1

Litonjua Shipping vs. National Seamen Board (GR 51910,

10 August 1989)
Third Division, Feliciano (J): 4 concur
Facts: Litonjua is the duly appointed local crewing Managing
Office of the Fairwind Shipping Corporation. The M/V Dufton
Bay is an ocean-going vessel of foreign registry owned by the
R.D. Mullion Ship Broking Agency Ltd. On 11 September
1976, while the Dufton Bay was in the port of Cebu and while
under charter by Fairwind, the vessels master contracted the
services of, among others, Gregorio Candongo to serve as
Third Engineer for a period of 12 months with a monthly wage
of US$500.00. This agreement was executed before the Cebu
Area Manning Unit of the NSB. Thereafter, Candongo boarded
the vessel. On 28 December 1976, before expiration of his
contract, Candongo was required to disembark at Port Kelang,
Malaysia, and was returned to the Philippines on 5 January
1977. The cause of the discharge was described in his
Seamans Book as by owners arrange. Shortly after
returning to the Philippines, Candongo filed a complaint before
the National Seamen Board (NSB; NSB-1331-77), for violation
of contract, against Mullion as the shipping company and
Litonjua as agent of the ship owner and of the charterer of the
vessel. At the initial hearing, the NSB hearing officer held a
conference with the parties, at which conference Litonjua was
represented by one of its supercargoes, Edmond Cruz.
Edmond Cruz asked, in writing, that the hearing be postponed
for a month upon the ground that the employee of Litonjua in
charge of the case was out of town. The hearing officer denied
this request and then declared Litonjua in default. At the
hearing, Candongo testified that when he was recruited by the
Captain of the Dufton Bay, the latter was accompanied to the
NSB Cebu Area Manning Unit by 2 supercargoes sent by
Litonjua to Cebu, and that the 2 supercargoes Edmond Cruz
and Renato Litonjua assisted Candongo in the procurement of
his National Investigation and Security Agency (NISA)
clearance. Messrs. Cruz and Litonjua were also present during
Canfongos interview by Captain Ho King Yiu of the Dufton
Bay. On 17 February 1977, the hearing officer of the NSB
rendered a judgment by default, ordering R.D. Mullion
Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc., jointly
and solidarily to pay Candongo the sum of $4,657.63 or its
equivalent in the Philippine currency within 10 days from
receipt of the copy of the Decision the payment of which to be
coursed through the then NSB. Litonjua filed a motion for
reconsideration of the hearing officers decision; the motion
was denied.
Litonjua filed an Appeal and/or Motion for Reconsideration of
the Default Judgment dated 9 August 1977 with the central
office of the NSB. NSB then suspended its hearing officers
decision and lifted the order of default against Litonjua,
thereby allowing the latter to adduce evidence in its own
behalf. On 26 April 1978, the NSB then lifted the suspension
of the hearing officers 17 February 1977 decision. Litonjua
once more moved for reconsideration. On 31 May 1979, NSB
rendered a decision which affirmed its hearing officers
decision of 17 February 1977. Hence, the petition for certiorari.
The Supreme Court dismissed the Petition for Certiorari and
affirmed the Decision of the then National Seamen Board
dated 31 May 1979; without pronouncement as to costs.
1. Grounds where Litonjua may be made liable on the
contract of employment
There are 2 grounds upon which Litonjua may be held liable to
Candongo on the contract of employment. The first basis is
the charter party which existed between Mullion, the ship
owner, and Fairwind, the charterer. The second and ethically
more compelling basis for holding Litonjua liable on the
contract of employment of Candongo refers to that the
charterer of the vessel, Fairwind, clearly benefitted from the
employment of Candongo as Third Engineer of the Dufton
Bay. Litonjua assisted the Master of the vessel in locating and
recruiting Candongo as Third Engineer of the vessel as well as
10 other Filipino seamen as crew members. In so doing,
Litonjua certainly in effect represented that it was taking care
of the crewing and other requirements of a vessel chartered by
its principal, Fairwind.
2. Types of charter parties
In modern maritime law and usage, there are three (3)
distinguishable types of charter parties: (a) the bareboat or
demise charter; (b) the time charter; and (c) the voyage or
trip charter.
3. Bareboat or demise charter
A bareboat or demise charter is a demise of a vessel, much as
a lease of an unfurnished house is a demise of real property.
The ship owner turns over possession of his vessel to the
charterer, who then undertakes to provide a crew and victuals
and supplies and fuel for her during the term of the charter.
The ship owner is not normally required by the terms of a
demise charter to provide a crew, and so the charterer gets
the bare boat, i.e., without a crew. Sometimes, of course, the
demise charter might provide that the ship owner is to furnish
a master and crew to man the vessel under the charterers
direction, such that the master and crew provided by the ship
owner become the agents and servants or employees of the
charterer, and the charterer (and not the owner) through the
agency of the master, has possession and control of the
vessel during the charter period.
4. Time charter
A time charter, like a demise charter, is a contract for the use
of a vessel for a specified period of time or for the duration of
one or more specified voyages. In this case, however, the
owner of a time- chartered vessel (unlike the owner of a vessel
under a demise or bare- boat charter), retains possession and
control through the master and crew who remain his
employees. What the time charterer acquires is the right to
utilize the carrying capacity and facilities of the vessel and to
designate her destinations during the term of the charter.
5. Voyage or trip charter
A voyage charter, or trip charter, is simply a contract of
affreightment, that is, a contract for the carriage of goods, from
one or more ports of loading to one or more ports of
unloading, on one or on a series of voyages. In a voyage
charter, master and crew remain in the employ of the owner of
the vessel.
6. Charterer the pro hac vice owner of the vessel in
bareboat charter
It is well settled that in a demise or bare boat charter, the
charterer is treated as owner pro hac vice of the vessel, the
charterer assuming in large measure the customary rights and
liabilities of the ship owner in relation to third persons who
have dealt with him or with the vessel. In such case, the
Master of the vessel is the agent of the charterer and not of
the ship owner. The charterer or owner pro hac vice, and not
the general owner of the vessel, is held liable for the expenses
of the voyage including the wages of the seamen.
7. Presumption arising from failure of Litonjua to attach
bareboat charter into the records of the case
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Litonjua did not place into the record of the case a copy of the
charter party covering the M/V Dufton Bay. It is assumed then
that Litonjua was aware of the nature of a bareboat or demise
charter and that if it did not see fit to include in the record a
copy of the charter party, which had been entered into by its
principal, it was because the charter party and the provisions
thereof were not supportive of the position adopted by Litonjua
in the present case, position diametrically opposed to the legal
consequence of a bareboat charter. Treating Fairwind as
owner pro hac vice, Litonjua having failed to show that it was
not such, Litonjua, as Philippine agent of the charterer, may be
held liable on the contract of employment between the ship
captain and Candongo.
8. Equitable consequence of benefit to the charterer
The charterer of the vessel, Fairwind, clearly benefitted from
the employment of Candongo as Third Engineer of the Dufton
Bay, along with 10 other Filipino crew members recruited by
Captain Ho in Cebu at the same occasion. If Candongo had
not agreed to serve as such Third Engineer, the ship would
not have been able to proceed with its voyage.
9. Circumstances reinforcing equitable consequence of
benefit to charterer
The equitable consequence of benefit to the charterer is,
moreover, reinforced by convergence of other circumstances
of which the Court must take account. (1) There is the
circumstance that only the charterer, through Litonjua, was
present in the Philippines. (2) The scope of authority or the
responsibility of Litonjua was not clearly delimited.
10. Litonjuas commission unclear; Litonjuas assistance
in the recruitment of Candongo clear
Litonjua took the position that its commission was limited to
taking care of vessels owned by Fairwind. But the
documentary authorization read into the record of the case
does not make that clear at all. The words our ships may well
be read to refer both to vessels registered in the name of
Fairwind and vessels owned by others but chartered by
Fairwind. Indeed the commercial, operating requirements of a
vessel for crew members and for supplies and provisions have
no relationship to the technical characterization of the vessel
as owned by or as merely chartered by Fairwind. In any case,
it is not clear from the authorization given by Fairwind to
Litonjua that vessels chartered by Fairwind (and owned by
some other companies) were not to be taken care of by
Litonjua should such vessels put into a Philippine port. The
statement of account which the Dufton Bays Master had
signed and which pertained to the salary of Candongo had
referred to a Philippine agency which would take care of
disbursing or paying such account. There is no question that
the Philippine agency was the Philippine agent of the charterer
Fairwind. Moreover, there is also no question that Litonjua did
assist the Master of the vessel in locating and recruiting
Candongo as Third Engineer of the vessel as well as 10 other
Filipino seamen as crew members. In so doing, Litonjua
certainly in effect represented that it was taking care of the
crewing and other requirements of a vessel chartered by its
principal, Fairwind.
11. Wages constitute maritime lien upon vessel;
Candongo in no position to enforce said lien if contrary
holding is made
There is the circumstance that extreme hardship would result
for Candongo if Litonjua, as Philippine agent of the charterer,
is not held liable to Candongo upon the contract of
employment. Clearly, Candongo, and the other Filipino crew
members of the vessel, would be defenseless against a
breach of their respective contracts. While wages of crew
members constitute a maritime lien upon the vessel,
Candongo is in no position to enforce that lien. If only because
the vessel, being one of foreign registry and not ordinarily
doing business in the Philippines or making regular calls on
Philippine ports cannot be effectively held to answer for such
claims in a Philippine forum. Upon the other hand, it seems
quite clear that Litonjua, should it be held liable to Candongo
for the latters claims, would be better placed to secure
reimbursement from its principal Fairwind. In turn, Fairwind
would be in an infinitely better position (than Candongo) to
seek and obtain recourse from Mullion, the foreign ship owner,
should Fairwind feel entitled to reimbursement of the amounts
paid to Candongo through Litonjua.
12. Result compelled by equitable principles and demands
of substantial justice
Candongo was properly regarded as an employee of the
charterer Fairwind and that Litonjua may behold to answer to
Candongo for the latters claims as the agent in the Philippines
of Fairwind. This result, far from constituting a grave abuse of
discretion, is compelled by equitable principles and by the
demands of substantial justice. To hold otherwise would be to
leave Candongo (and others who may find themselves in his
position) without any effective recourse for the unjust dismissal
and for the breach of his contract of employment.
Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)
First Division, Pardo (J): 3 concur, 1 took no part
Facts: MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, which is engaged in
the business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. On the other hand, the MV
Doa 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. On 19 December 1987, motor
tanker MT Vector left Limay, Bataan, enroute to Masbate,
loaded with 8,800 barrels of petroleum products shipped by
Caltex, by virtue of a charter contract between Vector Shipping
and Caltex. The next day, the passenger ship MV Doa 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, but possibly carrying an estimated 4,000
passengers. At about 10:30 p.m. of 20 December 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 Doa Paz died, while the two
survivors from MT Vector claimed that they were sleeping at
the time of the incident. Only 24 survived the tragedy after
having been rescued from the burning waters by vessels that
responded to distress calls. Among those who perished were
public school teacher Sebastian Caezal (47 years old) and
his daughter Corazon Caezal (11 years old), both
unmanifested passengers but proved to be on board the
vessel. On 22 March 1988, the board of marine inquiry 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 Doa Paz. On 13 February 1989, Teresita
and Sotera Caezal, filed with the RTC Manila, a complaint for
Damages Arising from Breach of Contract of Carriage
against Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party
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complaint against Francisco Soriano, Vector Shipping
Corporation and Caltex (Philippines), Inc. On 15 September
1992, the trial court rendered decision dismissing the third
party complaint against Caltex. On appeal to the Court of
Appeals interposed by Sulpicio Lines, Inc. (CA-GR CV 39626),
on 15 April 1997, the Court of Appeal modified the trial courts
ruling and included petitioner Caltex as one of the those liable
for damages. Hence the petition. The Supreme Court granted
the petition and set aside the decision of the Court of Appeals,
insofar as it held Caltex liable under the third party complaint
to reimburse/indemnify Sulpicio Lines, Inc. the damages the
latter is adjudged to pay plaintiffs-appellees. The Court
affirmed the decision of the Court of Appeals insofar as it
orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E.
Caezal and Corazon Caezal 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.
1. The respective rights and duties of a carrier depends on
the nature of the contract of carriage
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. In the case at bar, Caltex and
Vector entered into a contract of affreightment, also known as
a voyage charter.
2. Charter party and contract of affreightment defined
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. Kinds of contract of affreightment
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 ships store, pay for the wages of the master of the crew,
and defray the expenses for the maintenance of the ship.
4. Charterers liability: Bareboat charter vs. Contract of
affreightment
Under a demise or bareboat charter, 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. 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. Categories of charter parties
Charter parties fall into three main categories: (1) Demise or
bareboat, (2) time charter, (3) voyage charter.
6. Bareboat, but not voyage charter, transforms common
carrier into private carrier
Although a charter party may transform a common carrier into
a private one, the same however is not true in a contract of
affreightment (Coastwise Lighterage Corp. vs. CA) 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. (Planters
Products vs. CA). In the case at bar, 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.
7. Common carrier defined
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. In the
case at bar, MT Vector fits the definition of a common carrier
under Article 1732 of the Civil Code (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).
8. Article 1732, Common carrier, construed
Article 1732 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. Article 1733 deliberately refrained from making
such distinctions.
9. Responsibility of carrier before voyage; Seaworthiness
Under Section 3 of the Carriage of Goods by Sea Act, (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;
among others. 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.
10. Article 1173 of the New Civil Code
Article 1173 of the Civil Code provides that 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.
11. Negligence defined
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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 (Southeastern College vs.
CA).
12. Reason for the applicability of Section 3 COGSA, and
Article 1755 NCC to carriers, not shipper and passengers;
Ordinary diligence required of shippers
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. 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. Because of the implied warranty of
seaworthiness, shippers of goods, when transacting with
common carriers, are not expected to inquire into the vessels
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,
passengers cannot be expected to inquire every time they
board a common carrier, whether the carrier possesses the
necessary papers or that all the carriers 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. In the case at bar, the nature
of the obligation of Caltex demands ordinary diligence like any
other shipper in shipping his cargoes.
13. Caltex not liable for damages
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.
Smith bell co vs ca
En Banc, Feliciano (J): 14 concur
Facts: On 3 May 1970, 3:50 a.m., 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 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 3 cm. gaping
hole on her portside near Hatch 3, through which seawater
rushed in and flooded that hatch and her bottom tanks,
damaging all the cargo stowed therein. 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 Go Thong for damages sustained
by the various shipments in the then CFI of Manila. 2 cases
were filed in the CFI of Manila. The first case, Civil Case
82567, was commenced or 13 March 1971 by Smith Bell and
Company (Philippines), Inc. and Sumitomo Marine and Fire
Insurance Company Ltd., against Go Thong, in Branch 3,
which was presided over by Judge Bernardo P. Fernandez.
The second case, Civil Case 82556, was filed on 15 March
1971 by Smith Bell and Company (Philippines), Inc. and Tokyo
Marine and Fire Insurance Company, Inc. against Go Thong in
Branch 4, which was presided over by then Judge, later
Associate Justice of this Court, Serafin R. Cuevas. Civil Cases
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 CFI 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 Go Thong liable for damages to the
insurance companies. Judge Fernandez awarded the
insurance companies P19,889.79 with legal interest plus
P3,000.00 as attorneys fees; while Judge Cuevas awarded
the insurance companies on two (2) claims US$68,640.00 or
its equivalent in Philippine currency plus attorneys fees of
P30,000.00, and P19,163.02 plus P5,000.00 as attorneys
fees, respectively.
The decision of Judge Fernandez in Civil Case 82567 was
appealed by Go Thong to the Court of Appeals (CA-GR
61320-R). The decision of Judge Cuevas in Civil Case 82556
was also appealed by Go Thong to the Court of Appeals (CA-
GR 61206-R). Substantially identical assignments of errors
were made by Go Thong in the 2 appealed cases before the
Court of Appeals. In CA-GR 61320-R, the Court of Appeals
through Reyes, L.B., J., rendered a Decision on 8 August
1978 affirming the Decision of Judge Fernandez. Go Thong
moved for reconsideration, without success.
Go Thong then went to the Supreme Court on Petition for
Review, the Petition (GR L-48839; Carlos A. Go Thong and
Company v. Smith Bell and Company [Philippines], Inc., et
al.). In its Resolution dated 6 December 1978, the Supreme
Court, denied the Petition for lack of merit. Go Thong filed a
Motion for Reconsideration; the Motion was denied by the
Supreme Court on 24 January 1979. In CA-GR 61206-R, the
Court of Appeals, on 26 November 1980, 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. Smith Bell & Co. and the Tokyo Marine
& Fire Insurance Co. Inc. asked for reconsideration, to no
avail. Hence, the petition for review on certiorari.
The Supreme Court reversed and set aside the Decision of the
Court of Appeals dated 26 November 1980 in CA-GR 61206-
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R, and reinstated and affirmed the decision of the trial court
dated 22 September 1975 in its entirety; with costs against Go
Thong.
1. Minute resolutions; Effect
That the Supreme Court denied Go Thongs Petition for
Review in a minute Resolution did not in any way diminish the
legal significance of the denial so decreed by the 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 the Supreme 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 Courts 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. Res Judicata; Substantial identity of the parties
The parties in CA-GR. 61320-R involved Smith Bell and
Company (Philippines), Inc., and Sumitomo Marine and Fire
Insurance Co., Ltd. while the present case involved Smith Bell
and Co. (Philippines), Inc. and Tokyo Marine and Fire
Insurance Co., Ltd. In other words, there was a common
petitioner in the 2 cases, although the co-petitioner in one was
an insurance company different from the insurance company
copetitioner in the other case. The co-petitioner in both cases,
however, was an insurance company and that both petitioners
in the 2 cases represented the same interest, i.e., the cargo
owners interest as against the hull interest or the interest of
the ship owner. More importantly, both cases had been
brought against the same defendant, Go Thong, the owner of
the vessel Don Carlos. In sum, CA-GR 61320-R and CA-GR
61206-R exhibited substantial identity of parties.
3. Res Judicata; Cause of action and judgments the same
Although the subject matters of the 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 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 2 divisions of
the Court of Appeals and by the Supreme Court, the
jurisdiction of which has not been questioned.
4. Res Judicata; Absence of identity of subject matter
does not preclude application of res judicata
Under the circumstances, the Court believes 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. Res Judicata; Concepts of bar by former judgment
and conclusiveness of judgment; Tingson vs. CA
In Tingson v. Court of Appeals, the Court distinguished one
from the other the 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.
6. Res Judicata; Concepts of bar by former judgment
and conclusiveness of judgment; Lopez
vs. Reyes
In Lopez v. Reyes, 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.
7. Decision in CA-GR 61320-R conclusive as to negligence
of Don Carlos
Herein, 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
6

and litigated in CA-GR 61320-R; where it was found that Don
Carlos to have been negligent. That Decision was affirmed by
the Supreme Court in GR L-48839 in a Resolution dated 6
December 1978. The Reyes Decision thus became final and
executory approximately 2 years before the Sison Decision
was promulgated. Applying the rule of conclusiveness of
judgment, the question of which vessel had been negligent in
the collision between the 2 vessels, had long been settled by
the Supreme Court and could no longer be relitigated in CA-
GR 61206-R. Go Thong was certainly bound by the ruling or
judgment of Reyes, L.B., J. and that of the Supreme Court.
8. Compromise defined
A compromise is an agreement between 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.
9. Compromise agreement not an admission that anything
is due, not admissible in evidence against person making
the offer
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. 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. It is
of the very nature of an offer of compromise that it is made
tentatively, hypothetically and in contemplation of mutual
concessions.
10. Basis of rule on compromises
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.
11. Administrative proceedings before the Board of
Marine Inquiry; Decision of PCG remains in
effect
Herein, the decision of the Office of the President upholding
the belated reversal by the Ministry of National Defense of the
PCGS 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.
12. Rule 18 (a) of the International Rules of the Road
Rule 18 (a) of the International Rules of the Road, provides
(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, end 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.
13. Factors constituting negligence on part of Don
Carlos; Rule 18 (a) of the International Rules of the Road
The first of the factors, which are constitutive of negligence on
the part of the Don Carlos, was the failure of the Don
Carlos to comply with the requirements of Rule 18 (a) of the
International Rules of the Road (Rules). Herein, 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. 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. The
collision occurred at exactly 3:50 a.m.
14. Factors constituting negligence on part of Don
Carlos; Proper lookout
The second circumstance constitutive of negligence on the
part of the Don Carlos was its failure to have on board that
might 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.
15. Proper look out defined
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.
16. Who is not a proper look out
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
7

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). Herein, it is hardly probable that neither German or Leo
Enriquez may qualify as look-out in the real sense of the
word. 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.
14. Factors constituting negligence on part of Don
Carlos; Second Mate in command
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, although its captain, Captain
Rivera, was very much in the said vessel at the time. There
was no explanation as to why the second mate was at the
helm of the aforesaid vessel when Captain Rivera did not
appear to be under any disability at the time. 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. Worst still aside from Germans
being only a second mate, is his apparent lack of sufficient
knowledge of the basic and generally established rules of
navigation (e.g. necessity of look-out). 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 the case.
15. No exclusive obligation upon one of the vessels to
avoid the collision
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).
16. Urrutia vs. Baco River Plantation not applicable
The case of G. Urrutia and Company v. Baco River Plantation
Company is 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. Herein, 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.
National Development Co. vs. CA (GR L-49407, 19 August
1988)
Maritime Co. of the Philippines vs. CA (GR L-49469)
Second Division, Paras (J): 3 concur
Facts: In accordance with a memorandum agreement entered
into between National Development Corporation (NDC) and
Maritime Corporation of the Philippines Inc. (MCP) on 13
September 1962, NDC as the first preferred mortgagee of
three ocean going vessels including one with the name Doa
Nati appointed MCP as its agent to manage and operate said
vessel for and in its behalf and account. Thus, on 28 February
1964 the E. Philipp Corporation of New York loaded on board
the vessel Doa 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 Peoples Bank
and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills
Corporation. 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.
En route to Manila the vessel Doa Nati figured in a collision
at 6:04 a.m. on 15 April 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 Y6,045,500 and 15 bales were not landed and
deemed lost. The damaged and lost cargoes was worth
P344,977.86 which amount, the Development Insurance and
Surety Corporation (DISC) as insurer, paid to the Riverside
Mills Corporation as holder of the negotiable bills of lading duly
endorsed. 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 DISC as
insurer paid to Guilcon as holder of the duly endorsed bill of
lading. Thus, DISC 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.
On 22 April 1965, DISC filed before the then Court of First
Instance of Manila an action for the recovery of the sum of
P364,915.86 plus attorneys fees of P10,000.00 against NDC
and MCP. On 12 November 1969, after DISC and MCP
presented their respective evidence, the trial court rendered a
decision ordering 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 22 April 1965,
until fully paid and attorneys fees of P10,000.00. Likewise, in
said decision, the trial court granted MCPs cross-claim
against NDC. MCP interposed its appeal on 20 December
1969, while NDC filed its appeal on 17 February 1970 after its
motion to set aside the decision was denied by the trial court
in its order dated 13 February 1970. On 17 November 1978,
the Court of Appeals promulgated its decision affirming in toto
the decision of the trial court. Hence, the appeals by certiorari.
On 25 July 1979, the Supreme Court ordered the
consolidation of the above cases.
The Supreme Court denied the subject petitions for lack of
merit, and affirmed the assailed decision of the Appellate
Court.
1. Law of country of destination governs liability of
common carrier
As held in 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
8

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. Actual collision occurring in foreign waters immaterial
Herein, 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. Extraordinary diligence required of common carriers;
Negligence presumed
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. Collision does not fall under matters regulated by Civil
Code; Application of Article 826 to 839 of the Code of
Commerce proper
The collision, however, falls among matters not specifically
regulated by the Civil Code, so that no reversible error can be
found in the lower courts application to the present case of
Articles 826 to 839, Book Three of the Code of Commerce,
which deal exclusively with collision of vessels.
5. Articles 826 and 827 of the Code of Commerce; Liability
of owner either when imputable to the personnel of the
vessel or imputable to both vessels
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. Primary liability of ship owner on occasion of collision
due to fault of captain
Under the provisions of the Code of Commerce, particularly
Articles 826 to 839, the ship owner 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
ship owner 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. Code of Commerce applies both to domestic and
foreign trade; COGSA does not repeal nor limit Code of
Commerces application
The Code of Commerce applies not only to domestic trade but
also foreign trade. Aside from the fact that the Carriage of
Goods by Sea Act (Commonwealth Act 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. DISC a subrogee, has a right of action against MCP
Herein, 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, DISC paid the
total amount of P364,915.86 to said consignees for the loss or
damage of the insured cargo, it is evident that DISC has a
cause of action to recover (what it has paid) from MCP.
9. MCP an agent; Agency broad enough to include
shipagent in maritime law
The Memorandum Agreement of 13 September 1962 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. Consequently, under the circumstances, MCP cannot
escape liability.
10. Owner and agent of offending vessel liable when both
are impleaded
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]).
11. Value of goods declared in bills of lading, liability of
MCP not limited to P200 per package or per bale of raw
cotton as stated in paragraph 17 of bill of lading
9

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).
12. Action not prescribed; Section 3 (6)
The bills of lading issued allow trans-shipment of the cargo,
which simply means that the date of arrival of the ship Doa
Nati on 18 April 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 18 April 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 said dates. Accordingly, the complaint was filed
on 22 April 1965, i.e. long before the lapse of 1 year from the
date the lost or damaged cargo should have been delivered
in the light of Section 3, sub-paragraph (6) of COGSA.
ABOITIZ SHIPPING CORP VS GENERAL FIRE AND LIFE
ASSURANCE CORP
FACTS:
Aboitiz Shipping is the owner of M/V P. Aboitiz, a vessel w/c
sank on a voyage from Hongkong to the Philippines. This
sinking of the vessel gave rise to the filing of several suits for
recovery of the lost cargo either by the shippers their
successors-in-interest, or the cargo insurers like General
Accident (GAFLAC).
Board of Marine Inquiry (BMI), on its initial investigation found
that such sinking was due to force majeure and that subject
vessel, at the time of the sinking was seaworthy. The trial
court rules against the carrier on the ground that the loss did
not occur as a result of force majeure. This was affirmed by
the CA and ordered the immediate execution of the full
judgment award.
However, other cases have resulted in the finding that vessel
was seaworthy at the time of the sinking, and that such sinking
was due to force majeure. Due to these different rulings,
Aboitiz seeks a pronouncement as to the applicability of the
doctrine of limited liability on the totality of the claims vis a
vis the losses brought about by the sinking of the vessel M/V
P. ABOITIZ, as based on the real and hypothecary nature of
maritime law.
Aboitiz argued that the Limited Liability Rule warrants
immediate stay of execution of judgment to prevent
impairment of other creditors' shares.
ISSUE: Whether the Limited Liability Rule arising out of the
real and hypothecary nature of maritime law should apply in
this and related cases.
RULING: The SC ruled 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.
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 ship owners 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.
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.
ISSUE 2: Whether there is a finding of such negligence on the
part of the owner in this case.
RULING 2: The SC ruled in the negative.
In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that
the vessel M/V "Aboitiz" and its cargo were not lost due to
fortuitous event or force majeure.
Decisions in other cases affirmed the factual findings of the
trial court, adding that the cause of the sinking of the vessel
was because of unseaworthiness due to the failure of the crew
and the master to exercise extraordinary diligence. Indeed,
there appears to have been no evidence presented sufficient
to form a conclusion that Aboitiz the ship owner itself was
negligent, and no tribunal, including this Court will add or
subtract to such evidence to justify a conclusion to the
contrary.
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.
The rights of a vessel owner or agent under the Limited
Liability Rule are akin to those of the rights of shareholders to
limited liability under our corporation law. Both are privileges
granted by statute, and while not absolute, must be swept
aside only in the established existence of the most compelling
of reasons. In the absence of such reasons, this Court
chooses to exercise prudence and shall not sweep such rights
aside on mere whim or surmise, for even in the existence of
10

cause to do so, such incursion is definitely punitive in nature
and must never be taken lightly.
More to the point, the rights of parties to claim against an
agent or owner of a vessel may be compared to those of
creditors against an insolvent corporation whose assets are
not enough to satisfy the totality of claims as against it. While
each individual creditor may, and in fact shall, be allowed to
prove the actual amounts of their respective claims, this does
not mean that they shall all be allowed to recover fully thus
favoring those who filed and proved their claims sooner to the
prejudice of those who come later. In such an instance, such
creditors too would not also be able to gain access to the
assets of the individual shareholders, but must limit their
recovery to what is left in the name of the corporation.
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 an
insolvent corporation, these are the residual assets of the
corporation left over from its operations. 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.
CENTRAL SHIPPING COMPANY, INC., petitioner, vs.
INSURANCE COMPANY OF NORTH AMERICA,
respondent.

DOCTRINE OF LIMITED LIABILITY DOES NOT APPLY TO
SITUATIONS IN WHICH THE LOSS OR THE INJURY IS
DUE TO THE CONCURRENT NEGLIGENCE OF THE
SHIPOWNER AND THE CAPTAIN.

Facts:

1. On July 25, 1990 at Puerto Princesa, Palawan, the
petitioner received on board its vessel, the M/V Central
Bohol, 376 pieces of Philippine Apitong Round Logs and
undertook to transport said shipment to Manila for delivery to
Alaska Lumber Co., Inc.

2. During the voyage the degree of the position of the ship
would change due to the shifting of the logs inside. Eventually
at about 15 degrees the captain ordered for everyone to
abandon the ship.

3. Respondent alleged that the total loss of the shipment
was caused by the fault and negligence of the petitioner and
its captain. Petitioner while admitting the sinking of the vessel,
interposed the defense that the vessel was fully manned, fully
equipped and in all respects seaworthy; that all the logs were
properly loaded and secured; that the vessels master
exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the storm.

4. It raised as its main defense that the proximate and only
cause of the sinking of its vessel and the loss of its cargo was
a natural disaster, a tropical storm which neither [petitioner]
nor the captain of its vessel could have foreseen.

5. The RTC was unconvinced that the sinking of M/V Central
Bohol had been caused by the weather or any other caso
fortuito. It noted that monsoons, which were common
occurrences during the months of July to December, could
have been foreseen and provided for by an ocean-going
vessel. Applying the rule of presumptive fault or negligence
against the carrier, the trial court held petitioner liable for the
loss of the cargo.

6. The CA affirmed the trial courts finding that the
southwestern monsoon encountered by the vessel was not
unforeseeable. Given the season of rains and monsoons, the
ship captain and his crew should have anticipated the perils of
the sea. Citing Arada v. CA,7 it said that findings of the BMI
were limited to the administrative liability of the
owner/operator, officers and crew of the vessel. However, the
determination of whether the carrier observed extraordinary
diligence in protecting the cargo it was transporting was a
function of the courts, not of the BMI.

Issue:
Whether or not the Doctrine of Limited Liability applies.

Held:
No it does not.
Common carriers are bound to observe extraordinary diligence
over the goods they transport, according to all the
circumstances of each case; In all other cases not specified
under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence.
From the nature of their business and for reasons of public
policy, common carriers are bound to observe extraordinary
diligence over the goods they transport, according to all the
circumstances of each case. In the event of loss, destruction
or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss,
destruction or deterioration was brought aboutamong
othersby flood, storm, earthquake, lightning or other natural
disaster or calamity. In all other cases not specified under
Article 1734 of the Civil Code, common carriers are presumed
to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence.
The doctrine of limited liability under Article 587 of the Code of
Commerce is not applicable to the present case. This rule
does not apply to situations in which the loss or the injury is
due to the concurrent negligence of the ship-owner and the
captain. It has already been established that the sinking of
M/V Central Bohol had been caused by the fault or negligence
of the ship captain and the crew, as shown by the improper
stowage of the cargo of logs. Closer supervision on the part
of the ship owner could have prevented this fatal
miscalculation. As such, the ship owner was equally
negligent. It cannot escape liability by virtue of the limited
liability rule.

11

Erlanger & Galinger vs. Swedish East Asiatic (GR 10051, 9
March 1916)
First Division, Per Curiam (p): 5 concur
Facts: The steamship Nippon loaded principally with copra
and with some other general merchandise sailed from Manila
on 7 May 1913, bound for Singapore. The steamship Nippon
went aground on Scarborough Reef about 4:30 p.m. of 8 May
1913. Scarborough Reef is about 120 to 130 miles from the
nearest point on the Island of Luzon. On 9 May 1913, the chief
officer, Weston, and 9 members of the crew left the Nippon
and succeeded in reaching the coast of Luzon at Santa Cruz,
Zambales, on the morning of 12 May 1913. On 12 May 1913,
at 12:30 p.m. the chief officer sent a telegram to Helm, the
Director of the Bureau of Navigation at Manila. At 1.30 p. m.,
the Government of the Philippine Islands ordered the coast
guard cutter Mindoro with life-saving appliances to the scene
of the wreck of the Nippon. At 3 p. m. the steamship
Manchuria sailed from manila for Hongkong and was
requested to pass by Scarborough Reef. The Manchuria
arrived at Scarborough Reef some time before the arrival of
the Mindoro on 13 May 1913, and took on board the captain
and the remainder of the crew. The Manchuria was still near
Scarborough Reef when the Mindoro arrived. The captain of
the Manchuria informed the captain of the Mindoro that the
captain and crew of the Nippon were on board the Manchuria
and were proceeding to Hongkong. The captain of
the Mindoro offered to render assistance to the captain and
crew of the Nippon , which assistance was declined. The
Mindoro proceeded to the Nippon and removed the balance of
the baggage of the officers and crew, which was found upon
the deck. The Mindoro proceeded to Santa Cruz, Zambales,
where the chief officer, Weston, and the 9 members of the
crew were taken on board and brought to Manila, arriving
there on 14 May 1913. On 13 May 1913, Dixon, captain of the
Manchuria sent the message that All rescued from the
Nippon. Stranded on extreme north end of shoal. Vessel
stranded May 9. She is full of water fore and aft and is badly
ashore. Ship abandoned. Proceed Hongkong. The captain of
the Nippon saw the above message before it was sent. On 14
May 1913, Erlanger & Galinger applied to the Director of
Navigation for a charter of a coast guard cutter, for the
purpose of proceeding to the stranded and abandoned
steamer Nippon. The coast guard cutter Mindoro was
chartered to Erlanger & Galinger and started on its return to
the S.S. Nippon on 14 May 1913. Erlanger & Galinger took
possession of the Nippon on or about 17 May 1913, and
continued in possession until about 1July 1914, when the last
of the cargo was shipped to Manila. The Nippon was floated
and towed to Olongapo, where temporary repairs were made,
and then brought to Manila. The Manchuria arrived at
Hongkong on the evening of 14 May 1913. When the captain
and crew left the Nippon and went on board the Manchuria,
they took with them the chronometer, the ships register, the
ships articles, the ships log, and as much of the crews
baggage as a small boat could carry. The balance of the
baggage of the crew was packed and left on the deck of the
Nippon and was later removed to the Mindoro, without protest
on the part of the captain of the Nippon. The cargo was
brought to the port of Manila and the values for the (1) Copra
(approximately 1317 tons) valued at, less cost of sale by
Collector of Customs were valued at P142,657.05; (2) General
cargo-sold at customhouse at P5,939.68; (3) Agar-agar at
P5,635.00; (4) Gamphor at P 1,850.00; (5) Curios at P150.00,
respectively; totaling P156,231.73. The ship was valued at
P250,000. The Erlanger & Galingers claim against the ship
was settled for (L)15,000 or about P145,800 On 5 August
1913, Erlanger & Galinger brought an action against the
insurance companies and underwriters, who represented the
cargo salved from the Nippon, to have the amount of salvage,
to which Erlanger & Galinger were entitled, determined. The
case came on for trial before the Honorable A. S. Crossfield.
The Oelwerke Teutonia, a corporation, appeared as claimant
of the copra. The New Zealand Insurance Company appeared
as insurer and assignee of 1,000 case of bean oil and two
cases of bamboo lacquer work; and The Thames and Mersey
Marine Insurance Company appeared as a reinsurer to the
extent of P6,500 on the cargo of copra. The court adjudged
the case in favor of Erlanger & Galinger for of the net
proceeds of sales amounting to P74,298.36 and of the
interest accruing thereon, and against Carl Maeckler for the
sum of P925, and against the New Zealand Insurance
Company (Ltd.) for the of P2,800, and against whomever the
two cases marked R W, Copenhagen, were delivered to,
and for the sum of P2,370.68, out of the proceeds of the sale
of 1,000 cases of vegetable oil, and in favor of the Oelwerke
Teutonia for the sum of P71,328.53, now deposited with the
Hongkong & Shanghai Banking Corporation, together with
of the interest thereon.
No costs were taxed.
The Oelwerke Teutonia, The New Zealand Insurance
Company (Ltd.). and Erlanger & Galinger appealed from the
decision. The Supreme Court ordered and decreed that the
judgment of the lower court be modified, and that a judgment
be entered against the Oerlwerke Teutonia and New Zealand
Insurance Co. and in favor of Erlanger & Galinger (against
Oelwerke Teutonia for the sum of P41,721.55; against The
New Zealand Insurance Co. in the sum of P1,127). The Court
further ordered and decreed that the amount of the judgment
rendered be paid out of the money which is under the control
of the CFI of Manila; without any finding as to costs.
1. General rules governing salvage services and salvage
awards; Laws of Oleron (1226)
In the Laws of Oleron, which were promulgated sometime
before the year 1226, at article IV, states If a vessel,
departing with her lading from Bordeaux, or any other place,
happens in the course of her voyage, to be rendered unfit to
proceed therein, and the mariners save as much of the lading
as possibly they can; if the merchants require their goods of
the master, he may deliver them if he pleases, they paying the
freight in proportion to the part of the voyage that is performed,
and the costs of the salvage. But if the master can readily
repair his vessel, he may do it; or if he pleases, he may freight
another ship to perform his voyage.
And if he has promised the people who help him to save the
ship the third, or the half part of the goods saved for the
danger they ran, the judicatures of the country should consider
the pains and trouble they have been at, and reward them
accordingly, without any regard to the promises made them by
the parties concerned in the time of their distress.
2. Salvage defined
In general, salvage may be defined as a service which one
person renders to the owner of a ship or goods, by his
own labor, preserving the goods or the ship which the
owner or those entrusted with the care of them have
either abandoned in distress at sea, or are unable to
protect and secure.
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3. Salvage defined; Flanders on Maritime Law
Salvage is founded on the equity of remunerating private and
individual services performed in saying, in whole or in part, a
ship or its cargo from impending peril, or recovering them after
actual loss. It is a compensation for actual services rendered
to the property charged with it, and is allowed for meritorious
conduct of the salvor, and in consideration of a benefit
conferred upon the person whose property he has saved. A
claim for salvage rests on the principle that, unless the
property be in fact saved by those who claim the
compensation, it can not be allowed, however benevolent their
intention and however heroic their conduct.
4. Salvage defined; Williamson vs. the Alphonso
In the case of Williamson vs. The Alphonso, it was held that
the relief of property from an impending peril of the sea, by
the voluntary exertions of those who are under no legal
obligation to render assistance, and the consequent ultimate
safety of the property, constitute a case of salvage. It may be
a case of more or less merit, according to the degree of peril in
which the property was, and the danger and difficulty or
relieving it; but these circumstances affect the degree of the
service and not its nature.
5. Salvage defined; Blackwall vs. Saucelito Tug Co.
In Blackwall vs. Saucelito Tug Company, the court said
Salvage is 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.
6. Elements necessary to a valid salvage claim; Mayflower
vs. the Sabine
Three elements are necessary to a valid salvage claim: (1) A
marine peril. (2) Service voluntarily rendered when not
required as an existing duty or from a special contract. (3)
Success, in whole or in part, or that the service rendered
contributed to such success.
7. Derelict defined; Abbotts law of merchant ships and
seamen
A derelict is defined as A ship or her cargo which is
abandoned and deserted at sea by those who were in charge
of it, without any hope of recovering it (sine spe recuperandi),
or without any intention of returning to it (sine animo
revertendi). Whether property is to be adjudged derelict is
determined by ascertaining what was the intention and
expectation of those in charge of it when they quitted it. If
those in charge left within the intention of returning, or of
procuring assistance, the property is not derelict, but if they
quitted the property with the intention of finally leaving it, it is
derelict, and a change of their intention and an attempt to
return will not change of their intention and an attempt to
return will not change its nature.
8. Ship was abandoned, salvage was commenced
Herein, at the time Erlanger & Galinger commenced the
attempt to salve what was possible of the S. S. Nippon and
cargo, it was justified, from all the conditions existing, in
believing that it had abandoned and in taking possession,
even though the master of the vessel intended when he left it,
to return and attempt salvage. Such intention, if it existed,
does not appear to have been very firmly fixed, considering
the leisurely manner in which the master proceeded after he
reached the Port of Hongkong. Captain Eggert did not make
any determined effort to arrange for the salvage of the Nippon.
Capt. Eggert had over two days in which to arrange for
salvage operations and he did nothing, while Erlanger &
Galinger, who were strangers and had no interest, sent out a
salvage expedition in 24 hours after they discovered that the
ship was wrecked. The evidence proves that the Nippon was
in peril; that the captain left in order to protect his life and the
lives of the crew; that the animo revertendi was slight. The
argument of the defendant-appellant to the effect that the ship
was in no danger is a bit out of place in view of the statement
of the captain that she would sink with the first gale, coupled
with the fact that a typhoon was the cause of her stranding.
9. Cases where claim for salvage was allowed; Bee case
In The Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts
were as follows: The Bee sailed from Boston to Nova Scotia.
Three days after leaving port a gale was encountered which
forced her to run into a cove on the north side of Grand Manan
Island, where an anchor was let out. The ship was somewhat
injured from the force of the storm. The master and the crew
stayed on board for 24 hours and then went ashore to procure
assistance. The island was very sparsely settled. They met on
shore a number of men (the libelants) to whom they explained
the predicament and position of the ship. These men
immediately went to the ship, boarded her, and took
possession. After the master had been ashore about five
hours he returned to the ship and found the libelants in
possession. The owners contended that the master was
excluded from the ship wrongfully and therefore the libelants
could not claim salvage.
10. Justification of award of salvage in the Bee case
When a vessel is found at sea, deserted, and has been
abandoned by the master and crew without the intention of
returning and resuming the possession, she is, in the sense of
the law, derelict, and the finder who takes the possession with
the intention of saving her, gains a right of possession, which
he can maintain against the true owner. The owner does not,
indeed, renounce his right of property. This is not presumed to
be his intention, nor does the finder acquire any such right. But
the owner does abandon temporarily his right of possession,
which is transferred to the finder, who becomes bound to
preserve the property with good faith, and bring it to a place of
safety for the owners use; and he acquires a right to be paid
for his services a reasonable and proper compensation, out of
the property itself. He is not bound to part with the possession
until this is paid, or it is taken into the custody of the law,
preparatory to the amount of salvage being legally
ascertained. Should the salvors meet with the owner after an
abandonment, and he should tender his assistance in saving
and securing the property, surely this ought not, without good
reasons, to be refused, as this would be no bar to the right of
salvage, and should it be unreasonably rejected it might affect
the judgment of a court materially, as to the amount proper to
be allowed. Still, the right possession is in the salvor. But
when the owner, or the master and crew who represent him,
leave a vessel temporarily, without any intention of a final
abandonment, but with the intent to return and resume the
possession, she is not considered as a legal derelict, nor is the
right of possession lost by such temporary absence for the
purpose of obtaining assistance, although no individual may
be remaining on board for the purpose of retaining the
possession. Property is not, in the sense of the law, derelict
and the possession left vacant for the finder, until the spes
recuperandi is gone, and the animus revertendi is finally given
up. (The Aquila, 1 C. Rob. Adm., 41.) But when a man finds
13

property thus temporarily left to the mercy of the elements,
whether from necessity or
any other cause, though not finally abandoned and legally
derelict, and he takes possession of it with the bona fide
intention of saying if for the owner, he will not be treated as a
trespasser. On the contrary, if by his exertions he contributes
materially to the preservation of the property, he will entitle
himself to a remuneration according to the merits of his
service as a salvor.
11. Cases where claim for salvage was allowed; In the
John Gilpin
In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675)
the ship John Gilpin, attempting to leave New York harbor in a
winter storm, was driven ashore. The ships crew sent for help
and in the meantime put forth every effort to get her off. Help
arrived toward evening, but accomplished nothing. The master
and crew went ashore. The same night the libelants went out
to the ship with equipment and started working. It was
contended that the master had gone ashore for assistance. He
returned the next morning with a tug and some men and
demanded possession, which was refused. Salvage was
allowed.
12. Justification of award of salvage in the John Gilpin
case
The libelants, in the exercise of their calling as wreckers,
coming to a vessel in that plight, would be guilty of a
dereliction of duty if they failed to employ all their means for
the instantaneous preservation of property so circumstanced.
This may not be strictly and technically a case of derelict, if
really the master of the brig had gone to the city to obtain the
necessary help to save the cargo and brig, intending at the
time, to return with all practicable dispatch. It appears he came
to the wreck by 8 or 9 a. m. the following day, in a steam-tug,
with men to assist in saving the cargo. The animus revertendi
et recuperandi may thus far have
continued with the master, but this mental hope or purpose
must be regarded inoperative and unavailing as an actual
occupancy of the vessel, or manifestation to others of a
continuing possession. She was absolutely deserted for 12 or
14 hours in a condition when her instant destruction was
menaced, and the lives of those who should attempt to remain
by her would be considered in highest jeopardy. She was quite
derelict; and being thus found by the libelants, the possession
they took of her was lawful. Possession being thus taken when
the vessel was, in fact, abandoned and quite derelict, under
peril of instant destruction, the libelants had a right to retain it
until the salvage was completed, and no other person could
interfere against them forcibly, provided they were able to
effect the purpose, and were conducting the business with
fidelity and vigor.
13. Cases where claim for salvage was allowed; In The
Shawmut
In The Shawmut (155 Fed. Rep., 476) the court allowed
salvage upon the following facts: The fourmasted schooner
Myrthle Tunnel sailed from Brunswick bound for New York The
first day out a hurricane struck her and tore the sails away and
carried off the deck load. She was badly damaged and
leaking. The master of the Myrthle Tunnel requested towage
by the steamship Mae to the port of Charleston. The Mae, on
account of her own damaged condition, was unable to tow but
she took the master and crew of the Myrthle Tunnel off and
landed them at Charleston. The owners notified and they
started an expedition out in search.
Before this expedition reached her, the steamship Shawmut
sighted the Myrthle Tunnel, and, finding that she was
abandoned and waterlogged, took her in tow and succeeded
in taking her to Charleston. The owners of the Myrthle Tunnel
contended that she was not derelict, because the master had
gone ashore to procure assistance.
14. Justification of award of salvage in The Shawmut case
The first question that arises is whether the Myrthle Tunnel is
a derelict. Prima facie a vessel found at sea in a situation of
peril, with no one aboard of her, is a derelict; but where the
master and crew leave such vessel temporarily, without any
intention of final abandonment, for the purpose of obtaining
assistance, and with the intent to return and resume
possession, she is not technically a derelict. It is not of
substantial importance to decide that question. She was what
may be called a quasi-derelict; abandoned, helpless, her sails
gone, entirely without power in herself to save herself from a
situation not of imminent but of
considerable peril; lying about midway between the Gulf
Stream and the shore, and about 30 miles from either. An east
wind would have driven her upon one, and a west wind into
the other, where she would have become a total loss. Lying in
the pathway of commerce, with nothing aboard to indicate an
intention to return and resume possession, it was a highly
meritorious act upon the part of the Shawmut to take
possession of her, and the award must be governed by the
rules which govern in case of derelicts; the amount of it to be
modified in some degree in the interest of the owners in
consideration of their prompt, intelligent, and praiseworthy
efforts to resume possession of her, wherein they incurred
considerable expense.
15. Doctrine in the cases of Bee, The John Gilpin, and The
Shawmut
The first of these cases was decided in 1836 and the last in
1907. They indicate that the abandonment of a vessel by all
on board, when the vessel is in peril, will justify third parties in
taking possession with the bona fide intention of saving the
vessel and its cargo for its owners. The mental hope of the
master and the crew will in no way affect the possession nor
the right to salvage.
16. Manila is base for operations
As to whether Manila or Hongkong should be used as a base
for operations, Capt. Robinson, who was the only one of the
experts who had had any experience in handling wet copra,
unqualifiedly approved Manila as a base for operations.
Further, Lebreton, a stevedore, testified that he would have
gotten some of his materials from Hongkong but that he would
have freighted the salved cargo to Manila. All other things
being equal, the fact that Hongkong is 40 sailing hours from
Scarborough Reef while Manila is less than 24 sailing hours
would make Manila by far the more logical base.
17. Testimony of the witnesses as to the proper method
used; Only Capt. Robinson has experience
in class of work, i.e. handling of the wet copra
Herein, Erlanger & Galinger sent men into the hold of the ship
and sacked the copra and brought it to Manila where it was
sold. Some of the witnesses contended that other methods
should have been used. They testified that grabs or clam
shells would have brought better results, but none of these
witnesses had had any experience in unloading wet copra.
Capt. Robinson was the only witness called who had had any
experience in this class of work. He testified that the only way
all the copra could be gotten out was by sacks or by canvas
14

slings; that grabs would be of no use because of the inability
to work with them between
decks. The copra was in three layers. The top layer was dry,
the middle layer was submerged every time the tide rose, and
the lower layer was submerged all of the time. It was
manifestly impossible to keep these layers separate by using
grabs or clam shells. The fact that wet copra is exceedingly
difficult to handle, on account of the gases which arise from it,
is also of prime importance in weighing the testimony of the
defendants witnesses, because none of them had ever had
experience with wet copra.
18. Difficulty to induce laborers to work with wet copra not
attributable to lack of care or diligence
Herein, Erlanger & Galinger commenced the actual work of
salving the ship and cargo on 18 May 1913. The last of the
cargo was brought to Manila the latter part of June. The last of
the dry copra was brought to Manila on June 5. The estimates
of the experts with regard to the time necessary to remove the
cargo ranged from 8 to 20 days. The greater portion of the
cargo was brought in by Erlanger & Galinger within 15 days.
The delay after June 5 was due to the difficulty in inducing
laborers to work with wet copra. This difficulty would have
arisen with any set of salvors and cannot be attributed to a
lack of care or diligence on
the part of Erlanger & Galinger.
19. Salvage conducted with skill, diligence, and efficiency
While Erlanger & Galinger entered upon the salvage
proceedings without proper means and not being
adapted by their business to conduct their work, and while it
may appear that possibly the salvage might have
been conducted in a better manner and have accomplished
somewhat better results in the saving of the copra
cargo, yet it appears that they quickly remedied their lack of
means and corrected the conduct of the work so
that it accomplished fairly good results. It does not appear
from the evidence that anyone then or subsequently
suggested or found any other course which might have been
pursued and which would have brought better
results. Herein, Erlanger & Galinger were diligent in
commencing the work and were careful and efficient in
its pursuit and conclusion.
20. Proper view as to compensation as salvage
Compensation as salvage is not viewed by the admiralty
courts merely as pay on the principle of
quantum meruit or as a remuneration pro opere et labore, but
as a reward given for perilous services,
voluntarily rendered, and as an inducement to mariners to
embark in such dangerous enterprises to save life
and property.
21. Expenses incurred by Erlanger & Galinger must be
borne by them, should have been spent not
more than the reasonable share of the proceeds would
amount to under any circumstances
The contention, that expenses incurred should be deducted
from the entire amount of the salved property and the
remainder be divided as a reward for the services rendered,
has no basis in law of salvage compensation. The expenses
incurred by Erlanger & Galinger must be borne by them. It is
true that the award should be liberal enough to cover the
expenses and give an extra amount as a reward for the
services rendered but the expenses are used in no other way
as a basis for the final award. A part of the risk that Erlanger &
Galinger incurred was that the goods salved would not pay
them for the amount expended in salving them. Erlanger &
Galinger knew this risk and they should not have spent more
money than their reasonable share of
the proceeds would amount to under any circumstances.
22. Salvor considered a joint owner; The case of Carl
Schurz (Case No. 2414; 5 Fed. Cas., 84)
A salvor, in the view of the maritime law, has an interest in the
property; it is called a lien, but it never goes, in the absence of
a contract expressly made, upon the idea of a debt due by the
owner to the salvor for services rendered, as at common law,
but upon the principle that the service creates a property in the
thing saved. He is, to all intents and purposes, a joint owner,
and if the property is lost he must bear his share like other
joint owners.
23. Libelant and owners mutually bear their respective
share of the loss in value by the sale
The libelant and the owners must mutually bear their
respective share of the loss in value by the sale. If the libelant
has been unfortunate and has spent his time and money in
saving a property not worth the expenditure he made, or if,
having saved enough to compensate him, it is lost by the
uncertainties of a judicial sale for partition, so to speak, it is a
misfortune not uncommon to all who seek gain by adventurous
speculations in values. The libelant says in his testimony that
he relied entirely on his rights as a salvor. This being so he
knew the risk he ran and it was his own folly to expend more
money in the service than his reasonable share would have
been worth under all circumstances and contingencies. He
can rely neither on the common law idea of an implied contract
to pay for work on and about ones property what the work is
reasonably worth with a lien attached by possession for
satisfaction, nor upon any motion of an implied maritime
contract for the services, with a maritime lien to secure it, as in
the case of repairs, or supplies furnished a needy vessel, or
the like. In such a case the owner would lose all if the property
did not satisfy the debt, when fairly sold. But this doctrine has
no place in the maritime law of salvage. It does not proceed
upon any theory of an implied obligation, either of the owner or
the res, to pay a quantum meruit, nor actual expenses
incurred, but rather on that of a reasonable compensation or
reward, as the case may be, to one who has rescued the res
from danger of total loss. If he gets the whole, the property
had as well been lost entirely, so far as the owner is
concerned. The public policy of encouragement for such
service does not, of itself, furnish sufficient support for a rule
which would exclude the owner from all benefit to be derived
from the service.
24. Mistakes in the valuation of cargo borne by salvors; In
Williams vs. The Adolphe (Fed. Cas. No.
17712; 29 Fed. Cas., 1350)
The claim of the libelants is for salvage, the services rendered
were salvage services and the owners are to receive their
property again, after paying salvage for the services rendered
them. What service would it be to them to take their property
under circumstances calling for the whole of it by way of
indemnity? The mistake of the captain and the supercargo,
and part owner of the Triton as to the value of the property on
board the Adolphe, should not operate to the injury of the
owners thereof; the salvors must bear the consequences of
their own mistake, taking such a proportion only of the
property salved, as by the law of the admiralty should be
awarded them.
15

25. Reservation of reasonable proportion for the owner; In
The Edwards (12 Fed. Rep., 508, 509)
It is true that in rendering a salvage service the salvor
assumes the risks of failure, and his salvage
depends upon his success and the amount of property saved;
yet when there is enough to fully compensate
him for time and labor, and leave an reasonable proportion for
the owner, he should certainly be awarded that,
if the amount will allow no more.
26. The doctrine of salvage requires that the service must
be productive of some benefit to the
owners of the property salved
In The L. W. Perry (71 Fed. Rep., 745, 746), without regard to
the element of reward which is intended by the salvage
allowance, it is manifest that remuneration pro opere et labore
would be placed in excess of the fund here, if such basis were
allowable. While salvage is of the nature of a reward for
meritorious service, and for determination of its amount the
interests of the public and the encouragement of others to
undertake like service are taken into consideration, as well as
the risk incurred, and the value of the property saved, and
where the proceeds for division are small, the proportion of
allowance to the salvor may
be enlarged to answer these purposes, nevertheless, the
doctrine of salvage requires, as a prerequisite to any
allowance, that the service must be productive of some
benefit to the owners of the property salved; for, however
meritorious the exertions of alleged salvors may be, if they are
not attended with benefit to the owners, they can not be
compensated as such. The claim of the libelant can only be
supported as one for salvage. It does not constitute a personal
demand, upon quantum meruit, against the owners, but gives
an interest in the property saved, which entitles the salvor to a
liberal share of the proceeds. One of the grounds for liberality
in salvage awards is the risk assumed by the salvor, that he
can have no recompense for service or expense unless he is
successful in the rescue of property, and that his reward must
be within the measure of his success. He obtains an interest in
the property, and in its proceeds when sold, but accompanied
by the same risk of any misfortune or depreciation which may
occur to reduce its value. In other words, he can only have a
portion, in any event; and the fact that his exertions were
meritorious and that their actual value, or the expense actually
incurred, exceeded the amount produced by the service,
cannot operate to absorb the entire proceeds against the
established rules of salvage.
27. Courts have a wide descretion in settling the award; In
The Job H. Jackson (161 Fed. Rep.,
1015, 1018)
Courts have a wide descretion in settling the award. The
award is now determined by the particular facts and the
degree of merit. There is no fixed rule for salvage allowance.
The old rule in cases of a derelict was 50 per cent of the
property salved; but under modern decisions and practice, it
may be less, or it may be more. The allowance rests in the
sound discretion of the court or judge, who hears the case,
hears the witnesses testify, looks into their eyes, and is
acquainted with the environments of the rescue. . . . An
allowance for salvage should not be weighed in golden scales,
but should be made as a reward for meritorious
voluntary services, rendered at a time when danger of loss is
imminent, as a reward for such services so rendered, and for
the purpose of encouraging others in like services.
28. Old rule of 50% of the derelict abandoned; In The
Lamington (86 Fed. Rep., 675, 678)
While it appears most clearly that, since the old hard and fast
rule of 50 per cent of a derelict was abandoned, the award is
determined by a consideration of the peculiar facts of each
case, it is none the less true that the admiralty courts have
always been careful not only to encourage salving enterprises
by liberality, when possible, but also to recognize that it is,
after all, a speculation in which desert and reward not always
balance.
29. Award is largely in the discretion of the trial court and
it is rare that the appellate court will
disturb the finding
Appellate courts rarely reduce salvage awards, unless there
has been some violation of just principles, or some clear or
palpable mistake. They are reluctant to disturb such award,
solely on the ground that the subordinate court gave too large
a sum, unless they are clearly satisfied that the court below
made an exorbitant estimate of the services. It is equally true
that, when the law gives a party a right to appeal, he has the
right to demand the conscientious judgment of the appellate
court on every question arising in the case, and the allowance
of salvage originally decreased has, in many cases, been
increased or diminished in the
appellate court, even where it did not violate any of the just
principles which should regulate the subject, but was
unreasonably excessive or inadequate. Although the amount
to be awarded as salvage rests, as it is said, in the discretion
of the court awarding it, appellate courts will look to see if that
discretion has been exercised by the court of first instance in
the spirit of those decisions which higher tribunals have
recognized and enforced, and will readjust the amount if the
decree below does not follow in the path of authority, even
though no principle has been violated or mistake made.
30. Distinction in the proportion of award as to the
property salved; Cases
The dry copra and the agar-agar was salved with much more
ease than the wet copra. The courts have, almost universally,
made a distinction in the proportion of award as to the property
salved. (1) In The America (1 Fed. Cas., 596), decided in
1836, the award was as follows: 25 per cent on cargo salved
dry; 50 per cent on cargo salved damaged; 60 per cent on
cargo salved by diving. (2) In The Ajax (1 Fed. Cas., 252),
decided in 1836, the award was as follows: 33 per cent on the
dry; 50 per cent on the wet; 50 per cent on ships materials. (3)
In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in
1853, the award was as follows: 30 per cent on dry cargo; 50
per cent on wet, salved by diving and working under water. (4)
In The Brewster (Fed. Cas. No. 1852), decided in 1848, the
award was as follows: 33 per cent, and as to some cargo
where diving was necessary, 60 per cent. (5) In The Mulhouse
(Fed. Cas. No. 9910), decided in 1859, the award was as
follows: 25 per cent salving dry deck cotton; 45 per cent
salving cotton submerged between decks; 55 per cent salving
cotton by diving. (6) In The John Wesley (Fed. Cas. NO.
7433), decided in 1866, the award was as follows: 15 per cent;
on damaged cotton a slightly higher per cent. (7) In The
Northwester (Fed. Cas. NO. 10333), decided in 1873, the
award was as follows: 20 per cent on cotton dry; 33 1/3 per
cent on cotton wet and burnt; 40 per cent on materials; 50 per
cent on property salved by diving. (8) In Baker vs. Cargo etc.
of The Slobodna (35 Fed. Rep., 537), decided in 1887, the
award was as follows: 25 per cent on dry cotton; 33 1/3 per
16

cent on wet cotton; 45 per cent on materials. (9) In the cases
in which the full award of 50 per cent was allowed the court
usually made the comment: services highly meritorious
service, with great labor and difficulty, or similar remarks.
31. Property involved in the salvage, in the present case
In the salvage operations conducted by Erlanger & Galinger,
the following property was involved (1) the steamship Nippon,
valued at P250,000.00; (2) copra, net valued, salved at P
142,657.05; (3) agar-agar, net value, salved at P 5,635.00; (4)
general cargo at P 5,939.68; (5) camphor, net value, salved at
P 1,850.00; and (6) curios, net value, salved at (P) 150.00.
32. Agreement between the parties, in the present case
Erlanger & Galinger and the owners of the ship have
heretofore, by mutual agreement, settled the question of the
amount of salvage of the ship. Erlanger & Galinger received
for that part of their services the sum of (L)15000, or about
P145,800. No appeal was taken from the judgment of the
lower court concerning the amount of salvage allowed by it for
the general cargo, the camphor, nor the curios salved.
33. Amount of salvage for the copra and the agar-agar
After a careful study of the entire record and taking into
account the amount which Erlanger & Galinger has received,
the Court has arrived at the conclusion that in equity and
justice that Erlanger & Galinger should receive for their
services the following amounts: (a) 40 per cent of the net
value of the wet copra salved; (b) 25 per cent of the net value
of the dry copra salved; and (c) 20 per cent of the net value of
the agar-agar salved. The net value of the wet copra salved
amounted to P40,381.94; 40 per cent of that amount would be
P16,152.78. Therefore, the net value of the dry copra salved
amounted to P102,275.11; 25 per cent of that amount would
be P25,568.77. In ascertaining the net value of the copra
salved, the expenses incurred by the Collector of Customs in
the sale of the copra, amounting to P4,080.01, has been
deducted from the total amount of the copra salved in the
proportion of 2.5 to 1. Dividing the expense in that proportion
we have deducted from the amount of the dry copra salved the
sum of P2,914.39, and from the amount of the wet copra
salved, the sum of P1,165.62. The net value of the agar-agar
salved amounted to P5,636; 20 per cent of that amount would
be P1,127.
Barrios vs. Go Thong (GR L-17192, 30 March 1963)
En Banc, Barrera (J): 10 concur
Facts: 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 p.m. of 1 May 1958, Barrios 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 Carlos A. Go
Thong & Company. Acting on and/or answering the S.O.S.
call, 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 Barrios 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, the MV Henry, under the
command of Barrios, succeeded in getting near the MV Don
Alfredo in fact as near as 7 seven meters from the latter
ship and with the consent and knowledge of the captain
and/or master of the MV Don Alfredo, Barrios 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. At about 5:10 a.m., 2 May 1958, or
after almost 9 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 15 minutes later, or
at about 5:25 a.m. Thereupon, at the request and instance of
the captain and/or master of the MV Don Alfredo, Barrios
caused the tow lines to be released, thereby also releasing the
MV Don Alfredo. Barrios 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, while Go
Thong insists that the facts made out no such case, but that
what merely happened was only mere towage from which
Barrios cannot claim any compensation or remuneration
independently of the shipping company that owned the vessel
commanded by him. Brought to the CFI of Manila (Civil Case
37219), the court therein dismissed the case; with cost against
Barrios. Barrios interposed an appeal. The Supreme Court
affirmed the decision of the lower court in all respects, with
costs against Barrios.
1. Section 1, Salvage Law
Section 1 of the Salvage Law (Act No. 2616), provides that
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.
2. Salvage defined
According to Section 1, Act 2616, 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.
3. Elements for a valid salvage claim; Erlanger & Galinger
case
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.
4. No marine peril to justify valid salvage claim
There was no marine peril to justify a valid salvage claim by
Barrios against Go Thong. It appears that although Go
Thongs vessel in question was, on the night of 1 May 1958, in
17

a helpless condition due to engine failure, it did not drift too far
from the place where it was. 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 Go Thongs 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 vessels cargo as a safety measure.
Neither the passengers nor the cargo were in danger of
perishing. All that the vessels crew members could not do
was to move the vessel on its own power. That did not make
the vessel a quasi-derelict.
5. Contract of towage perfected even without written
agreement
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. Herein, in
consenting to Barrios offer to tow the vessel, Go Thong
(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
Barrios, the William Lines.
6. Only owner entitled to remuneration in towage
If the contract thus created 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. The courts have
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 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 towage
services and not salvage services. 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.
7. Owner expressly waived claim for compensation,
captain not entitled therefore
As the vessel-owner, William Lines, had expressly waived its
claim for compensation for the towage service rendered to Go
Thong, it is clear that Barrios, 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.
8. Equity cannot be resorted if there is an express
provision of law
Barrios cannot invoke equity in support of his claim for
compensation against Go Thong. There being an express
provision of law (Art. 2142, Civil Code) applicable to the
relationship created in the case, i.e. 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.
E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE
COMPANY, petitioners, vs.
COURT OF APPEALS, INTERNATIONAL HARVESTER
COMPANY OF THE PHILIPPINES and ISTHMIAN
STEAMSHIP COMPANY, respondents.
It appears that in the month of December, 1945 the goods
specified in the Bill of Lading marked as Annex A, were
shipped on the 'S.S. Sea Hydra,' of Isthmian Steamship
Company, from New York to Manila, and were received by the
consignee 'Udharam Bazar and Co.', except one case of
vanishing cream valued at P159.78. The goods were insured
against damage or loss by the 'Atlantic Mutual Insurance Co.'
`Udharam Bazar and Co.' Inc., who denied having received
the goods for custody, and the 'International Harvester Co. of
the Philippines,' as agent for the shipping company, who
answer that the goods were landed and delivered to the
Customs authorities. Finally, 'Udaharam Bazar and Co.'
claimed for indemnity of the loss from the insurer, 'Atlantic
Mutual Insurance Co.', and was paid by the latter's agent 'E. E.
Elser Inc.' the amount involved, that is, P159.78..
As may be noted, the Court of Appeals held that petitioners
have already lost their right to press their claim against
respondent because of their failure to serve notice thereof
upon the carrier within 30 days after receipt of the notice of
loss or damage as required by clause 18 of the bill of lading
which was issued concerning the shipment of the merchandise
which had allegedly disappeared. Petitioners now contend that
this finding is erroneous in the light of the provisions of the
Carriage of Goods by Sea Act of 1936, which apply to this
case, the same having been made an integral part of the
covenants agreed upon in the bill of lading.
There is merit in this contention. In our opinion this Act cannot
be ignored or disregard in determining the equities of the
parties it appearing that the same was made an integral part of
the bill of lading by express stipulation. It should be noted, in
this connection, that the Carriage of Goods by Sea Act of 1936
was accepted and adopted by our government by the
enactment of Commonwealth Act No. 65 making said Act
"applicable to all contracts for the carriage in foreign
trade."
It would therefore appear from the above that a carrier can
only be discharged from liability in respect of loss or damage if
the suit is not brought within one year after the delivery of the
goods or the date when the goods should have been
delivered, and that, even if a notice of loss or damage is not
given as required, "that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the
delivery of the goods." In other words, regardless of whether
the notice of loss or damage has been given, the shipper can
still bring an action to recover said loss or damage within one
year after the delivery of the goods, and, as we have stated
above, this is contrary to the provisions of clause 18 of the bill
of lading.
That clause 18 must of necessity yields to the provisions of the
Carriage of Goods by Sea Act in view of the proviso contained
in the same Act which says: "any clause, covenant, or
18

agreement in a contract of carriage relieving the carrier or the
ship from liability for loss or damage to or in connection with
the goods . . . or lessening such liability otherwise than as
provided in this Act, shall be null and void and of no effect."
(section 3.) This means that a carrier cannot limit its liability in
a manner contrary to what is provided for in said act. and so
clause 18 of the bill of lading must of necessity be null and
void.
Respondent stated however, said Act does not have any
application to the present case because the shipment in
question was made in December, 1945, and arrived in Manila
in February, 1946 and at that time the Philippines was still a
territory or possession of the United States and, therefore it
may be said that the trade then between the Philippines and
the United States was not a "foreign trade". In other words, it is
contended that the Carriage of Goods by Sea Act as adopted
by our government is only applicable "to all contracts for the
carriage of goods by sea to and from Philippine ports
in foreign trade," and, therefore, it does not apply to the
shipment in question..
Granting arguendo , still we are of the opinion that the
Carriage of Goods by Sea Act of 1936 may have application to
the present case it appearing that the parties have expressly
agreed to make and incorporate the provisions of said Act as
integral part of their contract of carriage. This is an exception
to the rule regarding the applicability of said Act. This is
expressly recognized by section 13 of said Act which contains
the following proviso:
Nothing in this Act shall be held to apply to contracts
for carriage of goods by sea between any port of the
United States or its possessions, and any other port of
the United States or its possessions: Provided,
however, That any bill of lading or similar document of
title which evidence of a contract for the carriage of
goods by sea between such ports, containing an
express statement that it shall be subject to the
provisions of this Act, shall be subjected hereto as
fully as if subject hereto by the express provisions
of this Act.
Having reached the foregoing conclusion, it would appear
clear that action of petitioners has not yet lapsed or
prescribed, as erroneously held by the Court of Appeals, it
appearing that the present action was brought within one year
after the delivery of the shipment in question.
As regards the contention of respondents that petitioners have
the burden of showing that the loss complained of did not take
place under after the goods left the possession or custody of
the carrier because they failed to give notice of their loss or
damage as required by law, which failures gives rise to the
presumption that the goods were delivered in the bill of lading,
suffice it to state that, according to the Court of Appeals, the
required notice was given by the petitioners to the carrier or its
agent on April 25, 1946. That notice is sufficient to overcome
the above presumption within the meaning of the law..
Wherefore the decision appealed from is reversed.
Respondents, are hereby sentenced to pay to the petitioners
the sum of P159.78, with legal interest thereon from the date
of the filing of the complaint, plus the costs of action.

G.R. No. L-30805 December 26, 1984
DOMINGO ANG, plaintiff-appellant,
vs.
COMPANIA MARITIMA, MARITIME COMPANY OF THE
PHILIPPINES and C.L. DIOKNO, defendants-appellees.

AQUINO, J .:
This case involves the recovery of damages by the consignee
from the carrier in case of misdelivery of the cargo which
action was dismissed by the trial court on the grounds of lack
of cause of action and prescription.
It should be noted that that legal point is already
res judicata. In 1967 it was decided in favor of plaintiff-
appellant Domingo Ang in Ang vs. American Steamship
Agencies, Inc., 125 Phil. 543 and 125 Phil. 1040, three cases.
As observed by Ang's counsel, the facts of those cases and
the instant case are the same mutatis mutandis. It was held
that Ang has a cause of action against the carrier which has
not prescribed
In the instant case, Ang on September 26, 1963, as the
assignee of a bill of lading held by Yau Yue Commercial Bank,
Ltd. of Hongkong, sued Compania Maritima, Maritime
Company of the Philippines and C.L. Diokno. He prayed that
the defendants be ordered to pay him solidarily the sum of
US$130,539.68 with interest from February 9, 1963 plus
attorney's fees and damages.
Ang alleged that Yau Yue Commercial Bank agreed to sell to
Herminio G. Teves under certain conditions 559 packages of
galvanized steel, Durzinc sheets. The merchandise was
loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon a
vessel owned and operated by the defendants, to be
transported to Manila and consigned "to order" of the shipper,
Tokyo Boeki, Ltd., which indorsed the bill of lading issued by
Compania Maritima to the order of Yau Yue Commercial Bank.
Ang further alleged that the defendants, by means of a permit
to deliver imported articles, authorized the delivery of the
cargo to Teves who obtained delivery from the Bureau of
Customs without the surrender of the bill of lading and in
violation of the terms thereof. Teves dishonored the draft
drawn by Yau Yue against him.
The Hongkong and Shanghai Banking Corporation made the
corresponding protest for the draft's dishonor and returned the
bill of lading to Yau Yue. The bill of lading was indorsed to
Ang.
The defendants filed a motion to dismiss Ang's complaint on
the ground of lack of cause of action. Ang opposed the motion.
As already stated, the trial court on May 22, 1964 dismissed
the complaint on the grounds of lack of cause of action and
prescription since the action was filed beyond the one-year
period provided in the Carriage of Goods by Sea Act.
In the American Steamship Agencies cases, it was held that
the action of Ang is based on misdelivery of the cargo which
should be distinguished from loss thereof. The one-year period
provided for in section 3 (6) of the Carriage of Goods by Sea
Act refers to loss of the cargo. What is applicable is the four-
year period of prescription for quasi-delicts prescribed in
article 1146 (2) of the Civil Code or ten years for violation of a
written contract as provided for in article 1144 (1) of the same
Code.
As Ang filed the action less than three years from the date of
the alleged misdelivery of the cargo, it has not yet prescribed.
Ang, as indorsee of the bill of lading, is a real party in interest
with a cause of action for damages.
WHEREFORE, the order of dismissal is reversed and set
aside. The case is remanded to the trial court for further
proceedings. Costs against the defendants.
19

SO ORDERED.
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.

NARVASA, J .:
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 caged 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
reads:
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 prescribe 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,
14
prescription under said Act is subject to the provisions
of Article 1155 of the Civil Code on tolling and because Dole's
claim f or 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 the Carriage 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 toiled 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.
20

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.
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.
Maritime Agencies & Services vs. CA (GR 77638, 12 July
1990) Union Insurance Society of Canton, Ltd. vs. CA (GR
77674) First Division, Cruz (J): 4 concur
Facts: Transcontinental Fertilizer Company of London
chartered from Hongkong the motor vessel named Hongkong
Island for the shipment of 8073.35 MT (gross) bagged urea
from Novorossisk, Odessa, USSR, to the Philippines, the
parties signing for this purpose a Uniform General Charter
dated 9 August 1979. Of the total shipment, 5,400.04 MT was
for the account of Atlas Fertilizer Company as consignee,
3,400.04 to be discharged in Manila and the remaining 2,000
MT in Cebu. The goods were insured by the consignee with
the Union Insurance Society of Canton, Ltd. for P6,779,214.00
against all risks. Maritime Agencies & Services, Inc. was
appointed as the charterers agent and Macondray Company,
Inc. as the owners agent. The vessel arrived in Manila on 3
October 1979, and unloaded part of the consignees goods,
then proceeded to Cebu on 19 October 1979, to discharge the
rest of the cargo. On 31 October 1979, the consignee filed a
formal claim against Maritime, copy furnished Macondray, for
the amount of P87,163.54, representing C & F value of the
1,383 short landed bags. On 12 January 1980, the consignee
filed another formal claim, this time against Viva Customs
Brokerage, for the amount of P36,030.23, representing the
value of 574 bags of net unrecovered spillage. These claims
having been rejected, the consignee then went to Union,
which on demand paid the total indemnity of P113,123.86
pursuant to the insurance contract.
As subrogee of the consignee, Union then filed on 19
September 1980, a complaint for reimbursement of this
amount, with legal interest and attorneys fees, against
Hongkong Island Company, Ltd., Maritime Agencies &
Services, Inc. and/or Viva Customs Brokerage. On 20 April
1981, the complaint was amended to drop Viva and implead
Macondray Company, Inc. as a new defendant. On 4 January
1984, after trial, the trial court rendered judgment, ordering (a)
Hongkong Island Co., Ltd., and its local agent Macondray &
Co., Inc. to pay Union the sum of P87,1 63.54 plus 12%
interest from 20 April 1981 until the whole amount is fully paid,
P1,000.00 as attorneys fees and to pay of the costs; and
(b) Maritime Agencies & Services, Inc., to pay Union the sum
of P36,030.23, plus 12% interest from 20 April 1981 until the
whole amount is fully paid, P600.00 as attorneys fees and to
pay of the costs.
Maritime Agencies & Services appealed the decision to the
Court of Appeals, which rendered a decision on 28 November
1986, modifying the decision appeal from, finding the charterer
Transcontinental Fertilizer Co., Ltd. represented by its agent
Maritime Agencies & Services, Inc. liable for the amount of
P87,163.54 plus interest at 12% plus attorneys fees of
P1,000.00. Hongkong Island Cos. Ltd. represented by
Macondray Co., Inc. were accordingly exempted from any
liability. Maritime and Union filed separate motions for
reconsideration which were both denied. Hence, the petitions.
These two cases were consolidated and given due course, the
parties being required to submit simultaneous memoranda. All
complied, including Hongkong Island Company, Ltd., and
Macondray Company, Inc., although they pointed out that they
were not involved in the petitions. The Supreme Court set
aside the decision of the appellate court, and reinstated that of
the trial court as modified; and further holding that the parties
shall bear their respective costs.
1. Factual Findings of the trial court In his decision dated 4
January 1984, Judge Artemon de Luna of the Regional Trial
Court of Manila held that the Court, on the basis of the
evidence, finds nothing to disprove the finding of the marine
and cargo surveyors that of the 66,390 bags of urea fertilizer,
65,547 bags were discharged ex-vessel and there were short
landed 1,383 bags, valued at P87,163.54. This sum should
be the principal and primary liability and responsibility of the
carrying vessel. Under the contract for the transportation of
goods, the vessels responsibility commence upon the actual
delivery to, and receipt by the carrier or its authorized agent,
until its final discharge at the port of Manila.
2. Categories of charters There are three general categories of
charters, to wit, the demise or bareboat charter, the time
charter and the voyage charter.
3. Demise charter A demise involves the transfer of full
possession and control of the vessel for the period covered by
the contract, the charterer obtaining the right to use the vessel
and carry whatever cargo it chooses, while manning and
supplying the ship as well.
4. Time charter A time charter is a contract to use a vessel for
a particular period of time, the charterer obtaining the right to
direct the movements of the vessel during the chartering
period, although the owner retains possession and control.
5. Voyage charter A voyage charter is a contract for the hire of
a vessel for one or a series of voyages usually for the purpose
21

of transport in goods for the charterer. The voyage charter is a
contract of affreightment and is considered a private carriage.
6. Responsibility for cargo loss in case of a voyage charter A
voyage charter being a private carriage, the parties may freely
contract respecting liability for damage to the goods and other
matters. The basic principle is that the responsibility for cargo
loss falls on the one who agreed to perform the duty involved
in accordance with the terms of most voyage charters. This is
true in the present cases where the charterer was responsible
for loading, stowage and discharging at the ports visited, while
the owner was responsible for the care of the cargo during the
voyage.
7. Paragraph 2 of the Uniform General Charter Paragraph 2 of
the Uniform General Charter reads Owners are to be
responsible for loss of or damage to the goods or for delay in
delivery of the goods only in case the loss, damage or delay
has been caused by the improper or negligent stowage of the
goods or by personal want of due diligence on the part of the
Owners or their Manager to make the vessel in all respects
seaworthy and to secure that she is properly manned,
equipped and supplied or by the personal act or default of the
Owners or their Manager. And the Owners are responsible for
no loss or damage or delay arising from any other cause
whatsoever, even from the neglect or default of the Captain or
crew or some other person employed by the Owners onboard
or ashore for whose acts they would, but for this clause, be
responsible, or from unseaworthiness of the vessel on loading
or commencement of the voyage or at any time whatsoever.
Damage caused by contact with or leakage, smell or
evaporation from other goods or by the inflammable or
explosive nature or insufficient package of other goods not to
be considered as caused by improper or negligent stowage,
even if in fact so caused.
8. Clause 17 of the Additional Clauses to Charter party Clause
17 of Additional Clauses to Charter party provides that The
cargo shall be loaded, stowed and discharged free of expense
to the vessel under the Masters supervision. However, if
required at loading and discharging ports the vessel is to give
free use of winches and power to drive them gear, runners
and ropes. Also slings, as on board. Shore winchmen are to
be employed and they are to be for Charterers or Shippers or
Receivers account as the case may be. Vessel is also to give
free use of sufficient light, as on board, if required for night
work. Time lost through breakdown of winches or derricks is
not to count as lay time.
9. Home Insurance vs. American Steamship Agencies;
Stipulations exempting owner from liability in charter valid In
Home Insurance Co. v. American Steamship Agencies, Inc.,
the trial court rejected similar stipulations as contrary to public
policy and, applying the provisions of the Civil Code on
common carriers and of the Code of Commerce on the duties
of the ship captain, held the vessel liable in damages for loss
of part of the cargo it was carrying. The Supreme Court
reversed, therein, declaring that the provisions of our Civil
Code on common carriers were taken from Anglo-American
law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. As a private carrier, a
stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is
deemed valid.
10. Civil Code provisions on common carrier should not be
applied if carrier is acting as private carrier, public not involved
The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner
from liability for loss due to the negligence of its agent would
be void only if the strict public policy governing common
carriers is applied. Such policy has no force where the public
at large is not involved, as in the case of a ship totally
chartered for the use of a single party.
11. Ruling cannot benefit Hongkong due to short landed bags;
Presumption of fault in damaged goods covered by clean bill
of lading The present ruling cannot benefit Hongkong,
because there was no showing in that case that the vessel
was at fault. Herein, the trial court found that 1,383 bags were
short landed, which could only mean that they were damaged
or lost on board the vessel before unloading of the shipment. It
is not denied that the entire cargo shipped by the charterer in
Odessa was covered by a clean bill of lading. As the bags
were in good order when received in the vessel, the
presumption is that they were damaged or lost during the
voyage as a result of their negligent improper stowage. For
this the ship owner should be held liable.
12. Prescription of action; Filing of claim within 1 year, in
accordance with COGSA The period for filing the claim is one
year, in accordance with the Carriage of Goods by Sea Act.
This was adopted and embodied by our legislature in
Commonwealth Act 65 which, as a special law, prevails over
the general provisions of the Civil Code on prescription of
actions.
13. Section 3(6) of Commonwealth Act 65 Section 3(6) of that
Act provides that 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 for damage; either
apparent or concealed, is not given as provided for in this
section, that fact shall not effect 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.
14. Application of the prescriptive period; Union Carbide vs.
Manila Railroad The period was applied by the Court in the
case of Union Carbide, Philippines, Inc. v. Manila Railroad
Co., where it was held Under the facts of this case, we held
that the one-year period was correctly reckoned by the trial
court from December 19, 1961, when, as agreed upon by the
parties and as shown in the tally sheets, the cargo was
discharged from the carrying vessel and delivered to the
Manila Port Service. That one-year period expired on
December 19, 1962. Inasmuch as the action was filed on
December 21, 1962, it was barred by the statute of
limitations.
15. Application of prescriptive period; Present cases The one-
year period in the present cases should commence on 20
October 1979, when the last item was delivered to the
consignee. Unions complaint was filed against Hongkong on
19 September 1980, but tardily against Macondray on 20 April
1981. The consequence is that the action is considered
prescribed as far as Macondray is concerned but not against
its principal, which is what matters anyway.
16. Charterer liable for damaged goods during unloading;
Agent, however, cannot be made liable for acts of disclosed
principal As regards the goods damaged or lost during
unloading, the charterer is liable therefor, having assumed this
22

activity under the charter party free of expense to the vessel.
The difficulty is that Transcontinental has not been impleaded
in these cases and so is beyond the Courts jurisdiction. The
liability imposable upon it cannot be borne by Maritime which,
as a mere agent, is not answerable for injury caused by its
principal. It is a well-settled principle that the agent shall be
liable for the act or omission of the principal only if the latter is
undisclosed.
17. Switzerland General Insurance vs. Ramirez not applicable
The ruling in the case of Switzerland General Insurance Co.,
Ltd. v. Ramirez is not applicable. In that case, the charterer
represented itself on the face of the bill of lading as the carrier.
The vessel owner and the charterer did not stipulate in the
Charter party on their separate respective liabilities for the
cargo. The loss/damage to the cargo was sustained while it
was still on board or under the custody of the vessel. As the
charterer was itself the carrier, it was made liable for the acts
of the ship captain who was responsible for the cargo while
under the custody of the vessel. As for the charterers agent,
the evidence showed that it represented the vessel when it
took charge of the unloading of the cargo and issued cargo
receipts (or tally sheets) in its own name. Claims against the
vessel for the losses/damages sustained by that cargo were
also received and processed by it. As a result, the charterers
agent was also considered a ship agent and so was held to be
solidarily liable with its principal. The facts in the cases at bar
are different. The charterer did not represent itself as a carrier
and indeed assumed responsibility only for the unloading of
the cargo, i.e, after the goods were already outside the
custody of the vessel. In supervising the unloading of the
cargo and issuing Daily Operations Report and Statement of
Facts indicating and describing the day-to-day discharge of
the cargo, Maritime acted in representation of the charterer
and not of the vessel. It thus cannot be considered a ship
agent. As a mere charterers agent, it cannot be held solidarily
liable with Transcontinental for the losses/damages to the
cargo outside the custody of the vessel. Notably,
Transcontinental was disclosed as the charterers principal
and there is no question that Maritime acted within the scope
of its authority.
18. Hongkong and Macondray impleaded in GR 77674; Issues
not formally raised on appeal may be considered in the
interest of justice First of all, we note that they were formally
impleaded as respondents in G.R No. 77674 and submitted
their comment and later their memorandum, where they
discussed at length their position vis-a-vis the claims of the
other parties. Secondly, we reiterate the rule that even if
issues are not formally and specifically raised on appeal, they
may nevertheless be considered in the interest of justice for a
proper decision of the case.
19. Unassigned error closely related to error properly
assigned, or upon which a properly assigned error depends
considered; Interest of justice Besides, an unassigned error
closely related to the error properly assigned, or upon which
the determination of the question raised by the error properly
assigned is dependent, will be considered by the appellate
court notwithstanding the failure to assign it as error. At any
rate, the Court is clothed with ample authority to review
matters, even if they are not assigned as errors in their appeal,
if it finds that their consideration is necessary in arriving at a
just decision of the case. Issues, though not specifically
raised in the pleadings in the appellate court, may, in the
interest of justice, be properly considered by said court in
deciding a case, if they are questions raised in the trial court
and are matters of record having some bearing on the issue
submitted which the parties failed to raise or the lower court
ignored. While an assignment of error which is required by
law or rule of court has been held essential to appellate
review, and only those assigned will be considered, there are
a number of cases which appear to accord to the appellate
court a broad discretionary power to waive this lack of proper
assignment of errors and consider errors not assigned.
20. Liability of Macondray can no longer enforced; and
Maritime cannot be held liable for acts of known principal The
liability of Macondray can no longer be enforced because the
claim against it has prescribed; and as for Maritime, it cannot
be held liable for the acts of its known principal resulting in
injury to Union.
21. When interest commence The interest must also be
reduced to the legal rate of 6%, conformably to our ruling in
Reformina v. Tomol and Article 2209 of the Civil Code, and
should commence, not on 20 April 1981, but on 19 September
1980, date of the filing of the original complaint.

Mayer Steel Pipe vs. CA (GR 124050, 19 June 1997)
Second Division, Puno (J): 4 concur
Facts: In 1983, Hongkong Government Supplies Department
(Hongkong) contracted 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 MSPC-1014,
MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and
MSPC-1022. Prior to the shipping, Mayer insured the pipes
and fittings against all risks with South Sea Surety and
Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice MSPC-
1014, 1015 and 1025 with a total amount of US$212,772.09
were insured with South Sea, while those covered by Invoice
1020, 1017 and 1022 with a total amount of US$149,470.00
were insured with Charter. 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. Hongkong and Mayer filed a claim against Sourth
Sea and Charter for indemnity under the insurance contract.
Charter paid Hongkong the amount of HK$64,904.75.
Hongkong and Mayer demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged
pipes. South Sea and Charter refused to pay because the
insurance surveyors report allegedly showed that the damage
is a factory defect. On 17 April 1986, Hongkong and Mayer
filed an action against South Sea and Charter to recover the
sum of K$299,345.30. The trial court ruled in favor of the
former. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance
contracts executed by Mayer with South Sea and Charter 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. Thus, the
court ordered South Sea and Charter to pay in solidum the
sum equivalent in Philippine currency of HK$299,345.30 with
23

legal rate of interest as of the filing of the complaint;
P100,000.00 as and for attorneys fees; and costs of suit.
South Sea and Charter elevated the case to the Court of
Appeals. The appellate 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
South Sea and Charter to Mayer. However, it set aside the
decision of the trial court and dismissed the complaint on the
ground of prescription. Hence, the petition for review on
certiorari filed by Mayer and Hongkong.
The Supreme Court granted the petition, set aside the 14
December 1995 decision and the 22 February 1996 resolution
of the Court of Appeals, and reinstated the decision of the
RTC; without costs.
1. Section 3 (6) of COGSA
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.
2. Section 3 (6) of COGSA applies to carriers and not to
insurers; Insurers covered by Insurance Code
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 carriers liability
is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurers
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.
3. Filipino Merchants Insurance Co. vs. Alejandro different
from case at bar
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 shippers claim is
the all risks insurance policies issued by South Sea and
Charter to Mayer.
4. Proper application of ruling in Filipino Merchants
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 insurers 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.
5. Nature of an all risks insurance policy; Prescription
as per Article 1144 NCC
An all risks insurance policy covers all kinds of loss other
than those due to willful and fraudulent act of the insured.
Herein, South Sea and Charter issued the all risks policies to
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.
G.R. No. 166250 July 26, 2010
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.),
INC., Petitioner,
vs.
COURT OF APPEALS and PIONEER INSURANCE AND
SURETY CORPORATION, Respondents.

Facts: On August 31, 1992, the shipper Sylvex Purchasing
Corporation delivered to UTI a shipment of 27 drums of
various raw materials for pharmaceutical manufacturing,
consisting of: "1) 3 drums (of) extracts, flavoring liquid,
flammable liquid x x x banana flavoring; 2) 2 drums (of)
flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags
dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex
Extract." UTI issued Bill of Lading No. C320/C15991-
2, covering the aforesaid shipment. The subject shipment was
insured with private respondent Pioneer Insurance and Surety
Corporation in favor of Unilab against all risks in the amount
of P1,779,664.77 under and by virtue of Marine Risk Note
Number MC RM UL 0627 92 and Open Cargo Policy No. HO-
022-RIU.
On the same day that the bill of lading was issued, the
shipment was loaded in a sealed 1x40 container van, with no.
APLU-982012, boarded on APLs vessel M/V "Pres. Jackson,"
Voyage 42, and transshipped to APLs M/V "Pres. Taft" for
delivery to petitioner in favor of the consignee United
Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the
port of Manila. On October 6, 1992, petitioner received the
said shipment in its warehouse after it stamped the Permit to
Deliver Imported Goods procured by the Champs Customs
Brokerage. Three days thereafter, or on October 9, 1992,
Oceanica Cargo Marine Surveyors Corporation (OCMSC)
conducted a stripping survey of the shipment located in
petitioners warehouse.
Consequently, Unilabs quality control representative
rejected one paper bag containing dried yeast and one steel
drum containing Vitamin B Complex as unfit for the intended
purpose. On November 7, 1992, Unilab filed a formal claim for
the damage against private respondent and UTI. On
November 20, 1992, UTI denied liability on the basis of the
gate pass issued by Jardine that the goods were in complete
and good condition; while private respondent paid the claimed
amount on March 23, 1993. By virtue of the Loss and
Subrogation Receipt issued by Unilab in favor of private
respondent, the latter filed a complaint for Damages against
APL, UTI and petitioner with the RTC of Makati.

Issue: Whether or not petitioner is a common carrier.

Held: Admittedly, petitioner is a freight forwarder. The term
"freight forwarder" refers to a firm holding itself out to the
general public (other than as a pipeline, rail, motor, or water
carrier) to provide transportation of property for compensation
24

and, in the ordinary course of its business, (1) to assemble
and consolidate, or to provide for assembling and
consolidating, shipments, and to perform or provide for break-
bulk and distribution operations of the shipments; (2) to
assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for
any part of the transportation a carrier subject to the federal
law pertaining to common carriers.
A freight forwarders liability is limited to damages
arising from its own negligence, including negligence in
choosing the carrier; however, where the forwarder contracts
to deliver goods to their destination instead of merely
arranging for their transportation, it becomes liable as a
common carrier for loss or damage to goods. A freight
forwarder assumes the responsibility of a carrier, which
actually executes the transport, even though the forwarder
does not carry the merchandise itself.
Undoubtedly, UTI is liable as a common carrier.
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. 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,
loss, or destruction of the goods happened, the transporter
shall be held responsible.
Undoubtedly, UTI is liable as a common carrier.
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.

First, as stated in the bill of lading, the subject
shipment was received by UTI in apparent good order and
condition in New York, United States of America. Second, the
OCMSC Survey Report stated that one steel drum STC
Vitamin B Complex Extract was discovered to be with a
cut/hole on the side, with approximate spilling of 1%. Third,
though Gate Pass No. 7614, issued by Jardine, noted that the
subject shipment was in good order and condition, it was
specifically stated that there were 22 (should be 27 drums per
Bill of Lading No. C320/C15991-2) drums of raw materials for
pharmaceutical manufacturing. Last, J.G. Bernas Survey
Report stated that 1-s/drum was punctured and retaped on
the bottom side and the content was lacking, and there was a
short delivery of 5-drums.

All these conclusively prove the fact of shipment in
good order and condition, and the consequent damage to one
steel drum of Vitamin B Complex Extract while in the
possession of petitioner which failed to explain the reason for
the damage. Further, petitioner failed to prove that it observed
the extraordinary diligence and precaution which the law
requires a common carrier to exercise and to follow in order to
avoid damage to or destruction of the goods entrusted to it for
safe carriage and delivery.
[29]


However, we affirm the applicability of the Package
Limitation Rule under the COGSA, contrary to the RTC and
the CAs findings.
Section 4(5) of the COGSA provides:

(5) Neither the carrier nor the ship
shall in any event be or become liable for any
loss or damage to or in connection with the
transportation of goods in an amount
exceeding $500 per package of lawful money
of the United States, or in case of goods not
shipped in packages, per customary freight
unit, or the equivalent of that sum in other
currency, unless the nature and value of such
goods have been declared by the shipper
before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill
of lading, shall be prima facie evidence, but
shall not be conclusive on the carrier.


In the present case, the shipper did not declare a
higher valuation of the goods to be shipped. Contrary to the
CAs conclusion, the insertion of the words L/C No. LC No. 1-
187-008394/ NY 69867 covering shipment of raw materials for
pharmaceutical Mfg. x x x cannot be the basis of petitioners
liability.
[31]
Furthermore, the insertion of an invoice number
does not in itself sufficiently and convincingly show that
petitioner had knowledge of the value of the cargo.
[32]


In light of the foregoing, petitioners liability should be
limited to $500 per steel drum. In this case, as there was only
one drum lost, private respondent is entitled to receive only
$500 as damages for the loss.
WHEREFORE, premises considered, the petition
is PARTIALLY GRANTED

INSURANCE COMPANY OF NORTH AMERICA VS. ASIAN
TERMINALS, INC.
666 SCRA 226
PONENTE: PERALTA, J.


DOCTRINE:
The term carriage of goods in the Carriage of Goods by Sea
Act (COGSA) covers the period from the time the goods are
loaded to the vessel to the time they are discharged therefrom.

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.

FACTS:

On November 9, 2002, Macro-Lito Corporation, through
M/V DIMI P vessel, 185 packages of electrolytic tin free steel,
complete and in good condition.
The goods are covered by a bill of lading, had a declared
value of $169,850.35 and was insured with the Insuracne
Company of North America (Petitioner) against all risk.
The carrying vessel arrived at the port of Manila on
November 19, 2002, and when the shipment was discharged
25

therefrom, it was noted that 7 of the packages were damaged
and in bad condition.
On Novermber 21, 2002, the shipment was then turned
over to the custody of Asian Terminals. Inc. (Respondent) for
storage and safekeeping pending its withrawal by the
consignee.
On November 29, 2002, prior to the withrawal of the
shipment, a joint inspection of the said cargo was conducted.
The examination report showed that an additional 5 packages
were found to be damaged and in bad order.
On January 6, 2003, the consignee, San Miguel
Corporation filed separate claims against both the Petitioner
and the Respondent for the damage caused to the packages.
The Petitioner then paid San Miguel Corporation the
amount of PhP 431,592.14 which is based on a report of its
independent adjuster.
The Petitioner then formally demanded reparation against
the Respondent for the amount it paid San Miguel
Corporation.
For the failure of the Respondent to satisfy the demand of
the Petitioner, the Petitioner filed for an action for damages
with the RTC of Makati.
The trial court found that indeed, the shipment suffered
additional damage under the custody of the Respondent prior
to the turnover of the said shipment to San Miguel.
As to the extent of liability, Respondent invoked the
Contract for Cargo Handling Services executed between the
Philippine Ports Authority and the Respondent. Under the
contract, the Respondents liability for damage to cargoes in
its custody is limited to PhP5,000 for each package, unless the
value of the cargo shipment is otherwise specified or
manifested in writing together with the declared Bill of Lading.
The trial Court found that the shipper and consignee with the
said requirements.
However, the trial court dismissed the complaint on the
ground that the Petitioners claim was barred by the statute of
limitations. It held that the Carriage of Goods by Sea Act
(COGSA), embodied in Commonwealth Act No. 65 is
applicable. The trial court held that under the said law, the
shipper has the right to bring a suit within one year after the
delivery of the goods or the date when the goods should have
been delivered, in respect of loss or damage thereto.
Petitioner then filed before the Supreme Court a petition for
review on certiorari assailing the trial courts order of dismissal.

ISSUE/S:

1.) Whether or not the trial court committed an error in
dismissing the complaint of the petitioner based on the one-
year prescriptive period for filing a suit under the COGSA to an
arrastre operator? YES.

2.) Whether or not the Petitioner is entitled to recover actual
damages against the Respondent? YES, but only
PhP164,428.76

HELD:

The term carriage of goods covers the period from the
time when the goods are loaded to the time when they are
discharged from the ship. Thus, it can be inferred that the
period of time when the goods have been discharged from the
ship and given to the custody of the arrastre operator is not
covered by the COGSA.

The Petitioner, who filed the present action for the 5
packages that were damaged while in the custody of the
respondent was not fortright in its claim, as it knew that the
damages it sought, based on the report of its adjuster covered
9 packages. Based on the report, only four of the nine
packages were damaged in the custody of the Respondent.
The Petitioner can be granted only the amount of damages
that is due to it.

G.R. No. 171337 July 11, 2012

BENJAMIN CUA (CUA UlAN TEK),
Petitioner,vs.
WALLEM PHILIPPINES SHIPPING, INC. and ADVANCE SHIPPING
CORPORATION,
Respondents.
FACTS:
Cua filed a civil action for damages against Wallem and
Advance Shipping before the RTC of Manila. Cua sought the
payment for damage of shipment of Brazilian Soyabean
consigned to him. He claimed that the loss was due to the
respondents failure to observe extraordinary diligence in
carrying the cargo. Advance Shipping (a foreign corporation)
was the owner and manager of M/V Argo Trader that carried
the cargo, while Wallem was its local agent. Wallem filed its
own motion to dismiss, raising the sole ground of prescription
which is under section3(6) of the Carriage of Goods by Sea
Act (COGSA). Wallem alleged that the goods were delivered
toucan on August 16, 1989, but the damages suit was
instituted only on November 12, 1990 more than one year
than the period allotted under the COGSA. Since the action
was filed beyond the one year prescriptive period, Wallem
argued that Cuas action has been barred. Cua then filed an
opposition to Wallems motion to dismiss, denying the latters
claim of prescription by referring to the August 10,1990 telex
message sent by Mr. A.R. Filder of Thomas Miller, manager of
the UK P&I Club, which stated that Advance Shipping agreed
to extend the commencement of suit for 90 days, from August
14, 1990 to November 12, 1990; the extension was made with
the concurrence of the insurer of the vessel, the UK P&I Club.
The RTC issued its decision ordering the respondents jointly
and severally liable to pay as damages to Cua. The CA Set
Aside the decision of RTC because it found that the August
10, 1990 telex message, extending the period to file an action,
was neither attached to Cuas opposition to Wallems motion
to dismiss, nor presented during trial. A motion for
reconsideration filed by Cua was then denied by CA hence
this s petition.
ISSUE:
Whether or not Cuas claim for payment of damages against
the respondents has prescribed.
RULING:
The Supreme Court SET ASIDE the decision of the Court of
Appeals and REINSTATED the decision of the Regional Trial
Court of Manila. The claim of Cua has was not prescribed. The
CA failed to appreciate the admissions made by the
respondents in their pleadings that negate a finding of
prescription of Cuas claim. Respondents admitted the
agreement extending the period to file the claim. Under
Section 3(6) of the COGSA, the carrier is discharged from
26

liability for loss or damage to the cargo "unless the suit is
brought within one year after delivery of the goods or the date
when the goods should have been delivered. Jurisprudence,
however, recognized the validity of an agreement between the
carrier and the shipper/consignee extending the one-year
period to file a claim. A review of the pleadings submitted by
the respondents discloses that they failed to specifically
deny Cuas allegation of an agreement extending the period to
file an action to November 12, 1990. Wallems motion to
dismiss simply referred to the fact that Cuas complaint was
filed more than one year from the arrival of the vessel, but it
did not contain a denial of the extension. Advance Shippings
motion to dismiss, on the other hand, focused solely on its
contention that the action was premature for failure to first
undergo arbitration. While the joint answer submitted by the
respondents denied Cuas allegation of an extension, they
made no further statement other than a bare and unsupported
contention that Cuas "complaint is barred by prescription
and/or laches."
The respondents did not provide in their joint answer any
factual basis for their belief that the complaint had prescribed.
Given the respondents failure to specifically deny the
agreement on the extension of the period to file an action, the
Supreme Court considers the extension of the period as an
admitted fact.
Luzon Stevedoring Co. Inc. and Visayan Stevedore
Transportation Co. vs. Public Service Commission
93 Phil. 735 | Tuason, J.

Facts: Petitioners are engaged in the stevedoring or
lighterage and harbor towage business. They are also
engaged in interisland service which consist of hauling
cargoes such as sugar, oil, fertilizer and other commercial
commodities. There is no fixed route in the transportation of
these cargoes, the same being left at the indication of the
owner or shipper of the goods. Petitioners, in their hauling
business, serve only a limited portion of the public.

The Philippine Shipowners Association complained to the
Public Service Commission that petitioners were engaged in
the transportation of cargo in the Philippines for hire or
compensation without authority or approval of the
Commission. The rates petitioners charged resulted in ruinous
competition.
The Public Service Commission restrained petitioners from
further operating their watercraft to transport goods for hire or
compensation between points in the Philippines until the
commission approves the rates they propose to charge.

Issue: Whether the petitioners fall under the definition in
Section 13 (b) of the Public Service Law (C.A. Act No. 146)?

Held: Yes. It is not necessary under said definition that one
holds himself out as serving or willing to serve the public in
order to be considered public service. It is not necessary, in
order to be a public service, that an organization be dedicated
to public use, i.e., ready and willing to serve the public as a
class. It is only necessary that it must in some way be
impressed with a public interest; and whether the operation of
a business is a public utility depends upon whether or not the
service rendered by it is of a public character and of public
consequence and concern.
It can scarcely be denied that the contracts between the
owners of the barges and the owners of the cargo at bar were
ordinary contracts of transportation and not of lease.
Petitioners watercraft was manned entirely by crews in their
employ and payroll, and the operation of the said craft was
under their direction and control, the customers assuming no
responsibility for the goods handled on the barges.

C.A. No. 146 clearly declares that an enterprise of any of the
kinds therein enumerated is a public service if conducted for
hire or compensation even if the operator deals only with a
portion of the public or limited clientele. Public utility, even
where the term is not defined by statute, is not determined by
the number of people actually served.
The Public Service Law was enacted not only to protect the
public against unreasonable charges and poor, inefficient
service, but also to prevent ruinous competition.
Just as the legislature may not declare a company or
enterprise to be a public utility when it is not inherently such, a
public utility may not evade control and supervision of its
operation by the government by selecting its customers under
the guise of private transactions.


Doctrine: An enterprise of any of the kinds enumerated in the
Public Service Law is a public service if conducted for hire or
compensation even if the operator deals only with a portion of
the public or with limited clientele.

San Pablo vs. Pantranco Case Digest
(153 SCRA 199)

Facts: The Pantranco South Express, Inc., hereinafter
referred to as PANTRANCO is a domestic corporation
engaged in the land transportation business with PUB service
for passengers and freight and various certificates for public
conveniences (CPC) to operate passenger buses from Metro
Manila to Bicol Region and Eastern Samar. On March 27,1980
PANTRANCO through its counsel wrote to Maritime Industry
Authority (MARINA) requesting authority to lease/purchase a
vessel named MN "Black Double" "to be used for its project to
operate a ferryboat service from Matnog, Sorsogon and Allen,
Samar that will provide service to company buses and freight
trucks that have to cross San Bernardo Strait. In a reply of
April 29,1981 PANTRANCO was informed by MARINA that it
cannot give due course to the request.

PANTRANCO nevertheless acquired the vessel MN "Black
Double" on May 27, 1981 for P3 Million pesos. It wrote the
Chairman of the Board of Transportation (BOT) through its
counsel, that it proposes to operate a ferry service to carry its
passenger buses and freight trucks between Allen and Matnog
in connection with its trips to Tacloban City. PANTRANCO
claims that it can operate a ferry service in connection with its
franchise for bus operation in the highway from Pasay City to
Tacloban City "for the purpose of continuing the highway,
which is interrupted by a small body of water, the said
proposed ferry operation is merely a necessary and incidental
service to its main service and obligation of transporting its
passengers from Pasay City to Tacloban City. Such being the
case there is no need to obtain a separate certificate for public
convenience to operate a ferry service between Allen and
27

Matnog to cater exclusively to its passenger buses and freight
trucks.

Without awaiting action on its request PANTRANCO started to
operate said ferry service. Acting Chairman Jose C. Campos,
Jr. of BOT ordered PANTRANCO not to operate its vessel until
the application for hearing on Oct. 1, 1981. In another order
BOT enjoined PANTRANCO from operating the MN "Black
Double" otherwise it will be cited to show cause why its CPC
should not be suspended or the pending application denied.

Epitacio San Pablo (now represented by his heirs) and
Cardinal Shipping Corporation who are franchise holders of
the ferry service in this area interposed their opposition. They
claim they adequately service the PANTRANCO by ferrying its
buses, trucks and passengers. BOT then asked the legal
opinion from the Minister of Justice whether or not a bus
company with an existing CPC between Pasay City and
Tacloban City may still be required to secure another
certificate in order to operate a ferry service between two
terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the
effect that there is no need for bus operators to secure a
separate CPC to operate a ferryboat service.

Thus on October 23, 1981 the BOT rendered its decision
holding that the ferryboat service is part of its CPC to operate
from Pasay to Samar/Leyte by amending PANTRANCO's CPC
so as to reflect the same.

Cardinal Shipping Corporation and the heirs of San Pablo filed
separate motions for reconsideration of said decision and San
Pablo filed a supplemental motion for reconsideration that
were denied by the BOT on July 21, 1981. Hence, San Pablo
filed the herein petition for review on certiorari with prayer for
preliminary injunction seeking the revocation of said decision,
and pending consideration of the petition the issuance of a
restraining order or preliminary injunction against the operation
by PANTRANCO of said ferry service

Issue: Whether or not the ferry boat is a common carrier?

Held: Considering the environmental circumstances of the
case, the conveyance of passengers, trucks and cargo from
Matnog to Allen is certainly not a ferryboat service but a
coastwise or interisland shipping service. Under no
circumstance can the sea between Matnog and Allen be
considered a continuation of the highway. While a ferryboat
service has been considered as a continuation of the highway
when crossing rivers or even lakes, which are small body of
waters separating the land, however, when as in this case the
two terminals, Matnog and Allen are separated by an open
sea it can not be considered as a continuation of the highway.

The contention of private respondent PANTRANCO that its
ferry service operation is as a private carrier, not as a common
carrier for its exclusive use in the ferrying of its passenger
buses and cargo trucks is absurd. PANTRANCO does not
deny that it charges its passengers separately from the
charges for the bus trips and issues separate tickets whenever
they board the MN "Black Double" that crosses Matnog to
Allen. Nevertheless, considering that the authority granted to
PANTRANCO is to operate a private ferry, it can still assert
that it cannot be held to account as a common carrier towards
its passengers and cargo. Such an anomalous situation that
will jeopardize the safety and interests of its passengers and
the cargo owners cannot be allowed.

Thus the Court holds that the water transport service between
Matnog and Allen is not a ferryboat service but a coastwise or
interisland shipping service. Before private respondent may be
issued a franchise or CPC for the operation of the said service
as a common carrier, it must comply with the usual
requirements of filing an application, payment of the fees,
publication, adducing evidence at a hearing and affording the
oppositors the opportunity to be heard, among others, as
provided by law.

G.R. No. 169493 March 15, 2010STA. CLARA SHIPPING
CORPORATION, Petitioner, vs. EUGENIA T. SAN PABLO,
Respondent.
Facts:
Sta. Clara filed an application with Maritime Industry Authority
(MARINA) for a Certificate of Public Convenience to operate
MV King Frederick. Said application was granted on January 26, 2004.
Accordingly, a CPC was issued to Sta. Clara. Meanwhile, Republic
Act(RA) 9295 and its implementing rules and regulations were
issued which requires existing operators to apply for CPCs
under the new law. Thus, on May 4, 2005, Sta. Clara filed with
the Legaspi Maritime Regional Office (LMRO) another
application for a new CPC to operate MV King Frederick and
two other vessels. Respondent opposed the MARINA decision
and sought for its reversal to the CA, which the latter set aside
the decision on May 31, 2005. On June 6, 2005,LMRO
granted the application of Sta. Clara for a new PC.Respondent
San Pablo filed another motion to the CA to hold Sta. Clara in
contempt of court and to cancel its new CPC granted by the
LMRO. On June 24, 2005, Sta. Clara filed a motion for
reconsideration of the previous decision of CA without
disclosing that it had obtained a new CPC for MV King
Frederick. CA denied Sta. Clara's motion for reconsideration
and rescinded the LMRO decision.
Issue:
Whether or not the CA correctly took judicial cognizance over
the case.
Ruling:
No. Although Sta. Clara filed with the CA a motion for
reconsideration without disclosing the foregoing
developments, by the time the CA resolved the motion for
reconsideration, it was already aware of the changes in the
situation of the parties: specifically, that Sta. Clara had filed a
new application under RA 9295 and that the LMRO had issued
Sta. Clara a new CPC. More significantly, the new CPC issued
to Sta. Clara was now subject to the rules implementing RA
9295. Under Rule XV, Sec. 1 of RA 9295, a peculiar process
of administrative remedy provides that the MARINA
Administrator, and not the CA, is vested with primary
jurisdiction over matters relating to the issuance of a CPC. The CA
should have refrained from resolving the pending motions
before it and should have declared the case mooted by
supervening events. Besides, questions on the validity of the
new CPC are cognizable by the MARINA Administrator and,
consonant with the doctrine of primary administrative
jurisdiction, the CA should have referred San Pablo to
MARINA for the resolution of her challenge to the validity of
the new CPC of Sta. Clara. The CA ought to have given due
28

deference to the exercise by MARINA of its sound
administrative discretion in applying its special knowledge,
experience and expertise to determine the technical and
intricate factual matters relating to the new CPC of Sta. Clara. The
January 26, 2004 MARINA decision and the old CPC are now defunct.
The passage of RA 9295 and the filing by Sta. Clara of an application for a
new CPC under the new law supervened and rendered the January 26,
2004 MARINA decision and old CPC of no consequence. There was
no more justiciable controversy for the CA to decide, no
remedy to grant or deny. The petition before the CA had
become purely hypothetical, there being nothing left to act
upon.
G.R. No. 119528 March 26, 1997
PHILIPPINE AIRLINES, INC., petitioner, vs.CIVIL
AERONAUTICS BOARD and GRAND INTERNATIONAL
AIRWAYS, INC., respondents.
This Special Civil Action for Certiorari and Prohibition under
Rule 65 of the Rules of Court seeks to prohibit respondent
Civil Aeronautics Board from exercising jurisdiction over
private respondent's Application for the issuance of a
Certificate of Public Convenience and Necessity, and to annul
and set aside a temporary operating permit issued by the Civil
Aeronautics Board in favor of Grand International Airways
(GrandAir, for brevity) allowing the same to engage in
scheduled domestic air transportation services, particularly the
Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines,
Inc. (PAL) to support its petition is the fact that Grand Air does
not possess a legislative franchise authorizing it to engage in
air transportation service within the Philippines or elsewhere.
Such franchise is, allegedly, a requisite for the issuance of a
Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII
of the Constitution.
On December 23, 1994, the Board promulgated Resolution
No. 119(92) approving the issuance of a Temporary Operating
Permit in favor of Grand Air
7
for a period of three months, i.e.,
from December 22, 1994 to March 22, 1994. Petitioner moved
for the reconsideration of the issuance of the Temporary
Operating Permit on January 11, 1995, but the same was
denied in CAB Resolution No. 02 (95) on February 2,
1995.
8
In the said Resolution, the Board justified its
assumption of jurisdiction over GrandAir's application.
RESOLVED, (T)HEREFORE, that the Motion for
Reconsideration filed by Philippine Airlines on January 05,
1995 on the Grant by this Board of a Temporary Operating
Permit (TOP) to Grand International Airways, Inc. alleging
among others that the CAB has no such jurisdiction, is hereby
DENIED, as it hereby denied, in view of the foregoing and
considering that the grounds relied upon by the movant are
not indubitable.
On March 21, 1995, upon motion by private respondent, the
temporary permit was extended for a period of six (6) months
or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
The Civil Aeronautics Board has jurisdiction over GrandAir's
Application for a Temporary Operating Permit. This rule has
been established in the case of Philippine Air Lines
Inc., vs. Civil Aeronautics Board, promulgated on June 13,
1968.
12
The Board is expressly authorized by Republic Act
776 to issue a temporary operating permit or Certificate of
Public Convenience and Necessity, and nothing contained in
the said law negates the power to issue said permit before the
completion of the applicant's evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB's
authority to grant a temporary permit "upon its own initiative"
strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite
to the issuance of a permit, the absence of the same does not
affect the jurisdiction of the Board to hear the application, but
tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public
utility is admittedly a prerogative of the legislature, since
Congress is that branch of government vested with plenary
powers of legislation.
The franchise is a legislative grant, whether made directly by
the legislature itself, or by any one of its properly constituted
instrumentalities. The grant, when made, binds the public, and
is, directly or indirectly, the act of the state.
13

The issue in this petition is whether or not Congress, in
enacting Republic Act 776, has delegated the authority to
authorize the operation of domestic air transport services to
the respondent Board, such that Congressional mandate for
the approval of such authority is no longer necessary.
It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency,
and to this extent, the power to grant franchises has frequently
been delegated, even to agencies other than those of a
legislative nature.
15
In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for
the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature.
Given the foregoing postulates, we find that the Civil
Aeronautics Board has the authority to issue a Certificate
of Public Convenience and Necessity, or Temporary
Operating Permit to a domestic air transport operator,
who, though not possessing a legislative franchise, meets
all the other requirements prescribed by the law.
There is nothing in the law nor in the Constitution, which
indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air transport
operator. Although Section 11 of Article XII recognizes
Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by
Congress are not required before each and every public utility
may operate.
19
In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized
particularly in their respective areas of public service.
The use of the word "necessity", in conjunction with "public
convenience" in a certificate of authorization to a public
service entity to operate, does not in any way modify the
nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the
requisites for the issuance of such certification, and not the
title indicating the certificate.
Congress, by giving the respondent Board the power to issue
permits for the operation of domestic transport services, has
delegated to the said body the authority to determine the
capability and competence of a prospective domestic air
transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-
legislative body, with unbridled authority to choose who should
be given authority to operate domestic air transport services.
29

To be valid, the delegation itself must be circumscribed by
legislative restrictions, not a "roving commission" that will give
the delegate unlimited legislative authority. It must not be a
delegation "running riot" and "not canalized with banks that
keep it from overflowing." Otherwise, the delegation is in legal
effect an abdication of legislative authority, a total surrender by
the legislature of its prerogatives in favor of the delegate.
23

Congress, in this instance, has set specific limitations on how
such authority should be exercised.
Sec. 21. Issuance of permit. The Board shall issue a permit
authorizing the whole or any part of the service covered by the
application, if it finds: (1) that the applicant is fit, willing and
able to perform such service properly in conformity with the
provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is
required by the public convenience and necessity; otherwise
the application shall be denied.
In sum, respondent Board should now be allowed to continue
hearing the application of GrandAir for the issuance of a
Certificate of Public Convenience and Necessity, there being
no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the
Court RESOLVED to DISMISS the instant petition for lack of
merit.