted by the evidence on record. 5 Thus, if there is a
showing, as in the instant case, that the findings complained of are
totally devoid of support in the records, or that they are so glaringly
erroneous as to constitute grave abuse of discretion, the same may be
properly reviewed and evaluated by this Court.
It is worthy to note at the outset that the goods subject of the
present controversy were neither lost nor damaged in transit by the
fire that razed the carrier. In fact, the said goods were all delivered to
the consignees, even if the transshipment took longer than necessary.
What is at issue therefore is not whether or not the carrier is liable for
the loss, damage, or deterioration of the goods transported by them
but who, among the carrier, consignee or insurer of the goods, is liable
for the additional charges or expenses incurred by the owner of the
ship in the salvage operations and in the transshipment of the
goods via a different carrier.
In absolving respondent carrier of any liability, respondent
Court of Appeals sustained the trial court's finding that the fire that
gutted the ship was a natural disaster or calamity. Petitioner takes
exception to this conclusion and we agree.
In our jurisprudence, fire may not be considered a natural
disaster or calamity since it almost always arises from some act of
man or by human means. It cannot be an act of God unless caused by
lightning or a natural disaster or casualty not attributable to human
agency. 6
In the case at bar, it is not disputed that a small flame was
detected on the acetylene cylinder and that by reason thereof, the
same exploded despite efforts to extinguish the fire. Neither is there
any doubt that the acetylene cylinder, obviously fully loaded, was
stored in the accommodation area near the engine room and not in a
storage area considerably far, and in a safe distance, from the engine
room. Moreover, there was no showing, and none was alleged by the
parties, that the fire was caused by a natural disaster or calamity not
attributable to human agency. On the contrary, there is strong
evidence indicating that the acetylene cylinder caught fire because of
the fault and negligence of respondent ESLI, its captain and its crew.
First, the acetylene cylinder which was fully loaded should not
have been stored in the accommodation area near the engine room
where the heat generated therefrom could cause the acetylene
cylinder to explode by reason of spontaneous combustion.
Respondent ESLI should have easily foreseen that the acetylene
cylinder, containing highly inflammable material, was in a real danger
of exploding because it was stored in close proximity to the engine
room.
Second, respondent ESLI should have known that by storing
the acetylene cylinder in the accommodation area supposed to be
reserved for passengers, it unnecessarily exposed its passengers to
grave danger and injury. Curious passengers, ignorant of the danger
the tank might have on humans and property, could have handled the
same or could have lighted and smoked cigarettes while repairing in
the accommodation area.
Third, the fact that the acetylene cylinder was checked, tested
and examined and subsequently certified as having complied with the
safety measures and standards by qualified experts 7 before it was
loaded in the vessel only shows to a great extent that negligence was
present in the handling of the acetylene cylinder after it was loaded
and while it was on board the ship. Indeed, had the respondent and its
agents not been negligent in storing the acetylene cylinder near the
engine room, then the same would not have leaked and exploded
during the voyage.
Verily, there is no merit in the finding of the trial court to which
respondent court erroneously agreed that the fire was not fault or
negligence of respondent but a natural disaster or calamity. The
records are simply wanting in this regard.
Anent petitioner's objection to the admissibility of Exhibits "4"
and "5", the Statement of Facts and the Marine Note of Protest issued
by Captain Tiburcio A. Licaylicay, we find the same impressed with
merit because said documents are hearsay evidence. Capt. Licaylicay,
Master of S.S. Eastern Explorer who issued the said documents, was
not presented in court to testify to the truth of the facts he stated
therein; instead, respondent ESLI presented Junpei Maeda, its
Branch Manager in Tokyo and Yokohama, Japan, who evidently had
no personal knowledge of the facts stated in the documents at issue. It
is clear from Section 36, Rule 130 of the Rules of Court that any
evidence, whether oral or documentary, is hearsay if its probative
value is not based on the personal knowledge of the witness but on
the knowledge of some other person not on the witness stand.
Consequently, hearsay evidence, whether objected to or not, has no
probative value unless the proponent can show that the evidence falls
within the exceptions to the hearsay evidence rule. 8 It is excluded
because the party against whom it is presented is deprived of his right
and opportunity to cross-examine the persons to whom the
statements or writings are attributed.
On the issue of whether or not respondent court committed an
error in concluding that the expenses incurred in saving the cargo are
considered general average, we rule in the affirmative. As a rule,
general or gross averages include all damages and expenses which
are deliberately caused in order to save the vessel, its cargo, or both
at the same time, from a real and known risk. 9 While the instant case
may technically fall within the purview of the said provision, the
formalities prescribed under Article 813 10 and 814 11 of the Code of
Commerce in order to incur the expenses and cause the damage
corresponding to gross average were not complied with.
Consequently, respondent ESLI's claim for contribution from the
consignees of the cargo at the time of the occurrence of the average
turns to naught.
Prescinding from the foregoing premises, it indubitably follows
that the cargo consignees cannot be made liable to respondent carrier
for additional freight and salvage charges. Consequently, respondent
carrier must refund to herein petitioner the amount it paid under
protest for additional freight and salvage charges in behalf of the
consignee.
WHEREFORE, the judgment appealed from is hereby
REVERSED and SET ASIDE. Respondent Eastern Shipping Lines,
Inc. is ORDERED to return to petitioner Philippine Home Assurance
Corporation the amount it paid under protest in behalf of the
consignees herein.
SO ORDERED.
[G.R. No. L-6393. January 31, 1955.]

A. MAGSAYSAY, INC., plaintiff-appellee, vs.

ANASTACIO AGAN, defendant-appellant.

Custodio A. Villalva for appellant.

 Quijano, Alidio & Azores for appellee.

SYLLABUS

1. ADMIRALTY LAW; VESSELS; ACCIDENTAL STRANDING;

AVERAGES. — The law on averages is contained in the Code of
Commerce. Under that law, averages are classified into simple or
particular and general or gross. Generally speaking, simple or
particular averages include all expenses and damages caused to the
vessel or cargo which have not inured to the common benefit (Art. 809)
and are, therefore, to be borne only by the owner of the property which
gave rise to the same (Art. 810); while general or gross averages
include "all the damages and expenses which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a
real and known risk" (Art. 811). Being for the common benefit, gross
averages are to be borne by the owners of the articles saved (Art.
812).
2. ID.; ID.; ID.; CLASSIFICATION OF AVERAGES. — In
classifying averages into simple or particular and general or gross and
defining each class, the Code (Arts. 809 and 811) at the same time
enumerates certain specific cases as coming specially under one or
the other denomination. While the expenses incurred in putting a
vessel afloat may well come under number 2 of article 809 — which
refers to expenses suffered by the vessel "by reason of an accident of
the sea or force majeure" — and should therefore be classified as
particular average, the said expenses do not fit into any of the specific
cases of general average enumerated in article 811. No. 6 of this
article does mention "expenses caused in order to float a vessel," but
it specifically refers to "a vessel intentionally stranded for the purpose
of saving it" and would have no application where the stranding was
not intentional.
3. ID.; ID.; GENERAL AVERAGE; ITS REQUISITES. — The
following are the requisites for general average: (1) there must be a
common danger; (2) for the common safety part of the vessel or of the
cargo or both is sacrificed deliberately; (3) from the expenses or
damages caused follows the successful saving of the vessel and
cargo; and (4) the expenses or damages should have been incurred
or inflicted after taking proper legal steps and authority.
4. ID.; ID.; ID.; ID. — It is the deliverance from an immediate
peril, by a common sacrifice, that constitutes the essence of general
average (Columbian Insurance Co. of Alejandria vs. Ashby & Stribling,
 13 Peters 331, 10 L. ed. 186). Where there is no proof that the
stranded vessel had to be put afloat to save it from an imminent
danger, and what does appear is that the vessel had to be salvaged in
order to enable it "to proceed to its port or destination," the expenses
incurred in floating the vessel do not constitute general average. It is
the safety of the property, and not of the voyage, which constitutes the
true foundation of general average.
5. ID.; ID.; ID.; ID. — Even if the salvage operation was a
success, yet if the sacrifice was for the benefit of the vessel - to enable
it to proceed to its destination — and not for the purpose of saving the
cargo, the cargo owners are not in law bound to contribute to the
expense.

DECISION

REYES, A., J :p

The S S "San Antonio", a vessel owned and operated by

plaintiff, left Manila on October 6, 1949, bound for Basco, Batanes, via
Aparri, Cagayan, with general cargo belonging to different shippers,
among them the defendant. The vessel reached Aparri on the 10th of
that month, and after a day's stopover in that port, weighed anchor to
proceed to Basco. But while still in port, it ran aground at the mouth of
the Cagayan river, and, attempts to refloat it under its own power
having failed, plaintiff had it refloated by the Luzon Stevedoring Co. at
an agreed compensation. Once afloat, the vessel returned to Manila
to refuel and then proceeded to Basco, the port of destination. There
the cargoes were delivered to their respective owners or consignees,
who, with the exception of defendant, made a deposit or signed a
bond to answer for their contribution to the average.
On the theory that the expenses incurred in floating the vessel
constitute general average to which both ship and cargo should
contribute, plaintiff brought the present action in the Court of First
Instance of Manila to make defendant pay his contribution, which, as
determined by the average adjuster, amounts to P841.40. Defendant,
in his answer, denies liability for this amount, alleging, among other
things, that the stranding of the vessel was due to the fault, negligence
and lack of skill of its master, that the expenses incurred in putting it
afloat did not constitute general average, and that the liquidation of the
average was not made in accordance with law. After trial, the lower
court found for plaintiff and rendered judgment against the defendant
for the amount of the claim, with legal interests. From this judgment
defendant has appealed directly to this Court.
Although appellant assigns various errors, under our view of the
case only the following need be considered:
"The trial court erred in allowing the general average for
floating a vessel unintentionally stranded inside a port and at
the mouth of a river during a fine weather."
For the purposes of this assignment of error we may well accept
the finding below that the stranding of plaintiff's vessel was due to the
sudden shifting of the sandbars at the mouth of the river which the port
pilot did not anticipate. The standing may, therefore, be regarded as
accidental, and the question is whether the expenses incurred in
floating a vessel so stranded should be considered general average
and shared by the cargo owners.
The law on averages is contained in the Code of Commerce.
Under that law, averages are classified into simple or particular and
general or gross. Generally speaking, simple or particular averages
include all expenses and damages caused to the vessel or cargo
which have not inured to the common benefit (Art. 809, and are,
therefore, to be borne only by the owner of the property which gave
rise to the same (Art. 810); while general or gross averages include
"all the damages and expenses which are deliberately caused in order
to save the vessel, its cargo, or both at the same time, from a real and
known risk" (Art. 811). Being for the common benefit, gross averages
are to be borne by the owners of the articles saved (Art. 812).
In classifying averages into simple or particular and general or
gross and defining each class, the Code (Art. 809 and 811) at the
same time enumerates certain specific cases as coming specially
under one or the other denomination. Going over the specific cases
enumerated we find that, while the expenses incurred in putting
plaintiff's vessel afloat may well come under number 2 of article 809 —
which refers to expenses suffered by the vessel "by reason of an
accident of the sea or force majeure" — and should therefore be
classified as particular average, the said expenses do not fit into any
of the specific cases of general average enumerated in article 811. No.
6 of this article does mention "expenses caused in order to float a
vessel," but it specifically refers to "a vessel intentionally stranded for
the purpose of saving it" and would have no application where, as in
the present case, the stranding was not intentional.
Let us now see whether the expenses here in question could
come within the legal concept of general average. Tolentino, in his
commentaries on the Code of Commerce, gives the following
requisites for general average:
"First, there must be a common danger. This means, that
both the ship and the cargo, after it has been loaded, are
subject to the same danger, whether during the voyage, or in
the port of loading or unloading; that the danger arises from
accidents of the sea, dispositions of the authority, or faults of
men, provided, that the circumstance producing the peril should
be ascertained and imminent - or may rationally be said to be
certain and imminent. This last requirement excludes measures
undertaken against a distant peril.
"Second, that for the common safety part of the vessel or
of the cargo or both is sacrificed deliberately.
"Third, that from the expenses or damages caused
follows the successful saving of the vessel and cargo.
"Fourth, that the expenses or damages should have
been incurred or inflicted after taking proper legal steps and
authority." (Vol. I, 7th ed., p. 155.)
With respect to the first requisite, the evidence does not
disclose that the expenses sought to be recovered from defendant
were incurred to save vessel and cargo from a common danger. The
vessel ran aground in fine weather inside the port at the mouth of a
river, a place described as "very shallow". It would thus appear that
vessel and cargo were at the time in no imminent danger or a danger
which might "rationally be sought to be certain and imminent." It is, of
course, conceivable that, if left indefinitely at the mercy of the
elements, they would run the risk of being destroyed. But as stated in
the above quotation, "this last requirement excludes measures
undertaken against a distant peril." It is the deliverance from an
immediate, impending peril, by a common sacrifice, that constitutes
the essence of general average. (The Columbian Insurance-
Company of Alexandria vs. Ashby & Stribling et al., 13 Peters 331;
10 L. Ed., 186). In the present case there is no proof that the vessel
had to be put afloat to save it from an imminent danger. What does
appear from the testimony of plaintiff's manager is that the vessel had
to be salvaged in order to enable it "to proceed to its port of
destination." But as was said in the case just cited, it is the safety of
the property, and not of the voyage, which constitutes the true
foundation of general average.
As to the second requisite, we need only repeat that the
expenses in question were not incurred for the common safety of
vessel and cargo, since they, or at least the cargo, were not in
 imminent peril. The cargo could, without need of expensive salvage
operation, have been unloaded by the owners if they had been
required to do so.
With respect to the third requisite, the salvage operation, it is
true, was a success. But as the sacrifice was for the benefit of the
vessel — to enable it to proceed to destination — and not for the
purpose of saving the cargo, the cargo owners are not in law bound to
contribute to the expenses.
The final requisite has not been proved, for it does not appear
that the expenses here in question were incurred after following the
procedure laid down in articles 813 et seq.
In conclusion, we find that plaintiff has not made out a case for
general average, with the result that its claim for contribution against
the defendant cannot be granted.
Wherefore, the decision appealed from is reversed and
plaintiff's complaint ordered dismissed with costs.
Paras, C. J., Bengzon, Padilla, Montemayor, Jugo, Bautista
Angelo, and Reyes, J. B. L., JJ., concur.
||| [G.R. No. L-58897. December 3, 1987.]

LUZON STEVEDORING
CORPORATION, petitioner, vs. COURT OF APPEALS,
HIJOS DE F. ESCANO, INC., and DOMESTIC
INSURANCE COMPANY OF THE
PHILIPPINES, respondents.

DECISION

GANCAYCO, J : p

On May 30, 1968 at past 6:00 in the morning a maritime collision

occurred within the vicinity of the entrance to the North Harbor, Manila
between the tanker LSCO "Cavite" owned by Luzon Stevedoring
Corporation and MV "Fernando Escano" a passenger ship owned by
Hijos de F. Escano, Inc. as a result of which said passenger ship sunk. An
action in admiralty was filed by Hijos de F. Escano, Inc. and Domestic
Insurance Company of the Philippines against the Luzon Stevedoring
Company (LSC) in the Court of First Instance of Cebu. In the course of
the trial, the trial court appointed two commissioners representing the
plaintiffs and defendant to determine the value of the LSCO "CAVITE."
Said commissioners found the value thereof to be P180,000.00.
After trial on the merits, a decision was rendered on January 24, 1974
finding that LSCO "Cavite" was solely to blame for the collision, thus its
dispositive portion reads as follows:
"WHEREFORE, based on all the foregoing considerations, the
Court renders judgment in favor of the plaintiffs and against the
defendant ordering the latter to pay to the plaintiff Domestic
Insurance Company of the Philippines the sum of P514,000.00,
and to the plaintiff Hijos de F. Escano, Inc. the sum of
P68,819.00, with interest on both sums at the legal rate, from
the date the complaint was filed and the further sum of
P252,346.70, with interest at the legal rate from August 7, 1972
and the sum of P163,721.91, without interest in trust for, and
with direction that it pay the same to, the claimants concerned.
With costs against the defendant." 1

In the penultimate paragraph of the decision the trial court held:

"With respect to the defense that defendant's liability is limited
to the value of the LSCO "Cavite" and freight earned, invoking
Art. 837 of the Code of Commerce, the Court believes and so
holds that the defense has not been established. Moreover, the
evidence is such that in principle Art. 837 does not apply here.
The counterclaim of the defendant is likewise ordered
dismissed for lack of merit." 2
Not satisfied therewith the defendant interposed an appeal therefrom to
the Court of Appeals wherein in due course a decision was rendered on
June 30, 1981 affirming the decision of the court a quo in toto with costs
against appellant. The motion for reconsideration filed by the defendant
of the decision was denied in a resolution of the Court of Appeals of
November 7, 1981. Hence said defendant filed a petition for certiorari in
this Court based on the following grounds:
"I
THE LOWER COURT ERRED IN FINDING THAT THE LSCO
"CAVITE" WAS THE VESSEL AT FAULT IN THE COLLISION.
II
THE LOWER COURT ERRED IN NOT FINDING THAT THE
COLLISION BETWEEN THE M/V "FERNANDO ESCANO"
AND THE LSCO "CAVITE" WAS DUE SOLELY AND
EXCLUSIVELY TO THE FAULT, NEGLIGENCE AND LACK
OF SKILL OF THE MASTER OF THE FORMER VESSEL.
 III
THE LOWER COURT ERRED IN NOT RULING THAT THE
CIVIL LIABILITY OF THE PETITIONER, IF ANY THERE BE,
SHOULD BE LIMITED TO THE VALUE OF THE LSCO
"CAVITE " WITH ALL ITS APPURTENANCES AND
FREIGHTAGE WHEN THE COLLISION TOOK PLACE." 3
In a resolution of February 26, 1982 this Court denied the petition for lack
of merit.
A motion for reconsideration of said resolution was filed by petitioner
limiting the issue to the legal question of whether under Art. 837 of the
Code of Commerce abandonment of vessel at fault is necessary in order
that the liability of owner of said vessel shall be limited only to the extent
of the value thereof, its appurtenances and freightage earned in the
voyage, After respondents submitted their comment to the motion as
required, on September 29, 1982 this Court denied the motion for
reconsideration for lack of merit.
With leave of court petitioner filed a second motion for reconsideration of
said resolution raising the following issues: cdll

"1. Whether abandonment is required under Article 837 of the

Code of Commerce. The decisions of this Honorable Court cited
by the parties in support of their respective positions
only imply the answer to the question, and the implied answers
are contradictory.
2. If abandonment is required under Article 837 of the Code of
Commerce, when should it be made? The Code of Commerce
is silent on the matter. The decision of this Honorable Court
in Yangco v. Laserna, 73 Phil. 330, left the question open and
no other decision, as far as petitioner can ascertain, has
resolved the question.
3. Is the decision of this Honorable Court in Manila Steamship
Co., Inc. v. Abdulhaman, 100 Phil. 32, wherein it was held that
'(t)he international rule to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner's
own fault,' invoked by private respondents and apparently a
major consideration in the denial of the motion for
reconsideration, applicable to petitioner under the
circumstances of the case at bar? 4
The respondents were required to comment thereto and after said
comment was submitted petitioners submitted a reply thereto to which
the respondents filed a rejoinder.
On November 28, 1983, the Court gave due course to the petition for
review and considered the respondents' comment thereto as the Answer.
The parties were required to file their briefs. Both parties having filed their
briefs the case is now submitted for decision.
Articles 587, 590, and 837 of the Code of Commerce provide as follows:
"ART. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which arise from the
conduct of the captain in the vigilance over the goods which the
vessel carried; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight he
may have earned during the voyage."
xxx xxx xxx
"ART. 590. The co-owners of the vessel shall be civilly liable in
the proportion of their contribution to the common fund for the
results of the acts of the captain, referred to in Article 587.
Each co-owner may exempt himself from this liability by the
abandonment, before a notary, of that part of the vessel
belonging to him.
xxx xxx xxx
"ART. 837. The civil liability incurred by the shipowners in the
cases prescribed in this section, shall be understood as limited
to the value of the vessel with all her appurtenances and freight
earned during the voyage." 5
In the case of Philippine Shipping Company vs. Garcia, 6 which is an
action for damages instituted by the Philippine Shipping Company for the
loss of Steamship "Ntra. Sra. de Lourdes" as a result of the collision with
the Steamship "Navarra" of Garcia, it was found that the "Navarra" was
responsible for the collision. The claim of the Philippine Shipping is that
the defendant should pay P18,000.00, the value of the "Navarra" at the
time of its loss, in accordance with the provision of Article 837 of the Code
of Commerce, and that it was immaterial that the "Navarra" had been
entirely lost provided the value could be ascertained since the extent of
liability of the owner of the colliding vessel resulting from the collision is to
be determined by its value.
This Court speaking through the then Chief Justice Arellano held:
"Article 837 of the Code of Commerce provides: 'The civil
liability contracted by the shipowners in the cases prescribed in
this section shall be understood as limited to the value of the
vessel with all her equipment and all the freight money earned
during the voyage.'
'This section is a necessary consequence of the right to
abandon the vessel given to the shipowner in article 587 of the
code, and it is one of the many superfluities contained in the
code.' (Lorenzo Benito, 'Lecciones,' 352.)
'ART. 587. The agent shall also be civilly liable for the
indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel
carried but he may exempt himself therefrom by abandoning the
vessel with all her equipments and the freight he may have
earned during the trip.
'ART. 590. The part owners of a vessel shall be civilly liable, in
the proportion of their contribution to the common fund, for the
results of the acts of the captain referred to in Article 587. Each
part owner may exempt himself from this liability by the
abandonment, before a notary, of the part of the vessel
belonging to him.'
The 'Exposicion de motivos' of the Code of Commerce contains
the following: 'The present code (1829) does not determine the
juridical status of the agent where such agent is not himself the
owner of the vessel. This omission is supplied by the proposed
code, which provides in accordance with the principles of
maritime law that by agent it is to be understood the person
intrusted with the provisioning of the vessel, or the one who
represents her in the port in which she happens to be. This
person is the only one who represents the vessel — that is to
say, the only one who represents the interests of the owner of
the vessel. This provision has therefore cleared the doubt which
existed as to the extent of the liability, both of the agent and of
the owner of the vessel. Such liability is limited by the proposed
code to the value of the vessel and other things appertaining
thereto.'
There is no doubt that if the Navarra had not been entirely lost,
the agent, having been held liable for the negligence of the
captain of the vessel, could have abandoned her with all her
equipment and the freight money earned during the voyage,
thus bringing himself within the provisions of article 837 in so far
as the subsidiary civil liability is concerned. This abandonment
which would have amounted to an offer of the value of the
vessel, of her equipment, and freight money earned could not
have been refused, and the agent could not have been
personally compelled, under such circumstances, to pay the
18,000 pesos, the estimated value of the vessel at the time of
the collision.
This is the difference which exists between the lawful acts and
lawful obligations of the captain and the liability which he incurs
on account of any unlawful act committed by him. In the first
case, the lawful acts and obligations of the captain beneficial to
the vessel may be enforced as against the agent for the reason
that such obligations arise from the contract of agency
(provided, however, that the captain does not exceed his
authority), while as to any liability incurred by the captain
through his unlawful acts, the ship agent is simply subsidiarily
civilly liable. This liability of the agent is limited to the vessel and
it does not extend further. For this reason the Code of
Commerce makes the agent liable to the extent of the value of
the vessel, as the codes of the principal maritime nations
provide, with the vessel, and not individually. Such is also the
spirit of our code.
The spirit of our code is accurately set forth in a treatise on
maritime law, from which we deem proper to quote the following
as the basis of this decision:
'That which distinguishes the maritime from the civil law and
even from the mercantile law in general is the real and
hypothecary nature of the former, and the many securities of a
real nature that maritime customs from time immemorial the
laws, the codes, and the later jurisprudence, have provided for
the protection of the various and conflicting interests which are
ventured and risked in maritime expeditions, such as the
interests of the vessel and of the agent, those of the owners of
the cargo and consignees, those who salvage the ship, those
who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a
constructor as to repairs made to the vessel.
'As evidence of this "real" nature of the maritime law we have (1)
the limitation of the liability of the agents to the actual value of
the vessel and the freight money, and (2) the right to retain the
cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a
personal action against the debtor or person liable. It will be
observed that these rights are correlative, and naturally so,
because if the agent can exempt himself from liability by
abandoning the vessel and freight money, thus avoiding the
possibility of risking his whole fortune in the business, it is also
just that his maritime creditor may for any reason attach the
vessel itself to secure his claim without waiting for a settlement
of his rights by a final judgment even to the prejudice of a third
person.
'This repeals the civil law to such an extent that, in certain cases,
where the mortgaged property is lost no personal action lies
against the owner or agent of the vessel. For instance, where
the vessel is lost the sailors and members of the crew can not
recover their wages; in case of collision, the liability of the agent
is limited as aforesaid, and in case of shipwreck, those who loan
their money on the vessel and cargo lose all their rights and can
not claim reimbursement under the law.
'There are two reasons why it is impossible to do away with
these privileges, to wit: (1) The risk to which the thing is
exposed, and (2) the "real" nature of the maritime law,
exclusively "real," according to which the liability of the parties is
limited to a thing which is at the mercy of the waves. If the agent
is only liable with the vessel and freight money and both may be
lost through the accidents of navigation it is only just that the
maritime creditor have some means of obviating this precarious
nature of his rights by detaining the ship, his only security,
before it is lost.
'The liens, tacit or legal, which may exist upon the vessel and
which a purchaser of the same would be obliged to respect and
recognize are — in addition to those existing in favor of the
State by virtue of the privileges which are granted to it by all the
laws — pilot, tonnage, and port dues and other similar charges,
the wages of the crew earned during the last voyage as
provided in article 646 of the Code of Commerce, salvage dues
under article 842, the indemnification due to the captain of the
vessel in case his contract is terminated on account of the
voluntary sale of the ship and the insolvency of the owner as
provided in article 608, and all other liabilities arising from
collisions under Articles 837 and 838.' (Madariaga, pp. 60, 62,
63, 85.)
We accordingly hold that the defendant is liable for the
indemnification to which the plaintiff is entitled by reason of the
collision, but he is not required to pay such indemnification for
the reason that the obligation thus incurred has been
extinguished on account of the loss of the thing bound for the
payment thereof, and in this respect the judgment of the court
below is affirmed except in so far as it requires the plaintiff to
pay the costs of this action, which is not exactly proper. No
special order is made as to costs of this appeal. After the
expiration of twenty days let judgment be entered in accordance
herewith and ten days thereafter the record be remanded to the
Court of First Instance for execution. So ordered." 7
From the foregoing the rule is that in the case of collision, abandonment
of the vessel is necessary in order to limit the liability of the shipowner or
the agent to the value of the vessel, its appurtenances and freightage
earned in the voyage in accordance with Article 837 of the Code of
Commerce. The only instance where such abandonment is dispensed
with is when the vessel was entirely lost. In such case, the obligation is
thereby extinguished.
In the case of Government of the Philippines vs. Maritime this Court
citing Philippine Shipping stated the exception thereto in that while "the
total destruction of the vessel extinguishes a maritime lien, as there is no
longer any risk to which it can attach, but the total destruction of the
vessel does not affect the liability of the owner for repairs of the vessel
completed before its loss, 8 interpreting the provision of Article 591 of the
Code of Commerce in relation with the other Articles of the same Code.
In Ohta Development Company vs. Steamship "Pompey" 9 it appears
that at the pier sunk and the merchandise was lost due to the fault of the
steamship "Pompey" that was then docked at said pier. This Court ruled
that the liability of the owner of "Pompey" may not be limited to its value
under Article 587 of the Code of Commerce as there was no
abandonment of the ship. We also held that Article 837 cannot apply as it
refers to collisions which is not the case here. 10
In the case of Guison vs. Philippine Shipping Company 11 involving the
collision at the mouth of the Pasig river between the motor launches
Martha and Manila H in which the latter was found to be at fault, this Court,
applying Article 837 of the Code of Commerce limited the liability of the
agent to its value.
In the case of Yangco vs. Laserna 12 which involved the steamers SS
"Negros" belonging to Yangco which after two hours of sailing from
Romblon to Manila encountered rough seas as a result of which it
capsized such that many of its passengers died in the mishap, several
actions for damages were filed against Yangco for the death of the
passengers in the Court of First Instance of Capiz. After rendition of the
judgment for damages against Yangco, by a verified pleading, he sought
to abandon the vessel to the plaintiffs in the three cases together with all
the equipment without prejudice to the right to appeal. This Court in
resolving the issue held as follows: cdll

"Brushing aside the incidental issues, the fundamental question

here raised is: May the shipowner or agent, notwithstanding the
total loss of the vessel as a result of the negligence of its captain,
be properly held liable in damages for the consequent death of
its passengers? We are of the opinion and so hold that this
question is controlled by the provision of article 587 of the Code
of Commerce. Said article reads:
'The agent shall also be civilly liable for the indemnities in favor
of third persons which arise from the conduct of the captain in
the care of the goods which the vessel carried; but he may
exempt himself therefrom by abandoning the vessel with all her
equipments and the freight he may have earned during the
voyage.'
The provision accords a shipowner or agent the right of
abandonment; and by necessary implication his liability is
confined to that which he is entitled as of right to abandon —
'the vessel with all her equipments and the freight it may have
earned during the voyage.' It is true that the article appears to
deal only with the limited liability of shipowners or agents for
damages arising from the misconduct of the captain in the care
of the goods which the vessel carries, but this is a mere
deficiency of language and in no way indicates the true extent of
such liability. The consensus of authorities is to the effect that
notwithstanding the language of the afore-quoted provision, the
benefit of limited liability therein provided for, applies in all cases
wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez
de Echavarri y Vivanco, commenting on said article, said:
'La letra del Codigo, en el articulo 587, presenta una gravisima
cuestion. El derecho de abandono, si se atiende a lo escrito,
solo se refiere a las indemnizaciones a que diere lugar la
conducta del Capitan en la custodia de los efectos que cargo en
el buque.
'Es ese el espiritu del legislador? No; habra derecho de
abandono en las responsabilidades nacidas de obligaciones
contraidas por el Capitan y de otros actos de este? Lo
reputamos evidente y, para fortalecer nuestra opinion, basta
copiar el siguiente parrafo de la Exposicion de motivos:
'El proyecto, al aplicar estos principios, se inspira tambien en
los intereses del comercio maritimo, que quedaran mas
asegurados of reciendo a todo el que contrata con el naviero o
Capitan del buque, la garantia real del mismo, cualesquiera que
sean las facultades o atribuciones de que se hallen investidos.'
(Echavarri, Codigo de Comercio, Tomo 4, 2. ed., pags.
483-484.)

A cursory examination will disclose that the principle of limited

liability of a shipowner or agent is provided for in but three
 articles of the Code of Commerce — Article 587 aforequoted
and articles 590 and 837. Article 590 merely reiterates the
principle embodied in article 587, where the vessel is owned by
several person Article 837 applies the same principle in cases
of collision, and it has been observed that said article is but 'a
necessary consequence of the right to abandon the vessel
given to the shipowner in Article 587 to the Code, and it is one of
the many superfluities contained in the Code.' (Lorenzo Benito,
Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6
Phil. 281, 282.) In effect, therefore, only Articles 587 and 590
are the provisions contained in our Code of Commerce on the
matter, and the framers of said code had intended those
provisions to embody the universal principle of limited liability in
all cases. . . ." 13
In the said case We invoked our ruling in Philippine Shipping and
concluded as follows:
"In the light of all the foregoing, we therefore hold that if the
shipowner or agent may in any way be held civilly liable at all for
injury to or death of passengers arising from the negligence of
the captain in cases of collisions or shipwrecks, his liability is
merely co-extensive with his interest in the vessel such that a
total loss thereof results in its extinction. In arriving at this
conclusion, we have not been unmindful of the fact that the
ill-fated steamship Negros, as a vessel engaged in interisland
trade, is a common carrier (De Villata v. Stanely, 32 Phil. 541),
and that the relationship between the petitioner and the
passengers who died in the mishap rests on a contract of
carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively 'real and hypothecary
nature' of maritime law operates to limit such liability to the value
of the vessel, or to the insurance thereon, if any. In the instant
case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the
petitioner in the instant case was in accordance with law or not,
is immaterial. The vessel having totally perished, any act of
abandonment would be an idle ceremony." 14
In the case of Abueg vs. San Diego, 15 which involves a claim of
compensation under the Workmen's Compensation Act for the deceased
members of the crew of the MS "San Diego II" and MS "Bartolome" which
were caught by a typhoon in the vicinity of Mindoro Island and as a
consequence of which they were sunk and totally lost, this Court held as
follows:
"Counsel for the appellant cite article 587 of the Code of
Commerce which provides that if the vessel together with all her
tackle and freight money earned during the voyage are
abandoned, the agent's liability to third persons for tortious acts
of the captain in the care of the goods which the ship carried is
extinguished (Yangco vs. Laserna, 73 Phil. 330) Article 837 of
the same Code which provides that in cases of collision, the
shipowners' liability is limited to the value of the vessel with all
her equipment and freight earned during the voyage (Philippine
Shipping Company vs. Garcia, 6 Phil. 281); and Article 643 of
the same Code which provides that if the vessel and freight are
totally lost, the agent's liability for wages of the crew is
extinguished. From these premises counsel draw the
conclusion that appellant's liability, as owner of the two motor
ships lost or sunk as a result of the typhoon that lashed the
island of Mindoro on October 1, 1941, was extinguished.
The real and hypothecary nature of the liability of the shipowner
or agent embodied in the provisions of the Maritime Law, Book
III, Code of Commerce, had its origin in the prevailing conditions
of the maritime trade and sea voyages during the medieval
ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding
and maritime commerce it was deemed necessary to confine
the liability of the owner or agent arising from the operation of a
ship to the vessel, equipment, and freight, or insurance, if any,
so that if the shipowner or agent abandoned the ship,
equipment and freight, his liability was extinguished.
But the provisions of the Code of Commerce invoked by
appellant have no room in the application of the Workmen's
Compensation Act which seeks to improve, and aims at the
amelioration of, the condition of laborers and employees. It is
not the liability for the damage or loss of the cargo or injury to, or
death of, a passenger by or through the misconduct of the
captain or master of the ship; nor the liability for the loss of the
ship as a result of collision; nor the responsibility for wages of
the crew, but a liability created by a statute to compensate
employees and laborers in cases of injury received by or
inflicted upon them, while engaged in the performance of their
work or employment, or the heirs and dependents of such
laborers and employees in the event of death caused by their
employment. Such compensation has nothing to do with the
provisions of the Code of Commerce regarding maritime
commerce. It is an item in the cost of production which must be
included in the budget of any well-managed industry.
 Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57
Phil. 446), and Murillo vs. Mendoza (66 Phil. 689), the question
of the extinction of the shipowner's liability due to abandonment
of the ship by him was not fully discussed, as in the case of
Yangco vs. Laserna, supra, is not entirely correct. In the last
mentioned case, the limitation of the shipowner's liability to the
value of the ship, equipment, freight, and insurance, if any, was
the lis mota. In the case of Enciso vs. Dy-Liaco, supra, the
application of the Workmen's Compensation Act to a master or
patron who perished as a result of the sinking of the motorboat
of which he was the master, was the controversy submitted to
the court for decision. This Court held in that case that 'It has
been repeatedly stated that the Workmen's Compensation Act
was enacted to abrogate the common law and our Civil Code
upon culpable acts and omissions, and that the employer need
not be guilty of neglect or fault, in order that responsibility may
attach to him' (pp. 449-450); and that the shipowner was liable
to pay compensation provided for in the Workmen's
Compensation Act, notwithstanding the fact that the motorboat
was totally lost. In the case of Murillo vs. Mendoza, supra, this
Court held that 'The rights and responsibilities defined in said
Act must be governed by its own peculiar provisions in complete
disregard of other similar provisions of the Civil as well as the
mercantile law. If an accident is compensable under the
Workmen's Compensation Act, it must be compensated even
when the workman's right is not recognized by or is in conflict
with other provisions of the Civil Code or of the Code of
Commerce. The reason behind this principle is that the
Workmen's Compensation Act was enacted by the Legislature
in abrogation of the other existing laws.' This quoted part of the
decision is in answer to the contention that it was not the
intention of the Legislature to repeal Articles 643 and 837 of the
Code of Commerce with the enactment of the Workmen's
Compensation Act." 16
In said case the Court reiterated that the liability of the shipowner or agent
under the provision of Articles 587 and 837 of the Code of Commerce is
limited to the value of the vessel with all her equivalent and freight earned
during the voyage if the shipowner or agent abandoned the ship with all
the equipment and freight. However, it does not apply to the liability under
the Workmen's Compensation Act where even as in said case the vessel
was lost the liability thereunder is still enforceable against the employer
or shipowner.
The case of Manila Steamship Company, Inc. vs. Insa Abdulhaman and
Lim Hong To 17 is a case of collision of the ML "Consuelo V" and MS
"Bowline Knot" as a result of which the ML "Consuelo V" capsized and
was lost where nine (9) passengers died or were missing and all its
cargoes were lost. In the action for damages arising from the collision,
applying Article 837 of the Code of Commerce, this Court held that in
such case where the collision was imputable to both of them, each vessel
shall suffer her own damages and both shall be solidarily liable for the
damages occasioned to their cargoes. 18 Thus, We held:
"In fact, it is a general principle, well established maritime law
and custom, that shipowners and ship agents are civilly liable
for the acts of the captain (Code of Commerce, Article 586) and
for the indemnities due the third persons (Article 587); so that
injured parties may immediately look for reimbursement to the
owner of the ship, it being universally recognized that the ship
master or captain is primarily the representative of the owner
(Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260).This
direct liability, moderated and limited by the owner's right of
abandonment of the vessel and earned freight /Article 587) has
been declared to exist not only in case of breached contracts,
but also in cases of tortious negligence (Yu Biao Sontua vs.
Osorio, 43 Phil. 511; 515):
xxx xxx xxx
It is easy to see that to admit the defense of due diligence of a
bonus paterfamilias (in the selection and vigilance of the officers
and crew) as exempting the shipowner from any liability for their
faults, would render nugatory the solidary liability established by
Article 827 of the Code of Commerce for the greater protection
of injured parties. Shipowners would be able to escape liability
in practically every case, considering that the qualifications and
licensing of ship masters and officers are determined by the
State, and that vigilance is practically impossible to exercise
over officers and crew of vessels at sea. To compel the parties
prejudiced to look to the crew for indemnity and redress would
be an illusory remedy for almost always its members are, from
captains down, mere wage earners.

We, therefore, find no reversible error in the refusal of the Court

of Appeals to consider the defense of the Manila Steamship Co.,
that it is exempt from liability for the collision with the
M/L "Consuelo V" due to the absence of negligence on its part
in the selection and supervision of the officers and crew of the
M/S "Bowline Knot." 19
However, insofar as respondent Lim Hong To, owner of
M/L "Consuelo V" who admittedly employed an unlicensed master
and engineer and who in his application for permission to operate
 expressly assumed full risk and responsibility thereby (Exh. 2) this
Court held that the liability of Lim Hong To cannot be limited to the
value of his motor launch by abandonment of the vessel as invoked in
Article 587 of the Code of Commerce, We said:
"The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner's
liability, does not apply to cases where the injury or the average
is due to shipowner's own fault. Farina (Derecho Commercial
Maritimo, Vol. I, pp. 122-123), on the authority of judicial
precedents from various nations, sets the rule to be as follows:
xxx xxx xxx" 20
From the foregoing, it is clear that in case of collision of vessels, in order
to avail of the benefits of Article 837 of the Code of Commerce the
shipowner or agent must abandon the vessel. In such case the civil
liability shall be limited to the value of the vessel with all the
appurtenances and freight earned during the voyage. However, where
the injury or average is due to the ship-owner's fault as in said case, the
shipowner may not avail of his right to limited liability by abandoning the
vessel.
We reiterate what We said in previous decisions that the real and
hypothecary nature of the liability of the shipowner or agent is embodied
in the provisions of the Maritime Law, Book III, Code of
Commerce. 21 Articles 587, 590 and 837 of the same code are precisely
intended to limit the liability of the shipowner or agent to the value of the
vessel, its appurtenances and freightage earned in the voyage, provided
that owner or agent abandons the vessel. Although it is not specifically
provided for in Article 837 of the same code that in case of collision there
should be such abandonment to enjoy such limited liability, said article on
collision of vessels is a mere amplification of the provisions of Articles
587 and 590 of same code where abandonment of the vessel is a
pre-condition. Even without said article, the parties may avail of the
provisions of Articles 587 and 590 of same code in case of collision. This
is the reason why Article 837 of the same code is considered a
superfluity. 22
Hence the rule is that in case of collision there should be abandonment of
the vessel by the shipowner or agent in order to enjoy the limited liability
provided for under said Article 837. llcd

The exception to this rule is when the vessel is totally lost in which case
there is no vessel to abandon so abandonment is not required. Because
of such total loss the liability of the shipowner or agent for damages is
extinguished. Nevertheless, the shipowner or agent is personally liable
for claims under the Workmen's Compensation Act and for repairs of the
vessel before its loss. 23
In case of illegal or tortious acts of the captain the liability of the
shipowner and agent is subsidiary. In such instance the shipowner or
agent may avail of the provisions of Article 837 of the Code by
abandoning the vessel. 24
However, if the injury or damage is caused by the shipowner's fault as
where he engages the services of an inexperienced and unlicensed
captain or engineer, he cannot avail of the provisions of Article 837 of the
Code by abandoning the vessel. 25 He is personally liable for the
damages arising thereby.
In the case now before the Court there is no question that the action
arose from a collision and the fault is laid at the doorstep of LSCO
"Cavite" of petitioner. Undeniably petitioner has not abandoned the
vessel. Hence petitioner can not invoke the benefit of the provisions of
Article 837 of the Code of Commerce to limit its liability to the value of the
vessel, all the appurtenances and freightage earned during the voyage.
In the light of the foregoing conclusion, the issue as to when
abandonment should be made need not be resolved. LexLib

WHEREFORE, the petition is DENIED with costs against petitioner.

SO ORDERED.
||| G.R. No. 56294. May 20, 1991.]

SMITH BELL AND COMPANY (PHILIPPINES), INC. and

TOKYO MARINE AND FIRE INSURANCE CO.,
INC., petitioners, vs. THE COURT OF APPEALS and
CARLOS A. GO THONG AND CO., respondents.

Bito, Misa & Lozada for petitioners.

Rodriguez, Relova & Associates for private respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; SUPREME

COURT NOT COMPELLED TO ADOPT A DEFINITE AND STRINGENT
RULE ON HOW ITS JUDGMENT SHALL BE FRAMED; EFFECT OF
DISMISSAL OR GRANT OF A PETITION FOR REVIEW ON
CERTIORARI BY A MINUTE RESOLUTION OF THE COURT. — That
this Court denied Go Thong's Petition for Review in a minute Resolution
did not in any way diminish the legal significance of the denial so decreed
by this Court. The Supreme Court is not compelled to adopt a definite and
stringent rule on how its judgment shall be framed. It has long been
settled that this Court has discretion to decide whether a "minute
resolution" should be used in lieu of a full-blown decision in any particular
case and that a minute Resolution of dismissal of a Petition for Review on
Certiorari constitutes an adjudication on the merits of the controversy or
subject matter of the Petition. It has been stressed by the Court that the
grant of due course to a Petition for Review is "not a matter of right, but of
sound judicial discretion; and so there is no need to fully explain the
Court's denial. For one thing, the facts and law are already mentioned in
the Court of Appeals' opinion." A minute Resolution denying a Petition for
Review of a Decision of the Court of Appeals can only mean that the
Supreme Court agrees with or adopts the findings and conclusions of the
Court of Appeals, in other words, that the Decision sought to be reviewed
and set aside is correct.
2. ID.; ID.; ID.; RES JUDICATA; ABSENCE OF IDENTITY OF
SUBJECT MATTER, THERE BEING SUBSTANTIAL IDENTITY OF
PARTIES AND IDENTITY OF CAUSE OF ACTION, WILL NOT
PRECLUDE APPLICATION THEREOF. — It is conceded by petitioners
that the subject matters of the two (2) suits were not identical, in the
sense that the cargo which had been damaged in the one case and for
which indemnity was sought, was not the very same cargo which had
been damaged in the other case indemnity for which was also sought.
The cause of action was, however, the same in the two (2) cases, i.e., the
same right of the cargo owners to the safety and integrity of their cargo
had been violated by the same casualty, the ramming of the "Yotai Maru"
by the "Don Carlos." The judgments in both cases were final judgments
on the merits rendered by the two (2) divisions of the Court of Appeals
and by the Supreme Court, the jurisdiction of which has not been
questioned. Under the circumstances, we believe that the absence of
identity of subject matter, there being substantial identity of parties and
identity of cause of action, will not preclude the application of res judicata.
3. ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, the issue of
which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so
negligent as to have proximately caused the collision between them, was
an issue that was actually, directly and expressly raised, controverted
and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J. resolved that
issue in his Decision and held the "Don Carlos" to have been negligent
rather than the "Yotai Maru" and, as already noted, that Decision was
affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6
December 1978. The Reyes Decision thus became final and executory
approximately two (2) years before the Sison Decision, which is assailed
in the case at bar, was promulgated. Applying the rule of conclusiveness
of judgment, the question of which vessel had been negligent in the
collision between the two (2) vessels, had now long been settled by this
Court and could no longer be relitigated in C.A.-G.R. No. 61206-R.
Private respondent Go Thong was certainly bound by the ruling or
judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals
fell into clear and reversible error when it disregarded the Decision of this
Court affirming the Reyes Decision.
4. ID.; EVIDENCE; ADMISSIONS; RULE ON COMPROMISES,
EXPLAINED; RULE ANCHORED ON PUBLIC POLICY THAT
INCIDENCE OF LITIGATION SHOULD BE REDUCED AND ITS
DURATION SHORTENED TO THE MAXIMUM EXTENT
FEASIBLE. — The familiar rule is that "an offer of compromise is not an
admission that anything is due, and is not admissible in evidence against
the person making the offer." A compromise is an agreement between
two (2) or more persons who, in order to forestall or put an end to a law
suit, adjust their differences by mutual consent, an adjustment which
every one of them prefers to the hope of gaining more, balanced by the
danger of losing more. An offer to compromise does not, in legal
contemplation, involve an admission on the part of a defendant that he is
legally liable, not on the part of a plaintiff that his claim or demand is
groundless or even doubtful, since the compromise is arrived at precisely
with a view to avoiding further controversy and saving the expenses of
litigation. It is of the very nature of an offer of compromise that it is made
tentatively, hypothetically and in contemplation of mutual concessions.
The above rule on compromises is anchored on public policy of the most
insistent and basic kind: that the incidence of litigation should be reduced
and its duration shortened to the maximum extent feasible.
5. CIVIL LAW; QUASI-DELICT; NEGLIGENCE; FACTORS
CONSTITUTIVE THEREOF WHICH NEGLIGENCE WAS THE
PROXIMATE CAUSE OF THE COLLISION; FIRST FACTOR WAS
FAILURE ON THE PART OF PRIVATE RESPONDENT'S VESSEL TO
COMPLY WITH RULES 18(a) AND 28 (c) OF THE INTERNATIONAL
RULES OF THE ROAD. — The Court believes that there are three (3)
principal factors which are constitutive of negligence on the part of the
"Don Carlos," which negligence was the proximate cause of the collision.
The first of these factors was the failure of the "Don Carlos" to comply
with the requirements of Rule 18 (a) of the International Rules of the
Road ("Rules"), which provides as follows: (a) When two power-driven
vessels are meeting end on, or nearly end on, so as to involve risk of
collision, each shall alter her course to starboard, so that each may pass
on the port side of the other. The "Don Carlos" also violated Rule 28 (c)
for it failed to give the required signal of two (2) short horn blasts meaning
"I am altering my course to port." When the "Yotai Maru" saw that the
"Don Carlos" was turning to port, the master of the "Yotai Maru" ordered
the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines;
at about 3:46 a.m., the "Yotai Maru" went "full astern engine." The
collision occurred at exactly 3:50 a.m.
6. ID.; ID.; ID.; ID.; SECOND FACTOR WAS FAILURE ON THE PART
OF PRIVATE RESPONDENT'S VESSEL TO HAVE ON BOARD A
"PROPER LOOK-OUT"; CASE AT BAR. —The second circumstance
constitutive of negligence on the part of the "Don Carlos" was its failure to
have on board that night a "proper look-out" as required by Rule I (B) of
the International Rules of the Road. Under Rule 29 of the same set of
Rules, all consequences arising from the failure of the "Don Carlos" to
keep a "proper look-out" must be born by the "Don Carlos." In the case at
bar, the failure of the "Don Carlos" to recognize in a timely manner the
risk of collision with the "Yotai Maru" coming in from the opposite
direction, was at least in part due to the failure of the "Don Carlos" to
maintain a proper look-out.
7. ID.; ID.; ID.; ID.; THIRD FACTOR RELATES TO THE FACT THAT
THE SECOND MATE WAS, IMMEDIATELY BEFORE AND DURING
THE COLLISION, IN COMMAND OF PRIVATE RESPONDENT'S
VESSEL. — The third factor constitutive of negligence on the part of the
"Don Carlos" relates to the fact that Second Mate Benito German was,
immediately before and during the collision, in command of the "Don
Carlos." Second Mate German simply did not have the level of
experience, judgment and skill essential for recognizing and coping with
the risk of collision as it presented itself that early morning when the "Don
Carlos," running at maximum speed and having just overtaken the "Don
Francisco" then approximately one mile behind to the starboard side of
the "Don Carlos," found itself head-on or nearly head-on vis-a-vis the
"Yotai Maru." It is essential to point out that this situation was created by
the "Don Carlos" itself.

DECISION

FELICIANO, J : p
In the early morning of 3 May 1970 — at exactly 0350 hours, on the
approaches to the port of Manila near Caballo Island, a collision took
place between the M/V "Don Carlos," an inter-island vessel owned and
operated by private respondent Carlos A. Go Thong and Company ("Go
Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese
registry. The "Don Carlos" was then sailing south bound leaving the port
of Manila for Cebu, while the "Yotai Maru" was approaching the port of
Manila, coming in from Kobe, Japan. The bow of the "Don Carlos"
rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm.
gaping hole on her portside near Hatch No. 3, through which seawater
rushed in and flooded that hatch and her bottom tanks, damaging all the
cargo stowed therein. Cdpr

The consignees of the damaged cargo got paid by their insurance

companies. The insurance companies in turn, having been subrogated to
the interests of the consignees of the damaged cargo, commenced
actions against private respondent Go Thong for damages sustained by
the various shipments in the then Court of First Instance of Manila.
Two (2) cases were filed in the Court of First Instance of Manila. The first
case, Civil Case No. 82567, was commenced or 13 March 1971 by
petitioner Smith Bell and Company (Philippines), Inc. and Sumitomo
Marine and Fire Insurance Company Ltd., against private respondent Go
Thong, in Branch 3, which was presided over by Judge Bernardo P.
Fernandez. The second case, Civil Case No. 82556, was filed on 15
March 1971 by petitioners Smith Bell and Company (Philippines), Inc.
and Tokyo Marine and Fire Insurance Company, Inc. against private
respondent Go Thong in Branch 4, which was presided over by then
Judge, later Associate Justice of this Court, Serafin R. Cuevas. LLpr

Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas)
were tried under the same issues and evidence relating to the collision
between the "Don Carlos" and the "Yotai Maru" the parties in both cases
having agreed that the evidence on the collision presented in one case
would be simply adopted in the other. In both cases, the Manila Court of
First Instance held that the officers and crew of the "Don Carlos" had
been negligent, that such negligence was the proximate cause of the
collision and accordingly held respondent Go Thong liable for damages
to the plaintiff insurance companies. Judge Fernandez awarded the
insurance companies P19,889.79 with legal interest plus P3,000.00 as
attorney's fees; while Judge Cuevas awarded the plaintiff insurance
companies on two (2) claims US$68,640.00 or its equivalent in Philippine
currency plus attorney's fees of P30,000.00, and P19,163.02 plus
P5,000.00 as attorney's fees, respectively.
The decision of Judge Fernandez in Civil Case No. 82567 was appealed
by respondent Go Thong to the Court of Appeals, and the appeal was
there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas
in Civil Case No. 82556 was also appealed by Go Thong to the Court of
Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R.
Substantially identical assignments of errors were made by Go Thong in
the two (2) appealed cases before the Court of Appeals.
In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes,
L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of
Judge Fernandez. Private respondent Go Thong moved for
reconsideration, without success. Go Thong then went to the Supreme
Court on Petition for Review, the Petition being docketed as G.R. No.
L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and Company
[Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this
Court, having considered "the allegations, issues and arguments
adduced in the Petition for Review on Certiorari, of the Decision of the
Court of Appeals as well as respondent's comment", denied the Petition
for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion
was denied by this Court on 24 January 1979.
In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals,
on 26 November 1980 (or almost two [2] years after the Decision of
Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the
Supreme Court on Petition for Review) through Sison, P.V., J., reversed
the Cuevas Decision and held the officers of the "Yotai Maru" at fault in
the collision with the "Don Carlos," and dismissed the insurance
companies' complaint. Herein petitioners asked for reconsideration, to no
avail.
The insurance companies are now before us on Petition for Review on
Certiorari, assailing the Decision of Sison, P.V., J., in C.A.-G.R. No.
61206-R. Petitioners' principal contentions are:
a. that the Sison Decision had disregarded the rule of res
judicata;
b. that Sison P.V., J., was in serious and reversible error in
accepting Go Thong's defense that the question of fault on the
part of the "Yotai Maru" had been settled by the compromise
agreement between the owner of the "Yotai Maru" and Go
Thong as owner of the "Don Carlos;" and
c. that Sison, P.V., J., was in serious and reversible error in
holding that the "Yotai Maru" had been negligent and at fault in
the collision with the "Don Carlos."
 I
The first contention of petitioners is that Sison, P.V., J. in rendering his
questioned Decision, failed to apply the rule of res judicata. Petitioners
maintain that the Resolution of the Supreme Court dated 6 December
1978 in G.R. No. 48839 which dismissed Go Thong's Petition for Review
of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had
effectively settled the question of liability on the part of the "Don Carlos."
Under the doctrine of res judicata, petitioners contend, Sison,
P.V., J. should have followed the Reyes, L.B., J. Decision since the latter
had been affirmed by the Supreme Court and had become final and
executory long before the Sison Decision was rendered.
Private respondent Go Thong, upon the other hand, argues that the
Supreme Court, in rendering its minute Resolution in G.R. No. L-48839,
had merely dismissed Go Thong's Petition for Review of the Reyes,
L.B., J. Decision for lack of merit but had not affirmed in toto that
Decision. Private respondent, in other words, purports to distinguish
between denial of a Petition for Review for lack of merit and affirmance of
the Court of Appeals' Decision. Thus, Go Thong concludes, this Court did
not hold that the "Don Carlos" had been negligent in the collision.
Private respondent's argument must be rejected. That this Court denied
Go Thong's Petition for Review in a minute Resolution did not in any way
diminish the legal significance of the denial so decreed by this Court. The
Supreme Court is not compelled to adopt a definite and stringent rule on
how its judgment shall be framed. 1 It has long been settled that this
Court has discretion to decide whether a "minute resolution" should be
used in lieu of a full-blown decision in any particular case and that a
minute Resolution of dismissal of a Petition for Review on Certiorari
constitutes an adjudication on the merits of the controversy or subject
matter of the Petition.2 It has been stressed by the Court that the grant of
due course to a Petition for Review is "not a matter of right, but of sound
judicial discretion; and so there is no need to fully explain the Court's
denial. For one thing, the facts and law are already mentioned in the
Court of Appeals' opinion." 3 A minute Resolution denying a Petition for
Review of a Decision of the Court of Appeals can only mean that the
Supreme Court agrees with or adopts the findings and conclusions of the
Court of Appeals, in other words, that the Decision sought to be reviewed
and set aside is correct. 4
Private respondent Go Thong argues also that the rule of res
judicata cannot be invoked in the instant case whether in respect of the
Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme
Court in G.R. No. L-48839, for the reason that there was no identity of
parties and no identity of cause of action between C.A.-G.R. No. 61206-R
and C.A.-G.R. No. 61320-R.
The parties in C.A.-G.R. No. 61320-R where the decision of Judge
Fernandez was affirmed, involved Smith Bell and Company (Philippines),
Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the
petitioners in the instant case (plaintiffs below) are Smith Bell and Co.
(Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other
words, there was a common petitioner in the two (2) cases, although the
co-petitioner in one was an insurance company different from the
insurance company co-petitioner in the other case. It should be noted,
moreover, that the co-petitioner in both cases was an insurance company
and that both petitioners in the two (2) cases represented the same
interest, i.e., the cargo owner's interest as against the hull interest or the
interest of the shipowner. More importantly, both cases had been brought
against the same defendant, private respondent Go Thong, the owner of
the vessel "Don Carlos." In sum, C.A.-G.R. No. 61320-R and C.A.-G.R.
No. 61206-R exhibited substantial identity of parties. LLpr

It is conceded by petitioners that the subject matters of the two (2) suits
were not identical, in the sense that the cargo which had been damaged
in the one case and for which indemnity was sought, was not the very
same cargo which had been damaged in the other case indemnity for
which was also sought. The cause of action was, however, the same in
the two (2) cases, i.e., the same right of the cargo owners to the safety
and integrity of their cargo had been violated by the same casualty, the
ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both
cases were final judgments on the merits rendered by the two (2)
divisions of the Court of Appeals and by the Supreme Court, the
jurisdiction of which has not been questioned.
Under the circumstances, we believe that the absence of identity of
subject matter, there being substantial identity of parties and identity of
cause of action, will not preclude the application of res judicata. 5
In Tingson v. Court of Appeals, 6 the Court distinguished one from the
other the two (2) concepts embraced in the principle of res judicata, i.e.,
"bar by former judgment" and "conclusiveness of judgment:"
"There is no question that where as between the first case
where the judgment is rendered and the second case where
such judgment is invoked, there is identity of parties,
subject-matter and cause of action, the judgment on the merits
in the first case constitutes an absolute bar to the subsequent
action not only as to every matter which was offered and
received to sustain or defeat the claim or demand, but also as to
 any other admissible matter which might have been offered for
that purpose and to all matters that could have been adjudged
in that case. This is designated as 'bar by former judgment.'
But where the second action between the same parties is upon
a different claim or demand, the judgment in the prior action
operates as an estoppel only as to those matters in issue or
points controverted, upon the determination of which the finding
or judgment was rendered. In fine, the previous judgment is
conclusive in the second case, only as those matters actually
and directly controverted and determined and not as to matters
merely involved therein. This is the rule on 'conclusiveness of
judgment' embodied in subdivision (c) of Section 49 of Rule 39
of the Revised Rules of Court." 7 (Citations omitted) (Emphases
supplied)
In Lopez v. Reyes, 8 the Court elaborated further the distinction between
bar by former judgment which bars the prosecution of a second action
upon the same claim, demand or cause of action, and conclusiveness of
judgment which bars the relitigation of particular facts or issues in another
litigation between the same parties on a different claim or cause of action:

"The doctrine of res judicata has two aspects. The first is the
effect of a judgment as a bar to the prosecution of a second
action upon the same claim, demand or cause of action. The
second aspect is that it precludes the relitigation of a particular
fact or issues in another action between the same parties on a
different claim or cause of action.
The general rule precluding the relitigation of material facts or
questions which were in issue and adjudicated in former
action are commonly applied to all matters essentially
connected with the subject matter of the litigation. Thus, it
extends to questions 'necessarily involved in an issue, and
necessarily adjudicated, or necessarily implied in the final
judgment, although no specific finding may have been made in
reference thereto, and although such matters were directly
referred to in the pleadings and were not actually or formally
presented. Under this rule, if the record of the former trial shows
that the judgment could not have been rendered without
deciding the particular matter, it will be considered as having
settled that matter as to all future actions between the parties,
and if a judgment necessarily presupposes certain premises,
they are as conclusive as the judgment itself. Reasons for the
rule are that a judgment is an adjudication on all the matters
which are essential to support it, and that every proposition
 assumed or decided by the court leading up to the final
conclusion and upon which such conclusion is based is as
effectually passed upon as the ultimate question which is finally
solved.'" 9 (citations omitted) (Emphases supplied)
In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru")
had been negligent, or so negligent as to have proximately caused the
collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R.
Reyes, L.B., J., resolved that issue in his Decision and held the "Don
Carlos" to have been negligent rather than the "Yotai Maru" and, as
already noted, that Decision was affirmed by this Court in G.R. No.
L-48839 in a Resolution dated 6 December 1978. The Reyes Decision
thus became final and executory approximately two (2) years before the
Sison Decision, which is assailed in the case at bar, was promulgated.
Applying the rule of conclusiveness of judgment, the question of which
vessel had been negligent in the collision between the two (2) vessels,
had long been settled by this Court and could no longer be relitigated in
C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly
bound by the ruling or judgment of Reyes, L.B., J. and that of this Court.
The Court of Appeals fell into clear and reversible error when it
disregarded the Decision of this Court affirming the Reyes Decision. 10
Private respondent Go Thong also argues that a compromise agreement
entered into between Sanyo Shipping Company as owner of the "Yotai
Maru" and Go Thong as owner of the "Don Carlos," under which the
former paid P268,000.00 to the latter effectively settled that the "Yotai
Maru" had been at fault. This argument is wanting in both factual basis
and legal substance. True it is that by virtue of the compromise
agreement, the owner of the "Yotai Maru" paid a sum of money to the
owner of the "Don Carlos." Nowhere, however, in the compromise
agreement did the owner of the "Yotai Maru" admit or concede that the
"Yotai Maru" had been at fault in the collision. The familiar rule is that "an
offer of compromise is not an admission that anything is due, and is not
admissible in evidence against the person making the offer." 11 A
compromise is an agreement between two (2) or more persons who, in
order to forestall or put an end to a law suit, adjust their differences by
mutual consent, an adjustment which everyone of them prefers to the
hope of gaining more, balanced by the danger of losing more. 12 An offer
to compromise does not, in legal contemplation, involve an admission on
the part of a defendant that he is legally liable, nor on the part of a plaintiff
that his claim or demand is groundless or even doubtful, since the
compromise is arrived at precisely with a view to avoiding further
controversy and saving the expenses of litigation. 13 It is of the very
nature of an offer of compromise that it is made tentatively, hypothetically
and in contemplation of mutual concessions. 14 The above rule on
compromises is anchored on public policy of the most insistent and basic
kind; that the incidence of litigation should be reduced and its duration
shortened to the maximum extent feasible.
The collision between the "Yotai Maru" and the "Don Carlos" spawned
not only sets of litigations but also administrative proceedings before the
Board of Marine Inquiry ("BMI"). The collision was the subject matter of
an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the
BMI, through Commodore Leovegildo L. Gantioki, found both vessels to
have been negligent in the collision.
Both parties moved for reconsideration of the BMI's decision. The
Motions for Reconsideration were resolved by the Philippine Coast
Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued
by PCG Commandant, Commodore Simeon M. Alejandro. The
dispositive portion of the PCG decision read as follows:
"Premises considered, the Decision dated July 12, 1971 is
hereby reconsidered and amended absolving the officers of
YOTAI MARU' from responsibility for the collision. This
Headquarters finds no reason to modify the penalties imposed
upon the officers of 'Don Carlos'. (Annex 'C', Reply, September
5, 1981)." 15
Go Thong filed a second Motion for Reconsideration; this was denied
by the PCG in an order dated September 1980.
Go Thong sought to appeal to the then Ministry of National Defense from
the orders of the PCG by filing with the PCG on 6 January 1981 a motion
for a 30-day extension from 7 January 1981 within which to submit its
record on appeal. On 4 February 1981, Go Thong filed a second urgent
motion for another extension of thirty (30) days from 7 February 1981. On
12 March 1981, Go Thong filed a motion for a final extension of time and
filed its record on appeal on 17 March 1981. The PCG noted that Go
Thong's record on appeal was filed late, that is, seven (7) days after the
last extension granted by the PCG had expired. Nevertheless, on 1 July
1981 (after the Petition for Review on Certiorari in the case at bar had
been filed with this Court), the Ministry of Defense rendered a decision
reversing and setting aside the 19 May 1980 decision of the PCG.
The owners of the "Yotai Maru" then filed with the Office of the President
a Motion for Reconsideration of the Defense Ministry's decision. The
Office of the President rendered a decision dated 17 April 1986 denying
the Motion for Reconsideration. The decision of the Office of the
President correctly recognized that Go Thong had failed to appeal in a
seasonable manner:
"MV 'DON CARLOS' filed her Notice of Appeal on January 5,
1981. However, the records also show beyond peradventure of
doubt that the PCG Commandant's decision of May 19, 1980,
had already become final and executory when MV 'DON
CARLOS' filed her Record on Appeal on March 17, 1981, and
when the motion for third extension was filed after the expiry
date.
Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the
Philippine Merchant Marine Rules and Regulations, decisions
of the PCG Commandant shall be final unless, within thirty (30)
days after receipt of a copy thereof, an appeal to the Minister of
National Defense is filed and perfected by the filing of a notice
of appeal and a record on appeal. Such administrative
regulation has the force and effect of law, and the failure of MV
'DON CARLOS' to comply therewith rendered the PCG
Commandant's decision on May 19, 1980, as final and
executory, (Antique Sawmills, Inc. vs. Zayco, 17 SCRA 316;
Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs.
Andrada, 31 SCRA 126.) (Annex 'A', Go Thongs Manifestation
and Motion for Early Resolution, November 24,
1986)." 16 (Emphases supplied)
Nonetheless, acting under the misapprehension that certain
"supervening" events had taken place, the Office of the President held
that the Minister of National Defense could validly modify or alter the
PCG Commandant's decision:
"However, the records likewise show that, on November 26,
1980, the Court of Appeals rendered a decision in CA-G.R. No.
61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong &
Co.) holding that the proximate cause of the collision between
MV 'DON CARLOS' AND MS 'YOTAI MARU' was the
negligence, failure and error of judgment of the officers of MS
'YOTAI MARU'. Earlier, or on February 27, 1976, the Court of
First Instance of Cebu rendered a decision in Civil Case No.
R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding
that MS 'YOTAI MARU' was solely responsible for the collision,
which decision was upheld by the Court of Appeals.
The foregoing judicial pronouncements rendered after the
finality of the PCG Commandant's decision of May 19, 1980,
were supervening causes or reasons that rendered the PCG
Commandant's decision as no longer enforceable and entitled
MV 'DON CARLOS' to request the Minister of National Defense
to modify or alter the questioned decision to harmonize the
 same with justice and the facts. (De la Costa vs. Cleofas, 67
Phil. 686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs.
Canizarez, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA
244). Under such precise circumstances, the Minister of
National Defense may validly modify or alter the PCG
commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and
550, Revised Administrative Code; Province of Pangasinan vs.
Secretary of Public Works and Communications, 30 SCRA 134;
Estrella vs. Orendain, 37 SCRA 640)." 17 (Emphases supplied)
The multiple misapprehensions under which the Office of the President
labored, were the following:

It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No.

61206-R, the very decision that is the subject of review in the Petition at
bar and therefore not final. At the same time, the Office of the President
either ignored or was unaware of the Reyes, L.B., J., Decision in
C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the
collision, and of the fact that that Decision had been affirmed by the
Supreme Court and had long ago become final and executory. A third
misapprehension of the Office of the President related to a decision in a
Cebu Court of First Instance litigation which had been settled by the
compromise agreement between the Sanyo Marine Company and Go
Thong. The Office of the President mistakenly believed that the Cebu
Court of First Instance had rendered a decision holding the "Yotai Maru"
solely responsible for the collision, when in truth the Cebu court had
rendered a judgment of dismissal on the basis of the compromise
agreement. The Cebu decision was not, of course, appealed to the Court
of Appeals. Cdpr

It thus appears that the decision of the Office of the President upholding
the belated reversal by the Ministry of National Defense of the PCG'S
decision holding the "Don Carlos" solely liable for the collision, is so
deeply flawed as not to warrant any further examination. Upon the other
hand, the basic decision of the PCG holding the "Don Carlos" solely
negligent in the collision remains in effect.
II
In their Petition for Review, petitioners assail the finding and conclusion
of the Sison Decision, that the "Yotai Maru" was negligent and at fault in
the collision, rather than the "Don Carlos." In view of the conclusions
reached in Part I above, it may not be strictly necessary to deal with the
issue of the correctness of the Sison Decision in this respect. The Court
considers, nonetheless, that in view of the conflicting conclusions
reached by Reyes, L.B., J., on the one hand, and Sison, P.V., J., on the
other, and since in affirming the Reyes Decision, the Court did not
engage in a detailed written examination of the question of which vessel
had been negligent, and in view of the importance of the issues of
admiralty law involved, the Court should undertake a careful review of the
record of the case at bar and discuss those issues in extenso.
The decision of Judge Cuevas in Civil Case No. 82556 is marked by
careful analysis of the evidence concerning the collision. It is worth
underscoring that the findings of fact of Judge Fernandez in Civil Case
No. 82567 (which was affirmed by the Court of Appeals in the Reyes
Decision and by this Court in G.R. No. L-48839) are just about identical
with the findings of Judge Cuevas. Examining the facts as found by
Judge Cuevas, the Court believes that there are three (3) principal factors
which are constitutive of negligence on the part of the "Don Carlos,"
which negligence was the proximate cause of the collision.
The first of these factors was the failure of the "Don Carlos" to comply
with the requirements of Rule 18 (a) of the International Rules of the
Road ("Rules"), 18 which provides as follows
"(a) When two power-driven vessels are meeting end on, or
nearly end on, so as to involve risk of collision, each shall alter
her course to starboard, so that each may pass on the port side
of the other. This Rule only applies to cases where vessels are
meeting end on or nearly end on, in such a manner as to involve
risk of collision, and does not apply to two vessels which must, if
both keep on their respective course, pass clear of each other.
The only cases to which it does apply are when each of two
vessels is end on, or nearly end on, to the other; in other words,
to cases in which, by day, each vessel sees the masts of the
other in a line or nearly in a line with her own; and by night to
cases in which each vessel is in such a position as to see both
the sidelights of the other. It does not apply, by day, to cases in
which a vessel sees another ahead crossing her own course; or,
by night, to cases where the red light of one vessel is opposed
to the red light of the other or where the green light of one vessel
is opposed to the green light of the other or where a red light
without a green light or a green light without a red light is seen
ahead, or where both green and red lights are seen anywhere
but ahead." (Emphasis supplied)
The evidence on this factor was summarized by Judge Cuevas in the
following manner:
"Plaintiffs and defendant's evidence seem to agree that each
vessel made a visual sighting of each other ten minutes before
 the collision which occurred at 0350. German's version of the
incident that followed, was that 'Don Carlos' was proceeding
directly to [a] meeting [on an] 'end-on or nearly end-on situation'
(Exh. S, page 8). He also testified that 'Yotai Maru's' headlights
were 'nearly in line at 0340 A.M.' (t.s.n, June 6, 1974) clearly
indicating that both vessels were sailing on exactly opposite
paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the
International Rules of the Road provides as follows:
xxx xxx xxx
And yet German altered 'Don Carlos' course by five degrees to
the left at 0343 hours instead of to the right (t.s.n. June 6, 1974,
pages 44-45) which maneuver was the error that caused the
collision in question. Why German did so is likewise explained
by the evidence on record. 'Don Carlos' was overtaking another
vessel, the 'Don Francisco' and was then at the starboard (right
side) of the aforesaid vessel at 3.40 a.m. It was in the process of
overtaking 'Don Francisco' that 'Don Carlos' was finally brought
into a situation where he was meeting end-on or nearly end -on
'Yotai Maru' thus involving risk of collision. Hence, German in
his testimony before the Board of Marine Inquiry stated:
'Atty. Chung:
You said in answer to the cross-examination that you took a
change of course to the left. Why did you not take a
course to the right instead?
German:
I did not take any course to the right because the other vessel
was in my mind at the starboard side following me.
Besides, I don't want to get risk of the Caballo Island
(Exh. 2, pages 209 and 210).'" 19 (Emphasis supplied).
For her part, the "Yotai Maru" did comply with its obligations under Rule
18 (a). As the "Yotai Maru" found herself on an "end-on" or a "nearly
end-on" situation vis-a-vis the "Don Carlos," and as the distance between
them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right)
and at the same time gave the required signal consisting of one short
horn blast. The "Don Carlos" turned to portside (to its left), instead of
turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also
violated Rule 28 (c) for it failed to give the required signal of two (2) short
horn blasts meaning "I am altering my course to port." When the "Yotai
Maru" saw that the "Don Carlos" was turning to port, the master of the
"Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and
stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern
engine." 20 The collision occurred at exactly 3:50 a.m.
The second circumstance constitutive of negligence on the part of the
"Don Carlos" was its failure to have on board that night a "proper
look-out" as required by Rule I (B). Under Rule 29 of the same set of
Rules, all consequences arising from the failure of the "Don Carlos" to
keep a "proper look-out" must be borne by the "Don Carlos." Judge
Cuevas' summary of the evidence said:
"The evidence on record likewise discloses very convincingly
that 'Don Carlos' did not have a 'look-out' whose sole and only
duty is only to act as such . . ." 21
A "proper look-out" is one who has been trained as such and who is
given no other duty save to act as a look-out and who is stationed
where he can see and hear best and maintain good communication
with the officer in charge of the vessel, and who must, of course, be
vigilant. Judge Cuevas wrote:
"The 'look-out' should have no other duty to perform.
(Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He has
only one duty, that which its name implies — to keep a 'look-out'.
So a deckhand who has other duties, is not a proper
'look-out' (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The
navigating officer is not a sufficient 'look-out'(Larcen B. Myrtle,
44 Fed. 779) — Griffin on Collision, pages 277-278). Neither the
captain nor the [helmsman] in the pilothouse can be considered
to be a 'look-out' within the meaning of the maritime law. Nor
should he be stationed in the bridge. He should be as near as
practicable to the surface of the water so as to be able to see
low-lying lights (Griffin on Collision, page 273).
On the strength of the foregoing authorities, which do not
appear to be disputed even by the defendant, it is hardly
probable that neither German or Leo Enriquez may qualify as
'look-out' in the real sense of the word." 22 (Emphases
supplied).
In the case at bar, the failure of the "Don Carlos" to recognize in a
timely manner the risk of collision with the "Yotai Maru" coming in from
the opposite direction, was at least in part due to the failure of the
"Don Carlos" to maintain a proper look-out.
The third factor constitutive of negligence on the part of the "Don Carlos"
relates to the fact that Second Mate Benito German was, immediately
before and during the collision, in command of the "Don Carlos." Judge
Cuevas summed up the evidence on this point in the following manner:
"The evidence on record clearly discloses that 'Don Carlos' was,
at the time of the collision and immediately prior thereto, under
the command of Benito German, a second mate although its
 captain, Captain Rivera, was very much in the said vessel at the
time. The defendant's evidence appears bereft of any
explanation as to why second mate German was at the helm of
the aforesaid vessel when Captain Rivera did not appear to be
under any disability at the time. In this connection, Article [633]
of the Code of Commerce provides:

'Art. [633] — The second mate shall take command of the

vessel in case of the inability or disqualification of the captain
and sailing mate, assuming, in such case, their powers and
liability.'
The fact that second mate German was allowed to
be in command of 'Don Carlos' and not the chief or the
sailing mate in the absence of Captain Rivera, gives rise
to no other conclusion except that said vessel [had] no
chief mate. Otherwise, the defense evidence should
have at least explained why it was German, only a
second mate, who was at the helm of the vessel 'Don
Carlos' at the time of the fatal collision.
But that is not all. Worst still aside from German's being only a
second mate, is his apparent lack of sufficient knowledge of the
basic and generally established rules of navigation. For
instance he appeared unaware of the necessity of employing a
'look-out' (t.s.n. June 6, 1974, page 27) which is manifest even
in his testimony before the Board of Marine Inquiry on the same
subject (Exh. 2, page 209). There is, therefore, every
reasonable ground to believe that his inability to grasp actual
situation and the implication brought about by inadequacy of
experience and technical know-how was mainly responsible
and decidedly accounted for the collision of the vessels involved
in this case . . ." 23 (Emphasis supplied)
Second Mate German simply did not have the level of experience,
judgment and skill essential for recognizing and coping with the risk of
collision as it presented itself that early morning when the "Don
Carlos," running at maximum speed and having just overtaken the
"Don Francisco" then approximately one mile behind to the starboard
side of the "Don Carlos," found itself head-on or nearly head on
vis-a-vis the "Yotai Maru." It is essential to point out that this situation
was created by the "Don Carlos" itself.
The Court of Appeals in C.A.-G.R. No. 61206-R did not make any
findings of fact which contradicted the findings of fact made by Judge
Cuevas. What Sison, P.V., J. actually did was to disregard all the facts
found by Judge Cuevas, and discussed above and, astonishingly, found
a duty on the "Yotai Maru" alone to avoid collision with and to give way to
the "Don Carlos." Sison, P.V., J., wrote:
"At a distance of eight (8) miles and with ten (10) minutes before
the impact, [Katoh] and Chonabayashi had ample time to adopt
effective precautionary measures to steer away from the
Philippine vessel, particularly because both [Katoh] and
Chonabayashi also deposed that at the time they had first
eyesight of the 'Don Carlos' there was still 'no danger at all' of a
collision. Having sighted the 'Don Carlos' at a comparatively
safe distance — 'no danger at all' of a collision — the Japanese
ship should have observed with the highest diligence the course
and movements of the Philippine interisland vessel as to enable
the former to adopt such precautions as will necessarily prevent
a collision, or give way, and in case of a collision, the former is
prima facie at fault. In G. Urrutia & Co. vs. Baco River Plantation
Co., 26 Phil. 632, the Supreme Court held:
'Nautical rules require that where a steamship and
sailing vessel are approaching each other from opposite
directions, or on intersecting lines, the steamship, from
the moment the sailing vessel is seen, shall watch with
the highest diligence her course and movements so as to
enable it to adopt such timely means of precaution as will
necessarily prevent the two boats from coming in
contact.' (Emphasis supplied)
At 3:44 p.m., or 4 minutes after first sighting the 'Don Carlos', or
6 minutes before contact time, Chonabayashi revealed that the
'Yotai Maru' gave a one-blast whistle to inform the Philippine
vessel that the Japanese ship was turning to starboard or to the
right and that there was no blast or a proper signal from the 'Don
Carlos' (pp. 67-68. Deposition of Chonabayashi, List of
Exhibits). The absence of a reply signal from the 'Don Carlos'
placed the 'Yotai Maru' in a situation of doubt as to the course
the Don Carlos' would take. Such being the case, it was the duty
of the Japanese officers 'to stop, reverse or come to a standstill'
until the course of the 'Don Carlos' has been determined and
the risk of a collision removed (The Sabine, 21 F (2d) 121, 124,
cited in Standard Vacuum, etc. vs. Cebu Stevedoring, etc., 5
C.A.R. 2d 853, 861-862) . . ." 24 (Emphasis supplied).
The Court is unable to agree with the view thus taken by Sison,
P.V., J. By imposing an exclusive obligation upon one of the vessels, the
"Yotai Maru," to avoid the collision, the Court of Appeals not only chose to
overlook all the above facts constitutive of negligence on the part of the
"Don Carlos;" it also in effect used the very negligence on the part of the
"Don Carlos;" to absolve it from responsibility and to shift that
responsibility exclusively onto the "Yotai Maru" the vessel which had
observed carefully the mandate of Rule 18 (a). Moreover, G. Urrutia and
Company v. Baco River Plantation Company 25 invoked by the Court of
Appeals seems simply inappropriate and inapplicable. For the collision in
the Urrutia case was between a sailing vessel, on the one hand, and
a power-driven vessel, on the other; the Rules, of course, imposed a
special duty on the power-driven vessel to watch the movements of a
sailing vessel, the latter being necessarily much slower and much less
maneuverable than the power-driven one. In the case at bar, both the
"Don Carlos" and the "Yotai Maru" were power-driven and both were
equipped with radar; the maximum speed of the "Yotai Maru" was
thirteen (13) knots while that of the "Don Carlos" was eleven (11) knots.
Moreover, as already noted, the "Yotai Maru" precisely took last minute
measures to avert collision as it saw the "Don Carlos" turning to portside:
the "Yotai Maru" turned "hard starboard" and stopped its engines and
then put its engines "full astern."
Thus, the Court agrees with Judge Cuevas (just as it had agreed with
Reyes, L.B., J.), with Judge Fernandez and Nocon, J., 26 that the "Don
Carlos" had been negligent and that its negligence was the sole
proximate cause of the collision and of the resulting damages.
FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated
26 November 1980 in C.A.-G.R. No. 61206-R is hereby REVERSED and
SET ASIDE. The decision of the trial court dated 22 September 1975 is
hereby REINSTATED and AFFIRMED in its entirety. Costs against
private respondent.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras,
Gancayco, Padilla, Bidin, Sarmiento, Griño-Aquino, Medialdea,
Regalado and Davide, Jr., JJ., concur.
||| [G.R. No. 88052. December 14, 1989.]

JOSE P. MECENAS, ROMEO P. MECENAS, LILIA P.

MECENAS, ORLANDO P. MECENAS, VIOLETA M. ACERVO,
LUZVIMINDA P. MECENAS; and OFELIA M.
JAVIER, petitioners, vs. HON. COURT OF APPEALS, CAPT.
ROGER SANTISTEBAN and NEGROS NAVIGATION CO.,
INC., respondents.

Benito P. Favie and Jose Dario Magno for petitioners.

Hernandez, Velicaria, Vibar & Santiago for private respondents.
 DECISION

FELICIANO, J : p

At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a
barge-type oil tanker of Philippine registry, with a gross tonnage of
1,241.68 tons, owned by the Philippine National Oil Company (PNOC)
and operated by the PNOC Shipping and Transport Corporation (PNOC
Shipping), having unloaded its cargo of petroleum products, left Amlan,
Negros Occidental, and headed towards Bataan. At about 1:00 o'clock in
the afternoon of that same day, the M/V "Don Juan," an inter-island
vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned
and operated by the Negros Navigation Co., Inc. (Negros Navigation) left
Manila bound for Bacolod with seven hundred fifty (750) passengers
listed in its manifest, and a complete set of officers and crew members. LLjur

On the evening of that same day, 22 April 1980, at about 10:30 o'clock,
the "Tacloban City" and the "Don Juan" collided at the Talbas Strait near
Maestra de Ocampo Island in the vicinity of the island of Mindoro. When
the collision occurred, the sea was calm, the weather fair and visibility
good. As a result of this collision, the M/V "Don Juan" sank and hundreds
of its passengers perished. Among the ill-fated passengers were the
parents of petitioners, the spouses Perfecto Mecenas and Sofia
Mecenas, whose bodies were never found despite intensive search by
petitioners.LLjur

On 29 December 1980, petitioners filed a complaint in the then Court of

First Instance of Quezon City, docketed as Civil Case No. Q-31525,
against private respondents Negros Navigation and Capt. Roger
Santisteban, the captain of the "Don Juan" without, however, impleading
either PNOC or PNOC Shipping. In their complaint, petitioners alleged
that they were the seven (7) surviving legitimate children of Perfecto
Mecenas and Sofia Mecenas and that the latter spouses perished in the
collision which had resulted from the negligence of Negros Navigation
and Capt. Santisteban. Petitioners prayed for actual damages of not less
than P100,000.00 as well as moral and exemplary damages in such
amount as the Court may deem reasonable to award to them. Cdpr

Another complaint, docketed as Civil Case No. Q-33932, was filed in the
same court by Lilia Ciocon claiming damages against Negros Navigation,
PNOC and PNOC Shipping for the death of her husband Manuel Ciocon,
another of the luckless passengers of the "Don Juan." Manuel Ciocon's
body, too, was never found.
The two (2) cases were consolidated and heard jointly by the Regional
Trial Court of Quezon City, Branch 82. On 17 July 1986, after trial, the
trial court rendered a decision, the dispositive part of which read as
follows:
"WHEREFORE, the Court hereby renders judgment ordering:
a) The defendant Negros Navigation Co., Inc. and Capt. Roger
Santisteban jointly and severally liable to pay plaintiffs in Civil
Case No. Q-31525, the sum of P400,000.00 for the death of
plaintiffs' parents, Perfecto A. Mecenas and Sofia P. Mecenas;
to pay said plaintiffs the sum of P15,000.00 as and for attorney's
fees; plus costs of the suit.
b) Each of the defendants Negros Navigation Co, Inc. and
Philippine National Oil Company/PNOC Shipping and
Transportation Company, to pay the plaintiff in Civil Case No.
Q-33932, the sum of P100,000.00 for the death of Manuel
Ciocon, to pay said plaintiff jointly and severally, the sum of
P15,000.00 as and for attorney's fees, plus costs of the suit." 1
Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping
appealed the trial court's decision to the Court of Appeals. Later, PNOC
and PNOC Shipping withdrew their appeal citing a compromise
agreement reached by them with Negros Navigation; the Court of
Appeals granted the motion by a resolution dated 5 September 1988,
subject to the reservation made by Lilia Ciocon that she could not be
bound by the compromise agreement and would enforce the award
granted her by the trial court.
In time, the Court of Appeals rendered a decision dated 26 January 1989
which decreed the following:
"WHEREFORE, in view of the foregoing, the decision of the
court a quo is hereby affirmed as modified with respect to Civil
Case No. 31525, wherein defendant appellant Negros
Navigation Co. Inc. and Capt. Roger Santisteban are held jointly
and severally liable to pay the plaintiffs the amount of
P100,000.00 as actual and compensatory damages and
P15,000.00 as attorney's fees and the cost of the suit." 2
The issue to be resolved in this Petition for Review is whether or not the
Court of Appeals had erred in reducing the amount of the damages
awarded by the trial court to the petitioners from P400,000.00 to
P100,000.00.
We note that the trial court had granted petitioners the sum of
P400,000.00" for the death of [their parents]" plus P15,000.00 as
attorney's fees, while the Court of Appeals awarded them P100,000.00
"as actual and compensatory damages" and P15,000.00 as attorney's
fees. To determine whether such reduction of the damages awarded was
proper, we must first determine whether petitioners were entitled to an
award of damages other than actual or compensatory damages, that is,
whether they were entitled to award of moral and exemplary damages. prcd

We begin by noting that both the trial court and the Court of Appeals
considered the action (Civil Case No. Q-31525) brought by the sons and
daughters of the deceased Mecenas spouses against Negros Navigation
as based on quasi-delict. We believed that action is more appropriately
regarded as grounded on contract, the contract of carriage between the
Mecenas spouses as regular passengers who paid for their boat tickets
and Negros Navigation; the surviving children while not themselves
passengers are in effect suing the carrier in representation of their
deceased parents. 3 Thus, the suit (Civil Case No. Q-33932) filed by the
widow Lilia Ciocon was correctly treated by the trial and appellate courts
as based on contract (vis-a-vis Negros Navigation) and as well on
quasi-delict (vis-a-vis PNOC and PNOC Shipping). In an action based
upon a breach of the contract of carriage, the carrier under our civil law is
liable for the death of passengers arising from the negligence or wilful act
of the carrier's employees although such employees may have acted
beyond the scope of their authority or even in violation of the instructions
of the carrier, 4 which liability may include liability for moral damages. 5 It
follows that petitioners would be entitled to moral damages so long as the
collision with the "Tacloban City" and the sinking of the "Don Juan" were
caused or attended by negligence on the part of private respondents. LLpr

In respect of the petitioners' claim for exemplary damages, it is only

necessary to refer to Article 2232 of the Civil Code:
"Article 2332. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner." 6
Thus, whether petitioners are entitled to exemplary damages as
claimed must depend upon whether or not private respondents acted
recklessly, that is, with gross negligence.
We turn, therefore, to a consideration of whether or not Negros
Navigation and Capt. Santisteban were grossly negligent during the
events which culminated in the collision with "Tacloban City" and the
sinking of the "Don Juan" and the resulting heavy loss of lives.
The then Commandant of the Philippine Coast Guard, Commodore B.C.
Ochoco, in a decision dated 2 March 1981, held that the "Tacloban City"
was "primarily and solely [sic] at fault and responsible for the
collision." 7 Initially, the Minister of National Defense upheld the decision
of Commodore Ochoco. 8 On Motion for Reconsideration, however, the
Minister of National Defense reversed himself and held that both
vessels had been at fault:
"It is therefore evident from a close and thorough review of the
evidence that fault is imputable to both vessels for the collision.
Accordingly, the decision dated March 12, 1982, subject of the
Motion for Reconsideration filed by counsel of M/T Tacloban
City, is hereby reversed. However, the administrative penalties
imposed on both vessels and their respective crew concerned
are hereby affirmed." 9
The trial court, after a review of the evidence submitted during the trial,
arrived at the same conclusion that the Minister of National Defense had
reached that both the "Tacloban City" and the "Don Juan" were at fault in
the collision. The trial court summarized the testimony and evidence of
PNOC and PNOC Shipping as well as of Negros Navigation in the
following terms:
"Defendant PNOC's version of the incident:
"M/V Don Juan was first sighted at about 5 or 6 miles from
Tacloban City (TSN, January 21, 1985, p. 13); it was on the
starboard (right) side of Tacloban City. This was a visual contact;
not picked up by radar (p. 15, ibid). Tacloban City was travelling
310 degrees with a speed of 6 knots, estimated speed of Don
Juan of 16 knots (TSN, May 9, pp. 5-6). As Don Juan
approached, Tacloban City gave a leeway of 10 degrees to the
left. 'The purpose was to enable Tacloban to see the direction of
Don Juan (p. 19, ibid). Don Juan switched to green light,
signifying that it will pass Tacloban City's right side; it will be a
starboard to starboard passing (p. 21, ibid).' Tacloban City's
purpose in giving a leeway of 10 degrees at this point, is to give
Don Juan more space for her passage (p. 22, ibid). This was
increased by Tacloban City to an additional 15 degrees towards
the left (p. 22, ibid). The way was clear and Don Juan has not
changed its course (TSN, May 9, 1985, p. 39).

"When Tacloban City altered its course the second time, from
300 degrees to 285 degrees, Don Juan was about 4.5 miles
away (TSN, May 9, 1985, p. 7).
"Despite executing a hardport maneuver, the collision
nonetheless occurred. Don Juan rammed the Tacloban City
near the starboard bow (p. 7, ibid)."
NENACO's [Negros Navigation] version.
 "Don Juan first sighted Tacloban City 4 miles away, as shown
by radar (p. 13, May 24, 1983). Tacloban City showed its red
and green lights twice; it proceeded to, and will cross, the path
of Don Juan. Tacloban was on the left side of Don Juan (TSN,
April 20, 1983, p. 4).
"Upon seeing Tacloban's red and green lights, Don Juan
executed hard starboard (TSN, p. 4, ibid.) This maneuver is in
conformity with the rule that 'when both vessels are head on or
nearly head on, each vessel must turn to the right in order to
avoid each other.' (p. 5, ibid). Nonetheless, Tacloban appeared
to be heading towards Don Juan (p. 6, ibid).
"When Don Juan executed hard starboard, Tacloban was about
1,500 feet away (TSN, May 24, 1983, p. 6). Don Juan, after
execution of hard starboard, will move forward 200 meters
before the vessel will respond to such maneuver (p. 7, ibid). The
speed of Don Juan at that time was 17 knots; Tacloban City 6.3
knots.
"Between 9 to 15 seconds from execution of hard starboard,
collision occurred (p. 8, ibid). (pp. 3-4 Decision)." 10
The trial court concluded:
"M/V Don Juan and Tacloban City became aware of each
other's presence in the area by visual contact at a distance of
something like 6 miles from each other. They were fully aware
that if they continued on their course, they will meet head on.
Don Juan steered to the right; Tacloban City continued its
course to the left. There can be no excuse for them not to
realize that, with such maneuvers, they will collide. They
executed maneuvers inadequate, and too late, to avoid
collision.
"The Court is of the considered view that the defendants are
equally negligent and are liable for damages. (p. 4, decision). 11
The Court of Appeals, for its part, reached the same
conclusion. 12
There is, therefore, no question that the "Don Juan" was at
least as negligent as the M/T "Tacloban City" in the events leading
up to the collision and the sinking of the "Don Juan." The remaining
question is whether the negligence on the part of the "Don Juan"
reached that level of recklessness or gross negligence that our
Civil Code requires for the imposition of exemplary damages. Our
own review of the record in the case at bar requires us to answer
this in the affirmative.LibLex
 In the first place, the report of the Philippine Coast Guard
Commandant (Exhibit "10"), while holding the "Tacloban City" as
"primarily and solely [sic] at fault and responsible for the collision,"
did itself set out that there had been fault or negligence on the part
of Capt. Santisteban and his officers and crew before the collision
and immediately after contact of the two (2) vessels. The decision
of Commodore Ochoco said:
"xxx xxx xxx
MS Don Juan's Master, Capt. Rogelio Santisteban, was playing
mahjong before and up to the time of collision. Moreover, after
the collision, he failed to institute appropriate measures to delay
the sinking of MS Don Juan and to supervise properly the
execution of his order of abandon ship. As regards the officer on
watch, Senior 3rd Mate Rogelio Devera, he admitted that he
failed or did not call or inform Capt. Santisteban of the imminent
danger of collision and of the actual collision itself . Also, he
failed to assist his master to prevent the fast sinking of the ship.
The record also indicates that Auxiliary Chief Mate Antonio
Labordo displayed laxity in maintaining order among the
passengers after the collision.
xxx xxx xxx." 13
We believe that the behaviour of the captain of the "Don Juan" in this
instance — playing mahjong "before and up to the time of collision" —
constitutes behaviour that is simply unacceptable on the part of the
master of a vessel to whose hands the lives and welfare of at least
seven hundred fifty (750) passengers had been entrusted. Whether or
not Capt. Santisteban was "off-duty" or "on-duty" at or around the time
of actual collision is quite immaterial; there is, both realistically
speaking and in contemplation of law, no such thing as "off-duty"
hours for the master of a vessel at sea that is a common carrier upon
whom the law imposes the duty of extraordinary diligence —
"[t]he duty to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances. 14
The record does not show that was the first or only time that Capt.
Santisteban had entertained himself during a voyage by playing
mahjong with his officers and passengers; Negros Navigation in
permitting, or in failing to discover and correct such behaviour, must
be deemed grossly negligent.
Capt. Santisteban was also faulted in the Philippine Coast Guard
decision for failing after the collision, "to institute appropriate measures to
delay the sinking of M/V Don Juan." This appears to us to be a
euphemism for failure to maintain the seaworthiness or the water-tight
integrity of the "Don Juan." The record shows that the "Don Juan" sank
within ten (10) to fifteen (15) minutes after initial contact with the
"Tacloban City." 15 While the failure of Capt. Santisteban to supervise his
officers and crew in the process of abandoning the ship and his failure to
avail of measures to prevent the too rapid sinking of his vessel after
collision, did not cause the collision by themselves, such failures
doubtless contributed materially to the consequent loss of life and,
moreover, were indicative of the kind and level of diligence exercised by
Capt. Santisteban in respect of his vessel and his officers and men prior
to actual contact between the two (2) vessels. The officer-on-watch in the
"Don Juan" admitted that he had failed to inform Capt. Santisteban not
only of the "imminent danger of collision" but even of "the actual collision
itself ."
There is also evidence that the "Don Juan" was carrying more
passengers than she had been certified as allowed to carry. The
Certificate of Inspection, 16 dated 27 August 1979, issued by the
Philippine Coast Guard Commander at Iloilo City, the Don Juan's home
port, states:
Passengers allowed : 810
Total Persons Allowed : 864
The report of the Philippine Coast Guard (Exhibit "10") stated that the
"Don Juan" had been "officially cleared with 878 passengers on-board
when she sailed from the port of Manila on April 22, 1980 at about
1:00 p.m." This head-count of the passengers "did not include the 126
crew members, children below three (3) years old and two (2)
half-paying passengers" which had been counted as one adult
passenger. 17 Thus, the total number of persons on board the "Don
Juan" on that ill-starred night of 22 April 1980 was 1,004, or 140
persons more than the maximum number that could be safely carried
by the "Don Juan," per its own Certificate of Inspection. 18 We note in
addition, that only 750 passengers had been listed in its manifest for
its final voyage; in other words, at least 128 passengers on board
hadnot even been entered into the "Don Juan's" manifest. The "Don
Juan's" Certificate of Inspection showed that she carried life boat and
life raft accommodations for only 864 persons, the maximum number
of persons she was permitted to carry; in other words, she did not
carry enough boats and life rafts for all the persons actually on board
that tragic night of 22 April 1980.
We hold that under these circumstances, a presumption
of gross negligence on the part of the vessel (her officers and crew) and
of its shipowner arises; this presumption was never rebutted by Negros
Navigation.
The grossness of the negligence of the "Don Juan" is underscored when
one considers the foregoing circumstances in the context of the following
facts: Firstly, the "Don Juan" was more than twice as fast as the
"Tacloban City." The "Don Juan's" top speed was 17 knots; while that of
the "Tacloban City" was 6.3. knots. 19 Secondly, the "Don Juan" carried
the full complement of officers and crew members specified for a
passenger vessel of her class. Thirdly, the "Don Juan" was equipped with
radar which was functioning that night. Fourthly, the "Don Juan's" officer
on-watch had sighted the "Tacloban City" on his radar screen while the
latter was still four (4) nautical miles away. Visual confirmation of radar
contact was established by the "Don Juan" while the "Tacloban City" was
still 2.7 miles away. 20 In the total set of circumstances which existed in
the instant case, the "Don Juan," had it taken seriously its duty of
extraordinary diligence, could have easily avoided the collision with the
"Tacloban City." Indeed, the "Don Juan" might well have avoided the
collision even if it had exercised ordinary diligence merely.
It is true that the "Tacloban City" failed to follow Rule 18 of the
International Rules of the Road which requires two (2) power-driven
vessels meeting end on or nearly end on each to alter her course to
starboard (right) so that each vessel may pass on the port side (left) of the
other. 21 The "Tacloban City," when the two (2) vessels were only
three-tenths (0.3) of a mile apart, turned (for the second time) 15x to port
side while the "Don Juan" veered hard to starboard. This circumstance,
while it may have made the collision immediately inevitable, cannot,
however, be viewed in isolation from the rest of the factual circumstances
obtaining before and up to the collision. In any case, Rule 18 like all other
International Rules of the Road, are not to be obeyed and construed
without regard to all the circumstances surrounding a particular
encounter between two (2) vessels. 22 In ordinary circumstances, a
vessel discharges her duty to another by a faithful and literal observance
of the Rules of Navigation,23 and she cannot be held at fault for so doing
even though a different course would have prevented the collision. This
rule, however, is not to be applied where it is apparent, as in the instant
case, that her captain was guilty of negligence or of a want of
seamanship in not perceiving the necessity for, or in so acting as to
create such necessity for, a departure from the rule and acting
accordingly. 24 In other words, "route observance" of the International
Rules of the Road will not relieve a vessel from responsibility if the
collision could have been avoided by proper care and skill on her part or
even by a departure from the rules. 25

In the petition at bar, the "Don Juan" having sighted the "Tacloban City"
when it was still a long way off was negligent in failing to take early
preventive action and in allowing the two (2) vessels to come to such
close quarters as to render the collision inevitable when there was no
necessity for passing so near to the "Tacloban City" as to create that
hazard or inevitability, for the "Don Juan" could choose its own
distance. 26 It is noteworthy that the "Tacloban City," upon turning hard to
port shortly before the moment of collision, signaled its intention to do so
by giving two (2) short blasts with its horn. 26 The "Don Juan" gave no
answering horn blast to signal its own intention and proceeded to turn
hard to starboard. 26
We conclude that Capt. Santisteban and Negros Navigation are properly
held liable for gross negligence in connection with the collision of the
"Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading
to the death of hundreds of passengers. We find no necessity for passing
upon the degree of negligence or culpability properly attributable to
PNOC and PNOC Shipping or the master of the "Tacloban City," since
they were never impleaded here.
It will be recalled that the trial court had rendered a lump sum of
P400,000.00 to petitioners for the death of their parents in the "Don Juan"
tragedy. Clearly, the trial court should have included a breakdown of the
lump sum award into its component parts: compensatory damages,
moral damages and exemplary damages. On appeal, the Court of
Appeals could have and should have itself broken down the lump sum
award of the trial court into its constituent parts; perhaps, it did, in its own
mind. In any case, the Court of Appeals apparently relying
upon Manchester Development Corporation v. Court of
Appeals 27 reduced the P400,000.00 lump sum award into a
P100,000.00 for actual and compensatory damages only.
We believe that the Court of Appeals erred in doing so. It is true that the
petitioners' complaint before the trial court had in the body indicated that
the petitioner-plaintiffs believed that moral damages in the amount of at
least P1,400,000.00 were properly due to them (not P12,000,000.00 as
the Court of Appeals erroneously stated) as well as exemplary damages
in the sum of P100,000.00 and that in the prayer of their complaint, they
did not specify the amount of moral and exemplary damages sought from
the trial court. We do not believe, however, that the Manchester doctrine,
which has been modified and clarified in subsequent decision by the
Court in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et al. 28 can
be applied in the instant case so as to work a striking out of that portion of
the trial court's award which could be deemed notionally to constitute an
award of moral and exemplary damages. Manchester was promulgated
by the Court on 7 May 1987. Circular No. 7 of this Court, which embodied
the doctrine in Manchester, is dated 24 March 1988. Upon the other hand,
the complaint in the case at bar was filed on 29 December 1980,that is,
long before either Manchester or Circular No. 7 of 24 March 1988
emerged. The decision of the trial court was itself promulgated on 17 July
1986, again, beforeManchester and Circular No. 7 were promulgated.
We do not believe that Manchester should have been applied
retroactively to this case where a decision on the merits had already been
rendered by the trial court, even though such decision was then under
appeal and had not yet reached finality. There is no indication at all that
petitioners here sought simply to evade payment of the court's filing fees
or to mislead the court in the assessment of the filing fees. In any event,
we apply Manchesteras clarified and amplified by Sun Insurance Office
Ltd. (SIOL), by holding that the petitioners shall pay the additional filing
fee that is properly payable given the award specified below, and that
such additional filing fee shall constitute a lien upon the judgment.
We consider, finally, the amount of damages — compensatory, moral
and exemplary — properly imposable upon private respondents in this
case. The original award of the trial court of P400,000.00 could well have
been disaggregated by the trial court and the Court of Appeals in the
following manner:
(1) actual or compensatory damages proved in the course of
trial consisting of actual expenses incurred by petitioners in their
search for their parents' bodies — P126,000.00
(2) actual or compensatory damages in case of wrongful death
(P30,000.00 x 2) — P 60,000.00 29
(3) moral damages — P107,000.00
(4) exemplary damages — P107,000.00
——————
Total — P400,000.00
Considering that petitioners, legitimate children of the deceased spouses
Mecenas, are seven (7) in number and that they lost both father and
mother in one fell blow of fate, and considering the pain and anxiety they
doubtless experienced while searching for their parents among the
survivors and the corpses recovered from the sea or washed ashore, we
believe that an additional amount of P200,000.00 for moral damages,
making a total of P307,000.00 as moral damages, would be quite
reasonable. LLjur

Exemplary damages are designed by our civil law to permit the courts to
reshape behaviour that is socially deleterious in its consequence by
creating negative incentives or deterrents against such behaviour. In
requiring compliance with the standard of extraordinary diligence, a
standard which is in fact that of the highest possible degree of diligence,
from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of
human beings and their property. The Court will take judicial notice of the
dreadful regularity with which grievous maritime disasters occur in our
waters with massive loss of life. The bulk of our population is too poor to
afford domestic air transportation. So it is that notwithstanding the
frequent sinking of passenger vessels in our waters, crowds of people
continue to travel by sea. This Court is prepared to use the instruments
given to it by the law for securing the ends of law and public policy. One of
those instruments is the institution of exemplary damages; one of those
ends, of special importance in an archipelagic state like the Philippines, is
the safe and reliable carriage of people and goods by sea. Considering
the foregoing, we believe that an additional award in the amount of
P200,000.00 as exemplary damages, making a total award of
P307,000.00 as exemplary damages, is quite modest. Cdpr

The Court is aware that petitioners here merely asked for the restoration
of the P400,000.00 award of the trial court. We underscore once more,
however, the firmly settled doctrine that this Court may consider and
resolve all issues which must be decided in order to render substantial
justice to the parties, including issues not explicitly raised by the party
affected. In the case at bar, as in Kapalaran Bus Line v. Coronado, et
al., 30 both the demands of substantial justice and the imperious
requirements of public policy compel us to the conclusion that the trial
court's implicit award of moral and exemplary damages was erroneously
deleted and must be restored and augmented and brought more nearly to
the level required by public policy and substantial justice. cdrep

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED

and the Decision of the Court of Appeals insofar as it reduced the amount
of damages awarded to petitioners to P100,000.00 is hereby
REVERSED and SET ASIDE. The award granted by the trial court is
hereby RESTORED and AUGMENTED as follows:
(a) P126,000.00 for actual damages;
(b) P60,000.00 as compensatory damages for wrongful death;
(c) P307,000.00 as moral damages;
(d) P307,000.00 as exemplary damages making a total of P800,000.00;
and
(e) P15,000.00 as attorney's fees.
Petitioners shall pay the additional filing fees properly due and payable in
view of the award here made, which fees shall be computed by the Clerk
of Court of the trial court, and shall constitute a lien upon the judgment
here awarded. Costs against private respondents.
SO ORDERED.
[G.R. No. 143133. June 5, 2002.]

BELGIAN OVERSEAS CHARTERING AND SHIPPING

N.V. and JARDINE DAVIES TRANSPORT SERVICES,
INC., petitioners, vs. PHILIPPINE FIRST INSURANCE
CO., INC., respondent.

Del Rosario and Del Rosario for petitioners.

Astorga & Repol Law Offices for private respondent.

SYNOPSIS

Petitioners assailed the decision of the Court of Appeals which

reversed and set aside the Decision of the Regional Trial Court of Makati
City, and ordered them to pay actual damages representing the value of
the damaged four (4) coils transported by them, plus interest and
attorneys fees.
Petitioners claimed that the loss or the deterioration of the goods
shipped was due to pre-shipment damage. They cited the notation "metal
envelopes rust stained and slightly dented" printed on the Bill of Lading
as evidence that the character of the goods or defect in the packing or the
containers was the proximate cause of the damage. They averred that
they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment.
In affirming the decision of the Court of Appeals but with
modification with respect to the extent of petitioners' liability, the Supreme
Court held that the petitioners failed to rebut the prima facie presumption
of negligence. They failed to prove that they observed the extraordinary
diligence and precaution, which the law requires a common carrier to
know and to follow to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery. True, the words "metal
envelopes rust stained and slightly dented" were noted on the Bill of
Lading; however, there was no showing that petitioners exercised due
diligence to forestall or lessen the loss. Having been in the service for
several years, the master of the vessel should have known at the outset
that metal envelopes in the said state would eventually deteriorate when
not properly stored while in transit. Equipped with the proper knowledge
of the nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But
none of these measures was taken. Having failed to discharge the
burden of proving that they have exercised the extraordinary diligence
required by law, petitioners cannot escape liability for the damage to the
four coils.DAEICc

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; BOUND TO OBSERVE

EXTRAORDINARY DILIGENCE AND VIGILANCE WITH RESPECT TO
SAFETY OF THE GOODS AND PASSENGERS TRANSPORTED BY
THEM; RATIONALE FOR THE STRICT REQUIREMENT. — Well-settled
is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary
diligence and vigilance with respect to the safety of the goods and the
passengers they transport. Thus, common carriers are required to render
service with the greatest skill and foresight and "to use all reason[a]ble
means to ascertain the nature and characteristics of the goods tendered
for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires." The extraordinary
responsibility lasts from the time the goods are unconditionally placed in
the possession of and received for transportation by the carrier until they
are delivered, actually or constructively, to the consignee or to the person
who has a right to receive them. This strict requirement is justified by the
fact that, without a hand or a voice in the preparation of such contract, the
riding public enters into a contract of transportation with common carriers.
Even if it wants to, it cannot submit its own stipulations for their approval.
Hence, it merely adheres to the agreement prepared by them.
2. ID.; ID.; PRIMA FACIE PRESUMPTION OF NEGLIGENCE;
BURDEN OF PROVING OBSERVANCE OF EXTRAORDINARY
DILIGENCE LIES ON COMMON CARRIERS. — Owing to this high
degree of diligence required of them, common carriers, as a general rule,
are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. That is, unless they
prove that they exercised extraordinary diligence in transporting the
goods. In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence. aHSTID

3. ID.; ID.; ID.; EXCEPTIONS. — The presumption of fault or

negligence will not arise if the loss is due to any of the following causes:
(1) flood, storm, earthquake, lightning, or other natural disaster or
calamity; (2) an act of the public enemy in war, whether international or
civil; (3) an act or omission of the shipper or owner of the goods; (4) the
character of the goods or defects in the packing or the container; or (5) an
order or act of competent public authority. This is a closed list. If the
cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.
4. ID.; ID.; ID.; ID.; CHARACTER OF THE GOODS OR DEFECTS
IN THE PACKING; ELUCIDATED; NOT PRESENT IN CASE AT BAR. —
In their attempt to escape liability, petitioners further contend that they are
exempted from liability under Article 1734(4) of the Civil Code. They cite
the notation "metal envelopes rust stained and slightly dented" printed on
the Bill of Lading as evidence that the character of the goods or defect in
the packing or the containers was the proximate cause of the damage.
We are not convinced. From the evidence on record, it cannot be
reasonably concluded that the damage to the four coils was due to the
condition noted on the Bill of Lading. The aforecited exception refers to
cases when goods are lost or damaged while in transit as a result of the
natural decay of perishable goods or the fermentation or evaporation of
substances liable therefor, the necessary and natural wear of goods in
transport, defects in packages in which they are shipped, or the natural
propensities of animals. None of these is present in the instant case. DcHaET

5. ID.; ID.; SHALL BE HELD RESPONSIBLE ABSENT

ADEQUATE EXPLANATION AS TO HOW THE DETERIORATION,
LOSS OR DESTRUCTION OF GOODS HAPPENED. — Mere proof of
delivery of the goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate explanation is given
as to how the deterioration, the loss or the destruction of the goods
happened, the transporter shall be held responsible. THaCAI

6. ID.; ID.; PETITIONERS FAILED TO OBSERVE

EXTRAORDINARY DILIGENCE AND PRECAUTION IN
TRANSPORTING THE GOODS IN CASE AT BAR. — That petitioners
failed to rebut the prima facie presumption of negligence is revealed in
the case at bar by a review of the records and more so by the evidence
adduced by respondent. First, as stated in the Bill of Lading, petitioners
received the subject shipment in good order and condition in Hamburg,
Germany. Second, prior to the unloading of the cargo, an Inspection
Report prepared and signed by representatives of both parties showed
the steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty. Third, Bad Order
Tally Sheet No. 154979 issued by Jardine Davies Transport Services,
Inc., stated that the four coils were in bad order and condition. Normally, a
request for a bad order survey is made in case there is an apparent or a
presumed loss or damage. Fourth, the Certificate of Analysis stated that,
based on the sample submitted and tested, the steel sheets found in bad
order were wet with fresh water. Fifth, petitioners — in a letter addressed
to the Philippine Steel Coating Corporation and dated October 12, 1990
— admitted that they were aware of the condition of the four coils found in
bad order and condition. These facts were confirmed by Ruperto Esmerio,
head checker of BM Santos Checkers Agency. All these conclusively
prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner,
who notably failed to explain why. Further, petitioners failed to prove that
they observed the extraordinary diligence and precaution which the law
requires a common carrier to know and to follow to avoid damage to or
destruction of the goods entrusted to it for safe carriage and delivery.
7. ID.; ID.; MUST EXERCISE DUE DILIGENCE TO FORESTALL
OR LESSEN THE LOSS; CASE AT BAR. — True, the words "metal
envelopes rust stained and slightly dented" were noted on the Bill of
Lading; however, there is no showing that petitioners exercised due
diligence to forestall or lessen the loss. Having been in the service for
several years, the master of the vessel should have known at the outset
that metal envelopes in the said state would eventually deteriorate when
not properly stored while in transit. Equipped with the proper knowledge
of the nature of steel sheets in coils and of the proper way of transporting
them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But
none of these measures was taken. Having failed to discharge the
burden of proving that they have exercised the extraordinary diligence
required by law, petitioners cannot escape liability for the damage to the
four coils.
8. ID.; ID.; NOT RELIEVED OF LIABILITY FOR LOSS IF IT
ACCEPTS THE GOODS NOTWITHSTANDING DEFECTS IN PACKING.
— Even if the fact of improper packing was known to the carrier or its
crew or was apparent upon ordinary observation, it is not relieved of
liability for loss or injury resulting therefrom, once it accepts the goods
notwithstanding such condition. Thus, petitioners have not successfully
proven the application of any of the exceptions in the present case.
9. COMMERCIAL LAW; CARRIAGE OF GOODS BY SEA ACT;
SECTION 3, PARAGRAPH 6 THEREOF; NOTICE OF CLAIM NEED
NOT BE GIVEN IF STATE OF THE GOODS, AT THE TIME OF THEIR
RECEIPT, HAS BEEN THE SUBJECT OF A JOINT INSPECTION OR
SURVEY. — Petitioners claim that pursuant to Section 3, paragraph 6 of
theCarriage of Goods by Sea Act (COGSA), respondent should have
filed its Notice of Loss within three days from delivery. They assert that
the cargo was discharged on July 31, 1990, but that respondent filed its
Notice of Claim only on September 18, 1990. We are not persuaded. First,
the above-cited provision of COGSA provides that the notice of claim
need not be given if the state of the goods, at the time of their receipt, has
been the subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report as to the condition of the
goods was prepared and signed by representatives of both parties. IAcTaC

10. ID.; ID.; ID.; ONE-YEAR PRESCRIPTIVE PERIOD; FAILURE

TO FILE NOTICE OF CLAIM WITHIN THREE DAYS WILL NOT BAR
RECOVERY IF IT IS NONETHELESS FILED WITHIN ONE YEAR;
CASE AT BAR. — As stated in Section 3, paragraph 6 of the Carriage of
Goods by Sea Act a failure to file a notice of claim within three days will
not bar recovery if it is nonetheless filed within one year. This one-year
prescriptive period also applies to the shipper, the consignee, the insurer
of the goods or any legal holder of the bill of lading. In Loadstar Shipping
Co., Inc. v. Court of Appeals, we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the
words of the ponente, Chief Justice Hilario G. Davide, Jr.: "Inasmuch as
the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea
Act (COGSA) — which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained during transit — may
be applied suppletorily to the case at bar." In the present case, the cargo
was discharged on July 31, 1990, while the Complaint was filed by
respondent on July 25, 1991, within the one-year prescriptive period. TIcEDC

11. ID.; ID.; LIABILITY LIMITATION; BILL OF LADING;

FUNCTIONS. — A bill of lading serves two functions. First, it is a receipt
for the goods shipped. Second, it is a contract by which three parties —
namely, the shipper, the carrier, and the consignee — undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with full
knowledge of its contents, gives rise to the presumption that it constituted
a perfected and binding contract. EASCDH

12. ID.; ID.; ID.; STIPULATION LIMITING COMMON CARRIERS

LIABILITY TO A CERTAIN SUM, UNLESS OWNER DECLARES A
GREATER VALUE IS SANCTIONED BY LAW; CONDITIONS;
RATIONALE. — A stipulation in the bill of lading limiting to a certain sum
the common carrier's liability for loss or destruction of a cargo — unless
the shipper or owner declares a greater value — is sanctioned by law.
There are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties. The rationale for, this rule is to bind
the shippers by their agreement to the value (maximum valuation) of their
goods.
13. ID.; ID.; ID.; PART OF THE BILL OF LADING AS THOUGH
PHYSICALLY IN IT AND AGREED UPON BY THE PARTIES; CASE AT
BAR. — It is to be noted, however, that the Civil Code does not limit the
liability of the common carrier to a fixed amount per package. In all
matters not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and
special laws. Thus, the COGSA, which is suppletory to the provisions of
the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier's liability in the absence of a shipper's
declaration of a higher value in the bill of lading. The provisions on limited
liability are as much a part of the bill of lading as though physically in it
and as though placed there by agreement of the parties. In the case
before us, there was no stipulation in the Bill of Lading limiting the
carrier's liability. Neither did the shipper declare a higher valuation of the
goods to be shipped. This fact notwithstanding, the insertion of the words
"L/C No. 90/02447 cannot be the basis for petitioners' liability. ECSaAc

14. ID.; ID.; ID.; COMMON CARRIERS' OBLIGATION ARISING

FROM CONTRACT OF TRANSPORTATION NOT NEGATED BY
DISCREPANCY BETWEEN AMOUNT INDICATED IN INVOICE AND
AMOUNT IN BILL OF LADING. — A notation in the Bill of Lading which
indicated the amount of the Letter of Credit obtained by the shipper for
the importation of steel sheets did not effect a declaration of the value of
the goods as required by the bill. That notation was made only for the
convenience of the shipper and the bank processing the Letter of Credit.
In Keng Hua Paper Products v. Court of Appeals, we held that a bill of
lading was separate from the Other Letter of Credit arrangements. We
ruled thus: "(T)he contract of carriage, as stipulated in the bill of lading in
the present case, must be treated independently of the contract of sale
between the seller and the buyer, and the contract of issuance of a letter
of credit between the amount of goods described in the commercial
invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of
carriage as embodied in the bill of lading. As the bank cannot be
expected to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be expected to go
beyond the representations of the shipper in the bill of lading and to verify
their accuracy vis-à-vis the commercial invoice and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the
invoice and the amount in the bill of lading cannot negate petitioner's
obligation to private respondent arising from the contract of
transportation."
15. ID.; ID.; ID.; TERM "PACKAGE," EXPLAINED; CASE AT BAR.
— Petitioners' liability should be computed based on US$500 per
package and not on the per metric ton price declared in the Letter of
Credit. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court we explained the meaning of package: "When what would
ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the
'package' referred to in the liability limitation provision of Carriage of
Goods by Sea Act." Considering, therefore, the ruling inEastern Shipping
Lines and the fact that the Bill of Lading clearly disclosed the contents of
the containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping unit
subject to the US$500 limitation.

DECISION

PANGANIBAN, J : p

Proof of the delivery of goods in good order to a common carrier

and of their arrival in bad order at their destination constitutes prima
facie fault or negligence on the part of the carrier. If no adequate
explanation is given as to how the loss, the destruction or the
deterioration of the goods happened, the carrier shall be held liable
therefor.
Statement of the Case
 Before us is a Petition for Review under Rule 45 of the Rules of
Court, assailing the July 15, 1998 Decision 1 and the May 2, 2000
Resolution 2 of the Court of Appeals 3 (CA) in CA-G.R. CV No. 53571.
The decretal portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition,
the decision appealed from is hereby REVERSED and SET
ASIDE. Defendants-appellees are ORDERED to jointly and
severally pay plaintiffs-appellants the following:
'1) FOUR Hundred Fifty-One Thousand Twenty-Seven Pesos and
32/100 (P451,027.32) as actual damages, representing the value of the
damaged cargo, plus interest at the legal rate from the time of filing of the
complaint on July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit."' 4
The assailed Resolution denied petitioner's Motion for
Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of
Makati City (Branch 134), which had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is
hereby rendered, dismissing the complaint, as well as
defendant's counterclaim." 5
The Facts
The factual antecedents of the case are summarized by the Court
of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board
the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of
various Prime Cold Rolled Steel sheets for transportation to
Manila consigned to the Philippine Steel Trading Corporation.
On July 28, 1990, M/V Anangel Sky arrived at the port of Manila
and, within the subsequent days, discharged the subject cargo.
Four (4) coils were found to be in bad order B.O. Tally sheet No.
154974. Finding the four (4) coils in their damaged state to be
unfit for the intended purpose, the consignee Philippine Steel
Trading Corporation declared the same as total loss.
"Despite receipt of a formal demand,
defendants-appellees refused to submit to the consignee's
claim. Consequently, plaintiff-appellant paid the consignee five
hundred six thousand eighty six & 50/100 pesos (P506,086.50),
and was subrogated to the latter's rights and causes of action
against defendants-appellees. Subsequently, plaintiff-appellant
 instituted this complaint for recovery of the amount paid by them,
to the consignee as insured.
"Impugning the propriety of the suit against them,
defendants-appellees imputed that the damage and/or loss was
due to pre-shipment damage, to the inherent nature, vice or
defect of the goods, or to perils, danger and accidents of the sea,
or to insufficiency of packing thereof, or to the act or omission of
the shipper of the goods or their representatives. In addition
thereto, defendants-appellees argued that their liability, if there
be any, should not exceed the limitations of liability provided for
in the bill of lading and other pertinent laws. Finally,
defendants-appellees averred that, in any event, they exercised
due diligence and foresight required by law to prevent any
damage/loss to said shipment." 6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed
to prove its claims with the quantum of proof required by law. 7
It likewise debunked petitioners' counterclaim, because
respondent's suit was not manifestly frivolous or primarily intended to
harass them. 8
Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitioners were liable
for the loss or the damage of the goods shipped, because they had failed
to overcome the presumption of negligence imposed on common
carriers.ICTcDA

The CA further held as inadequately proven petitioners' claim that

the loss or the deterioration of the goods was due to pre-shipment
damage. 9 It likewise opined that the notation "metal envelopes rust
stained and slightly dented" placed on the Bill of Lading had not been the
proximate cause of the damage to the four (4) coils. 10
As to the extent of petitioners' liability, the CA held that the
package limitation under COGSA was not applicable, because the words
"L/C No. 90/02447" indicated that a higher valuation of the cargo had
been declared by the shipper. The CA, however, affirmed the award of
attorney's fees.
Hence, this Petition. 11
Issues
 In their Memorandum, petitioners raise the following issues for the
Court's consideration:
I
"Whether or not plaintiff by presenting only one witness
who has never seen the subject shipment and whose testimony
is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required
notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the time
of loading is sufficient to show pre-shipment damage and to
exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability
under Section 4 (5) of COGSA is applicable to the case at
bar." 12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of
negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on
common carriers should not be applied on the basis of the lone testimony
offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of
their business and for reasons of public policy, are bound to
observe extraordinary diligence and vigilance with respect to the safety
of the goods and the passengers they transport. 13 Thus, common
carriers are required to render service with the greatest skill and foresight
and "to use all reason[a]ble means to ascertain the nature and
characteristics of the goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature
requires." 14 The extraordinary responsibility lasts from the time the
goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to
receive them. 15
This strict requirement is justified by the fact that, without a hand or
a voice in the preparation of such contract, the riding public enters into a
contract of transportation with common carriers. 16 Even if it wants to, it
cannot submit its own stipulations for their approval. 17 Hence, it merely
adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or
destroyed. 18 That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. 19 In order to avoid responsibility for
any loss or damage, therefore, they have the burden of proving that they
observed such diligence. 20
However, the presumption of fault or negligence will not arise 21 if
the loss is due to any of the following causes: (1) flood, storm, earthquake,
lightning, or other natural disaster or calamity; (2) an act of the public
enemy in war, whether international or civil; (3) an act or omission of the
shipper or owner of the goods; (4) the character of the goods or defects in
the packing or the container; or (5) an order or act of competent public
authority. 22 This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the
carrier is liable therefor. 23
Corollary to the foregoing, mere proof of delivery of the goods in
good order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the deterioration,
the loss or the destruction of the goods happened, the transporter shall
be held responsible. 24
That petitioners failed to rebut the prima facie presumption of
negligence is revealed in the case at bar by a review of the records and
more so by the evidence adduced by respondent. 25
First, as stated in the Bill of Lading, petitioners received the subject
shipment in good order and condition in Hamburg, Germany. 26
 Second, prior to the unloading of the cargo, an Inspection
Report 27 prepared and signed by representatives of both parties showed
the steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979 28 issued by Jardine
Davies Transport Services, Inc., stated that the four coils were in bad
order and condition. Normally, a request for a bad order survey is made in
case there is an apparent or a presumed loss or damage. 29
Fourth, the Certificate of Analysis 30 stated that, based on the
sample submitted and tested, the steel sheets found in bad order were
wet with fresh water.
Fifth, petitioners — in a letter 31 addressed to the Philippine Steel
Coating Corporation and dated October 12, 1990 — admitted that they
were aware of the condition of the four coils found in bad order and
condition.
These facts were confirmed by Ruperto Esmerio, head checker of
BM Santos Checkers Agency. Pertinent portions of his testimony are
reproduced hereunder:
"Q. Mr. Esmerio, you mentioned that you are a Head Checker.
Will you inform the Honorable Court with what company
you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected
with defendant Jardine Davies Transport Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform
this Honorable Court your duties and responsibilities?
A. I am the representative of BM Santos on board the vessel, sir,
to supervise the discharge of cargoes.
xxx xxx xxx
Q. On or about August 1, 1990, were you still connected or
employed with BM Santos as a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the
discharging and inspection of cold steel sheets in coil on
board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
 xxx xxx xxx
Q. Based on your inspection since you were also present at that
time, will you inform this Honorable Court the condition or
the appearance of the bad order cargoes that were
unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the
condition of the cold steel sheets and the best evidence
is the document itself, Your Honor that shows the
condition of the steel sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is
loosen and the cargoes are dent on the sides." 32
All these conclusively prove the fact of shipment in good order and
condition and the consequent damage to the four coils while in the
possession of petitioner, 33who notably failed to explain why. 34
Further, petitioners failed to prove that they observed the
extraordinary diligence and precaution which the law requires a common
carrier to know and to follow to avoid damage to or destruction of the
goods entrusted to it for safe carriage and delivery. 35
True, the words "metal envelopes rust stained and slightly dented"
were noted on the Bill of Lading; however, there is no showing that
petitioners exercised due diligence to forestall or lessen the
loss. 36 Having been in the service for several years, the master of the
vessel should have known at the outset that metal envelopes in the said
state would eventually deteriorate when not properly stored while in
transit. 37 Equipped with the proper knowledge of the nature of steel
sheets in coils and of the proper way of transporting them, the master of
the vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these measures
was taken. 38 Having failed to discharge the burden of proving that they
have exercised the extraordinary diligence required by law, petitioners
cannot escape liability for the damage to the four coils. 39
In their attempt to escape liability, petitioners further contend that
they are exempted from liability under Article 1734(4) of the Civil Code.
They cite the notation "metal envelopes rust stained and slightly dented"
printed on the Bill of Lading as evidence that the character of the goods or
defect in the packing or the containers was the proximate cause of the
damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded
that the damage to the four coils was due to the condition noted on the Bill
of Lading. 40 The aforecited exception refers to cases when goods are
lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances liable
therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of
animals. 41 None of these is present in the instant case.
Further, even if the fact of improper packing was known to the
carrier or its crew or was apparent upon ordinary observation, it is not
relieved of liability for loss or injury resulting therefrom, once it accepts
the goods notwithstanding such condition. 42 Thus, petitioners have not
successfully proven the application of any of the aforecited exceptions in
the present case. 43

Second Issue:
Notice of Loss

Petitioners claim that pursuant to Section 3, paragraph 6 of

the Carriage of Goods by Sea Act 44 (COGSA), respondent should
have filed its Notice of Loss within three days from delivery. They
assert that the cargo was discharged on July 31, 1990, but that
respondent filed its Notice of Claim only on September 18, 1990. 45
We are not persuaded. First, the above-cited provision
of COGSA provides that the notice of claim need not be given if the state
of the goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report 46 as to the condition of the goods was prepared and
signed by representatives of both parties. 47
Second, as stated in the same provision, a failure to file a notice of
claim within three days will not bar recovery if it is nonetheless filed within
one year. 48 This one-year prescriptive period also applies to the shipper,
the consignee, the insurer of the goods or any legal holder of the bill of
lading. 49
In Loadstar Shipping Co., Inc. v. Court of Appeals, 50 we ruled that
a claim is not barred by prescription as long as the one-year period has
not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G.
Davide Jr.:
 "Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter,
the Carriage of Goods by Sea Act (COGSA) — which provides
for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit — may be applied
suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990,
while the Complaint 51 was filed by respondent on July 25, 1991, within
the one-year prescriptive period. CcEHaI

Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims,
petitioners contend that their liability should be limited to US$500 per
package as provided in the Bill of Lading and by Section
4(5) 52 of COGSA. 53
On the other hand, respondent argues that Section 4(5)
of COGSA is inapplicable, because the value of the subject shipment
was declared by petitioners beforehand, as evidenced by the reference
to and the insertion of the Letter of Credit or "L/C No. 90/02447" in the
said Bill of Lading. 54
A bill of lading serves two functions. First, it is a receipt for the
goods shipped. 55 Second, it is a contract by which three parties —
namely, the shipper, the carrier, and the consignee — undertake specific
responsibilities and assume stipulated obligations. 56 In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with full
knowledge of its contents, gives rise to the presumption that it constituted
a perfected and binding contract. 57
Further, a stipulation in the bill of lading limiting to a certain sum the
common carrier's liability for loss or destruction of a cargo — unless the
shipper or owner declares a greater value 58 — is sanctioned by
law. 59 There are, however, two conditions to be satisfied: (1) the contract
is reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties. 60 The rationale for this rule is to
bind the shippers by their agreement to the value (maximum valuation) of
their goods. 61
It is to be noted, however, that the Civil Code does not limit the
liability of the common carrier to a fixed amount per package. 62 In all
matters not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and
special laws. 63 Thus, the COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier's liability in the absence of a shipper's
declaration of a higher value in the bill of lading. 64 The provisions on
limited liability are as much a part of the bill of lading as though physically
in it and as though placed there by agreement of the parties. 65
In the case before us, there was no stipulation in the Bill of
Lading 66 limiting the carrier's liability. Neither did the shipper declare a
higher valuation of the goods to be shipped. This fact notwithstanding,
the insertion of the words "L/C No. 90/02447 cannot be the basis for
petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of
the Letter of Credit obtained by the shipper for the importation of steel
sheets did not effect a declaration of the value of the goods as required
by the bill. 67 That notation was made only for the convenience of the
shipper and the bank processing the Letter of Credit. 68
Second, in Keng Hua Paper Products v. Court of Appeals, 69 we
held that a bill of lading was separate from the Other Letter of Credit
arrangements. We ruled, thus:
"(T)he contract of carriage, as stipulated in the bill of
lading in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the
contract of issuance of a letter of credit between the amount of
goods described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will not affect
the validity and enforceability of the contract of carriage as
embodied in the bill of lading. As the bank cannot be expected
to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the
bill of lading and to verify their accuracy vis-à-vis the
commercial invoice and the letter of credit. Thus, the
discrepancy between the amount of goods indicated in the
invoice and the amount in the bill of lading cannot negate
petitioner's obligation to private respondent arising from the
contract of transportation." 70
In the light of the foregoing, petitioners' liability should be
computed based on US$500 per package and not on the per metric ton
price declared in the Letter of Credit. 71 In Eastern Shipping
Lines, Inc. v. Intermediate Appellate Court, 72 we explained the meaning
of package:
 "When what would ordinarily be considered packages
are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents,
each of those units and not the container constitutes the
'package' referred to in the liability limitation provision
of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and
the fact that the Bill of Lading clearly disclosed the contents of the
containers, the number of units, as well as the nature of the steel sheets,
the four damaged coils should be considered as the shipping unit subject
to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners' liability is reduced to US$2,000 plus
interest at the legal rate of six percent from the time of the filing of the
Complaint on July 25, 1991 until the finality of this Decision, and 12
percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
G.R. No. 161849. July 7, 2010.]
|||

WALLEM PHILIPPINES SHIPPING, INC., petitioner, vs.

S.R. FARMS, INC., respondent.

DECISION

PERALTA, J : p

Assailed in the present petition for review on certiorari are the

Decision 1 and Resolution 2 of the Court of Appeals (CA) dated June 2,
2003 and January 15, 2004, respectively, in CA-G.R. CV No. 65857.
The CA Decision reversed and set aside the Decision 3 dated October
8, 1999 of the Regional Trial Court (RTC) of Manila, Branch 11, in Civil
Case No. 93-65021, while the CA Resolution denied petitioners'
Motion for Reconsideration.
The facts of the case, as found by the RTC and affirmed by the
CA, are as follows:
. . . On March 25, 1992, Continental Enterprises, Ltd.
loaded on board the vessel M/V "Hui Yang," at Bedi Bunder,
India, a shipment of Indian Soya Bean Meal, for transportation
and delivery to Manila, with plaintiff [herein respondent] as
 consignee/notify party. The said shipment is said to weigh 1,100
metric tons and covered by Bill of Lading No. BEDI 4 dated
March 25, 1992 (Exhibit A; also Exhibit I). The vessel is owned
and operated by defendant Conti-Feed, with defendant [herein
petitioner] Wallem as its ship agent.
The subject cargo is part of the entire shipment of Indian
Soya Bean Meal/India Rapeseed Meal loaded in bulk on board
the said vessel for delivery to several consignees. Among the
consignees were San Miguel Corporation and Vitarich
Corporation, including the herein plaintiff (Exhibit A; Exhibits 1
to 6; TSN, p. 13, June 28, 1996).
On April 11, 1992, the said vessel, M/V "Hui Yang"
arrived at the port of Manila, Pier 7 South Harbor. Thereafter,
the shipment was discharged and transferred into the custody
of the receiving barges, the NorthFront-333 and NorthFront-444.
The offloading of the shipment went on until April 15, 1992 and
was handled by [Ocean Terminal Services, Inc.] OTSI using its
own manpower and equipment and without the participation of
the crew members of the vessel. All throughout the entire period
of unloading operation, good and fair weather condition
prevailed.
At the instance of the plaintiff, a cargo check of the
subject shipment was made by one Lorenzo Bituin of Erne
Maritime and Allied Services, Co. Inc., who noted a shortage in
the shipment which was placed at 80.467 metric tons based on
draft survey made on the NorthFront-33 and NorthFront-444
showing that the quantity of cargo unloaded from the vessel
was only 1019.53 metric tons. Thus, per the bill of lading, there
was an estimated shortage of 80.467. TIDcEH

Upon discovery thereof, the vessel chief officer was

immediately notified of the said short shipment by the cargo
surveyor, who accordingly issued the corresponding Certificate
of Discharge dated April 15, 1992 (Exhibit D). The survey
conducted and the resultant findings thereon are embodied in
the Report of Superintendence dated April 21, 1992 (Exhibits C
to C-2) and in the Barge Survey Report both submitted by
Lorenzo Bituin (Exhibits C-3 and C-4). As testified to by Lorenzo
Bituin, this alleged shortage of 80.467 metric tons was arrived at
using the draft survey method which calls for the measurement
of the light and loaded condition of the barge in relation to the
weight of the water supposedly displaced. 4
Petitioner then filed a Complaint for damages against
Conti-Feed & Maritime Pvt. Ltd., a foreign corporation doing business
in the Philippines and the owner ofM/V "Hui Yang"; RCS Shipping
Agencies, Inc., the ship agent of Conti-Feed; Ocean Terminal
Services, Inc. (OTSI), the arrastre operator at Anchorage No. 7, South
Harbor, Manila; and Cargo Trade, the customs broker. 5
On June 7, 1993, respondent filed an Amended Complaint
impleading herein petitioner as defendant alleging that the latter, and
not RCS, was the one which, in fact, acted as Conti-Feed's ship
agent. 6
On June 22, 1993, the complaint against Cargo Trade was
dismissed at the instance of respondent on the ground that it has no
cause of action against the former. 7
Subsequently, upon motion of RCS, the case against it was
likewise dismissed for lack of cause of action. 8
Meanwhile, defendant OTSI filed its Answer with Counterclaim
and Crossclaim 9 denying the material allegations of the Complaint
and alleging that it exercised due care and diligence in the handling of
the shipment from the carrying vessel unto the lighters; no damage or
loss whatsoever was sustained by the cargo in question while being
discharged by OTSI; petitioner's claim had been waived, abandoned
or barred by laches or estoppels; liability, if any, is attributable to its
co-defendants.
For its part, petitioner denied the allegations of respondent
claiming, among others, that it is not accountable nor responsible for
any alleged shortage sustained by the shipment while in the
possession of its co-defendants; the alleged shortage was due to
negligent or faulty loading or unloading of the cargo by the
stevedores/shipper/consignee; the shortage, if any, was due to
pre-shipment damage, inherent nature, vice or defect of the cargo for
which herein petitioner is not liable; respondent's claim is already
barred by laches and/or prescription. 10
Conti-Feed did not file an Answer.
Pre-Trial Conference was conducted, after which trial ensued.
On October 8, 1999, the RTC rendered its
Decision 11 dismissing respondent's complaint, as well as the
opposing parties' counterclaims and crossclaims.
Aggrieved by the RTC Decision, respondent filed an appeal
with the CA.
On June 2, 2003, the CA rendered its presently assailed
Decision disposing as follows:
 WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE and another one entered ordering
defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and
Wallem Philippines Shipping, Inc., to pay the sum representing
the value of the 80.467 metric tons of Indian Soya Beans
shortdelivered, with legal interest from the time the judgment
becomes final until full payment, plus attorney's fees and
expenses of litigation of P10,000.00, as well as the cost of suit.
SO ORDERED. 12
Petitioner filed a Motion for Reconsideration.
On July 8, 2003, respondent filed a Motion for a More Definite
Dispositive Portion 13 praying that the value of the 80.467 metric tons
of Indian Soya Beans, which petitioner and Conti-Feed were ordered
to pay, be specified in the dispositive portion of the CA Decision.
Petitioner filed its Comment/Opposition 14 to private
respondent's Motion.
On January 15, 2004, the CA issued a Resolution denying
petitioner's Motion for Reconsideration and modifying the dispositive
portion of its Decision, thus:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE and another one entered ordering
defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and
Wallem Shipping, Inc., to pay the sum of $19,070.06
representing the value of the 80.467 metric tons of Indian Soya
Beans shortdelivered, with legal interest from the time the
judgment becomes final until full payment, plus attorney's fees
and expenses of litigation of P10,000.00, as well as the costs of
suit.
SO ORDERED. 15 ADSTCa

Hence, the instant petition based on the following Assignment of

Errors:
I
THE COURT OF APPEALS ERRED IN APPLYING THE
PRESUMPTION OF NEGLIGENCE UNDER ARTICLE 1735
OF THE CIVIL CODE. THIS PROVISION DOES NOT APPLY
IN THIS CASE BECAUSE THERE WAS NO LOSS OR
SHORTAGE OR SHORTDELIVERY.
II
THE COURT OF APPEALS ERRED IN GIVING DUE COURSE
TO THE CASE CONSIDERING THAT:
 A. THE CLAIM WAS ALREADY TIME-BARRED WHEN
THE CASE WAS FILED AGAINST HEREIN
PETITIONER ON 8 MAY 1993, AS PROVIDED IN
SECTION 3 (6) OF THECOGSA. THE ONE-YEAR
PRESCRIPTIVE PERIOD COMMENCED ON 15 APRIL
1992 WHEN THE SUBJECT SHIPMENT WAS
DELIVERED TO PRIVATE RESPONDENT AND
LAPSED ON 15 APRIL 1993; AND
B. [RESPONDENT] WAIVED ITS RIGHT OF ACTION
WHEN IT DID NOT GIVE A WRITTEN NOTICE OF
LOSS TO THE PETITIONER WITHIN THREE (3) DAYS
FROM DISCHARGE OF THE SUBJECT SHIPMENT AS
PROVIDED IN SECTION 3 (6) OF THE COGSA.
III
IN THE REMOTE POSSIBILITY OF LOSS OR SHORTAGE OR
SHORTDELIVERY, THE COURT OF APPEALS ERRED IN
IMPUTING NEGLIGENCE AGAINST THE PETITIONER
WHICH WAS NOT RESPONSIBLE IN LOADING AND/OR
DISCHARGING THE SUBJECT SHIPMENT.
IV
THE COURT OF APPEALS ERRED IN GRANTING
[RESPONDENT'S] MOTION FOR A MORE DEFINITE
DISPOSITIVE PORTION WITHOUT STATING IN THE
DECISION, THE LEGAL BASES FOR DOING SO.
V
THE COURT OF APPEALS ERRED IN GRANTING THE
MOTION FOR A MORE DEFINITE DISPOSITIVE PORTION
BECAUSE [RESPONDENT] FILED SAID MOTION MORE
THAN FIFTEEN (15) DAYS AFTER [RESPONDENT]
RECEIVED THE DECISION OF THE COURT OF APPEALS.
THE COURT OF APPEALS FURTHER ERRED IN INSERTING
A DEFINITE MONETARY VALUE OF THE ALLEGED
SHORTAGE BECAUSE THERE WAS NO FACTUAL FINDING,
BOTH IN THE TRIAL COURT AND IN THE COURT OF
APPEALS, AS TO THE SPECIFIC AMOUNT OF THE
ALLEGED SHORTDELIVERED CARGO. 16
The Court finds it proper to resolve first the question of whether
the claim against petitioner was timely filed.
With respect to the prescriptive period involving claims arising
from shortage, loss of or damage to cargoes sustained during transit,
the law that governs the instant case is the Carriage of Goods by Sea
Act 17 (COGSA), Section 3 (6) of which provides:
 Unless notice of loss or damage and the general nature
of such loss or damage be given in writing to the carrier or his
agent at the port of discharge or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof
under the contract of carriage, such removal shall be prima
facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of delivery.
Said notice of loss or damage may be endorsed upon the
receipt for the goods given by the person taking delivery
thereof.
The notice in writing need not be given if the state of the
goods has at the time of their receipt been the subject of joint
survey or inspection.
In any event, the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date
when the goods should have been delivered; Provided, That, if
a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods
should have been delivered.
In the case of any actual or apprehended loss or damage,
the carrier and the receiver shall give all reasonable facilities to
each other for inspecting and tallying the goods.
Petitioner claims that pursuant to the above-cited provision,
respondent should have filed its Notice of Loss within three days from
delivery. It asserts that the cargo was fully discharged from the vessel
on April 15, 1992, but that respondent failed to file any written notice of
claim. Petitioner also avers that, pursuant to the same provision of
the COGSA, respondent's claim had already prescribed because the
complaint for damages was filed more than one year after the
shipment was discharged. HTDAac

The Court agrees.

Under Section 3 (6) of the COGSA, notice of loss or damages
must be filed within three days of delivery. Admittedly, respondent did
not comply with this provision.
Under the same provision, however, a failure to file a notice of
claim within three days will not bar recovery if a suit is nonetheless
filed within one year from delivery of the goods or from the date when
the goods should have been delivered. 18
In Loadstar Shipping Co., Inc. v. Court of Appeals, 19 the Court
ruled that a claim is not barred by prescription as long as the one-year
period has not lapsed. Thus, in the words of the ponente, Chief
Justice Hilario G. Davide Jr.:
Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter,
the Carriage of Goods by Sea Act (COGSA) — which provides
for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit — may be applied
suppletorily to the case at bar.20
In the instant case, the Court is not persuaded by respondent's
claim that the complaint against petitioner was timely filed.
Respondent argues that the suit for damages was filed on March 11,
1993, which is within one year from the time the vessel carrying the
subject cargo arrived at the Port of Manila on April 11, 1993, or from
the time the shipment was completely discharged from the vessel on
April 15, 1992.
There is no dispute that the vessel carrying the shipment
arrived at the Port of Manila on April 11, 1992 and that the cargo was
completely discharged therefrom on April 15, 1992. However,
respondent erred in arguing that the complaint for damages, insofar
as the petitioner is concerned, was filed on March 11, 1993.
As the records would show, petitioner was not impleaded as a
defendant in the original complaint filed on March 11, 1993. 21 It was
only on June 7, 1993 that the Amended Complaint, impleading
petitioner as defendant, was filed.
Respondent cannot argue that the filing of the Amended
Complaint against petitioner should retroact to the date of the filing of
the original complaint.
The settled rule is that the filing of an amended pleading does
not retroact to the date of the filing of the original; hence, the statute of
limitation runs until the submission of the amendment. 22 It is true that,
as an exception, this Court has held that an amendment which merely
supplements and amplifies facts originally alleged in the complaint
relates back to the date of the commencement of the action and is not
barred by the statute of limitations which expired after the service of
the original complaint. 23 The exception, however, would not apply to
the party impleaded for the first time in the amended complaint. 24
 The rule on the non-applicability of the curative and retroactive
effect of an amended complaint, insofar as newly impleaded
defendants are concerned, has been established as early as in the
case of Aetna Insurance Co. v. Luzon Stevedoring Corporation. 25 In
the said case, the defendant Barber Lines Far East Service was
impleaded for the first time in the amended complaint which was filed
after the one-year period of prescription. The order of the lower court
dismissing the amended complaint against the said defendant on
ground of prescription was affirmed by this Court.
In the instant case, petitioner was only impleaded in the
amended Complaint of June 7, 1993, or one (1) year, one (1) month
and twenty-three (23) days from April 15, 1992, the date when the
subject cargo was fully unloaded from the vessel. Hence, reckoned
from April 15, 1992, the one-year prescriptive period had already
lapsed.
Having ruled that the action against petitioner had already
prescribed, the Court no longer finds it necessary to address the other
issues raised in the present petition.
WHEREFORE, the petition is PARTLY GRANTED. The
Decision of the Court of Appeals dated June 2, 2003 and its
Resolution dated January 15, 2004 in CA-G.R. CV No. 65857
are MODIFIED by dismissing the complaint against petitioner. In all
other respects, the challenged Decision and Resolution of the CA
are AFFIRMED.
SO ORDERED. AEDISC

Carpio, Nachura, Abad and Mendoza, JJ., concur.

[G.R. No. L-3649. October 24, 1907.]
|||

JOSE GUZMAN, plaintiff-appellee, vs. WILLIAM X,

captain of the steamer Kudat, and BEHN, MEYER and
CO., defendants-appellants.

Kinney, Odlin and Lawrence, for appellants.

A. V. Herrero, for appellee.

SYLLABUS

1. ADMIRALTY; CONTRACT OF TOWAGE. — An agreement

by virtue of which a party binds itself to tow another vessel by means
 of a steamer, and for a certain consideration, from one port to another,
is not a charter party but a contract for the hire of services, and is
subject to the provisions of the Civil Code.
2. ID.; ID.; DAMAGES. — The person who engages to do
towing is liable for the loss and caused to the vessel in two, in case of
fraud, negligence, or breach of contract.
3. ID.; ID.; FORCE MAJEURE; BURDEN OF PROOF. — In
case where an unforeseen accident or stress of weather is alleged as
constituting an exemption in favor of the party responsible for the
property, it is his duty to prove the existence of such circumstances.

DECISION

TORRES, J : p

On the 19th of February, 1904, Attorney A. Herrero, on behalf of

the plaintiff, Jose Guzman, filed a complaint with the Court of First
Instance of Manila against the captain and owners of the
steamer Kudat, alleging that in the early part of January of said year
an agent of the plaintiff contracted with Behn, Meyer & Co., agents of
the said steamer, in the sum of P150, for the towing of the
lorcha Nevada, owned by the plaintiff, to the port of Iloilo. That on the
4th day of the month aforesaid the captain of the steamer Kudat took
charge of the lorcha, which was manned by a master and four sailors,
and on the following day, the 5th, at noon, the steamer left the port of
Manila with the lorcha in tow; that at about 9:30 p. m. of the same date,
as the Kudat with her tow was within sight of the Island of Cabras,
between Luzon and Island of Mindoro, the port tow line broke, and that
thereupon the captain of the Kudat ordered the crew of the Nevada,
as the latter neared the stern of the steamer, to come on board
the Kudat and to abandon the lorcha; that as the master (arraez)
protested several times against such order, the captain insisted and
threatened to cut the other tow line; that in consequence of the attitude
of the captain the crew abandoned the lorcha and boarded the
steamer and the captain then ordered the abandonment of the lorcha
and cast her adrift by having the tow line cut, and the steamer then
proceeded on her voyage to Iloilo.
It further appears that upon arriving at the latter port on the 7th
day of the said month the master or pilot of the lorcha went to the
collector of customs and entered a protest, in which he stated that the
weather was fair, the sea calm, that the moon was bright, and that the
spot where one of the tow lines broke was close to the Islands of
Mindoro, Cabras, and Luban, at any of which places the lorcha might
have been left in safety. The captain of the Kudat did not enter any
protest at Iloilo in order to justify the abandonment of the lorcha nor
the circumstances connected therewith. The abandonment was
evidently due to carelessness and unpardonable negligence because
there was no force majeure nor any like reason to justify the
nonfulfillment of his duty to tow the lorcha to the port of Iloilo.
For the foregoing reasons the plaintiff asked that, after due
process of law, judgment be entered sentencing the owners and
captain of the steamer Kudat to pay him the sum of P49,000 as
indemnity for damages suffered for the abandonment of the lorcha
Nevada, and to pay the costs of the proceedings, together with any
other relief which the court might consider just and equitable.
It does not appear that the captain, William X, of the Kudat, was
ever summoned to appear before the court, but Behn, Meyer & Co.
were, and on the 23d of March of said year firm, in answer to the
complaint, denied each and all of the allegations therein contained.
Upon evidence being adduced by the plaintiff, the defendant
moved for the dismissal of the case, and as the motion was overruled
by the court the defendant firm excepted thereto and afterwards
produced its evidence, which was made of record. On the 19th of
October judgment was rendered sentencing the defendants, Behn,
Meyer & Co., to pay the plaintiff herein the sum of 9,000 pesos,
Philippine currency and costs. The judgment was excepted to by the
defendant firm, who moved for a new trial on the ground that the
decision was contrary to law and to the weight of the evidence, and
because the findings of fact of the judgment are contrary to the
preponderance of the proofs. This motion was overruled and the
defendant duly excepted thereto.
The contract entered into between the agent of Jose Guzman,
owner of the lorcha Nevada, and the firm of Behn, Meyer & Co., as
agents and representatives of the captain and owners of the steamer
Kudat, is not a charter party. It is a contract for the hire of services by
virtue of which the said firm, by means of the said steamer, under the
management of its captain, officers, and crew, engaged to tow the
said lorcha from this port of Manila to that of Iloilo for a consideration
of P150. The provisions of articles 652 et seq. of the Code of
Commerce with reference to charter parties are not applicable in this
case because the lorcha was not shipped or placed on board the
steamer, but, as had been agreed to, should have been towed from
this port of Iloilo.
Notwithstanding the fact that the defendant has denied the
making of the said contract, its existence is unquestionable, as proven
by Exhibit E on page 12 of the record, this document not having been
objected to or impugned by the defendant.
Notwithstanding the fact that the agreement entered into by the
agent of the steamer Kudat was to tow the said lorcha from the port of
Manila to that of Iloilo, the truth of the matter is that the captain of the
Kudat took charge of the lorcha on the 4th of January, 1904, and
sailed at noon of the following day, and when the steamer was within
sight of the Islands of Cabras, between the Islands of Luzon and
Mindoro, at about 9:30 p.m. of the 5th, on account of the breaking of
the port tow line, he ordered that by means of the starboard line the
lorcha be brought to the stern of the steamer. After compelling the
crew of the lorcha to board the steamer, the captain then ordered the
steel tow line cut, and the lorcha was thus abandoned entirely. As the
lorcha was lost sight of and became a total loss, she was not towed to
nor did she ever reach the port of Iloilo, as had been stipulated
between her owner and the firm of Behn, Meyer & Co.
Articles 1101 and 1601 of the Civil Code provide that —
"Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever
act in contravention of the stipulations of the same, shall be
subject to indemnify for the losses and the damages caused
thereby." (Art. 1101.)
"Carriers of goods by land or by water shall be subject,
with regard to the keeping and preservation of the things
entrusted to them, to the same obligations as determined for
innkeepers by articles seventeen hundred and eighty three and
seventeen hundred and eighty four.
"The provisions of this article shall be understood without
prejudice to what is prescribed by the Code of Commerce with
regard to transportation by sea and land." (Art. 1601.)
It can not be doubted that the captain who commanded the
steamer Kudat failed to comply with the contract for towage and acted
for contravention of what had been stipulated therein between the
owner of the lorcha in tow and the agents who represented the owners
of the steamer, and when abandoning the lorcha in mid-ocean with the
full knowledge that it would disappear and become a loss, he acted
with marked negligence and a perfect knowledge of the loss and
damage he was about to cause the owner. Therefore, pursuant to the
provisions of law above quoted, the owner of the lorcha must be
indemnified, the contract of towage involving the obligation to use due
diligence (art. 1104) the omission of which would imply fault or
negligence on the part of the obligee, because the lorcha Nevadawas
abandoned with the intent of casting her adrift to become a total loss.
The record does not show that force majeure or other such
casualty intervened to cause the loss of the lorcha in tow. Rather to
the contrary, as from the evidence adduced at the trial it is inferred that
there was not only negligence but a willful intent to cause the total loss
of the lorcha, without any reason whatever which required its
abandonment at the time. It should be noted, however, that the duty to
prove or show the reasons for exemption from the liability rests with
the defendant, who thereupon bases his exception.
Article 624 of the Code of Commerce imposes on a captain, in
case he has been wrecked or the cargo of his vessel damaged, the
duty of making the corresponding protest before the proper authority
at the first port where the vessel touches, within the twenty four-hours
following his arrival.
The captain of the Kudat did not make any protest before any
officer or competent authority at Iloilo stating the reasons which
compelled him to abandon the lorcha. On the other hand, the master
or patron of the lost lorcha complied with this duty imposed by law and
appeared before the collector of customs of Iloilo and set forth his
protest in duplicate, as per documents marked with the letters "A" and
"F", wherein, upon request of the patron, a statement of what had
occurred was inscribed. Articles 586 and 587 of the Code of
Commerce provide that —
"The owner of a vessel and the agent shall be civilly
liable for the acts of the captain and for the obligations
contracted by the latter to repair, equip, and provision the vessel,
provided the creditor proves that the amount claimed was
invested therein.
"By agent is understood the person entrusted with the
provisioning of a vessel or who represents her in the port in
which she happens to be. (Art. 586.)

"The agent shall also be civilly liable for the indemnities

in favor of third persons which arise from the conduct of the
captain in the care of the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with
all her equipment's and the freight he may have earned during
the trip. (Art. 587.)
 The firm Behn, Meyer & Co. contracted for the towage or
conveyance by sea of the lorcha Nevada from Manila to Iloilo,
undoubtedly in their capacity of agents, charged by the owners of the
steamer Kudat to represent them in this port of Manila. According to
the provisions of the two foregoing articles of the Code of Commerce,
therefore, the aforesaid firm is the only party bound to indemnify the
owner of the Nevada in the amount of the damages sustained by him
through the loss of the above-mentioned lorcha, considering the
negligent, not to say criminal, action of the captain, who, without any
cause or reason and without any unforeseen accident or stress of
weather, willfully abandoned the lorcha, well-knowing that it would be
lost, as really happened.
Behn, Meyer & Co. were unable to deny the existence of the
said contract of towage, and, as a matter of fact, they actually tried to
recover the amount of the consideration for such service which had
not been rendered by the steamer Kudat, for which they were the
agents. The court, in the judgment appealed from, having considered
the amount of the indemnity to be paid to the plaintiff, who, on his part,
has consented thereto notwithstanding that in his complaint he
claimed a larger amount, it is proper to affirm the same.
In view of the foregoing, and accepting those conclusions of the
judgment appealed from which are in accordance with this decision,
said judgment is hereby affirmed, with the costs against the appellants.
So ordered.
Arellano, C.J., Johnson, Willard, and Tracey, JJ., concur.
||| [G.R. No. L-61352. February 27, 1987.]

DOLE PHILIPPINES, INC., plaintiff-appellant, vs. MARITIME

COMPANY OF THE PHILIPPINES, defendant-appellee.

Domingo E. de Lara & Associates for plaintiff-appellant.

Bito, Misa and Lozada Law Office for defendant-appellee.

SYLLABUS

1. MERCANTILE LAW; CARRIAGE OF GOODS BY SEA ACT;

EXTRAJUDICIAL DEMAND DID NOT TOLL ONE YEAR
PRESCRIPTIVE PERIOD; CASE AT BAR. — The pivotal issue is
whether or not Article 1155 of the Civil Code providing that the
prescription of actions is interrupted by the making of an extra-judicial
written demand by the creditor is applicable to actions brought under
the Carriage of Goods by Sea Act. The question has already received a
definitive answer, adverse to the position taken by Dole, in The Yek Tong
Lin Fire & Marine Insurance Co., Ltd. vs. American president Lines, Inc.
There, in a parallel factual situation, where suit to recover for damage to
cargo shipped by vessel from Tokyo to Manila was filed more tan two
years after the consignee's receipt of the cargo, this Court rejected the
contention that an extrajudicial demand tolled the prescriptive period
provided for in the Carriage of Goods by Sea Act, viz: x x x. "We have
already decided that in a case governed by the Carriage of Goods by Sea
Act, the general provisions of the Code of Civil Procedure on prescription
should not be made to apply. (Chua Kuy vs. Everett Steamship Corp.,
G.R. No. L-5554, May 27, 1953.) Similarly, we now hold that in such a
case the general provisions of the new Civil Code (Art. 1155) cannot be
made to apply, as such application would have the effect of extending the
one-year period of prescription fixed in the law. It is desirable that matters
affecting transportation of goods by sea be decided in as short a time as
possible; the application of the provisions of Article 1155 of the new Civil
Code would unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the clear
intent and purpose of the law. x x x."

DECISION

NARVASA, J : p

This appeal, which was certified to the Court by the Court of Appeals as
involving only questions of law, 1 relates to a claim for loss and/or
damage to a shipment of machine parts sought to be enforced by the
consignee, appellant Dole Philippines, Inc. (hereinafter called Dole)
against the carrier, Maritime Company of the Philippines (hereinafter
called Maritime), under the provisions of the Carriage of Goods by Sea
Act. 2
The basic facts are succinctly stated in the order of the Trial Court 3 dated
March 16, 1977, the relevant portion of which read: cdrep

"xxx xxx xxx

Before the plaintiff started presenting evidence at today's trial,
at the instance of the Court the lawyers entered into the
following stipulation of facts:
 1. The cargo subject of the instant case was discharged in
Dadiangas unto the custody of the consignee on December 18,
1971;
2. The corresponding claim for the damages sustained by the
cargo was filed by the plaintiff with the defendant vessel on May
4, 1972;
3. On June 11, 1973 the plaintiff filed a complaint in the Court of
First Instance of Manila, docketed therein as Civil Case No.
91043, embodying three (3) causes of action involving three (3)
separate and different shipments. The third cause of action
therein involved the cargo now subject of this present litigation;
4. On December 11, 1974, Judge Serafin Cuevas issued an
Order in Civil Case No. 91043 dismissing the first two causes of
action in the aforesaid case with prejudice and without
pronouncement as to costs because the parties had settled or
compromised the claims involved therein. The third cause of
action which covered the cargo subject of this case now was
likewise dismissed but without prejudice as it was not covered
by the settlement. The dismissal of that complaint containing
the three causes of action was upon a joint motion to dismiss
filed by the parties;
5. Because of the dismissal of the (complaint in Civil Case No.
91043 with respect to the third cause of action without prejudice,
plaintiff instituted this present complaint on January 6, 1975.
xxx xxx xxx" 4
To the complaint in the subsequent action Maritime filed an answer
pleading inter alia the affirmative defense of prescription under the
provisions of the Carriage of Goods by Sea Act, 5 and following pre-trial,
moved for a preliminary hearing on said defense. 6 The Trial Court
granted the motion, scheduling the preliminary hearing on April 27,
1977. 7 The record before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977, Maritime filed a formal
motion to dismiss invoking once more the ground of prescription. 8 The
motion was opposed by Dole 9 and the Trial Court, after due
consideration, resolved the matter in favor of Maritime and dismissed the
complaint. 10 Dole sought a reconsideration, which was denied, 11 and
thereafter took the present appeal from the order of dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code providing
that the prescription of actions is interrupted by the making of an
extrajudicial written demand by the creditor is applicable to actions
brought under the Carriage of Goods by Sea Act which, in its Section 3,
paragraph 6, provides that:
 ". . . the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods
should have been delivered; Provided, That, if a notice of loss or
damage, either apparent or conceded, is not given as provided
for in this section, that fact shall not affect or prejudice the right
of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been
delivered.
xxx xxx xxx."
Dole concedes that its action is subject to the one-year period of limitation
prescribed in the above-cited provision. 12 The substance of its argument
is that since the provisions of the Civil Code are, by express mandate of
said Code, suppletory of deficiencies in the Code of Commerce and
special laws in matters governed by the latter, 13 and there being " . . . a
patent deficiency . . . with respect to the tolling of the prescriptive
period . . ." provided for in the Carriage of Goods by Sea
Act, 14prescription under said Act is subject to the provisions of Article
1155 of the Civil Code on tolling; and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written extrajudicial
demand which would toll or interrupt prescription under Article 1155, it
operated to toll prescription also in actions under theCarriage of Goods
by Sea Act. To much the same effect is the further argument based on
Article 1176 of the Civil Code which provides that the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws in all matters not regulated by the Civil
Code.
These arguments might merit weightier consideration were it not for the
fact that the question has already received a definitive answer, adverse
to the position taken by Dole, in The Yek Tong Lin Fire & Marine
Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a
parallel factual situation, where suit to recover for damage to cargo
shipped by vessel from Tokyo to Manila was filed more than two years
after the consignee's receipt of the cargo, this Court rejected the
contention that an extrajudicial demand tolled the prescriptive period
provided for in the Carriage of Goods by Sea Act, viz:
"In the second assignment of error plaintiff-appellant argues
that it was error for the court a quo not to have considered the
action of plaintiff-appellant suspended by the extrajudicial
demand which took place, according to defendant's own motion
to dismiss, on August 22, 1952. We notice that while plaintiff
avoids stating any date when the goods arrived in Manila, it
 relies upon the allegation made in the motion to dismiss that a
protest was filed on August 22, 1952 — which goes to show that
plaintiff-appellant's counsel has not been laying the facts
squarely before the court for the consideration of the merits of
the case. We have already decided that in a case governed by
the Carriage of Goods by Sea Act, the general provisions of the
Code of Civil Procedure on prescription should not be made to
apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554,
May 27, 1953.) Similarly, we now hold that in such a case the
general provisions of the new Civil Code (Art. 1155) cannot be
made to apply, as such application would have the effect of
extending the one-year period of prescription fixed in the law. It
is desirable that matters affecting transportation of goods by
sea be decided in as short a time as possible; the application of
the provisions of Article 1155 of the new Civil Code would
unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the
clear intent and purpose of the law. . . ."
Moreover, no different result would obtain even if the Court were to
accept the proposition that a written extrajudicial demand does toll
prescription under the Carriage of Goods by Sea Act. The demand in this
instance would be the claim for damage filed by Dole with Maritime on
May 4, 1972. The effect of that demand would have been to renew the
one-year prescriptive period from the date of its making Stated otherwise,
under Dole's theory, when its claim was received by Maritime, the
one-year prescriptive period was interrupted — "tolled" would be the
more precise term — and began to run anew from May 4, 1972, affording
Dole another period of one (1) year counted from that date within which to
institute action on its claim for damage. Unfortunately, Dole let the new
period lapse without filing action. It instituted Civil Case No. 91043 only
on June 11, 1973, more than one month after that period has expired and
its right of action had prescribed. llcd

Dole's contention that the prescriptive period ". . . remained tolled as of

May 4, 1972 . . . (and that) in legal contemplation . . . (the) case (Civil
Case No. 96353) was filed on January 6, 1975 . . . well within the
one-year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea
Act," 16 equates tolling with indefinite suspension. It is clearly fallacious
and merits no consideration.
WHEREFORE, the order of dismissal appealed from is affirmed, with
Costs against the appellant, Dole Philippines, Inc.
SO ORDERED.
 (Dole Phils., Inc. v. Maritime Co. of the Phils., G.R. No. L-61352,
|||

[February 27, 1987], 232 PHIL 128-133)

G.R. No. L-25266 January 15, 1975

AETNA INSURANCE COMPANY, plaintiff-appellant,

vs.
BARBER STEAMSHIP LINES, INC., and/or LUZON STEVEDORING CORPORATION
and/or LUZON BROKERAGE CORPORATION, defendants-appellees.

Camacho, Zapa Andaya and Associates for plaintiff-appellant.

Rose, Selph, Salcedo, Del Rosario, Bito and Mesa for defendant-appellee Barber
Steamship Lines, Inc.

H. San Luis and L. V. Simbulan for defendant-appellee Luzon Stevedoring Corporation.

Jalandoni and Jamir for defendant-appellee Luzon Brokerage Corporation.

AQUINO, J.:

Aetna Insurance Company appealed on a legal question from the order of the Court of
First Instance of Manila, dismissing its amended complaint against Barber Line Far East
Service on the ground of prescription.

The facts are as follows:

On February 22, 1965 Aetna Insurance Company, as insurer, filed a complaint against
Barber Steamship Lines, Inc., Luzon Stevedoring Corporation and Luzon Brokerage
Corporation.

It sought to recover from the defendants the sum of P12,100.06 as the amount of the
damages which were caused to a cargo of truck parts shipped on the SS Turandot. The
insurer paid the damages to Manila Trading & Supply Company, the consignee.

In a manifestation dated March 31, 1965, Barber Steamship Lines, Inc., without submitting
to the court's jurisdiction, alleged that it was a foreign corporation not licensed to do
business in the Philippines, that it was not engaged in business here, that it had no
Philippine agent and that it did not own nor operate the SS Turandot.

On April 5, 1965 Barber Steamship Lines, Inc., again with the caveat that it was not
submitting to the court's jurisdiction, filed a motion to dismiss on the grounds of (a) lack of
jurisdiction over the person and (b) that it was not the real party in interest.

Barber Steamship Lines, Inc. alleged that the service of summons was not effected upon
it in accordance with section 14, Rule 14 of the Rules of Court. It clarified that the
summons intended for it was served upon Macondray & Co., Inc. which was not its agent.
It asserted that it was not the real party in interest because according to the bill of lading
annexed to the complaint the owner of the SS Turandot, the carrying vessel, was the Wilh,
Wilhemsen Group. (Note, however, that the same bill of lading indicated that Barber
Steamship Lines, Inc. was the vessel's agent).

Two days later, or on April 7, 1965 plaintiff Aetna Insurance Company filed a
manifestation stating that the name of defendant Barber Steamship Lines, Inc. was
incorrect and that the correct name was Barber Line Far East Service. Attached to the
manifestation was an amended complaint containing the correction. Aetna Insurance
Company manifested that copies of the amended complaint would be served on the
parties by means of alias summons.

On April 20, 1965 Aetna Insurance Company filed a motion for the admission of its
amended complaint. Barber Steamship Lines, Inc. opposed the motion. It contended that
its pending motion to dismiss the original complaint should first be resolved before the
amended complaint may be admitted.

Judge Ramon O. Nolasco in an order dated April 19, 1965 dismissed the complaint
against Barber Steamship Lines, Inc. and directed that alias summonses be issued to the
defendants named in the amended complaint.

On May 19, 1965 Barber Line Far East Service, supposedly without admitting to the
court's jurisdiction, moved for the dismissal of the amended complaint on the grounds (1)
that it is not a juridical person and, hence, it could not be sued; (2) that the court had no
jurisdiction over its person; (3) that it was not the real party in interest and (4) that the
action had prescribed according to the bill of lading and the Carriage of Goods by Sea Act.
Aetna Insurance Company opposed the motion.

Judge Nolasco in his order of July 7, 1965 ruled that inasmuch as according to the
complaint the shipment arrived in Manila on February 22, 1964 and the amended
complaint, impleading Barber Line Far East Service, was filed on April 7, 1965, or beyond
the one-year period fixed in the Carriage of Goods by Sea Act, the action had already
prescribed. The case was dismissed as to Barber Line Far East Service.

The legal question under the above facts is whether the action of Aetna Insurance
Company against Barber Line Far East Service, as ventilated in its amended complaint,
which was filed on April 7, 1965, had prescribed.

As previously stated, the action was for the recovery of damages to a cargo of truck parts
which was insured by Aetna Insurance Company and which arrived in Manila on the
SS Turandot and were delivered in bad order to the consignee on February 25, 1968 (4
Record on Appeal).

The bill of lading covering the shipment provides:

19. In any event the Carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after the delivery of the goods or the
dates when the goods should have been delivered. Suit shall not be deemed brought until
jurisdiction shall have been obtained over the Carrier and/or the ship by service of process
or by an agreement to appear.
On the other hand, the Carriage of Goods by Sea Act, Commonwealth Act No. 65 (Public
Act No. 521 of the 74th Congress of the United States) provides:

RESPONSIBILITIES AND LIABILITIES

Section 3. xxx xxx xxx

(6) xxx xxx xxx

In any event the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered: Provided, That, if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this section, that fact shall not
affect or prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered.

Aetna Insurance Company contends in this appeal that the trial court erred (1) in holding
that the Barber Line Far East Service was substituted for Barber Steamship Lines, Inc.
and (2) in dismissing the action on the ground of prescription.

There is no merit in the appeal. The trial court correctly held that the one-year statutory
and contractual prescriptive period had already expired when appellant company filed on
April 7, 1965 its action against Barber Line Far East Service. The one year period
commenced on February 25, 1964 when the damaged cargo was delivered to the
consignee. (See Chua Kuy vs. Everrett Steamship Corporation, 93 Phil. 207; Yek Tong
Fire & Marine Insurance Co., Ltd. vs. American President Lines, Inc., 103 Phil. 1125).

Appellant company invokes the rule that where the original complaint states a cause of
action but does it imperfectly, and afterwards an amended complaint is filed, correcting
the defect, the plea of prescription will relate to the time of the filing of the original
complaint (Pangasinan Transportation Co. vs. Phil. Farming Co., Ltd., 81 Phil. 273). It
contends that inasmuch as the original complaint was filed within the one year period, the
action had not prescribed.

That ruling would apply to defendants Luzon Stevedoring Corporation and Luzon
Brokerage Corporation. But it would not apply to Barber Line Far East Service which was
impleaded for the first time in the amended complaint.

It should be recalled that the original complaint was dismissed as to Barber Steamship
Lines, Inc. in the lower court's order of April 19, 1965. New summons had to be issued to
Barber Line Far East Service which had replaced Barber Steamship Lines, Inc. as a
defendant.

The filing of the original complaint interrupted the prescriptive period as to Barber
Steamship Lines, Inc. but not as to Barber Line Far East Service, an entity supposedly
distinct from the former. Appellant's contention that there was merely a correction in the
name of a party-defendant is untenable. *

In view of the foregoing considerations, the lower court's order of dismissal is affirmed. Costs against the plaintiff-appellant.

SO ORDERED.
 G.R. No. L-54140. October 14, 1986.]

FILIPINO MERCHANTS INSURANCE COMPANY,

INC., petitioner, vs. HONORABLE JOSE ALEJANDRO,
Presiding Judge of Branch XXVI of the Court of First
Instance of Manila and FROTA OCEANICA
BRASILIERA, respondents.

[G.R. No. L-62001. October 14, 1986.]

FILIPINO MERCHANS INSURANCE COMPANY,

INC., petitioner, vs. HONORABLE ALFREDO
BENIPAYO, Presiding Judge of Branch XVI of the
Court of First Instance of Manila and
AUSTRALIA-WEST PACIFIC LINE, respondents.

DECISION

GUTIERREZ, JR., J : p

These consolidated petitions raise the issue of whether or not the

one-year period within which to file a suit against the carrier and the ship,
in case of damage or loss as provided for in the Carriage of Goods by
Sea Act applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed
as Civil Case No. 109911, against the petitioner before the then Court of
First Instance of Manila for recovery of a sum of money under the marine
insurance policy on cargo. Mr. Choa alleged that the goods he insured
with the petitioner sustained loss and damage in the amount of
P35,987.26. The vessel SS Frotario which was owned and operated by
private respondent Frota Oceanica Brasiliera, (Frota) discharged the
goods at the port of Manila on December 13, 1976. The said goods were
delivered to the arrastre operator E. Razon, Inc., on December 17, 1976
and on the same date were received by the consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended answer
disclaiming liability, imputing against the plaintiff the commission of fraud
and counterclaiming for damages.
On January 9, 1978, the petitioner filed a third-party complaint against
the carrier, private respondent Frota and the arrastre contractor, E.
Razon, Inc. for indemnity, subrogation, or reimbursement in the event
that it is held liable to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar
complaint against the petitioner which was docketed as Civil Case No.
110061, for recovery under the marine insurance policy for cargo alleging
that the goods insured with the petitioner sustained loss and damage in
the sum of P55,996.49.
The goods were delivered to the plaintiff-consignee on or about January
25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978,
it filed an amended third-party complaint against respondent carrier, the
Australia-West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and
subsequently filed a motion for preliminary hearing on their affirmative
defense of prescription. The private respondents alleged in their separate
answers that the petitioner is already barred from filing a claim because
under the Carriage of Goods by Sea Act, the suit against the carrier must
be filed "within one year after delivery of the goods or the date when the
goods should have been delivered. . . . "
The petitioner contended that the provision relied upon by the
respondents applies only to the shipper and not to the insurer of the
goods.
On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld
respondent Frota and dismissed the petitioner's third-party complaint.
Likewise, on August 31, 1982, the respondent judge in Civil Case No.
110061 dismissed the petitioner's third-party complaint against
respondent Australia-West on the ground that the same was filed beyond
the prescriptive period provided in Section 3 (6) of the Carriage of Goods
by Sea Act of 1936. In both cases, the petitioner appealed to us on a pure
question of law, raising the issue of whether or not the prescriptive period
of one year under the said Act also applies to an insurer such as herein
petitioner.
The petitioner maintains that the one-year prescriptive period cannot
cover an insurer which has not settled the claim of its insured because it
cannot be considered as the person referred to in the applicable
provision of the said Act that has the duty or right to give notice of loss or
damage to the carrier or to sue such carrier within the period of one year
and that where an insurer does not settle the claim of its insured it cannot
be considered as subrogated to the rights of said insured that would then
authorize it to sue the carrier within the time-bar of one year. The
petitioner further contends that the period for the filing of a third-party
complaint must be reckoned from the date when the principal action was
filed, that is, from the time the insured filed a suit against the petitioner,
because the third-party complaint is merely an incident of the main
action.
On the other hand, the respondents argue that the one-year prescriptive
period within which to file a claim against the carrier also applies to a
claim filed by an insurer who stands as a subrogee to the insured and that
the third-party complaint filed by the petitioner cannot be reckoned from
the filing of the main action because such complaint is independent of,
and separate and distinct from the insured's action against the petitioner.
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the general nature of
such loss or damage be given in writing to the carrier or his
agent at the port of discharge before or at the time of the
removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal
shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is
not apparent, the notice must be given within three days of the
delivery.
"Said notice of loss or damage may be endorsed upon the
receipt for the goods given by the person taking delivery
thereof.
"The notice in writing need not be given if the state of the goods
has at the time of their receipt been the subject of joint survey or
inspection.
"In any event the carrier and the ship shall be discharged from
all liability in respect of loss or damage unless suit is brought
within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, that if a notice of
loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or prejudice
the right of the shipper to bring the suit within one year after the
delivery of the goods or the date when the goods should have
been delivered.
"In the case of any actual or apprehended loss or damage, the
carrier and the receiver shall give all reasonable facilities to
each other for inspecting and tallying the goods. (Italics
 supplied) Philippine Permanent and General Statutes (Revised
Edition, Vol. I, pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil. 207, 213-214),
expounds on the extent of the applicability of the aforequoted provision.
We ruled: LibLex

"Neither do we find tenable the claim that the prescriptive period

contained in said act can only be invoked by the shipper,
excluding all other parties to the transaction. While apparently
the proviso contained in the portion of section 3(6) of the act we
have quoted gives the impression that the right to file suit within
one year after delivery of the goods applies to the shipper alone,
however, reading the proviso in conjunction with the rest of
section 3(6), it at once becomes apparent that the conclusion
drawn by petitioner is unwarranted. In the first place, said
section provides that the notice of loss or damage for which a
claim for indemnity may be made should be given in writing to
the carrier at the port of discharge before or at the time of the
removal of the goods, and if the loss or damage is not apparent
said notice should be given 'within three days on delivery.' From
the language of this section, it seems clear that the notice of
loss or damage is required to be filed not necessarily by the
shipper but also by the consignee or any legal holder of the bill
of lading. In fact, said section requires that the notice be given at
the port of discharge and the most logical party to file the notice
is either the consignee or the endorsee of the bill of lading. In
the second place, a study of the historical background of this
particular provision will show that although the word shipper is
used in the proviso referred to by the petitioner, the intention of
the law was not to exclude the consignee or endorsee of the bill
of lading from bringing the action but merely to limit the filing of
the same within one year after the delivery of the goods at the
port of discharge. [The Southern Cross, 1940, A. M. C. 59
(SDNY); Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].
"Arnold W. Knauth, an eminent authority on admiralty,
commenting on this proviso, says:
xxx xxx xxx
"It seems evident that this language does not alter the
sense of the text of the Hague Rules; it merely reiterates in
another form the rule already laid down. Curiously, the
proviso seems limited to the rights of shippers,and might
strictly be construed not to give any rights to consignees,
representatives, or subrogated parties; whereas the
Hague Rules phraseology is broader. As the Act contains
both phrases, it would seem to be as broad as the broader
 of the two forms of words. ' (Ocean Bills of Lading, by
Knauth, p. 229)."
Clearly, the coverage of the Act includes the insurer of the goods.
Otherwise, what the Act intends to prohibit after the lapse of the one year
prescriptive period can be done indirectly by the shipper or owner of the
goods by simply filing a claim against the insurer even after the lapse of
one year. This would be the result if we follow the petitioner's argument
that the insurer can, at any time, proceed against the carrier and the ship
since it is not bound by the time-bar provision. In this situation, the one
year limitation will be practically useless. This could not have been the
intention of the law which has also for its purpose the protection of the
carrier and the ship from fraudulent claims by having "matters affecting
transportation of goods by sea be decided in as short a time as possible"
and by avoiding incidents which would "unnecessarily extend the period
and permit delays in the settlement of questions affecting the
transportation." (See The Yek Tong Fire and Marine Insurance Co., Ltd.,
v. American President Lines, Inc., 103 Phil. 1125-1126).

In the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation (62

SCRA 11, 15), we denied the appeal of an insurance company which filed
a suit against the carrier after the lapse of one year. We ruled:
"There is no merit in the appeal. The trial court correctly held
that the one-year statutory and contractual prescriptive period
had already expired when appellant company filed on April 7,
1965 its action against Barber Line Far East Service. The
one-year period commenced on February 25, 1964 when the
damaged cargo was delivered to the consignee. (See Chua Kuy
v. Everrett Steamship Corporation, 93 Phil. 207; Yek Tong Fire
& Marine Insurance Co., Ltd. v. American President Lines, Inc.,
103 Phil. 1125)."
We likewise agree with the respondents that the third-party complaint of
the petitioner cannot be considered to have been filed upon the filing of
the main action because although it can be said that a third-party
complaint is but ancillary to the main action (Eastern Assurance and
Surety Corporation v. Cui, 105 SCRA 622), it cannot abridge, enlarge,
nor modify the substantive rights of any litigant. It creates no substantive
rights. Thus, unless there is some substantive basis for the third-party
plaintiff's claim, he cannot utilize the filing of such action to acquire any
right of action against the third-party defendant. (See also Francisco, The
Revised Rules of Court in the Philippines, Vol. 1, 1973 Ed., p. 507). The
petitioner can only rightfully file a third-party complaint against the
respondents if, in the first place, it can still validly maintain an action
against the latter.cdphil

In the case at bar, the petitioner's action has prescribed under the
provisions of the Carriage of Goods by Sea Act. Hence, whether it files a
third-party complaint or chooses to maintain an independent action
against herein respondents is of no moment. Had the plaintiffs in the civil
cases below filed an action against the petitioner after the one-year
prescriptive period, then the latter could have successfully denied liability
on the ground that by their own doing, the plaintiffs had prevented the
petitioner from being subrogated to their respective rights against the
herein respondents by filing a suit after the one-year prescriptive period.
The situation, however, does not obtain in the present case. The plaintiffs
in the civil cases below gave extra-judicial notice to their respective
carriers and filed suit against the petitioner well within one year from their
receipt of the goods. The petitioner had plenty of time within which to act.
In Civil Case No. 109911, the petitioner had more than four months to file
a third-party complaint while in Civil Case No. 110061, it had more than
five months to do so. In both instances, however, the petitioner failed to
file the appropriate action.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R.
No. 54140 and G. R. No. 62001 are hereby DISMISSED for lack of merit.
Costs against the petitioner.
SO ORDERED.
Feria, Fernan, Alampay and Paras, JJ ., concur.
||| [G.R. No. 124050. June 19, 1997.]

MAYER STEEL PIPE CORPORATION and HONGKONG

GOVERNMENT SUPPLIES
DEPARTMENT, petitioners, vs. COURT OF APPEALS,
SOUTH SEA SURETY AND INSURANCE CO., INC. and
the CHARTER INSURANCE
CORPORATION, respondents.

Arturo S. Santos for petitioners.

Conrado R. Mangahas & Associates for respondents.

SYLLABUS
 l. COMMERCIAL LAW; CARRIAGE OF GOODS BY SEA ACT;
SEC. 3(6) THEREOF; SUIT AGAINST CARRIER FOR LOSS OR
DAMAGE TO GOODS PRESCRIBES AFTER ONE YEAR FROM
DELIVERY OF GOODS; RULE NOT APPLICABLE TO AN INSURER OF
THE GOODS. — Section 3(6) of the Carriage of Goods by Sea Act states
that the carrier and the ship shall be discharged from all liability for loss or
damage to the goods if no suit is filed within one year after delivery of the
goods or the date when they should have been delivered. Under this
provision, only the carrier's liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished because
the insurer's liability is based not on the contract of carriage but on the
contract of insurance. A close reading of the law reveals that the Carriage
of Goods by Sea Act governs the relationship between the carrier on the
one hand and the shipper, the consignee and/or the insurer on the other
hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the
shipper and the insurer. The latter case is governed by the Insurance
Code.
2. ID.; INSURANCE; "ALL RISKS" INSURANCE POLICY
COVERAGE THEREOF; INSURER'S OBLIGATION THEREUNDER
PRESCRIBES IN TEN YEARS; CASE AT BAR. — The ruling in Filipino
Merchants should apply only to suits against the carrier filed either by the
shipper, the consignee or the insurer. When the court said in Filipino
Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies
to the insurer, it meant that the insurer, like the shipper, may no longer file
a claim against the carrier beyond the one-year period provided in the law.
But it does not mean that the shipper may no longer file a claim against
the insurer because the basis of the insurer's liability is the insurance
contract. An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for
loss or damage which he may suffer from a specified peril. An "all risks"
insurance policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured. Thus, when private respondents issued the
"all risks" policies to petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the
New Civil Code. ACDIcS

DECISION
PUNO, J : p

This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995 1 and
its Resolution dated February 22, 1996 2 in CA-G.R. CV No. 45805
entitled Mayer Steel Pipe Corporation and Hongkong Government
Supplies Department v. South Sea Surety Insurance Co., Inc. and The
Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer)
to manufacture and supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025,
MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and
Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter).
The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and
1025 with a total amount of US$212,772.09 were insured with
respondent South Sea, while those covered by Invoice Nos. 1020, 1017
and 1022 with a total amount of US$149,470.00 were insured with
respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine whether
the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes
and fittings to be in good order condition before they were loaded in the
vessel. Nonetheless, when the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity
under the insurance contract. Respondent Charter paid petitioner
Hongkong the amount of HK$64,904.75. Petitioners demanded payment
of the balance of HK$299,345.30 representing the cost of repair of the
damaged pipes. Private respondents refused to pay because the
insurance surveyor's report allegedly showed that the damage is a
factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their defense,
private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due
to factory defects which are not covered by the insurance policies.
 The trial court ruled in favor of petitioners. It found that the damage
to the goods is not due to manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of
conceivable loss or damage. The only exceptions are those excluded in
the policy, or those sustained due to fraud or intentional misconduct on
the part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering
the defendants jointly and severally, to pay the plaintiffs the
following:
1. the sum equivalent in Philippine currency of
HK$299,345.30 with legal rate of interest as of the filing of the
complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED. 5
Private respondents elevated the case to respondent Court of
Appeals.
Respondent court affirmed the finding of the trial court that the
damage is not due to factory defect and that it was covered by the "all
risks" insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and dismissed
the complaint on the ground of prescription. It held that the action is
barred under Section 3(6) of the Carriage of Goods by Sea Act since it
was filed only on April 17, 1986, more than two years from the time the
goods were unloaded from the vessel. Section 3(6) of the Carriage of
Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the
goods should have been delivered." Respondent court ruled that this
provision applies not only to the carrier but also to the insurer,
citing Filipino Merchants Insurance Co., Inc. v. Alejandro. 6
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that
petitioners' cause of action had already prescribed on
the mistaken application of the Carriage of Goods by Sea
Act and the doctrine of Filipino Merchants Co.,
Inc. v. Alejandro (145 SCRA 42); and
 2. The respondent Court of Appeals committed an error in
dismissing the complaint. 7
The petition is impressed with merit. Respondent court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the
carrier and the ship shall be discharged from all liability for loss or
damage to the goods if no suit is filed within one year after delivery of the
goods or the date when they should have been delivered. Under this
provision, only the carrier's liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished because
the insurer's liability is based not on the contract of carriage but on the
contract of insurance. A close reading of the law reveals that the Carriage
of Goods by Sea Act governs the relationship between the carrier on the
one hand and the shipper, the consignee and/or the insurer on the other
hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the
shipper and the insurer. The latter case is governed by the Insurance
Code.
Our ruling in Filipino Merchants Insurance Co.,
Inc. v. Alejandro 8 and the other cases 9 cited therein does not support
respondent court's view that the insurer's liability prescribes after one
year if no action for indemnity is filed against the carrier or the insurer. In
that case, the shipper filed a complaint against the insurer for recovery of
a sum of money as indemnity for the loss and damage sustained by the
insured goods. The insurer, in turn, filed a third-party complaint against
the carrier for reimbursement of the amount it paid to the shipper. The
insurer filed the third-party complaint on January 9, 1978, more than one
year after delivery of the goods on December 17, 1977. The court held
that the Insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the
carrier must be filed within one year after delivery of the goods or the date
when the goods should have been delivered. The court said that "the
coverage of the Act includes the insurer of the goods." 10
The Filipino Merchants case is different from the case at bar. In
Filipino Merchants, it was the insurer which filed a claim against the
carrier for reimbursement of the amount it paid to the shipper. In the case
at bar, it was the shipper which filed a claim against the insurer. The basis
of the shipper's claim is the "all risks" insurance policies issued by private
respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against
the carrier filed either by the shipper, the consignee or the insurer. When
the court said in Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that the insurer, like the
shipper, may no longer file a claim against the carrier beyond the
one-year period provided in the law. But it does not mean that the shipper
may no longer file a claim against the insurer because the basis of the
insurer's liability is the insurance contract. An insurance contract is a
contract whereby one party, for a consideration known as the premium,
agrees to indemnify another for loss or damage which he may suffer from
a specified peril 11 An "all risks" insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the insured. 12 Thus,
when private respondents issued the "all risks" policies to petitioner
Mayer, they bound themselves to indemnify the latter in case of loss or
damage to the goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code. 13 cdasia

IN VIEW WHEREOF, the petition is GRANTED. The Decision of

respondent Court of Appeals dated December 14, 1995 and its
Resolution dated February 22, 1996 are hereby SET ASIDE and the
Decision of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, Romero, Mendoza and Torres, Jr., JJ ., concur.
(Mayer Steel Pipe Corp. v. Court of Appeals, G.R. No. 124050, [June 19,
|||

1997], 340 PHIL 545-551)

[G.R. No. 112287. December 12, 1997.]

NATIONAL STEEL CORPORATION, petitioner, vs.

COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.

[G.R. No. 112350. December 12, 1997.]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF

APPEALS and NATIONAL STEEL
CORPORATION, respondents.

Poblador, De los Reyes & Dacayo, Jr. for National Steel Corp.
De Rosario & Del Rosario for Vlasons Shipping, Inc.

SYNOPSIS
 The cases under consideration are two separate petitions for
review filed by National Steel Corporation (NSC) and Vlasons
Shipping Inc. (VSI), both assailing the decision of the Court of Appeals.
The records of the case reveal that NSC hired MV Vlasons I, a private
vessel owned by VSI. They entered into a contract of affreightment or
contract of voyage charter hire wherein the contract states that NSC
hired VSI's vessel to make one voyage to load steel products at Iligan
City and discharge them at North Harbor, Manila. Thereafter, in
accordance with the voyage charter hire, NSC's shipment of 1,677
skids of tinplates and 92 packages of hot rolled sheets were loaded to
MV Vlasons I for carriage to Manila. The vessel arrived safely at North
Harbor, Manila but upon opening the three hatches containing the
shipment, nearly all the skids of tinplates and hot rolled sheets were
allegedly found to be wet and rusty. On the basis of this incident, NSC
filed a complaint against VSI for damages due to the downgrading of
the damaged tinplates in the amount of P941,145.18. After trial on the
merits, the court a quo rendered judgment dismissing the complaint
and ordering NSC to pay VSI on the counterclaim prayed for by the
latter. NSC seasonably filed an appeal to the Court of Appeals, but the
said court just modified the appealed decision by reducing the award
of demurrage and deleting the award of attorney's fees and expenses
of litigation. Both parties filed their separate motions for
reconsideration, but the appellate court denied both motions. Hence,
this petition.
The Supreme Court affirms the assailed decision of the Court of
Appeals, except in respect with the demurrage. It is undisputed that
VSI did not offer its services to the general public. As correctly
concluded by the Court of Appeals, MV Vlasons I was not a common
but a private carrier. Verily, the extent of VSI's responsibility and
liability over NSC's cargo are determined primarily by the stipulations
in the contract of carriage or charter party and the Code of Commerce.
In the instant case, the burden of proof lies on the part of NSC and not
the VSI. Additionally, the Court ruled that the since the problems
raised by NSC were all factual issues already threshed out and
decided by the trial court and subsequently affirmed by the Court of
Appeals, the factual findings of both courts are binding on this Court.
However, the Court disagrees with the findings of both courts to have
found and affirmed respectively that NSC incurred eleven days of
delay in unloading the cargo. In this case, the contract of voyage
charter hire provided four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included.
Consequently, NSC cannot be held liable for demurrage as the
four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of WWDSHINC qualification
agreed upon by the parties. In view thereof, the consolidated petitions
are denied and the questioned decision is affirmed with modification
that the award of demurrage awarded to VSI is deleted.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; THE TRUE TEST OF A

COMMON CARRIER IS THE CARRIAGE OF PASSENGERS OR
GOODS, PROVIDED IT HAS SPACE, FOR ALL WHO OPT TO
AVAIL THEMSELVES OF ITS TRANSPORTATION SERVICE FOR A
FEE. — Article 1732 of the Civil Code defines a common carrier as
"persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water
or air, for compensation, offering their services to the public." It has
been held that the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who opt to avail
themselves of its transportation service for a fee. A carrier which does
not qualify under the above test is deemed a private carrier.
"Generally, private carriage is undertaken by special agreement and
the carrier does not hold himself out to carry goods for the general
public. . . ."
2. ID.; ID.; A CARRIER CARRYING PASSENGERS OR
GOODS ONLY FOR THOSE IT CHOSE UNDER A SPECIAL
CONTRACT OF CHARTER PARTY IS PRIVATE CARRIER; CASE
AT BAR. — It is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried
passengers or goods only for those it chose under a "special contract
of charter party." As correctly concluded by the Court of Appeals, the
MV Vlason I "was not a common but a private carrier." Consequently,
the rights and obligations of VSI and NSC, including their respective
liability for damage to the cargo, are determined primarily by
stipulations in their contract of private carriage or charter party.
3. ID.; ID.; IN A CONTRACT OF PRIVATE CARRIAGE, THE
BURDEN OF PROOF IN CASE OF ACCIDENT IS ON THE CARRIER.
— In view of the aforementioned contractual stipulations, NSC must
prove that the damage to its shipment was caused by VSI's willful
negligence or failure to exercise due diligence in making MV Vlason I
seaworthy and fit for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by the parties'
agreement. Because the MV Vlason I was a private carrier, the
shipowner's obligations are governed by the provisions of the Code of
Commerce (Arts. 361 & 362) and not by the Civil Code which, as a
general rule places the prima facie presumption of negligence on a
common carrier. In the instant case, the Court of Appeals correctly
found that NSC "has not taken the correct position in relation to the
question of who has the burden of proof. Thus in its brief, after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party it argues
that 'a careful examination of the evidence will show that VSI
miserably failed to comply with any of these obligations' as if
defendant-appellee [VSI] had the burden of proof."
4. COMMERCIAL LAW; CARRIAGE OF GOODS BY SEA ACT;
DEMURRAGE; DEFINED. — The Court defined demurrage in its
strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that
period of time agreed on for loading and unloading of cargo. It is given
to compensate the shipowner for the nonuse of the vessel.
5. ID.; ID.; PETITIONER NSC, NOT LIABLE FOR
DEMURRAGE, AS THE FOUR-DAY LAYTIME ALLOWED IN THE
CHARTER CONTRACT DID NOT LAPSE; CASE AT BAR. — The
contract of voyage charter hire provided for a four day laytime; it also
qualified laytime as WWDSHINC or weather working days Sundays
and holidays included. The running of laytime was thus made subject
to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. Consequently, NSC
may not be held liable for demurrage as the four-day laytime allowed it
did not lapse, having been tolled by unfavorable weather condition in
view of the WWDSHINC qualification agreed upon by the parties.
Clearly, it was error for the trial court and the Court of Appeals to have
found and affirmed respectively that NSC incurred eleven days of
delay in unloading the cargo. The trial court arrived at this erroneous
finding by subtracting from the twelve days, specifically August 13,
1974 to August 24, 1974, the only day of unloading unhampered by
unfavorable weather or rain, which was August 22, 1974. Based on
our previous discussion, such finding is a reversible error.
6. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL TO THE
SUPREME COURT; WHERE THE FACTUAL FINDINGS OF BOTH
THE TRIAL COURT AND THE COURT OF APPEALS COINCIDE,
THE SAME ARE BINDING ON THE COURT. — The questions of fact
were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties' conflicting claims and to
carefully weigh their respective evidence. The findings of the trial court
were subsequently affirmed by the Court of Appeals. Where the
factual findings of both the trial court and the Court of Appeals
coincide, the same are binding on this Court. We stress that, subject
to some exceptional instances, only questions of law — not questions
of fact — may be raised before this Court in a petition for review under
Rule 45 of the Rules of Court. After a thorough review of the case at
bar, we find no reason to disturb the lower courts' factual findings, as
indeed NSC has not successfully proven the application of any of the
aforecited exceptions.
7. ID.; EVIDENCE; ADMISSIBILITY OF EVIDENCE; AN
ORIGINAL CERTIFICATE ISSUED BY AN OFFICER OF THE
PHILIPPINE COAST GUARD, IS ADMISSIBLE UNDER A
WELL-SETTLED EXCEPTION TO THE HEARSAY RULE UNDER
SECTION 44, RULE 130 OF THE RULES OF COURT. — Exhibit 11
is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Courts which provides that
"(e)ntries in official records made in the performance of a duty by a
public officer of the Philippines, or by a person in the performance of a
duty especially enjoined by law, are prima facie evidence of the facts
therein stated." Exhibit 11 is an original certificate of the Philippine
Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C.
Flores to the effect that "the vessel 'VLASONS I was drydocked . . .
and PCG Inspectors were sent on board for inspection. . . . After
completion of drydocking and duly inspected by PCG Inspectors, the
vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets
all requirements, fitted and equipped for trading as a cargo vessel was
cleared by the Philippine Coast Guard and sailed for Cebu Port on
July 10, 1974." NSC's claim, therefore, is obviously misleading and
erroneous.
8. CIVIL LAW; DAMAGES; ATTORNEY'S FEES;
RESPONDENT VSI NOT ENTITLED THERETO, IN THE ABSENCE
OF BAD FAITH ON THE PART OF THE PETITIONER NSC. — VSI
assigns as error of law the Court of Appeals' deletion of the award of
attorney's fees. We disagree. While VSI was compelled to litigate to
protect its rights, such fact by itself will not justify an award of
attorney's fees under Article 2208 of the Civil Code when ". . . no
sufficient showing of bad faith would be reflected in a party's
persistence in a case other than an erroneous conviction of the
righteousness of his cause. . . ." Moreover, attorney's fees may not be
awarded to a party for the reason alone that the judgment rendered
was favorable to the latter, as this is tantamount to imposing a
premium on one's right to litigate or seek judicial redress of legitimate
grievances.
 DECISION

PANGANIBAN, J : p

The Court finds occasion to apply the rules on the

seaworthiness of a private carrier, its owner's responsibility for
damage to the cargo and its liability for demurrage and attorney's fees.
The Court also reiterates the well-known rule that findings of facts of
trial courts, when affirmed by the Court of Appeals, are binding on this
Court.cdasia

The Case
Before us are two separate petitions for review filed by National
Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of
which assail the August 12, 1993 Decision of the Court of
Appeals. 1 The Court of Appeals modified the decision of the Regional
Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
23317. The RTC disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor
of defendant and against the plaintiff dismissing the complaint
with cost against plaintiff, and ordering plaintiff to pay the
defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and
P88,000.00 as demurrage with interest at the legal rate on
both amounts from April 7, 1976 until the same shall have
been fully paid;
2. Attorney's fees and expenses of litigation in the sum
of P100,000.00; and
3. Cost of suit.
SO ORDERED." 2
On the other hand, the Court of Appeals ruled:
"WHEREFORE, premises considered, the decision
appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for
attorney's fees and expenses of litigation. Except as thus
modified, the decision is AFFIRMED. There is no
pronouncement as to costs.
SO ORDERED." 3
The Facts
 The MV Vlasons I is a vessel which renders tramping service
and, as such, does not transport cargo or shipment for the general
public. Its services are available only to specific persons who enter
into a special contract of charter party with its owner. It is undisputed
that the ship is a private carrier. And it is in this capacity that its owner,
Vlasons Shipping, Inc., entered into a contract of affreightment or
contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as
follows:
"(1) On July 17, 1974, plaintiff National Steel
Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of
Voyage Charter Hire (Exhibit 'B'; also Exhibit '1') whereby
NSC hired VSI's vessel, the MV 'VLASONS I' to make one (1)
voyage to load steel products at Iligan City and discharge
them at North Harbor, Manila, under the following terms and
conditions, viz:
'1. . . .
2. Cargo: Full cargo of steel products of not less than
2,500 MT, 10% more or less at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis.
Payment upon presentation of Bill of Lading within
fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
(Weather Working Day of 24 consecutive hours,
Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must
insure the cargoes. Shipowners not responsible
for losses/damages except on proven willful
negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI
C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this
Contract.
xxx xxx xxx'
 The terms 'F.I.O.S.T.' which is used in the shipping
business is a standard provision in the NANYOZAI Charter
Party which stands for 'Freight In and Out including
Stevedoring and Trading', which means that the handling,
loading and unloading of the cargoes are the responsibility of
the Charterer. Under Paragraph 5 of the NANYOZAI Charter
Party, it states, 'Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. . . .' (Emphasis
supplied).
Under paragraph 10 thereof, it is provided that
'(o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the
holds and all other parts of the vessel in which cargo is carried,
fit and safe for its reception, carriage and preservation.
Owners shall not be liable for loss of or damage of the cargo
arising or resulting from: unseaworthiness unless caused by
want of due diligence on the part of the owners to make the
vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all
other parts of the vessel in which cargo is carried, fit and safe
for its reception, carriage and preservation; . . ; perils, dangers
and accidents of the sea or other navigable waters; . . ;
wastage in bulk or weight or any other loss or damage arising
from inherent defect, quality or vice of the cargo; insufficiency
of packing; . . .; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or
privity of Owners or without the fault of the agents or servants
of owners.'
Paragraph 12 of said NANYOZAI Charter Party also
provides that '(o)wners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence
or default of the master and crew.'
(2) On August 6, 7 and 8, 1974, in accordance with the
Contract of Voyage Charter Hire, the MV 'VLASONS I' loaded
at plaintiffs pier at Iligan City, the NSC's shipment of 1,677
skids of tinplates and 92 packages of hot rolled sheets or a
total of 1,769 packages with a total weight of about 2,481.19
metric tons for carriage to Manila. The shipment was placed in
the three (3) hatches of the ship. Chief Mate Gonzalo
Sabando, acting as agent of the vessel[,] acknowledged
receipt of the cargo on board and signed the corresponding
bill of lading, B.L.P.P. No. 0233 (Exhibit 'D') on August 8,
1974.
 (3) The vessel arrived with the cargo at Pier 12, North
Harbor, Manila, on August 12, 1974. The following day,
August 13, 1974, when the vessel's three (3) hatches
containing the shipment were opened by plaintiff's agents,
nearly all the skids of tinplates and hot rolled sheets were
allegedly found to be wet and rusty. The cargo was
discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24, 1974
after incurring a delay of eleven (11) days due to the heavy
rain which interrupted the unloading operations. (Exhibit 'E')
(4) To determine the nature and extent of the wetting
and rusting, NSC called for a survey of the shipment by the
Manila Adjusters and Surveyors Company (MASCO). In a
letter to the NSC dated March 17, 1975 (Exhibit 'G'), MASCO
made a report of its ocular inspection conducted on the cargo,
both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo
was taken and stored. MASCO reported that it found wetting
and rusting of the packages of hot rolled sheets and metal
covers of the tinplates; that tarpaulin hatch covers were noted
torn at various extents; that container/metal casings of the
skids were rusting all over. MASCO ventured the opinion that
'rusting of the tinplates was caused by contact with SEA
WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas
encountered while en route to destination (Exhibit 'F'). It was
also reported that MASCO's surveyors drew at random
samples of bad order packing materials of the tinplates and
delivered the same to the M.I.T. Testing Laboratories for
analysis. On August 31, 1974, the M.I.T. Testing Laboratories
issued Report No. 1770 (Exhibit 'I') which in part, states, 'The
analysis of bad order samples of packing materials . . . shows
that wetting was caused by contact with SEA WATER'.
(5) On September 6, 1974, on the basis of the
aforesaid Report No. 1770, plaintiff filed with the defendant its
claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on
October 3, 1974, plaintiff formally demanded payment of said
claim but defendant VSI refused and failed to pay. Plaintiff
filed its complaint against defendant on April 21, 1976 which
was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained
losses in the aforesaid amount of P941,145.18 as a result of
the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due
diligence on the part of the defendant to make the vessel
seaworthy and to make the holds and all other parts of the
vessel in which the cargo was carried, fit and safe for its
reception, carriage and preservation — all in violation of
defendant's undertaking under their Contract of Voyage
Charter Hire.
(7) In its answer, defendant denied liability for the
alleged damage claiming that the MV 'VLASONS I' was
seaworthy in all respects for the carriage of plaintiff's cargo;
that said vessel was not a 'common carrier' inasmuch as she
was under voyage charter contract with the plaintiff as
charterer under the charter party; that in the course of the
voyage from Iligan City to Manila, the MV 'VLASONS I'
encountered very rough seas, strong winds and adverse
weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to
overflow on its deck and hatch covers; that under the Contract
of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the
officers of the vessel, that the officers of said MV 'VLASONS I'
exercised due diligence and proper seamanship and were not
willfully negligent; that furthermore the Voyage Charter Party
provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and
expense in connection with the loading and discharging of the
cargo; that the damage, if any, was due to the inherent defect,
quality or vice of the cargo or to the insufficient packing
thereof or to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual fault
or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable;
that the stevedores of plaintiff who discharged the cargo in
Manila were negligent and did not exercise due care in the
discharge of the cargo; and that the cargo was exposed to rain
and seawater spray while on the pier or in transit from the pier
to plaintiff's warehouse after discharge from the vessel; and
that plaintiff's claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on
the edges of the tinplates were magnified and considered total
loss of the cargo. Finally, defendant claimed that it had
complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance
by defendant of its obligations under the Voyage Charter
Hire Contract, plaintiff failed and refused to pay the
 agreed charter hire of P75,000.00 despite demands
made by defendant;
(b) That under their Voyage Charter Hire Contract,
plaintiff had agreed to pay defendant the sum of
P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for
plaintiff to discharge its cargo from the vessel. Thus,
plaintiff was liable to pay defendant demurrage in the
total amount of P88,000.00. cdasia

(c) For filing a clearly unfounded civil action

against defendant, plaintiff should be ordered to pay
defendant attorney's fees and all expenses of litigation in
the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the
trial court came out with the following findings which were set
forth in its decision:
(a) The MV 'VLASONS I' is a vessel of Philippine
registry engaged in the tramping service and is available
for hire only under special contracts of charter party as in
this particular case.
(b) That for purposes of the voyage covered by
the Contract of Voyage Charter Hire (Exh. '1'), the MV
'VLASONS I' was covered by the required seaworthiness
certificates including the Certification of Classification
issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. '4'); Coastwise License
from the Board of Transportation (Exh. '5'); International
Loadline Certificate from the Philippine Coast Guard
(Exh. '6'); Cargo Ship Safety Equipment Certificate also
from the Philippine Coast Guard (Exh. '7'); Ship Radio
Station License (Exh. '8'); Certificate of Inspection by the
Philippine Coast Guard (Exh. '12'); and Certificate of
Approval for Conversion issued by the Bureau of
Customs (Exh. '9'). That being a vessel engaged in both
overseas and coastwise trade, the MV 'VLASONS I' has
a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform
the voyage called for by the Contract of Voyage Charter
Hire, the MV 'VLASONS I' underwent drydocking in Cebu
and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessel's first
voyage after the drydocking. The evidence shows that
the MV 'VLASONS I' was seaworthy and properly
manned, equipped and supplied when it undertook the
voyage. It had all the required certificates of
seaworthiness.
(d) The cargo/shipment was securely stowed in
three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by
two or double tarpaulins. The hatch covers were water
tight. Furthermore, under the hatchboards were steel
beams to give support.
(e) The claim of the plaintiff that defendant
violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common
carriers pursuant to which there exists a presumption of
negligence in case of loss or damage to the cargo are not
applicable. As to the damage to the tinplates which was
allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that
tinplates 'sweat' by themselves when packed even
without being in contract (sic) with water from outside
especially when the weather is bad or raining. The rust
caused by sweat or moisture on the tinplates may be
considered as a loss or damage but then, defendant
cannot be held liable for it pursuant to Article 1734 of the
Civil Case which exempts the carrier from responsibility
for loss or damage arising from the 'character of the
goods . . .'. All the 1,769 skids of the tinplates could not
have been damaged by water as claimed by plaintiff. It
was shown as claimed by plaintiff that the tinplates
themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water
from outside.
(f) The stevedores hired by the plaintiff to
discharge the cargo of tinplates were negligent in not
closing the hatch openings of the MV 'VLASONS I' when
rains occurred during the discharging of the cargo thus
allowing rainwater to enter the hatches. It was proven
that the stevedores merely set up temporary tents to
cover the hatch openings in case of rain so that it would
be easy for them to resume work when the rains stopped
by just removing the tent or canvas. Because of this
improper covering of the hatches by the stevedores
during the discharging and unloading operations which
were interrupted by rains, rainwater drifted into the cargo
through the hatch openings. Pursuant to paragraph 5 of
the NANYOSAI [sic] Charter Party which was expressly
made part of the Contract of Voyage Charter Hire, the
 loading, stowing and discharging of the cargo is the sole
responsibility of the plaintiff charterer and defendant
carrier has no liability for whatever damage may occur or
maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel
encountered rough seas and bad weather while en route
from Iligan City to Manila causing sea water to splash on
the ship's deck on account of which the master of the
vessel (Mr. Antonio C. Dumlao) filed a 'Marine Protest'
on August 13, 1974 (Exh. '15') which can be invoked by
defendant as a force majeure that would exempt the
defendant from liability.
(h) Plaintiff did not comply with the requirement
prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did not.
Had plaintiff complied with the requirement, then it could
have recovered its loss or damage from the insurer.
Plaintiff also violated the charter party contract when it
loaded not only 'steel products', i.e. steel bars, angular
bars and the like but also tinplates and hot rolled sheets
which are high grade cargo commanding a higher freight.
Thus plaintiff was able to ship high grade cargo at a
lower freight rate.
(i) As regards defendant's counterclaim, the
contract of voyage charter hire under paragraph 4
thereof, fixed the freight at P30.00 per metric ton payable
to defendant carrier upon presentation of the bill of lading
within fifteen (15) days. Plaintiff has not paid the total
freight due of P75,000.00 despite demands. The
evidence also showed that the plaintiff was required and
bound under paragraph 7 of the same Voyage Charter
Hire contract to pay demurrage of P8,000.00 per day of
delay in the unloading of the cargoes. The delay
amounted to eleven (11) days thereby making plaintiff
liable to pay defendant for demurrage in the amount of
P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC
alleged six errors:
"I
The trial court erred in finding that the MV 'VLASONS I'
was seaworthy, properly manned, equipped and supplied, and
that there is no proof of willful negligence of the vessel's officers.
"II
 The trial court erred in finding that the rusting of NSC's
tinplates was due to the inherent nature or character of the
goods and not due to contact with seawater.
"III
The trial court erred in finding that the stevedores hired
by NSC were negligent in the unloading of NSC's shipment.
"IV
The trial court erred in exempting VSI from liability on the
ground of force majeure.
"V
The trial court erred in finding that NSC violated the
contract of voyage charter hire.
"VI
The trial court erred in ordering NSC to pay freight,
demurrage and attorney's fees, to VSI." 4
As earlier stated, the Court of Appeals modified the decision of
the trial court by reducing the demurrage from P88,000.00 to
P44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration. In a
Resolution 5 dated October 20, 1993, the appellate court denied both
motions. Undaunted, NSC and VSI filed their respective petitions for
review before this Court. On motion of VSI, the Court ordered on
February 14, 1994 the consolidation of these petitions. 6
The Issues
In its petition 7 and memorandum, 8 NSC raises the following
questions of law and fact:
Questions of Law
"1. Whether or not a charterer of a vessel is liable for demurrage
due to cargo unloading delays caused by weather
interruption;
2. Whether or not the alleged 'seaworthiness certificates'
(Exhibits '3', '4', '5', '6', '7', '8', '9', '11' and '12') were
admissible in evidence and constituted evidence of the
vessel's seaworthiness at the beginning of the voyages;
and
3. Whether or not a charterer's failure to insure its cargo
exempts the shipowner from liability for cargo damage."
Questions of Fact
 "1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in
handling and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the
voyage and, hence, rusted on their own; and
4. Whether or not NSC's stevedores were negligent and caused
the wetting[/]rusting of NSC's tinplates."
In its separate petition, 9 VSI submits for the consideration of
this Court the following alleged errors of the CA:
"A. The respondent Court of Appeals committed an
error of law in reducing the award of demurrage from
P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an
error of law in deleting the award of P10,000 for attorney's
fees and expenses of litigation."
Amplifying the foregoing, VSI raises the following issues in its
memorandum: 10
"I. Whether or not the provisions of the Civil Code of the
Philippines on common carriers pursuant to which there
exist[s] a presumption of negligence against the common
carrier in case of loss or damage to the cargo are applicable to
a private carrier.
II. Whether or not the terms and conditions of the
Contract of Voyage Charter Hire, including the Nanyozai
Charter, are valid and binding on both contracting parties."
The foregoing issues raised by the parties will be discussed
under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals,
except in respect of the demurrage.
Preliminary Matter : Common Carrier or Private Carrier ?
At the outset, it is essential to establish whether VSI contracted
with NSC as a common carrier or as a private carrier. The resolution of
this preliminary question determines the law, standard of diligence
and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as
"persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public." It has
been held that the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who opt to avail
themselves of its transportation service for a fee. 11 A carrier which
does not qualify under the above test is deemed a private carrier.
"Generally, private carriage is undertaken by special agreement and
the carrier does not hold himself out to carry goods for the general
public. The most typical, although not the only form of private carriage,
is the charter party, a maritime contract by which the charterer, a party
other than the shipowner, obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its
services to the general public. As found by the Regional Trial Court, it
carried passengers or goods only for those it chose under a "special
contract of charter party." 13 As correctly concluded by the Court of
Appeals, the MV Vlasons I "was not a common but a private
carrier." 14 Consequently, the rights and obligations of VSI and NSC,
including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage
or charter party. 15 Recently, in Valenzuela Hardwood and Industrial
Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping
Corporation, 16 the Court ruled:
". . . in a contract of private carriage, the parties may
freely stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods
as a private carrier. Consequently, the public policy embodied
therein is not contravened by stipulations in a charter party
that lessen or remove the protection given by law in contracts
involving common carriers." 17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
 It is clear from the parties' Contract of Voyage Charter Hire,
dated July 17, 1974, that VSI "shall not be responsible for losses
except on proven willful negligence of the officers of the vessel." The
NANYOZAI Charter Party, which was incorporated in the parties'
contract of transportation further provided that the shipowner shall not
be liable for loss of or damage to the cargo arising or resulting from
unseaworthiness, unless the same was caused by its lack of due
diligence to make the vessel seaworthy or to ensure that the same
was "properly manned, equipped and supplied," and to "make the
holds and all other parts of the vessel in which cargo [was] carried, fit
and safe for its reception, carriage and preservation." 18 The
NANYOZAI Charter Party also provided that "[o]wners shall not be
responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC
must prove that the damage to its shipment was caused by VSI's
willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the
cargo. Ineluctably, the burden of proof was placed on NSC by the
parties' agreement.
This view finds further support in the Code of Commerce which
pertinently provides:
"Art. 361. Merchandise shall be transported at the risk
and venture of the shipper, if the contrary has not been
expressly stipulated.
Therefore, the damage and impairment suffered by the
goods during the transportation, due to fortuitous event, force
majeure, or the nature and inherent defect of the things, shall
be for the account and risk of the shipper.
The burden of proof of these accidents is on the
carrier."
"Art. 362. The carrier, however, shall be liable for
damages arising from the cause mentioned in the preceding
article if proofs against him show that they occurred on
account of his negligence or his omission to take the
precautions usually adopted by careful persons, unless the
shipper committed fraud in the bill of lading, making him to
believe that the goods were of a class or quality different from
what they really were."
 Because the MV Vlasons I was a private carrier, the
shipowner's obligations are governed by the foregoing provisions of
the Code of Commerce and not by the Civil Code which, as a general
rule, places the prima facie presumption of negligence on a common
carrier. It is a hornbook doctrine that:
"In an action against a private carrier for loss of, or
injury to, cargo, the burden is on the plaintiff to prove that the
carrier was negligent or unseaworthy, and the fact that the
goods were lost or damaged while in the carrier's custody
does not put the burden of proof on the carrier.
Since . . . a private carrier is not an insurer but
undertakes only to exercise due care in the protection of the
goods committed to its care, the burden of proving negligence
or a breach of that duty rests on plaintiff and proof of loss of, or
damage to, cargo while in the carrier's possession does not
cast on it the burden of proving proper care and diligence on
its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden
of proof, plaintiff is entitled to the benefit of the presumptions
and inferences by which the law aids the bailor in an action
against a bailee, and since the carrier is in a better position to
know the cause of the loss and that it was not one involving its
liability, the law requires that it come forward with the
information available to it, and its failure to do so warrants an
inference or presumption of its liability. However, such
inferences and presumptions, while they may affect the
burden of coming forward with evidence, do not alter the
burden of proof which remains on plaintiff, and, where the
carrier comes forward with evidence explaining the loss or
damage, the burden of going forward with the evidence is
again on plaintiff.
Where the action is based on the shipowner's warranty
of seaworthiness, the burden of proving a breach thereof and
that such breach was the proximate cause of the damage
rests on plaintiff, and proof that the goods were lost or
damaged while in the carrier's possession does not cast on it
the burden of proving seaworthiness. . . . Where the contract
of carriage exempts the carrier from liability for
unseaworthiness not discoverable by due diligence, the
carrier has the preliminary burden of proving the exercise of
due diligence to make the vessel seaworthy." 20
In the instant case, the Court of Appeals correctly found that
NSC "has not taken the correct position in relation to the question of
who has the burden of proof. Thus, in its brief (pp. 10-11), after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party
(incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is
not even correct), it argues that 'a careful examination of the evidence
will show that VSI miserably failed to comply with any of these
obligations' as if defendant-appellee [VSI] had the burden of proof." 21
First Issue : Questions of Fact
Based on the foregoing, the determination of the following
factual questions is manifestly relevant: (1) whether VSI exercised
due diligence in making MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the cargo
should be attributed to the willful negligence of the officers and crew of
the vessel or of the stevedores hired by NSC; and (3) whether the
rusting of the tinplates was caused by its own "sweat" or by contact
with seawater. LibLex

These questions of fact were threshed out and decided by the

trial court, which had the firsthand opportunity to hear the parties'
conflicting claims and to carefully weigh their respective evidence.
The findings of the trial court were subsequently affirmed by the Court
of Appeals. Where the factual findings of both the trial court and the
Court of Appeals coincide, the same are binding on this Court. 22 We
stress that, subject to some exceptional instances, 23 only questions of
law — not questions of fact — may be raised before this Court in a
petition for review under Rule 45 of the Rules of Court. After a
thorough review of the case at bar, we find no reason to disturb the
lower courts' factual findings, as indeed NSC has not successfully
proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due
diligence to make the ship seaworthy and fit for the carriage of NSC's
cargo of steel and tinplates. This is shown by the fact that it was
drydocked and harbored by the Philippine Coast Guard before it
proceeded to Iligan City for its voyage to Manila under the contract of
voyage charter hire. 24 The vessel's voyage from Iligan to Manila was
the vessel's first voyage after drydocking. The Philippine Coast Guard
Station in Cebu cleared it as seaworthy, fitted and equipped; it met all
requirements for trading as cargo vessel. 25 The Court of Appeals
itself sustained the conclusion of the trial court that MV Vlasons I was
seaworthy. We find no reason to modify or reverse this finding of both
the trial and the appellate courts.
Who Were Negligent :
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the
damage to the cargo was caused by the negligence of the officers and
the crew of MV Vlasons I in making their vessel seaworthy and fit for
the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had
used an old and torn tarpaulin or canvas to cover the hatches through
which the cargo was loaded into the cargo hold of the ship. It faults the
Court 26 of Appeals for failing to consider such claim as an
"uncontroverted fact and denies that MV Vlasons I "was equipped
with new canvas covers in tandem with the old ones as indicated in
the Marine Protest . . ." 27 We disagree.
The records sufficiently support VSI's contention that the ship
used the old tarpaulin, only in addition to the new one used primarily to
make the ship's hatches watertight. The foregoing are clear from the
marine protest of the master of the MV Vlasons I, Antonio C. Dumlao,
and the deposition of the ship's boatswain, Jose Pascua. The salient
portions of said marine protest read:
". . . That the M/V "VLASONS I" departed Iligan City on
or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and cleared
by the authorities; that on or about August 9, 1974, while in the
vicinity of the western part of Negros and Panay, we
encountered very rough seas and strong winds and Manila
office was advised by telegram of the adverse weather
conditions encountered; that in the morning of August 10,
1974, the weather condition changed to worse and strong
winds and big waves continued pounding the vessel at her
port side causing sea water to overflow on deck and hatch (sic)
covers and which caused the first layer of the canvass
covering to give way while the new canvass covering still
holding on;
That the weather condition improved when we reached
Dumali Point protected by Mindoro; that we re-secured the
canvass covering back to position; that in the afternoon of
August 10, 1974, while entering Maricaban Passage, we were
again exposed to moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again rough
seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
 xxx xxx xxx" 28

And the relevant portions of Jose Pascua's deposition are as

follows:
"q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on
the hatch opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas
flowing over the sides and we place[d] a flat bar over the
canvas on the side of the hatches and then we place[d] a
stopper so that the canvas could not be removed.
ATTY. DEL ROSARIO
q And will you tell us the size of the hatch opening? The length
and the width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch
opening?
a There is a hatch board.
ATTY. DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material
there to cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the
whole hatch opening?
a No, sir.
q How many hatch beams were there placed across the
opening?
a There are five beams in one hatch opening.
 ATTY. DEL ROSARIO
q And on top of the beams you said there is a hatch board. How
many pieces of wood are put on top?
a Plenty, sir, because there are several pieces on top of the
hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the
canvas cover. How many canvas covers?
a Two, sir." 29
That due diligence was exercised by the officers and the crew of
the MV Vlasons I was further demonstrated by the fact that, despite
encountering rough weather twice, the new tarpaulin did not give way
and the ship's hatches and cargo holds remained waterproof. As aptly
stated by the Court of Appeals, ". . . we find no reason not to sustain
the conclusion of the lower court based on overwhelming evidence,
that the MV 'VLASONS I' was seaworthy when it undertook the
voyage on August 8, 1974 carrying on board thereof
plaintiff-appellant's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages from NSC's
pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on
August 12, 1974; . . ." 30
Indeed, NSC failed to discharge its burden to show negligence
on the part of the officers and the crew of MV Vlasons I, On the
contrary, the records reveal that it was the stevedores of NSC who
were negligent in unloading the cargo from the ship. cdasia

The stevedores employed only a tent-like material to cover the

hatches when strong rains occasioned by a passing typhoon
disrupted the loading of the cargo. This tent-like covering, however,
was clearly inadequate for keeping rain and seawater away from the
hatches of the ship. Vicente Angliongto, an officer of VSI, testified
thus:
"ATTY. ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated
on August 14 you went on board the vessel upon notice
from the National Steel Corporation in order to conduct
the inspection of the cargo. During the course of the
investigation, did you chance to see the discharging
operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the
tinplates already discharged on the pier but majority of
the tinplates were inside the hall, all the hatches were
opened.
Q In connection with these cargoes which were unloaded,
where is the place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY. LOPEZ:
We object, your Honor, this question was already asked. This
particular matter . . . the transcript of stenographic notes
shows the same was covered in the direct examination.
ATTY. ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the
serious part of the testimony.
COURT:
All right, witness may answer.
ATTY. LOPEZ:
Q What was used in order to protect the cargo from the
weather?
A A base of canvas was used as cover on top of the tinplates,
and tents were built at the opening of the hatches.
Q You also stated that the hatches were already opened and
that there were tents constructed at the opening of the
hatches to protect the cargo from the rain. Now, will you
describe [to] the Court the tents constructed.
A The tents are just a base of canvas which look like a tent of an
Indian camp raise[d] high at the middle with the whole
side separated down to the hatch, the size of the hatch
and it is soaks [sic] at the middle because of those
 weather and this can be used only to temporarily protect
the cargo from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering
tents proper?
A No sir, at the time they were discharging the cargo, there was
a typhoon passing by and the hatch tent was not good
enough to hold all of it to prevent the water soaking
through the canvas and enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you
see in fact the water enter and soak into the canvas and
tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores
in discharging the cargo particularly in this tent covering
of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the
stevedores but the stevedores did not mind at all, so, I
called the attention of the representative of the National
Steel but nothing was done, just the same. Finally, I
wrote a letter to them." 31
NSC attempts to discredit the testimony of Angliongto by
questioning his failure to complain immediately about the stevedores'
negligence on the first day of unloading, pointing out that he wrote his
letter to petitioner only seven days later. 32 The Court is not persuaded.
Angliongto's candid answer in his aforequoted testimony satisfactorily
explained the delay. Seven days lapsed because he first called the
attention of the stevedores, then the NSC's representative, about the
negligent and defective procedure adopted in unloading the cargo.
This series of actions constitutes a reasonable response in accord
with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores' attention
first and then the NSC's representative on location before formally
informing NSC of the negligence he had observed, because he was
not responsible for the stevedores or the unloading operations. In fact,
he was merely expressing concern for NSC which was ultimately
responsible for the stevedores it had hired and the performance of
their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts'
findings and conclusions on this point, viz:
 "In the THIRD assigned error, [NSC] claims that the
trial court erred in finding that the stevedores hired by NSC
were negligent in the unloading of NSC's shipment. We do not
think so. Such negligence according to the trial court is
evident in the stevedores hired by [NSC], not closing the hatch
of MV 'VLASONS I' when rains occurred during the
discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on
the cargo. It was proven that the stevedores merely set up
temporary tents or canvas to cover the hatch openings when it
rained during the unloading operations so that it would be
easier for them to resume work after the rains stopped by just
removing said tents or canvass. It has also been shown that
on August 20, 1974, VSI President Vicente Angliongto wrote
[NSC] calling attention to the manner the stevedores hired by
[NSC] were discharging the cargo on rainy days and the
improper closing of the hatches which allowed continuous
heavy rain water to leak through and drip to the tinplates'
covers and [Vicente Angliongto] also suggesting that due to
four (4) days continuous rains with strong winds that the
hatches be totally closed down and covered with canvas and
the hatch tents lowered. (Exh '13'). This letter was received by
[NSC] on 22 August 1974 while discharging operations were
still going on (Exhibit '13-A') " 33
The fact that NSC actually accepted and proceeded to remove
the cargo from the ship during unfavorable weather will not make VSI
liable for any damage caused thereby. In passing, it may be noted that
the NSC may seek indemnification, subject to the laws on prescription,
from the stevedoring company at fault in the discharge operations. "A.
stevedore company engaged in discharging cargo . . . has the duty to
load the cargo . . . in a prudent manner, and it is liable for injury to, or
loss of, cargo caused by its negligence . . . and where the officers and
members and crew of the vessel do nothing and have no responsibility
in the discharge of cargo by stevedores . . . the vessel is not liable for
loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ." 34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in
finding that " . . . tinplates 'sweat' by themselves when packed even
without being in contact with water from outside especially when the
weather is bad or raining . . ." 35 The Court of Appeals affirmed the trial
court's finding.
 A discussion of this issue appears inconsequential and
unnecessary. As previously discussed, the damage to the tinplates
was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during
the unloading.
Second Issue : Effect of NSC's Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the
Contract of Voyage Charter Hire is totally separate and distinct from
the contractual or statutory responsibility that may be incurred by VSI
for damage to the cargo caused by the willful negligence of the officers
and the crew of MV Vlasons I . Clearly, therefore, NSC's failure to
insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the
latter's willful negligence. We do not find anything in the charter party
that would make the liability of VSI for damage to the cargo contingent
on or affected in any manner by NSC's obtaining an insurance over
the cargo.
Third Issue : Admissibility of Certificates Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is
anchored on the alleged inadmissibility of the certificates of
seaworthiness offered in evidence by VSI. The said certificates
include the following:
1. Certificate of Inspection of the Philippine Coast Guard at
Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine
Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the
Bureau of Customs 36
NSC argues that the certificates are hearsay for not having
been presented in accordance with the Rules of Court. It points out
that Exhibits 3, 4 and 11 allegedly are "not written records or acts of
public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not
"evidenced by official publications or certified true copies" as required
by Sections 25 and 26, Rule 132, of the Rules of Court. 37
After a careful examination of these exhibits, the Court rules
that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have
not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven
by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a
well-settled exception to the hearsay rule per Section 44 of Rule 130
of the Rules of Court, which provides that "(e)ntries in official records
made in the performance of a duty by a public officer of the Philippines,
or by a person in the performance of a duty specially enjoined by law,
are prima facie evidence of the facts therein stated." 38 Exhibit 11 is
an original certificate of the Philippine Coast Guard in Cebu issued by
Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel
'VLASONS I', was drydocked . . . and PCG Inspectors were sent on
board for inspection . . . After completion of drydocking and duly
inspected by PCG Inspectors, the vessel 'VLASONS I', a cargo vessel,
is in seaworthy condition, meets all requirements, fitted and equipped
for trading as a cargo vessel was cleared by the Philippine Coast
Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's Claim,
therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of
proving that MV Vlasons I was not seaworthy. As observed earlier, the
vessel was a private carrier and, as such, it did not have the obligation
of a common carrier to show that it was seaworthy. Indeed, NSC
glaringly failed to discharge its duty of proving the willful negligence of
VSI in making the ship seaworthy resulting in damage to its cargo.
Assailing the genuineness of the certificate of seaworthiness is not
sufficient proof that the vessel was not seaworthy.
Fourth Issue : Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
"xxx xxx xxx
2. Cargo : Full cargo of steel products of not less than
2,500 MT, 10% more or less at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per
WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per
day." 39
 The Court defined demurrage in its strict sense as the
compensation provided for in the contract of affreightment for the
detention of the vessel beyond the laytime or that period of time
agreed on for loading and unloading of cargo. 40 It is given to
compensate the shipowner for the nonuse of the vessel. On the other
hand, the following is well-settled:
"Laytime runs according to the particular clause of the
charter party. . . If laytime is expressed in 'running days,' this
means days when the ship would be run continuously, and
holidays are not excepted. A qualification of 'weather
permitting' excepts only those days when bad weather
reasonably prevents the work contemplated." 41
In this case, the contract of voyage charter hire provided for a
four-day laytime; it also qualified laytime as WWDSHINC or weather
working days Sundays and holidays included. 42 The running of
laytime was thus made subject to the weather, and would cease to run
in the event unfavorable weather interfered with the unloading of
cargo. 43 Consequently, NSC may not be held liable for demurrage as
the four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of the WWDSHINC qualification
agreed upon by the parties. Clearly, it was error for the trial court and
the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court
arrived at this erroneous finding by subtracting from the twelve days,
specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain which was
August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also
erred in ruling that NSC was liable to VSI for demurrage, even if it
reduced the amount by half. LibLex

Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the
award of attorney's fees. We disagree. While VSI was compelled to
litigate to protect its rights, such fact by itself will not justify an award of
attorney's fees under Article 2208 of the Civil Code when" . . . no
sufficient showing of bad faith would be reflected in a party's
persistence in a case other than an erroneous conviction of the
righteousness of his cause . . ." 44 Moreover, attorney's fees may not
be awarded to a party for the reason alone that the judgment rendered
was favorable to the latter, as this is tantamount to imposing a
premium on one's right to litigate or seek judicial redress of legitimate
grievances. 45
 Epilogue
At bottom, this appeal really hinges on a factual issue: when,
how and who caused the damage to the cargo? Ranged against NSC
are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain
and seawater seeped through the cargo due to the fault or negligence
of the stevedores employed by it. Basic is the rule that factual findings
of the trial court, when affirmed by the Court of Appeals, are binding
on the Supreme Court. Although there are settled exceptions, NSC
has not satisfactorily shown that this case is one of them. Second, the
agreement between the parties — the Contract of Voyage Charter
Hire — placed the burden of proof for such loss or damage upon the
shipper, not upon the shipowner. Such stipulation, while
disadvantageous to NSC, is valid because the parties entered into a
contract of private charter, not one of common carriage. Basic too is
the doctrine that courts cannot relieve a party from the effects of a
private contract freely entered into, on the ground that it is allegedly
one-sided or unfair to the plaintiff. The charter party is a normal
commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport
price which is determined not only by the actual costs but also by the
risks and burdens assumed by the shipper in regard to possible loss
or damage to the cargo. In recognition of such factors, the parties
even stipulated that the shipper should insure the cargo to protect
itself from the risks it undertook under the charter party. That NSC
failed or neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure or
neglect.
WHEREFORE, premises considered, the instant consolidated
petitions are hereby DENIED. The questioned Decision of the Court of
Appeals is AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-16850 May 30, 1962

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
UNITED STATES LINES COMPANY, respondent.

Office of the Solicitor General for petitioner.

Ross, Selph and Carrascoso for respondent.

BARRERA, J.:
This is an appeal by the Commissioner of Internal Revenue from the decision of the Court
of Tax Appeals (in CTA Case No. 556) holding the U.S. Lines Company liable for payment
of common carrier's tax deficiency and surcharges in the total sum of only P502.75
instead of P25,769.41 as originally assessed and demanded by appellant Commissioner.

As found and stated in the decision of the Court of Tax Appeals, the U.S. Lines Company,
a foreign corporation duly licensed to do business in the Philippines, under the trade name
"American Pioneer Lines" (for short hereinafter referred to as the Company), is the
operator of ocean-going vessels transporting passengers and freight to and from the
Philippines. It is also the sole agent and representative of the Pacific Far East Line, Inc.,
another shipping company engaged in business in the Philippines as a common carrier by
water.

In the examination of its books of accounts and other records to determine its tax liabilities
for the period from January 1, 1950 to September 30, 1955, it was found that the
Company also acted in behalf of the West Coast Trans-Oceanic Steamship Lines Co., Inc.,
a non-resident foreign corporation, in connection with the transportation, on board the "SS
Portland Trader" belonging to the latter, on November 27, 1951 and April 29, 1952, of
chrome ores from Masinloc, Zambales to the United States, from which carriage or
transportation freight revenue in the total sum of $272,470.00 was realized by the vessel's
owner, and for which the 2% common carrier's percentage tax imposed by Section 192 of
the National Internal Revenue Code was never paid.

As a consequence, the Commissioner of Internal Revenue assessed and demanded from

the Company, as deficiency tax, (a) the sum of P6,691.36 for its own business under the
name American Pioneer Lines; (b) P5,429.00 as agent of Pacific Far East Line, Inc.; and
(c) P13,649.05 on the freight revenue of the West Coast Trans-Oceanic Steamship Lines
Co. from the carriage or transportation of the chrome ores, or a total of P25,769.41. 1äwphï1. ñët

At the instance of the Company, a reinvestigation of the case was conducted and a
hearing thereon held before the Appellate Division of the Bureau of Internal Revenue.
These, notwithstanding, the Commissioner maintained his demand. Thus, the Company
filed a petition with the Court of Tax Appeals contesting the correctness of (1) the
conversion of "collect" revenues or those freight and passage receipts, commissions, and
agency fees for services in the Philippines, but payable in the United States, at the rate of
P2.00375 to $1.00 and (2) the demand on the Company of the 2% carrier's percentage
tax on the gross receipts of the West Coast Trans-Oceanic Steamship Lines from the
chrome ore shipments of November 27, 1951 and April 29, 1952.

The Court of Tax Appeals, in its decision, ruled for the Company on the first issue, thus —

We wish to make it clear that from the records of the case, it appears that all the "collect"
revenues, or those freight charges, passage fares, commissions and agency fees,
collected in the United States in United States currency belong to petitioner's home office
in the United States and were not remitted to petitioner's local office in the Philippines. In
short, the United States dollars collected abroad were not actually converted to and
received in Philippine pesos, and therefore there is no occasion nor reason to use a
conversion rate aside from the legal rate of exchange, i.e., $1.00 to P2.00. If we have
placed the judicial stamp of approval on the agreed conversion rates of $1.00 to P2.015
and $1.00 to P2.02 with regard to the "prepaid" freight and passage revenues,
respectively, we did so in order to arrive at the actual amounts collected by the petitioner
in Philippine pesos — the correct taxable gross receipts. (Emphasis supplied.)
As to the second issue, it ruled that the 2% percentage tax under Section 192 of the Tax
Code is imposable only on owners or operators of the common carrier, and as there is no
law constituting the shipping agent the withholding agent of the taxes due from the
principal, said shipping agent is not personally liable for the tax obligations of the latter,
unless the agent voluntarily assumes such obligation which, in this case, the agent
Company did not. Consequently, the petitioning taxpayer was ordered to pay only a tax
deficiency and surcharge in the sum of P502.75. Hence, the institution of this appeal.

The ruling by the lower court that the conversion of the "collect" freight fees (or those
earned in the Philippines but actually paid in the United States in dollars) should be at the
rate of P2.00 to $1.00 as established by law (Sec. 48, Rep. Act No. 265), and not the rate
or exchange of P2.00375 to $1.00, as fixed by the Monetary Board, must be upheld. No
evidence was presented rebutting the positive allegation of respondent taxpayer, which
was sustained by the Tax Court, that the "collect" freightage fees were not remitted to the
local office of the U.S. Lines Company (in the Philippines) nor actually converted to and
received in Philippine pesos. In other words, no foreign exchange operations were
involved here. The statement made in the Commissioner's brief (p. 20) that "it is
uncontroverted that the respondent's (Company's) dollar earnings here representing its
so-called "collect" revenues were accounted for thru its bank, the National City Bank of
New York at P2.00375 to a dollar", is not borne out by the records. What appears is that
the Company received certain amounts from its home office in the United States to meet
its local expenses, and these were withdrawn from a letter of credit in the First City Bank
of New York in Manila at the rate of P2.00375 to a dollar. But the Company asserts — and
there is no evidence to the contrary — that there is no relationship whatsoever between
these funds and the freight fees collected in the United States.

The other issue is whether on the facts of the case, the Company, as agent of the vessel
"SS Portland Trader" in behalf of its owner, the West Coast Trans-Oceanic Steamship
Lines Company, can be compelled to pay the 2% percentage tax on the freight revenue
earned from the shipment of chrome ores transported from the Philippines to the United
States. As stated earlier, the Court of Tax Appeals ruled in the negative, citing and
adopting a unanimous decision of the defunct Board of Tax Appeals rendered on July 30,
1953, purporting to interpret Section 192 of the National Internal Revenue Code, in which
it held that a shipping agent is not personally responsible for the payment of the tax
obligations of its principal, reasoning that there is no law constituting a shipping agent as a
withholding agent of the taxes due from its principal. It further stated that a shipping agent
can only be held liable for the payment of the common carrier's percentage tax if such
obligation is stipulated in the agency agreement, or if the agent voluntarily assumes the
tax liability.

We can not agree to this view as applied to the present case, because it adopts a very
restrictive interpretation of Section 192 of the Tax Code.1 What the legal provision
purports to tax is the business of transportation, so much so that the tax is based on the
gross receipts. The person liable is of course the owner or operator, but this does not
mean that he and he alone can be made actually to pay the tax. In other words, whoever
acts on his behalf and for his benefit may be held liable to pay, for and on behalf of the
carrier or operator, such percentage tax on the business.

It is claimed for the Company that it merely acted as a "husbanding agent" of the vessel
with limited powers. This appears not to be so. A "husbanding agent" is the general agent
of the owner in relation to the ship, with powers, among others, to engage the vessel for
general freight and the usual conditions, and settle for freight and adjust averages with the
merchant.2 But whatever may be the technical functions of a "ship's husband", the
Company, in the case at bar, was considered and acted more as a general agent. The
agency contract is not extant in the records. Still, from the correspondence between the
principal West Coast Trans-Oceanic Steamship Lines and the Company itself, and with
other entities regarding the shipment in question, the real nature of the agency may be
gleaned. Thus, in the letter of West Coast Trans-Oceanic Steamship Lines, dated October
20, 1951 (Exh. 30), giving instructions to the master of its vessel "SS Portland Trader", it
referred to respondent Company as the "Owner's agents" at the loading point (Masinloc)
to which the vessel had to be consigned. In line with its designation as the "Owner's
agent" and the vessel's consignee, respondent Company wrote the master of the vessel
(Exh. 23) advising him that it had secured Customs authority for the vessel to proceed to
Masinloc, as well as the Export Entry covering the loading of ore, giving instructions how
to proceed with the loading and to keep it closely advised of all movements and daily
tonnages laden. It also undertook to and did in fact prepare all the cargo documents. The
corresponding bill of lading for the cargo was prepared and signed by the respondent
Company "As Agent for West Coast Trans-Oceanic Steamship Lines" wherein it
acknowledged the receipt of 9,900 long tons of chrome, a prerogative act of a common
carrier itself. (p. 114, BIR record). Again, signing "As Agents for West Coast
Trans-Oceanic Steamship Lines", respondent Company transmitted the shipping
documents covering the shipment of ore to Castle Cooke, Ltd., the vessel's agent at
Honolulu (Exh. 20). All these were in respect to the first shipment on November 27, 1951.

Concerning the second shipment, we have first the letter of West Coast Trans-Oceanic
Steamship Lines, dated February 21, 1952 addressed to respondent Company, advising it
of the second trip of "SS Portland Trader" and stating: "We trust that you will handle the
vessel at Manila and that your usual fee will apply", and requesting respondent Company
to act also as supervisory agent at Saigon and Haiphong (p. 57, BIR records). The
steamship company, likewise, advised the master of its vessel that "its agents for
Masinloc" will be the respondent Company from which "full assistance and information"
could be obtained (Exh. 18, dated March 12, 1952). Evidently accepting the designation,
respondent Company, representing itself as "the local agents" of the vessel (Exh. 21,
dated March 26, 1952), secured the entry and clearance of the vessel at the customs.
After the loading of ore at Masinloc, again respondent Company prepared the shipping
documents and signed the bill of lading "As Agent for the West Coast Trans-Oceanic
Steamship Lines" (p. 114, BIR record).

All these documents show that respondent Company clearly acted — as it held itself to the
public and to the Government (specifically the Bureau of Customs) — as the shipowner's
local agent or the ship agent representing the ownership of the vessel. To adopt the view
of the trial court would be to sanction the doing of business in the Philippines by
non-resident corporations over which we have no jurisdiction, without subjecting the same
to the operation of our revenue and tax laws, to the detriment and discrimination of local
business enterprises. We, therefore, hold that in the circumstances, said respondent is
under obligation to pay, for and in behalf of its principal, the tax due from the latter. And,
this is but logical, because, as provided in Article 595 of the Code of Commerce, "the ship
agent shall represent the ownership of the vessel, and may, in his own name and in such
capacity, take judicial and extrajudicial steps in matters relating to commerce". If the
shipping agent represents the ownership of the vessel in matters relating to commerce,
then any liability arising in connection therewith may be enforced against the agent who is,
as a consequence thereof, authorized to take judicial or extrajudicial steps, either in the
prosecution or defense of the owner's rights or interests. As a matter of fact, if a foreign
shipping company has a claim against the Government in relation to commerce, its local
shipping agent, by virtue of Article 595 of the Code of Commerce, can file such a claim in
his own name. Conversely, and logically, it must be admitted, the Government can hold
the local shipping agent liable for the taxes due from his, principal. This is, of course,
without prejudice to the right of the agent to seek reimbursement from his principal.

The contention that the agreement between the principal and agent solely determines the
liability of the agent, is not tenable. Any agreement or contract to be enforceable in this
jurisdiction is understood to incorporate therein the provision or provisions of law
specifying the obligations of the parties under such contract. The contract between herein
respondent Company and its principal consequently imposed upon the parties not only
the rights and duties delineated therein, but also the provisions of law such as that of the
Code of Commerce aforecited.

As to the third assigned error, i.e., the amount of taxable receipts, the records are not
clear. Petitioner Commissioner of Internal Revenue claims that there are contradictions in
and among the three sets of summaries submitted by the respondent Company and they
should not have been considered by the trial court. On the other hand, we find also that
the assessments issued by the Commissioner are, likewise, conflicting. In his present
petition, the prayer sets the tax delinquency of the respondent Company at P26,436.17,
which is the amount demanded in his letter of June 6, 1952, (Exh. E, also marked as Exh.
34). In his brief, the Commissioner prays that respondent Company be ordered to pay the
sum of P25,769.41, the amount demanded in his letter of June 28, 1956 (Exh. A, also
marked as Exh. 26). In view of these discrepancies, a re-examination and verification of
the records is necessary to determine the exact taxable amount on which the 2% common
carrier's percentage tax is to be computed in accordance with the terms of this decision.

WHEREFORE, the decision of the Court of Tax Appeals in this case is modified at
above-indicated, and the records remanded to the court a quo for the purpose herein
directed. No costs. So ordered.

Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes Dizon and Regala, JJ

[G.R. No. L-17192. March 30, 1963.]

HONORIO M. BARRIOS, plaintiff-appellant, vs. CARLOS

A. GO THONG & COMPANY, defendant-appellee.

Laput & Jardiel for plaintiff-appellant.

Quisumbing & Quisumbing for defendant-appellee.

SYLLABUS

1. ADMIRALTY; SALVAGE; REQUISITES. — Three elements

are necessary to a valid salvage claim, namely, (1) a marine peril, (2)
service voluntarily rendered when not required as an existing duty or
from a special contract, and (3) success in whole or in part, or that the
service rendered contributed to such success. (Erlanger & Galinger vs.
Swedish East Asiatic Co., Ltd.. 34 Phil. 178, citing the case of The
Mayflower vs. The Sabine, 101 U.S. 384.)
 2. ID.; ID.; ID.; LACK OF MARINE PERIL; CASE AT BAR. —
The circumstances that although the defendant's vessel was in a
helpless condition due to engine failure, it did not drift too far from the
place where it was, that the weather was fair, clear, and good, that
there were only ripples on the sea which was quite smooth, that there
was moonlight, that although said vessel was drifting towards the
open sea, there was no danger of its foundering or being stranded as
it was far from any island or rocks, and its anchor could be released to
prevent such occurrence, all show that there was no marine peril, and
the vessel was not a quasi-derelict, as to warrant valid salvage claim
for the towing of the vessel.
3. ID.; TOWAGE; CONSENTING TO OFFER TO TOW
VESSEL. — Plaintiff's service to defendant can be considered as a
quasi-contract of "towage" because in consenting to plaintiff's offer to
tow the vessel, defendant thereby impliedly entered into a Juridical
relation of "towage" with the owner of the towing vessel, captained by
plaintiff.
4. ID.; ID.; ONLY OWNER OF TOWING VESSEL, NOT ITS
CREW, ENTITLED TO REMUNERATION. — Where the contract
created is one for towage, only the owner of the towing vessel, to the
exclusion of the crew of the said vessel, may be entitled to
remuneration.
5. ID.; ID.; ID.; WAIVER BY OWNER. — As the vessel owner
had expressly waived its claim for compensation for the towage
service rendered to defendant, it is clear that plaintiff, whose right if at
all depends upon and not separate from the interest of his employer, is
not entitled to payment for such towage service.
6. ID.; ID.; ID.; EQUITY MAY NOT BE INVOKED WHERE
THERE IS AN EXPRESS PROVISION OF LAW APPLICABLE. —
There being an express provision of law (Art. 2142, Civil Code)
applicable to the relationship created in this case, that is, that of a
quasi-contract of towage where the crew is not entitled to
compensation separate from that of the vessel, there is no occasion to
resort to equitable consideration.

DECISION

BARRERA, J : p
 From the decision of the Court of First Instance of Manila (in
Civil Case No. 37219) dismissing with costs his ease against
defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios,
interposed the present appeal.
The facts of the case, as found by the trial court, are briefly
stated in its decision, to wit:
"The plaintiff Honorio M. Barrios was, on May 1 and 2,
1958, captain and/or master of the MV Henry I of the William
Lines Incorporated, of Cebu City, plying between and to and
from Cebu City and other southern cities and ports, among
which are Dumaguete City, Zamboanga City, and Davao City.
At about 8:00 o'clock on the evening of May 1, 1958, plaintiff in
his capacity as such captain and/or master of the aforesaid MV
Henry I, received or otherwise intercepted an S.O.S. distress
signal by blinkers from the MV Alfredo, owned and/or operated
by the defendant Carlos A. Go Thong & Company. Acting on
and/or answering the S.O.S. call, the plaintiff Honorio M. Barrios,
also in his capacity as captain and/or master of the MV Henry I,
which was then sailing or navigating from Dumaguete City,
altered the course of said vessel, and steered and headed
towards the beckoning MV Don Alfredo, which plaintiff found to
be in trouble, due to engine failure and the loss of her propeller,
for which reason, it was drifting slowly southward from Negros
Island towards Borneo in the open China Sea, at the mercy of a
moderate easterly wind. At about 8:25 p.m. on the same day,
May 1, 1958, the MV Henry, under the command of the plaintiff,
succeeded in getting near the MV Don Alfredo — in fact as near
as about seven meters from the latter ship — and with the
consent and knowledge of the captain and/or master of the MV
Don Alfredo, the plaintiff caused the latter vessel to be tied to, or
well-secured and connected with tow lines from the MV Henry I;
and in that manner, position and situation, the latter had the MV
Don Alfredo in tow and proceeded towards the direction of
Dumaguete City, as evidenced by a written certificate to this
effect executed and accomplished by the Master, the Chief
Engineer, the Chief Officer, and the Second Engineer of the MV
Don Alfredo, who were then on board the latter ship at the time
of the occurrence stated above (Exh. A). At about 5:10 o'clock
the following morning, May 2, 1958, or after almost nine hours
during the night, with the MV Don Alfredo still in tow by the MV
Henry I, and while both vessels were approaching the vicinity of
Apo Island off Zamboanga town, Negros Oriental, the MV Lux, a
sister ship of the MV Don Alfredo, was sighted heading towards
the direction of the aforesaid two vessels, reaching then fifteen
minutes later, or at about 5:25 o'clock on that same morning.
 Thereupon, at the request and instance of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the tow lines
to be released, thereby also releasing the MV Don Alfredo.
"These are the main facts of the present case as to which
plaintiff and defendant quite agree with each other. As was
manifested in its memorandum presented in this case on
August 22, 198, defendant thru counsel said that there is,
indeed, between the parties, no dispute as to the factual
circumstances, but counsel adds that where plaintiff concludes
that they establish an impending sea peril from which salvage of
a ship worth more than P100 000.00, plus life and cargo was
done, the defendant insists that the facts made out no such
case, but that what merely happened was only mere towage
from which plaintiff cannot claim any compensation or
remuneration independently of the shipping company that
owned the vessel commanded by him."
On the basis of these facts, the trial court (on April 5, 1960)
dismissed the case, stating:
"Plaintiff basis his claim upon the provisions of the
Salvage Law, Act No. 2616, . . .
"In accordance with the Salvage Law, a ship which is lost
or abandoned at sea is considered a derelict and, therefore,
proper subject of salvage. A ship in a desperate condition,
where persons on board are incapable, by reason of their
mental and physical condition, of doing anything for their own
safety, is a quasi-derelict and may, likewise, be the proper
subject of salvage. Was the MV Don Alfredo, on May 1, 1958,
when her engine failed and, for that reason, was left drifting
without power on the high seas, a derelict or a quasi- derelict?
In other words, was it a ship that was lost or abandoned, or in a
desperate condition, which could not be saved by reason of
incapacity or incapacity of its crew or the persons on board
thereof? From all appearances and from the evidence extant in
the records, there can be no doubt, for it seems clear enough,
that the MV Don Alfredo was not a lost ship, nor was it
abandoned. Can it be said that the said ship was in a desperate
condition, simply, because of S.O.S. signals were sent from it?
"From the testimony of the captain of the MV Don Alfredo,
the engine failed and the ship already lost power as early as
8:00 o'clock on the morning of May 1, 1958; although it was
helpless, in the sense that it could not move, it did not drift too
far from the place where it was, at the time it had an engine
failure. The weather was fair — in fact, as described by
witnesses, the weather was clear and good. The waves were
small, too slight — there were only ripples on the sea, and the
sea was quite smooth. And, during the night, while towing was
going on, there was a moonlight. Inasmuch as the MV Don
Alfredo was drifting towards the open sea, there was no danger
of floundering. As testified to by one of the witnesses, it would
take days or even weeks before the ship could as much as
approach an island. And, even then, upon the least indication,
the anchor could always be weighed down, in order to prevent
the ship from striking against the rocks.
"There was no danger of the vessel capsizing, in view of
the fairness of the sea, and the condition of the weather, as
described above. As a matter of fact, although the MV Don
Alfredo had a motor launch, and two lifeboats, there was no
attempt, much less, was there occasion or necessity, to lower
anyone or all of them, in order to evacuate the persons on board;
nor did the conditions then obtaining require an order to jettison
the cargo.
"But, it is insisted for the plaintiff that an S.O.S. or a
distress signal was sent from aboard the MV Don Alfredo, which
was enough to establish the fact that it was exposed to
imminent peril at sea. It is admitted by the defendant that such
S.O.S. signal was, in fact, sent by blinkers. However,
defendant's evidence shows that Captain Loresto of the MV
Don Alfredo, did not authorize the radio operator of the
aforesaid ship to send an S.O.S. or distress signal, for the ship
was never in distress, nor was it exposed to a great imminent
peril of the sea. What the aforesaid Captain told the radio
operator to transmit was a general call; for, at any rate, a
message had been sent to defendant's office at Cebu City,
which the latter acknowledged by sending back a reply stating
that help was on the way. However, as explained by the said
radio operator, in spite of his efforts to send a general call by
radio, he did not receive any response. For this reason, the
Captain instructed him to send the general call by blinkers from
the deck of the ship; but the call by blinkers, which follows the
dots and dashes method of sending messages, could not be
easily understood by deck officers who ordinarily are not radio
operators. Hence, the only way by which the attention of
general officers on deck could be called, was to send an S.O.S.
signal which can be understood by all and sundry.
"Be it as it may, the evidence further shows that when the
two ships were already within hearing distance (barely seven
meters) of each other, there was a sustained conversation
between Masters and complement of the two vessels, by
means of loud speakers and the radio; and, the plaintiff must
 have learned of the exact nature and extent of the disability from
which the MV Don Alfredo had suffered — that is, that the only
trouble that the said vessel had developed was an engine
failure, due to the loss of its propellers.
"It can thus be said that the MV Don Alfredo was not in a
perilous condition wherein the members of its crew would be
incapable of doing anything to save passengers and cargo, and,
for this reason, it cannot be duly considered as a quasi-derelict;
hence, it was not the proper subject of salvage, and the Salvage
Law, Act No. 2616, is not applicable.
"Plaintiff, likewise, predicates his action upon the
provision of Article 2142 of the New Civil Code, which reads as
follows:
'Certain lawful, voluntary and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of
another.'
This does not find clear application to the case at bar, for
the reason that it is not the William Lines, Inc., owners of the MV
Henry I which is claiming for damages or remuneration,
because it has waived all such claims, but the plaintiff herein is
the Captain of the salvaging ship, who has not shown that, in his
voluntary act done towards and which benefited the MV Don
Alfredo, he had been unduly prejudiced by his employers, the
said William Lines, Incorporated.
"What about equity? Does not equity permit plaintiff to
recover for his services rendered and sacrifices made? In this
jurisdiction, equity may only be taken into account when the
circumstances warrant its application, and in the absence of any
provision of law governing the matter under litigation. That is not
so in the present case.
"In view of the foregoing, judgment is hereby rendered
dismissing the case with costs against the plaintiff; and
inasmuch as the plaintiff has not been found to have brought the
case maliciously, the counterclaim of the defendant is, likewise,
dismissed, without pronouncement as to costs.
"SO ORDERED."
The main issue to be resolved in this appeal is, whether under
the facts of the case, the service rendered by plaintiff to defendant
constituted "salvage" or "towage", and if so, whether plaintiff may
recover from defendant compensation for such service.
 The pertinent provision of the Salvage Law (Act No. 2616),
provides:
"SECTION 1. When in case of shipwreck, the vessel or
its cargo shall be beyond the control of the crew, or shall have
been abandoned by them, and picked up and conveyed to a
safe place by other persons, the latter shall be entitled to a
reward for the salvage.
"Those who, not being included in the above paragraph,
assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a like reward."
According to this provision, those who assist in saving a vessel
or its cargo from shipwreck, shall be entitled to a reward (salvage).
"Salvage" has been defined as "the compensation allowed to persons
by whose assistance a ship or her cargo has been saved, in whole or
in part, from impending peril on the sea, or in recovering such property
from actual loss, as in case of shipwreck, derelict, or recapture."
(Blackwall vs. Saucelito Tug Company, 10 Wall. 1, 12, cited in
Erlanger & Galinger vs. Swedish East Asiatic Co., Ltd., 34 Phil. 178.)
In the Erlanger & Galinger case, it was held that three elements are
necessary to a valid salvage claim, namely, (1) a marine peril, (2)
service voluntarily rendered when not required as an existing duty or
from a special contract, and (3) success in whole or in part, or that the
service rendered contributed to such success. 1
Was there a marine peril, in the instant case, to justify a valid
salvage claim by plaintiff against defendant? Like the trial court, we do
not think there was. It appears that although the defendant's vessel in
question was, on the night of May 1, 1958, in a helpless condition due
to engine failure, it did not drift too far from the place where it was. As
found by the court a quo the weather was fair, clear, and good. The
waves were small and too slight, so much so, that there were only
ripples on the sea, which was quite smooth. During the towing of the
vessel on the same night, there was moonlight. Although said vessel
was drifting towards the open sea, there was no danger of its
foundering or being stranded, as it was far from any island or rocks. In
case of danger of stranding, its anchor could be released, to prevent
such occurrence. There was no danger that defendant's vessel would
sink in view of the smoothness of the sea and the fairness of the
weather. That there was absence of danger is shown by the fact that
said vessel or its crew did not even find it necessary to lower its launch
and two motor boats, in order to evacuate its passengers aboard.
Neither did they find occasion to jettison the vessel's cargo as a safety
measure. Neither the passengers nor the cargo were in danger of
perishing. All that the vessel's crew members could not do was to
move the vessel on its own power. That did not make the vessel a
quasi-derelict, considering that even before the appellant extended
the help to the distress ship, a sister vessel was known to be on its
way to succor it.
If plaintiff's service to defendant does not constitute "salvage"
within the purview of the Salvage Law, can it be considered as a
quasi-contract of "towage" created in the spirit of the new Civil Code?
The answer seems to incline in the affirmative, for in consenting to
plaintiff's offer to tow the vessel, defendant (through the captain of its
vessel MV Don Alfredo) thereby impliedly entered into a juridical
relation of "towage" with the owner of the vessel MV Henry I,
captained by plaintiff, the William Lines, Incorporated.
"Tug which put line aboard liberty ship which was not in
danger or peril but which had reduced its engine speed because
of hot grounds, and assisted ship over bar and, thereafter,
dropped towline and stood by while ship proceeded to dock
under own power, was entitled, in absence of written agreement
as to amount to be paid for services, to payment for towage
services, and not for salvage services." (Sauce, et al. vs. United
States, et al., 107 F. Supp. 489).
If the contract thus created, in this case, is one for towage, then
only the owner of the towing vessel, to the exclusion of the crew of the
said vessel, may be entitled to remuneration.
"It often becomes material too, for courts to draw a
distinct line between salvage and towage; for the reason that a
reward ought sometimes to be given to the crew of the salvage
vessel and to other participants in salvage services, and such
reward should not be given if the services were held to be
merely towage." (The Rebecca Shepherd, 148 F. 731.)
"The master and members of the crew of a tug were not
entitled to participate in payment by liberty ship for services
rendered by tug which were towageservices and
not salvage services." (Sause, et al. vs. United States, et
al., supra).
"The distinction between salvage and towage is of
importance to the crew of the salvaging ship, for the following
reasons: If the contract for towage is in fact towage, then the
crew does not have any interest or rights in the remuneration
pursuant to the contract. But if the owners of the respective
vessels are of a salvage nature, the crew of the salvaging ship
 is entitled to salvage, and can look to the salved vessel for its
share." (I Norris, The Law of Seamen, Sec. 222).
And, as the vessel-owner, William Lines, Incorporated, had expressly
waived its claim for compensation for the towage service rendered to
defendant, it is clear that plaintiff, whose right if at all depends upon
and not separate from the interest of his employer, is not entitled to
payment for such towage service.
Neither may plaintiff invoke equity in support of his claim for
compensation against defendant. There being an express provision of
law (Art. 2142, Civil Code) applicable to the relationship created in this
case, that is, that of a quasi-contract of towage where the crew is not
entitled to compensation separate from that of the vessel, there is no
occasion to resort to equitable considerations.
WHEREFORE, finding no reversible error in the decision of the
court a quo appealed from, the same is hereby affirmed in all respects,
with costs against the plaintiff-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.

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