G.R. No.

100446 January 21, 1993

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.,

MELO, J.:

Petitioner is a corporation organized and operating under Philippine laws and engaged in the
business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P.
ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October
31, 1980. Private respondent General Accident Fire and Life Assurance Corporation, Ltd.
(GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee
of several cargo consignees whose respective cargo sank with the said vessel and for which it has
priorly paid.The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost
cargo either by the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as
subrogees.

The sinking was initially investigated by the Board of Marine Inquiry which found that such sinking
was due to force majeure and that subject vessel, at the time of the sinking was seaworthy.
However, trial court found otherwise and GAFLAC was awarded of its claim. The case was
elevated all the way to SC for the attempted execution of the judgement.

On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that
the vessel was seaworthy at the time of the sinking, and that such sinking was due to force
majeure. It was also elevated to SC and was sustained. Hence, Court needs to reconcile the
contrary findings in cases originating out of a single set of facts.

Issue: 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.

whether the Limited Liability Rule arising out of the real and hypothecary nature of maritime law
should apply in this and related cases.

We rule in the affirmative.

The real and hypothecary nature of maritime law simply means that the liability of the carrier in
connection with losses related to maritime contracts is confined to the vessel, which is
hypothecated for such obligations or which stands as the guaranty for their settlement. It has its
origin by reason of the conditions and risks attending maritime trade in its earliest years when
such trade was replete with innumerable and unknown hazards since vessels had to go through
largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and
to encourage people and entities to venture into maritime commerce despite the risks and the
prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the
operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if
any, which limitation served to induce capitalists into effectively wagering their resources against
the consideration of the large profits attainable in the trade.

In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very
statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book
III of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:

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 the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
 the vessel with all her equipment 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 this 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 (on collisions), shall be understood as limited to the value of the vessel with
all its appurtenances and freightage served during the voyage. (Emphasis supplied)

Taken together with related articles, the foregoing cover only liability for injuries to third parties
(Art. 587), acts of the captain (Art. 590) and collisions (Art. 837).

We now come to its applicability in the instant case. In the few instances when the matter was
considered by this Court, we have been consistent in this jurisdiction in holding that the only time
the Limited Liability Rule does not apply is when there is an actual finding of negligence on the
part of the vessel owner or agent .The pivotal question, thus, is whether there is a finding of such
negligence on the part of the owner in the instant case.

The Court sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz
was due to force majeure.

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.

In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are
limited in their recovery to the remaining value of accessible assets. In the case of a lost vessel,
these are the insurance proceeds and pending freightage for the particular voyage.

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 filed or 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.

We, therefore, rule that the pro-rated share of each claim can only be found after all the cases
shall have been decided.

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.

Chua Yek Hong vs. IAC, Dec. 14, 1988

MELENCIO-HERRERA, J.:
Before us is a Motion for Reconsideration of our Decision dated 30 September 1988 affirming
the judgment of the Court of Appeals dismissing the complaint against private respondents and
absolving them from any and all liability arising from the loss of 1000 sacks of copra shipped by
petitioner aboard private respondents' vessel. Private respondents filed an opposition thereto.

Petitioner argues that this Court failed to consider the Trial Court's finding that the loss of the
vessel with its cargo was due to the fault of the shipowner or to the concurring negligence of
the shipowner and the captain.

The Appellate Court Decision, however, mentions only the ship captain as having been
negligent in the performance of his duties. This is a factual finding binding on this Court. For the
exception to the limited liability rule (Article 587, Code of Commerce) to apply, the loss must be
due to the fault of the shipowner, or to the concurring negligence of the shipowner and the
captain. As we held, there is nothing in the records showing such negligence

Since the Civil Code contains no provisions regulating liability of shipowners or agents in the
event of total loss or destruction of the vessel, it is the provisions of the Code of Commerce,
particularly Article 587, that governs.

Monarch Insurance vs. CA, 281 SCRA 534;

FACTS:
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. Because Aboitiz refused to compensate Monarch, it filed two complaints against
Aboitiz which were consolidated and jointly tried.

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. Aboitiz was subsequently declared as in default and
allowed Monarch and Tabacalera to present evidence ex-parte.

ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.

HELD:
Yes.
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. 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.,] 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."

G.R. No. 116940 June 11, 1997

The Phil. American Gen. Insurance Co., Inc.
vs Court of Appeals and Felman Shipping Lines
Ponente: Bellosillo

Facts:
July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases
of 1-liter Coca-Cola soft drink bottles to be transported to Zamboanga City to Cebu. The shipment
was insured with Philamgen.

July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola filed a claim with respondent
Felman for recovery of damages. Felman denied thus prompted cocacola to file an insurance
claim with Philamgen. Philamgen later on claimed its right of subrogation against Felman which
disclaimed any liability for the loss.

Philamgen alleged that the sinking and loss were due to the vessel's unseaworthiness, that the
vessel was improperly manned and its officers were grossly negligent. Felman filed a motion to
dismiss saying that there is no right of subrogation in favor of Philamgen was transmitted by the
shipper.

RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to
the lower court for trial on the merits. Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left
the port of Zamboanga as evidenced by the certificate issued by the Phil. Coast Guard and the
ship owner’s surveyor. Thus, the loss is due to a fortuitous event, in which, no liability should
attach unless there is stipulation or negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-
heavy and the cocacola bottles were also improperly stored on deck. Nonetheless, the CA denied
the claim of Philamgen, saying that Philamgen was not properly subrogated to the rights and
interests of the shipper plus the filing of notice of abandonment had absolved the ship owner
from liability under the limited liability rule.

Issues: (a) Whether the vessel was seaworthy, (b) whether limited liability rule should apply and
(c) whether Philamgen was properly subrogated to the rights against Felman.

Ruling:
(a) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc.,
is the vessel's being top-heavy. Evidence shows that days after the sinking coca-cola bottles were
found near the vicinity of the sinking which would mean that the bottles were in fact stowed on
deck which the vessel was not designed to carry substantial amount of cargo on deck. The
inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height thus
making it unstable.

(b) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts
of the captain in the care of the goods. This liability however can be limited through
abandonment of the vessel, its equipment and freightage. Nonetheless, there are exceptions
wherein the ship agent could still be held answerable despite the abandonment, as where the
loss or injury was due to the fault of the ship owner and the captain. The international rule is that
the right of abandonment of vessels, as legal limitation of liability, does not apply to cases where
the injury was occasioned by the fault of the ship owner. Felman was negligent, it cannot
therefore escape liability.

(c) Generally, in marine insurance policy, the assured impliedly warrants to the assurer that the
vessel is seaworthy and such warranty is as much a term of the contract as if expressly written
on the face of the policy. However, the implied warranty of seaworthiness can be excluded by
terms in writing in the policy of the clearest language. The marine policy issued by Philamgen to
cocacola has dispensed that the "seaworthiness of the vessel as between the assured and the
underwriters in hereby admitted."

The result of the admission of seaworthiness by Philamgen may mean two things: (1) the
warranty of seaworthiness is fulfilled and (2) the risk of unseaworthiness is assumed by the
insurance company. This waiver clause would mean that Philamgen has accepted the risk of
unseaworthiness, therefore Philamgen is liable.

On the matter of subrogation, it is provided that;

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 has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.

Pan Malayan Insurance Corp. vs CA: The right of subrogation is not dependent upon, nor does it
grow out of any privity of contract or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the insurance claim.

Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the
former the right to bring an action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
soft drink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

Vasquez v. CA
138 SCRA 553

Facts:
This litigation involves a claim for damages for the loss at sea of petitioners' respective children
after the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.

When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early morning of
May 15, 1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo
and a four-year old boy, Mario Marlon Vasquez, among her passengers. The MV "Pioneer Cebu"
encountered typhoon "Klaring" and struck a reef on the southern part of Malapascua Island,
located somewhere north of the island of Cebu and subsequently sunk. The aforementioned
passengers were unheard from since then.

Due to the loss of their children, petitioners sued for damages before the Court of First Instance
of Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the
extinction of its liability by the actual total loss of the vessel.
Petitioners lost their children in a shipwreck involving the vessel of private respondent when it
sailed despite a typhoon.

Issue: 1) W/n it is a fortuitous event

2) W/n respondents are liable

HELD:

1) No. It is not a caso fortuito. The elements to consider in sustaining a case of caso fortuito are
the ff: 1) the event must be independent of the human will, 2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner, 3) the obligor must be
free of participation in, aggravation of, the injury to the creditor,

2) Petitioners are liable as it is not a caso fortutito. There is no caso fortuito when the ship
captain proceeded en route despite a typhoon advice close to the area where the vessel will
pass. Moreover, the Board of Marine’s inquiry conclusion that the ship captain was not
negligent is not binding on the Court when said finding is not complete. The liability of the ship
owner also extends to the value of vessel and the insurance proceeds thereon.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having
been kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the
captain and crew were well aware of the risk they were taking as they hopped from island to
island from Romblon up to Tanguingui. They held frequent conferences, and oblivious of the
utmost diligence required of very cautious persons, 9 they decided to take a calculated risk. In so
doing, they failed to observe that extraordinary diligence required of them explicitly by law for
the safety of the passengers transported by them with due regard for an circumstances 10 and
unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome
that presumption of fault or negligence that arises in cases of death or injuries to passengers.

With respect to private respondent's submission that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce12 as construed in Yangco vs. Laserna,
73 Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a
shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss
of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be
held liable for by reason of the death of its passengers.