SECOND DIVISION

For their part, ATSC and AEV moved for the dismissal of the case, contending that CAGLI did not have a cause of action for
arbitration since its claim had already been paid or otherwise, extinguished, and, in any event, said action had already
prescribed.17cralawred

G.R. No. 198226, July 18, 2014

ABOITIZ TRANSPORT SYSTEM CORPORATION AND ABOITIZ SHIPPING CORPORATION, Petitioners, v. CARLOS A.
GOTHONG LINES, INC. AND VICTOR S. CHIONGBIAN, Respondents.
G.R. NO. 198228
ABOITIZ TRANSPORT SYSTEM CORPORATION, Petitioner, v. CARLOS A. GOTHONG LINES, INC. AND VICTOR S.
CHIONGBIAN, Respondents.
1

Assailed in these petitions for review on certiorari are the Orders dated August 13, 2010, April 15, 2011, and July 6, 2011 of
the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case No. CEB-34951, which confirmed the notice of dismissal
filed by respondent Carlos A. Gothong Lines, Inc. (CAGLI) and, consequently, dismissed the case without prejudice, denied
petitioners Aboitiz Transport System Corporation (ATSC) and Aboitiz Shipping Corporations (ASC) motion for reconsideration,
and deemed ATSCs motion to exclude respondent Victor S. Chiongbian (respondent Chiongbian) from arbitration moot and
academic, respectively.
The Facts
ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and Chiongbian families, respectively,
entered into an Agreement5 dated January 8, 1996, which was signed by Jon Ramon Aboitiz for ASC, Benjamin D. Gothong
(Gothong) for CAGLI, and respondent Chiongbian for WLI. In the said Agreement, ASC and CAGLI agreed to transfer their
shipping assets to WLI in exchange for the latters shares of capital stock. The parties likewise agreed that WLI would run the
merged shipping business and be renamed WG&A, Inc. Pertinently, Section 11.06 of the Agreement provides that all disputes
arising out of or in connection with the Agreement shall be finally settled by arbitration in accordance with Republic Act No.
(RA) 876, otherwise known as The Arbitration Law,6 and that each of the parties shall appoint one arbitrator, and the three
arbitrators would then appoint the fourth arbitrator who shall act as Chairman.
Among the attachments to the Agreement was a letter7 dated January 8, 1996 written by respondent Chiongbian and
addressed to Gothong, stating that WLI committed to acquire from CAGLIs inventory certain spare parts and materials not
exceeding P400 Million. In this relation, a valuation of CAGLIs inventory was conducted wherein it was shown that the same
amounted to P514 Million.8 Thereafter, WLI received inventory valued at P558.89 Million, but only paid CAGLI the amount of
P400 Million as agreed upon in the Agreement.9 Dissatisfied, CAGLI sent to WLI various letters in 2001, demanding that the
latter pay or return the inventory that it received in excess of P400 Million. 10cralawred
Sometime in 2002, the Chiongbian and Gothong families decided to sell their respective interests in WLI/WG&A to the Aboitiz
family. This resulted in the execution of a Share Purchase Agreement11 whereby Aboitiz Equity Ventures (AEV) agreed to
purchase and acquire the WLI/WG&A shares of the Chiongbian and Gothong families. Thereafter, the corporate name of
WLI/WG&A was changed to ATSC.12cralawred
Six (6) years later, or in 2008, CAGLI sent a letter13 dated February 14, 2008 to ATSC demanding that the latter pay the excess
inventory it delivered to WLI amounting to P158,399,700.00. CAGLI likewise demanded AEV and respondent Chiongbian that
they refer their dispute to arbitration.14 In response, AEV countered that the excess inventory had already been returned to
CAGLI and that it should not be included in the dispute, considering that it is an entity separate and distinct from ATSC. 15 Thus,
CAGLI was constrained to file a complaint16 before the RTC against Chiongbian, ATSC, ASC, and AEV to compel them to
submit to arbitration.

The RTC Proceedings

In an Order18 dated December 4, 2009, the RTC dismissed the complaint only with respect to AEV for lack of cause of
action,19 but not as to the other defendants. Thereafter, the RTC issued an Order20 dated February 26, 2010, directing CAGLI,
respondent Chiongbian, ATSC, and ASC to proceed to arbitration, and accordingly, the parties appointed their respective
arbitrators, with ATSC and ASC doing so only on an ad cautelam basis.21cralawred
Meanwhile, ATSC filed a Motion for Reconsideration/To Exclude22 dated March 25, 2010 praying that respondent Chiongbian
be excluded from the arbitration proceedings since the latter was not a party to the Agreement. Pending resolution of the said
motion, CAGLI filed a Notice of Dismissal23 dated July 8, 2010, averring that it has decided to withdraw its complaint in view of
the fact that the opposing parties had not filed their respective responsive pleadings.
In an Order24 dated August 13, 2010, the RTC found CAGLIs Notice of Dismissal meritorious, and, thus, confirmed the same
and ordered the case dismissed without prejudice.
Dissatisfied, ATSC and ASC moved for reconsideration25 which was, however, denied in an Order26 dated April 15, 2011. In
said Order, the RTC cited Section 1 of Rule 17 of the Rules of Court which allows the plaintiff to file a notice of dismissal of the
complaint as a matter of right before service of the answer or a motion for summary judgment. It further ruled that, save for
the condition that no answer or motion for summary judgment had been priorly filed, nothing in the rules or law expressly
prohibits or restricts the right of the plaintiff to withdraw the complaint by mere notice of dismissal at any stage of the
proceedings.27cralawred
Separately, the RTC issued an Order28 dated July 6, 2011, denying ATSCs Motion for Reconsideration/To Exclude, holding
that the issue raised in the said motion has been rendered moot and academic in view of the confirmation of CAGLIs notice of
dismissal.
Hence, the instant petitions.
The Issues Before the Court
The issues for the Courts resolution are as follows: (a) whether or not the RTC was correct in confirming CAGLIs notice of
dismissal and, consequently, dismissing the case without prejudice; and (b) whether or not respondent Chiongbian should be
excluded from the arbitration proceedings.
The Courts Ruling
The petition is meritorious.
A. Propriety of CAGLIs Notice of Dismissal.
At the outset, the Court notes that the nature of the complaint filed by CAGLI before the RTC is for the enforcement of an
arbitration agreement, governed by Section 6 of RA 876, viz.:chanRoblesvirtualLawlibrary

Section 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration
in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to
summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written
provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof.
x x x x (Emphasis supplied)
In the case of Gonzales v. Climax Mining, Ltd. (Gonzales),29 the Court had instructed that the special proceeding under the
above-quoted provision is the procedural mechanism for the enforcement of the contract to arbitrate. 30 RA 876 explicitly
confines the courts authority only to pass upon the issue of whether there is or there is no agreement in writing providing for
arbitration. If there is such agreement, the court shall issue an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof; otherwise, the proceeding shall be dismissed. 31 To stress, such proceeding is
merely a summary remedy to enforce the agreement to arbitrate and the duty of the court is not to resolve the merits of the
parties claims but only to determine if they should proceed to arbitration or not.32cralawred
In the present case, the records show that the primary relief sought for in CAGLIs complaint, i.e., to compel the parties to
submit to arbitration,33 had already been granted by the RTC through its Order34dated February 26, 2010. Undeniably, such
Order partakes of a judgment on the merits of the complaint for the enforcement of the arbitration agreement.
At this point, although no responsive pleading had been filed by ATSC,35 it is the rules on appeal, or other proceedings after
rendition of a judgment or final order no longer those on notice of dismissal that come into play. Verily, upon the rendition of
a judgment or final order,36 the period before service of the answer or of a motion for summary judgment, mentioned in
Section 137 of Rule 17 of the Rules of Court when a notice of dismissal may be filed by the plaintiff, no longer applies. As a
consequence, a notice of dismissal filed by the plaintiff at such judgment stage should no longer be entertained or confirmed.
In view of the foregoing, it was an error on the part of the RTC to have confirmed the notice of dismissal and to have dismissed
the complaint without prejudice.
B. Parties covered by Arbitration Proceedings.
Section 2 of RA 876 specifies who may be subjected to arbitration, to wit:chanRoblesvirtualLawlibrary

between the contracting parties and produce effect as between them, their assigns and heirs.40 Succinctly put, only those
parties who have agreed to submit a controversy to arbitration who, as against each other, may be compelled to submit to
arbitration.
In the present case, Section 11.06 of the Agreement, which embodies the Arbitration Agreement among the parties,
provides:chanRoblesvirtualLawlibrary
All disputes arising out of or in connection with this Agreement including any issue as to this Agreement's validity or
enforceability, which cannot be settled amicably among the parties, shall be finally settled by arbitration in accordance with the
Arbitration Law (Republic Act No. 876) by an arbitration tribunal composed of four (4) arbitrators. Each of the parties shall
appoint one (1) arbitrator, the three (3) to appoint the fourth arbitrator who shall act as Chairman. Any award by the arbitration
tribunal shall be final and binding upon the parties and shall be enforced by judgment of the Courts of Cebu or Metro Manila. 41
The three parties to the Agreement and necessarily to the arbitration agreement embodied therein are: (a) ASC, (b) CAGLI,
and (c) WLI/WG&A/ATSC. Contracts, like the subject arbitration agreement, take effect only between the parties, their assigns
and heirs.42 Respondent Chiongbian, having merely physically signed the Agreement as a representative of WLI, is not a party
thereto and to the arbitration agreement contained therein. Neither is he an assignee or an heir of any of the parties to the
arbitration agreement. Hence, respondent Chiongbian cannot be included in the arbitration proceedings.
WHEREFORE, the petitions are GRANTED. The Orders dated August 13, 2010, April 15, 2011, and July 6, 2011 of the
Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case No. CEB-34951 are herebyREVERSED and SET ASIDE. The
Order dated February 26, 2010 of the RTC is REINSTATED withMODIFICATION excluding Victor S. Chiongbian from the
arbitration proceedings.
SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, and Perlas-Bernabe, JJ., concur.

Entitled An Act to Authorize the Making of Arbitration and Submission Agreements, to Provide for the Appointment of
Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes.
35

Once a judgment or order on the merits of the particular matter involved in the complaint has been rendered or parties have
already been prejudiced by virtue of having appeared in court to defend their position, as in the present case, it is as though an
answer or motion for summary judgment had already been filed. (Cf. San Miguel Corp. v. Sandiganbayan, 394 Phil. 608, 648
[2000].)
37

Sec. 2. Persons and matters subject to arbitration. Two or more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing between them at the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at
law for the revocation of any contract.

Sec. 1. Dismissal upon notice by plaintiff. A complaint may be dismissed by the plaintiff by filing a notice of dismissal at
any time before service of the answer or of a motion for summary judgment. Upon such notice being filed, the court shall issue
an order confirming the dismissal. Unless otherwise stated in the notice, the dismissal is without prejudice, except that a
notice operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in a competent court an
action based on or including the same claim.
42

xxxx
In Gonzales, the Court explained that [d]isputes do not go to arbitration unless and until the parties have agreed to abide by
the arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be binding. 38 Furthermore,
in Del Monte Corporation USA v. Court of Appeals,39 the Court stated that [t]he provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of that contract. As a rule, contracts are respected as the law

See Article 1311 of the Civil Code, which reads:ChanRoblesVirtualawlibrary

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

EN BANC
G.R. No. L-21335

December 17, 1966

ABOITIZ SHIPPING CORPORATION, Petitioner, vs. VIVENCIA ANDO PEPITO, and the minors, LOLITA, ALBERTO,
NELSON, MARYLEN and MARIA, all surnamed PEPITO represented by their mother, the respondent Vivencia Ando
Pepito,Respondents.
Between the night of November 30, and the early morning of December 1, 1961, Demetrio Pepito, a crew member of m/v P.
Aboitiz, disappeared therefrom while said vessel was on voyage.chanroblesvirtualawlibrarychanrobles virtual law library
On December 26, 1961, petitioner received from respondent Vivencia Ando Pepito a letter dated December 21, 1961, stating You are hereby notified that one of your employees, Mr. Demetrio Pepito, a crew member of M/V P. Aboitiz, one of your
vessels, was reported missing as per record of the Deck Log Book of the M/V P. Aboitiz while said vessel was navigating from
Surigao to Tandag. It is our belief that Mr. Pepito is already dead. A diligent search has been made but the same is rendered
futile.
On January 12, 1962, Vivencia Ando Pepito, for herself and in behalf of her children, the other respondents, filed with Regional
Office No. 8, Department of Labor, Cebu City, a notice and claim for compensation, asking for death benefits, and describing
the circumstances of the alleged death of Demetrio Pepito on the night of November 30, 1961 in the following manner, viz:
"While the vessel was navigating from Surigao to Tandag, the herein deceased was lost or reported missing as per record of
the deck log of the M/V P. Aboitiz".chanroblesvirtualawlibrarychanrobles virtual law library
Having received on February 15, 1962 from the chief, labor operations section of said regional office, a letter enclosing the
foregoing claim, petitioner, on February 16, 1962, sent to that office the employer's report of accident or sickness, controverting
the claim for compensation and alleging that Demetrio Pepito was found missing on December 1, 1961 and giving its own
version of the incident as follows: "Pepito disappeared while off duty, and when the vessel was near Bucas Grande Island
while the ship was in navigation on a calm sea and good weather. We do not know if he purposely jumped and swam
ashore".chanroblesvirtualawlibrarychanrobles virtual law library
On March 21, 1962, without hearing, the Regional Administrator issued an award for death benefits to respondents, planted
upon the ground that "the right to compensation of the claimant has not been controverted by respondent within the period
provided for by law."chanrobles virtual law library
Motion to reconsider was of no avail. Petition sought review from the Workmen's Compensation Commission. In a decision
dated March 8, 1963, said Commission affirmed. The reconsideration sought was thwarted in the Commission's en
bancresolution of April 5, 1963.chanroblesvirtualawlibrarychanrobles virtual law library

We are now called upon to review on certiorari the Commission's decision of March 8, 1963 and its resolution of April 5,
1963.chanroblesvirtualawlibrarychanrobles virtual law library
1. There should be no quarrel as to the fact that petitioner came to know of the disappearance of Demetrio Pepito on
December 1, 1961. Petitioner so admits in its report of accident or sickness. And then, on December 26, 1961 petitioner
received from respondent Vivencia Ando Pepito a letter informing it of the fact that Demetrio Pepito was reported missing on
December 1, 1961, as per record of the deck log book of m/v P. Aboitiz.chanroblesvirtualawlibrarychanrobles virtual law library
Decidedly, the purported controversion - filed on February 16, 1962 - was made beyond the periods set forth in the law and the
rules and regulations of the Workmen's Compensation Commission, namely, 14 days from the date of accident or 10 days
from knowledge thereof.1chanrobles virtual law library
2. Logically, the next problem we face is the scope of the non-controversion which may be clamped upon
petitioner.chanroblesvirtualawlibrarychanrobles virtual law library
By Section 2, Rule 7 of the Rules of the Workmen's Compensation Commission, "[A]ll the general rules of procedure in the
Courts of First Instance shall be suppletory to the Rules of the Workmen's Compensation Commission but the commission
shall not be bound by the technical rules of procedure".chanroblesvirtualawlibrarychanrobles virtual law library
We go deep into the recitals of the notice and claim for compensation. It simply says that while the vessel was navigating, "the
herein deceased was lost or reported missing". This claim was filed on January 12, 1962, or barely 42 days after the event
took place. At that time, no presumption existed that Demetrio Pepito was dead. The boat was not lost. This opens up a
number of possibilities. Because nothing is certain. Nobody knows what has happened to him. He could have transferred to
another vessel or watercraft. He could even have swam to safety. Or he could have died. Or worse, he could have taken his
own life. Legal implications - such as right to compensation, succession, the legal status of the wife - are so important that
courts should not so easily be carried to the conclusion that the man is dead.2 The result is that death cannot be taken as a
fact.chanroblesvirtualawlibrarychanrobles virtual law library
Non-controversion in compensation cases, as in the case of pleadings in ordinary civil cases, 3 simply means admission of
facts, not conclusions of law.chanroblesvirtualawlibrarychanrobles virtual law library
As applied to the case before us, the mere failure to controvert the statement that Demetrio Pepito is believed to be "dead" or
"deceased" because he "was lost" or was "reported missing", does not import an admission that the man is actually dead, but
that he was just lost or missing.chanroblesvirtualawlibrarychanrobles virtual law library
We, therefore, rule that petitioner's non-controversion admits but the fact that Demetrio Pepito was lost or missing, but
certainly is not an admission of the actual fact of death.chanroblesvirtualawlibrarychanrobles virtual law library
3. But petitioner was directed to pay compensation without inquiry into the fact and circumstances of death. This trenches
upon petitioner's right to due process enshrined in Section 1 (1) of Article Ill of the Constitution that "[N]o person shall be
deprived of life, liberty, or property without due process of law." The award having been made before petitioner was given an

opportunity to be heard on the debatable fact and circumstances of death, that award has no leg to stand on. We nullify that
award as a violation of a constitutional prescription.chanroblesvirtualawlibrarychanrobles virtual law library
4. But the Commission would want to downgrade petitioner's cry of denial of due process by a reference to a certain
investigation report dated January 12, 1962, made - barely 42 days after the incident - by one Anselmo M. Morales, a
constabulary sergeant, to the effect that Demetrio Pepito was "on board said boat on her maiden voyage to Tandag, Surigao
del Sur; that at about 2:00 o'clock a.m. on December 1, 1961, Francisco Ygot, a watchman on duty, noticed that Demetrio
Pepito was not in the crews' sleeping quarters; that when a thorough search of the boat failed to locate the missing crew
member, the boat's course was reversed upon instruction of its captain in order to look for him; that because no trace of
Demetrio Pepito or his body could be found, the search was abandoned and the boat then proceeded to Tandag; and that no
one knew what happened to Demetrio Pepito because he disappeared at midnight on a rough sea (big waves)".4 This report
does not prove death. At best, it confirms a known fact - disappearance, with the circumstance that "no one knew what
happened to Demetrio Pepito". Besides, said report was not brought up at any hearing. It was but the result of an investigation.
Whatever the investigator said would not rise above the level of hearsay twice removed. By Section 7 of the Workmen's
Compensation Law "[A]ll ex parte evidence received by the Commissioner shall be reduced to writing and any party in interest
shall have the opportunity to examine and rebut the same". Petitioner was not afforded an opportunity to as much as examine
or contradict this report. It thus results that said report is of no value as evidence.chanroblesvirtualawlibrarychanrobles virtual
law library
5. The employer-employee relationship is conceded. The event arose out of, and took place in the course of, employment. It
matters not that the disappearance occurred, as alleged by petitioner, while Demetrio Pepito was off-duty. For, that incident
happened while the boat was on a sea voyage. He had no choice. He had to be in the vessel.5chanrobles virtual law library
6. From the time the event took place, i.e., from the night of November 30, 1961, to this date, more than 4 years have elapsed.
It is because of this that we approach this problem with a practical end in view. By this time, it cannot be gainsaid that the case
of the disappearance of Demetrio Pepito could come within the coverage of paragraph 3, Article 391 of the Civil Code, which
reads:
ART. 391. The following shall be presumed dead for all purposes, including the division of estate among the heirs:
xxx
xxx

xxx

xxx

xxx

xxxchanrobles virtual law library

(3) A person who has been in danger of death under other circumstances and his existence has not been known for four
years.6
With the known facts, namely, that Demetrio Pepito was lost or missing while the boat was navigating, he could have been in
danger of death. But of course, evidence must be taken that his existence has not been known for four years or
thereafter.chanroblesvirtualawlibrarychanrobles virtual law library

Upon the view we take of this case, we vote to set aside the appealed decision of March 8, 1963 and the resolution of April 5,
1963, and to direct that the record hereof be returned to the Workmen's Compensation Commission with instructions
-chanrobles virtual law library
1. To hold a hearing, with notice to the parties, to determine (a) whether Demetrio Pepito is alive; or (b) whether he should be
presumed dead, under the provisions of paragraph 3, Article 391 of the Civil Code; and (c) the circumstances of death if it be
found or presumed that he died; andchanrobles virtual law library
2. To render judgment accordingly.chanroblesvirtualawlibrarychanrobles virtual law library
No costs. So ordered.chanroblesvirtualawlibrarychanrobles virtual law library

EN BANC
[G.R. No. L-14526. March 31, 1965.]
ABOITIZ SHIPPING CORPORATION; CARLOS A. GO THONG & COMPANY; CEBU NAVIGATION COMPANY, INC.;
CEBU-BOHOL FERRY CO., INC.; COROMINAS, RICHARDS NAVIGATION CO., INC.; HIJOS DE F. ESCANO, INC, INC.;
PACIFIC LINES, INC.; ROYAL LINES, INC.; SOUTHERN ISLAND SHIPPING CORPORATION; SWEET LINES SHIPPING;
VISAYAN TRANSPORTATION CO., INC.; PHILIPPINE STEAM NAVIGATION CO.; COMPAIA MARITIMA; and GENERAL
SHIPPING CO., INC., Plaintiffs-Appellants, v. THE CITY OF CEBU, FELIPE PAREJA, as City Treasurer of Cebu; THE
HON. SERGIO OSMEA, JR., as Mayor of the City of Cebu, Defendants-Appellees.
SYLLABUS

1. MUNICIPAL CORPORATIONS; PUBLIC WHARVES; "PUBLIC" REFERS TO USE RATHER THAN OWNERSHIP. The
word "public," as employed to describe a wharf, does not refer to its ownership either by the National Government or by a
province or municipality, It denotes rather the nature of its use. Thus public wharves have been held to be those used generally
by the public, free of charge or for compensation, while a private wharf is one whose owner or lessee has exclusive enjoyment
or use thereof.
2. ID.; RIGHT TO IMPOSE WHARFAGE DUES RESTS ON OWNERSHIP OF WHARF. Assuming the public character of a
wharf by reason of its availability for public use, the right to impose wharfage dues rests on a different basis that of
ownership. For wharfage is a charge against the vessel by way of rent or compensation for its being allowed to lie alongside a
wharf for the purpose of loading or unloading freight.
3. ID.; RIGHT TO COLLECT WHARFAGE ON WHARF OWNED BY NATIONAL GOVERNMENT. The right to collect
wharfage dues for the use of a wharf owned by the National Government rests on it and not on the city where such wharf may
happen to be located.
4. ID.; CITY MAY NOT COLLECT WHARFAGE DUES FOR USE OF PUBLIC WHARVES OWNED BY NATIONAL
GOVERNMENT. A provision of the charter of a city authorizing it to fix charges to be paid by all watercraft using "public
wharves" located in said city does not authorize it to collect wharfage dues on wharves owned by the National Government.

5. ID.; POWER TO TAX OF CITY NOT INHERENT. The power to tax is an attribute of sovereignty and for it to be exercised
by a municipal corporation requires a clear delegation of the power by means of a charter grant or by a general enabling
statute. The power is not inherent in a municipal corporation.
DECISION
The principal question here is whether or not under its charter, Commonwealth Act No. 58, the City of Cebu may provide by
ordinance for the collection of wharfage from shipping concerns whose vessels dock at the public wharves or piers located in
said city but owned by the National Government. The ordinance, No. 207, was purportedly enacted by the Municipal Board on
August 14, 1956 and approved by the City Mayor on the following August 27. Plaintiffs paid the wharfage charges under
protest since September 1, 1956 and on May 8, 1957 filed this action in the Court of First Instance of Manila to have the said
ordinance declared void, its enforcement enjoined in so far as the wharves, docks and other landing places belonging to the
National Government were concerned, and all the amounts thus for collected by defendants refunded by them.
The court a quo dismissed the complaint after trial and the case has come to us on appeal by plaintiffs.
Appellants have raised some questions of fact, and in particular point out certain events and circumstances to show that
ordinance No. 207 was not and could not have been enacted, as alleged by appellees, on August 14, 1956. This case,
however, may be decided solely on the legal issue presented by the parties.
The Municipal Boards authority to pass the ordinance is claimed by appellees under section 17(w) of the charter of the City of
Cebu, which states:jgc:chanrobles.com.ph
"SECTION 17. General powers and duties of the Board. Except as otherwise provided by law, and subject to the conditions
and limitations thereof, the Municipal Boards shall have the following legislative powers:chanrob1es virtual 1aw library
x
x
x
(w) To fix the charges to be paid by all watercraft landing at or using public wharves, docks, levees, or landing places."cralaw
virtua1aw library
The lower court ruled, upholding appellees contention in this respect, that in using the terms "public wharves, docks, levees or
landing places," the legislature made no distinction between those owned by the National Government and those owned by the
City of Cebu and that consequently both fall within the scope of the power granted. Appellants assail this construction as
erroneous, first in the light of the generally accepted meaning of "public wharf" as it may have a bearing on the right or
authority to charge wharfage and, secondly, in view of other related provisions of the same city charter.
The word "public," as employed to describe a wharf, does not refer to its ownership either by the National Government or by a
province or municipality. It denotes rather the nature of its use. Thus public wharves have been held to be those used generally
by the public, free of charge or for compensation, while a private wharf is one whose owner or lessee has exclusive enjoyment
or use thereof (Hamilton v. Portland State Pier Site District, 112 A. 836). Piers or landing places and wharves may be private or
they may be, in their nature, public, although the property may be in an individual owner, where the latter is under obligation to
concede to others the privilege of landing their goods or of mooring their vessels there, upon payment of a reasonable
compensation as wharfage (Duttoon v. Strong, 17 Law, Ed. 29, 1 Black 35, 66 U.S. 339). So a wharf may be public whether it
belongs to the National Government, to a municipal corporation or to a private individual or concern.
Assuming the public character of a wharf by reason of its availability for public use, the right to impose wharfage dues rests on
a different basis that of ownership. For wharfage is a charge against the vessel by way of rent or compensation for its being
allowed to lie alongside a wharf for the purpose of loading or unloading freight (Phil. Sugar Centrals Agency v. Insular Collector
of Customs, 51 Phil. 131, citing Parkersburg and Ohio River Transportation Co. v. City of Parkersburg, 27 Law Ed. 584) and, of
course, for the use of the artificial facilities offered for that purpose (City of Shreveport v. Red River and Coast Line, 55 Am.

Rep. 504). That the right to charge wharfage is based on ownership has been impliedly recognized by this Court in Province of
Mindoro v. Cruz, 74 Phil. 108, as follows: ". . . the subsequent classification of the port of Calapan as a national port did not,
and was not intended to, divest the province of Mindoro of its part ownership of the wharf and, accordingly, of its right to collect
wharfage for its use as it had theretofore done;" and "not until its complete ownership has become vested in the National
Government by the mode of transfer provided by law may the province of Mindoro be divested of this right."cralaw virtua1aw
library
Under the foregoing test the right to collect the wharfage in question here belongs to the National Government, as in fact it has
always collected the same from appellants. It is unreasonable to conclude that the legislature, simply because it employed the
term "public wharves" in section 17 (w) of the charter of the City of Cebu, thereby authorized the latter to collect wharfage
irrespective of the ownership of the wharves involved. The National Government did not surrender such ownership to the city;
and there is no justifiable ground to read into the statute an intention to burden ship owners, such as appellants, with the
obligation of paying dues twice for the same purpose.
Legislative intent must be ascertained from a consideration of the statute as a whole and not of an isolated part or a particular
provision alone. This is a cardinal rule of statutory construction. For taken in the abstract, a word or phrase might easily convey
a meaning quite different from the one actually intended and evident when the word or phrase is considered with those with
which it is associated. Thus an apparently general provision may have a limited application if viewed together with other
provisions.
Section 17 (w) of the charter of the City of Cebu is a case in point. It authorizes the Municipal Board to fix the charges to be
paid by all watercraft landing at or using public wharves, docks, levees, or landing places. There is indeed no distinction
therein between public wharves owned by the National Government and those owned by the city itself. But the subsection
immediately preceding (v) impliedly establishes such a distinction. It empowers the Municipal Board "to provide for the
construction and maintenance, and regulate the use, of public landing places, wharves, piers, docks and levees." It seems
fairly evident that when the law-making body used the term "public wharves, etc." in subsection w, it meant to refer to those
mentioned in the preceding subsection, namely, the "public wharves, etc." constructed and therefore owned by the City of
Cebu. Section 30 of the charter has a similar bearing on the question, in granting to the City Engineer "the care and custody of
all public docks, wharves, piers, levees, and landing places, when erected" undoubtedly referring to those constructed and
owned by the city. For in so far as those belonging to the National Government are concerned they remain under the exclusive
control, direction and management of the Bureau of Customs, according to section 1142 of the Revised Administrative Code.
And appellants have accordingly been paying to the National Government fees for the use of its wharves in Cebu, pursuant to
law, particularly Republic Act No. 1371, which took effect on July 1, 1955 and was later on embodied in the new Tariff and
Customs Code.
The court a quo ruled that Section 17(w) of the city charter is "plainly evincive of the power to tax for revenue purposes," and
therefore the wharfage charges imposed by ordinance pursuant thereto are proper even if the amounts actually collected are
much more than what may be justified as license fees under the police power of regulation of "shipping offices" granted under
section 17 (1) of the same charter. The power to tax is an attribute of sovereignty and for it to be exercised by a municipal
corporation requires a clear delegation of the power by means of a charter grant or by a general enabling statute. The power is
not inherent in a municipal corporation (Saldaa v. City of Iloilo, 55 O.G. 10267), and if there is any doubt as to whether or not
such power has been delegated to it the doubt must be resolved negatively (We Wa Yu v. City of Lipa, 54 O.G. 4055).
But even if the wharfage dues authorized under Section 17(w) be considered as taxes for revenue, such authority nevertheless
is limited to public wharves, docks, levees and other landing places belonging to the City of Cebu and not to those owned by
the National Government under the exclusive supervision of the Bureau of Customs.
IN VIEW OF THE FOREGOING, the judgment appealed from is reversed; Ordinance No. 207 of the City of Cebu is declared
null and void, and appellees are ordered to refund to appellants all amounts collected thereunder and to refrain from making
such collection. Costs against appellees.

THIRD DIVISION
[G.R. NO. 156978 : May 2, 2006]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. NEW INDIA ASSURANCE COMPANY, LTD.,Respondent.
DECISION
For review on certiorari are the Decision1 dated August 29, 2002 of the Court of Appeals in CA-G.R. CV No. 28770 and its
Resolution2 dated January 23, 2003 denying reconsideration. The Court of Appeals affirmed the Decision3 dated November 20,
1989 of the Regional Trial Court of Manila in Civil Case No. 82-1475, in favor of respondent New India Assurance Company,
Ltd.
This petition stemmed from the action for damages against petitioner, Aboitiz Shipping Corporation, arising from the sinking of
its vessel, M/V P. Aboitiz, on October 31, 1980.

Franco-Belgian Services and Zuellig responded, claiming that they exercised extraordinary diligence in handling the shipment
while it was in their possession; its vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous event.
They also filed a cross-claim against petitioner alleging that the loss occurred during the transshipment with petitioner and so
liability should rest with petitioner.
For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the sinking of M/V P.
Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also alleged that in accordance with the
real and hypothecary nature of maritime law, the sinking of M/V P. Aboitiz extinguished its liability on the loss of the cargoes.11
Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to determine whether the captain and crew were
administratively liable. However, petitioner neither informed respondent nor the trial court of the investigation. The BMI
exonerated the captain and crew of any administrative liability; and declared the vessel seaworthy and concluded that the
sinking was due to the vessel's exposure to the approaching typhoon.
On November 20, 1989, the trial court, citing the Court of Appeals decision in General Accident Fire and Life Assurance
Corporation v. Aboitiz Shipping Corporation12 involving the same incident, ruled in favor of respondent. It held petitioner liable
for the total value of the lost cargo plus legal interest, thus:

The pertinent facts are as follows:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New India and against Aboitiz ordering
the latter to pay unto the former the amount of P142,401.60, plus legal interest thereon until the same is fully paid, attorney's
fees equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit.

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board a vessel owned by
Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.4

The complaint with respect to Franco and Zuellig is dismissed and their counterclaim against New India is likewise dismissed
SO ORDERED.13 rbl r l l lbrr

Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel to its
destination.5 But while at sea, the vessel received a report of a typhoon moving within its general path. To avoid the typhoon,
the vessel changed its course. However, it was still at the fringe of the typhoon when its hull leaked. On October 31, 1980, the
vessel sank, but the captain and his crew were saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force was at 10 to 15 knots
at the time the ship foundered and described the weather as "moderate breeze, small waves, becoming longer, fairly frequent
white horses."6
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the vessel and all of its cargoes. General
Textile, lodged a claim with respondent for the amount of its loss. Respondent paid General Textile and was subrogated to the
rights of the latter.8
Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking. In its report, 9 the
surveyor concluded that the cause was the flooding of the holds brought about by the vessel's questionable seaworthiness.
Consequently, respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian Services and the latter's
local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that the proximate cause of the loss of the shipment was the fault
or negligence of the master and crew of the vessel, its unseaworthiness, and the failure of defendants therein to exercise
extraordinary diligence in the transport of the goods. Hence, respondent added, defendants therein breached their contract of
carriage.10 rbl r l l lbrr

Petitioner elevated the case to the Court of Appeals and presented the findings of the BMI. However, on August 29, 2002, the
appellate court affirmed in toto the trial court's decision. It held that the proceedings before the BMI was only for the
administrative liability of the captain and crew, and was unilateral in nature, hence not binding on the courts. Petitioner moved
for reconsideration but the same was denied on January 23, 2003.
Hence, this Petition for Review, alleging that the Court of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE APPLICATION OF THE RULE ON
LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837 OF THE CODE OF COMMERCE TO CASES INVOLVING THE
SINKING OF THE M/V "P. ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET AL. V. COURT OF
APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD.;
B.

x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLES 587, 590
AND 837 OF THE CODE OF COMMERCE HAD BEEN CONSIDERED AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRO-RATASHARES IN THE INSURANCE
PROCEEDS FROM THE SINKING OF THE M/V "P. ABOITIZ".14
Stated simply, we are asked to resolve whether the limited liability doctrine, which limits respondent's award of damages to its
pro-rata share in the insurance proceeds, applies in this case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that respondent's claim for damages should only
be against the insurance proceeds and limited to its pro-rata share in view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary nature of maritime law is not applicable in the present case
because petitioner was found to have been negligent. Hence, according to respondent, petitioner should be held liable for the
total value of the lost cargo.
It bears stressing that this Court has variedly applied the doctrine of limited liability to the same incident - the sinking of M/V P.
Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the conflicting pronouncements of this Court relative to
the sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel was not due to force majeure, but to its
unseaworthy condition.16 Therein, we found petitioner concurrently negligent with the captain and crew.17 But the Court
stressed that the circumstances therein still made the doctrine of limited liability applicable. 18
Our ruling in Monarch may appear inconsistent with the exception of the limited liability doctrine, as explicitly stated in the
earlier part of the Monarch decision. An exception to the limited liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the captain. In which case, the shipowner shall be liable to the
full-extent of the damage.19 We thus find it necessary to clarify now the applicability here of the decision in Monarch.
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.20 In the event of loss, destruction or
deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss, destruction or
deterioration was brought about by the causes specified in Article 1734 of the Civil Code.21 In all other cases, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.22 Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent since it is
tasked with the maintenance of its vessel. Though this duty can be delegated, still, the shipowner must exercise close
supervision over its men.23
In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the transport of the goods
it had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence.
Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner failed to discharge
this burden. It initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at fault. However, both
the trial and the appellate courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness.
Evidence on record showed that the weather was moderate when the vessel sank. These factual findings of the Court of
Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be accorded great weight. These findings
are conclusive not only on the parties but on this Court as well.24

In contrast, the findings of the BMI are not deemed always binding on the courts.25 Besides, exoneration of the vessel's officers
and crew by the BMI merely concerns their respective administrative liabilities.26 It does not in any way operate to absolve the
common carrier from its civil liabilities arising from its failure to exercise extraordinary diligence, the determination of which
properly belongs to the courts.27
Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be
applied.28 Therefore, we agree with the appellate court in sustaining the trial court's ruling that petitioner is liable for the total
value of the lost cargo.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002 and Resolution dated January 23,
2003 of the Court of Appeals in CA-G.R. CV No. 28770 are AFFIRMED.
Costs against petitioner.
SO ORDERED.

20

Civil Code, Art. 1733. 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 the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6,
and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756.
21

Id. at Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
22

Id. at Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in article 1733.

SECOND DIVISION
[G.R. NO. 156978 : August 24, 2007]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. NEW INDIA ASSURANCE COMPANY, LTD.,Respondent.
RESOLUTION
In its Motion for Reconsideration,1 petitioner seeks the reversal of this Court's Decision2 dated May 2, 2006, and the referral of
this case to the Court En Banc allegedly due to its inconsistency with the rulings inMonarch Insurance Co., Inc. v. Court of
Appeals3 and Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.4 (GAFLAC).
The pertinent facts are undisputed.
On October 31, 1980, M/V P. Aboitiz, a vessel owned by petitioner, sank on her voyage from Hong Kong to Malaysia.
Respondent is the insurer of the lost cargoes loaded on board M/V P. Aboitiz and consigned to General Textile, Inc. After
respondent indemnified General Textile, Inc., it was subrogated to its rights, interests and actions against petitioner.
Respondent filed an action docketed as Civil Case No. 82-1475 before the Regional Trial Court of Manila, Branch 36, for
recovery against petitioner, among others, claiming P142,401.60 as actual damages, attorney's fees, exemplary damages and
costs of suit. On November 20, 1989, the trial court held petitioner liable for the total value of the lost cargoes instead of
applying the doctrine of limited liability.5The Court of Appeals affirmed in toto the trial court's decision and denied petitioner's
motion for reconsideration.6
Petitioner elevated the case to this Court raising the issue of whether the doctrine of limited liability, which limits respondent's
award of damages to its pro rata share in the insurance proceeds, applies in this case. 7 In our May 2, 2006 Decision, we
denied the petition for lack of merit and affirmed the decision of the Court of Appeals holding petitioner liable for the total value
of the lost cargo.8
Hence, this Motion for Reconsideration, raising the following as issues:
I.
THE DECISION DISREGARDED THE EARLIER RULINGS OF THIS HONORABLE COURT INGAFLAC (217 SCRA 259) AND
THE MONARCH CASES (333 SCRA 71), WHERE BOTH HELD THAT ABOITIZ' LIABILITY IS LIMITED TO THE VALUE OF
THE INSURANCE PROCEEDS NOTWITHSTANDING THE FINDING THAT ABOITIZ WAS AT FAULT.
II.
THE DECISION VIOLATES PARAGRAPH 3, SECTION 4 OF ARTICLE VIII OF THE CONSTITUTION WHICH STATES IN
PART THAT - "NO DOCTRINE OR PRINCIPLE OF LAW LAID DOWN BY THE COURT IN A DECISION RENDERED EN
BANC OR IN DIVISION MAY BE MODIFIED OR REVERSED EXCEPT BY THE COURT SITTING EN BANC." (CITATIONS
OMITTED.)9
Simply, the issue is: Did the May 2, 2006 Decision modify or reverse the rulings in Monarch and GAFLAC contrary to Section
4(3)10 of Article VIII of the Constitution?cralaw library

Petitioner seeks the referral of this case to the Court En Banc alleging that our May 2, 2006 Decision modified or reversed the
doctrines in GAFLAC and Monarch, where we ruled that petitioner's liability was limited to the claimants' pro rata share in the
insurance proceeds in view of the doctrine of limited liability. Invoking Section 4(3) of Article VIII of the Constitution, petitioner
contends that no doctrine or principle laid down by the Court in a decision rendered in division may be modified or reversed,
except by the Court sitting En Banc.
Respondent counters that petitioner should be held liable for the total value of the lost cargo. It insists that the doctrine of
limited liability does not apply because petitioner was found negligent.
We are not swayed to reconsider.
Petitioner's arguments are mere rehash of those already submitted to and pronounced without merit by this Court in our May 2,
2006 Decision. The basic issues have already been passed upon and the motion discloses no cogent reason to warrant
modification of our May 2, 2006 Decision. For all litigation must come to an end at some point, the Court En Banc should be
shielded from the importunings of litigants who resort to the convenience of an appeal to the Court En Banc merely to hamper
or delay the final resolution of the case. The Court En Banc is not an appellate court to which our May 2, 2006 Decision may
be appealed under the present circumstances.
A perusal of GAFLAC and Monarch vis - -vis the instant case will show that our May 2, 2006 Decision did not modify or
reverse the doctrines in GAFLAC and Monarch. The factual findings of this case were different from GAFLAC, which precludes
this Court to apply the principles enunciated therein. Here, petitioner was found concurrently negligent with the ship captain
and crew, while in GAFLAC, there is no such finding. Then the peculiar circumstances in Monarch called for the application of
the doctrine of limited liability, as we have extensively discussed in our May 2, 2006 Decision.chanrobles virtual law library
We need only to stress that 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. 11 In the event of
loss, destruction or deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss,
destruction or deterioration was brought about by the causes specified in Article 1734 of the Civil Code.12 In all other cases,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.13
The weather was moderate when M/V P. Aboitiz sank. Both the trial and appellate courts also ruled that the M/V P. Aboitiz sank
due to its unseaworthiness and not due to typhoon. To limit petitioner's liability to the amount of the insurance proceeds, it has
the burden of showing that the unseaworthiness of the vessel was not due to its fault or negligence. But it failed to do so.
Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied.14
WHEREFORE, petitioner's motion for reconsideration and referral to the Court En Banc is DENIED WITH FINALITY. No
further pleadings shall be allowed.
SO ORDERED.
10

Section 4.'
xxx

(3) 'no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc.

11

Civil Code, Art. 1733.

Art. 1733. 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 the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and
7, while the extraordinary diligence for the safety of the passengers is further set forth in Articles 1755 and 1756.
12

Id. at Art. 1734.

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to
any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
13

pilfered. Obviously the trial court mistook said Marine Risk Note as an insurance policy when it is not. It is only an
acknowledgment or declaration of the private respondent confirming the specific shipment covered by its Marine Open Policy,
the evaluation of the cargo and the chargeable premium.
2. ID.; RECEIPT OF INSURED CARGO AT THE OFFICE NOT LOADING IN THE SHIP; TIME FOR RECKONING LIABILITY.
The contention of the petitioner that it could not be liable for the pilferage of the cargo as it was stolen even before it was
loaded on its vessel is untenable. Petitioner received the cargo when it arrived in Manila at its offices at Pier 4, North Harbor
and it was while in its possession and before loading it in its vessel that the cargo was pilfered. Its liability is clear.
3. CIVIL PROCEDURE; DEFAULT ORDER; PROPER GROUND FOR RECEPTION OF EVIDENCE, EX PARTE. Petitioner
also decries the proceedings before the lower court as ex-parte without affording it due process. The records however show
that the petitioner was declared in default and thus the evidence for Marinduque was received ex-parte in accordance with the
rules. Petitioner had only itself to blame under the circumstances.
DECISION
Marinduque Mining Industrial Corporation (Marinduque for short) shipped on board SS Arthur Maersk from Boston, U.S.A. a
shipment of one (1) skid carton parts for valves as evidenced by bill of lading No. BOSF-45607 issued by the Maersk Lines
dated April 25, 1980. 1
The shipment was ordered from Jamesbury, Singapore PTE, LTD., which issued the cargos packing list 2 and Invoice number
3 showing the contents of the carton. The consular invoice was issued by the Philippine Consulate in Singapore for the
shipment showing the contents and its total price amounting to $39,419.60 as well as the freight and other charges amounting
to $2,791.73. 4 When the cargo arrived in Manila, it was received and deposited in the office of Aboitiz Shipping Corporation
(Aboitiz for short) at Pier 4, North Harbor, Manila for transhipment to Nonoc Island for which it issued bill of lading No. 23. 5
On July 7, 1980 Marinduque, as consignee of the cargo, made a report to the effect that said cargo was pilfered on the night of
July 3, 1980 while there was heavy rain at the Aboitiz terminal and that of the total value of the cargo of $42,209.33, only
$7,412.00 worth remains of the cargo with the recommendation that the claim be made against Aboitiz. 6

Id. at Art. 1735.

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in Article 1733.

FIRST DIVISION
[G.R. No. 77530. October 5, 1989.]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. PHILIPPINE AMERICAN GENERAL INSURANCE CO., Respondent.
SYLLABUS

1. INSURANCE; MARINE RISK NOTE, NOT A FORM OF INSURANCE; ITS MAIN PURPOSE. The questioned shipment is
covered by this continuing open insurance coverage from the time it was loaded aboard the SS Arthur Maersk in Boston,
U.S.A. to the time it was delivered to the possession of petitioner at its offices at Pier 4 in Manila until it was pilfered when the
great majority of the cargo was lost on July 3, 1980. The trial court in dismissing the complaint apparently relied on Marine Risk
Note No. 017545 which was issued by private respondent only on July 28, 1980 after the shipment in question was already

The services of the Manila Adjusters and Surveyors Co. (Manila Adjusters for brevity) were engaged by the Phil-American
General Insurance Co., Inc. (Phil Am for short) which came out with the report that the cargo in question was delivered at Pier
4, North Harbor on July 3, 1980 which cargo, when inspected on July 5, 1980 showed that it was pilfered. The list of the
remaining contents was in the report. 7 A confirmatory report was submitted by the Manila Adjusters dated November 8, 1980.
8
On August 11, 1980, Marinduque filed a claim against Aboitiz in the amount of P246,430.80 representing the value of the
pilfered cargo. 9 On the same day Marinduque filed a claim for the same amount against the Phil-Am on the latters policy
MRN-01754 PAG. 10
On August 25, 1981 Phil-Am paid Marinduque the sum of P246,430.80 as insurer of the cargo. 11
Phil-Am then filed a complaint in the Regional Trial Court (RTC) of Manila against Aboitiz for the recovery of the same amount
alleging that it has been subrogated to the rights of Marinduque.
In a decision rendered on January 11, 1984, the complaint was dismissed with costs against the plaintiff. A motion for
reconsideration of this decision was denied in an order dated March 19, 1984.chanrobles.com : virtual law library
Hence the Phil-Am appealed to the Court of Appeals wherein in due course a decision was rendered on December 17, 1986
reversing the appealed order of dismissal of the complaint and ordering defendant Aboitiz to pay plaintiff Phil-Am the sum of

P246,430.80 plus P15,000.00 as attorneys fees. 12 A motion for reconsideration thereof was denied in a resolution of the
appellate court dated February 27, 1987.

Oqueria, Respondents.
SYLLABUS

Hence the herein petition for review for certiorari filed by Aboitiz predicated on five assignments of errors, the resolution of
which revolves on the singular issue of whether petitioner was properly held liable to the private respondent by the appellate
court.
The petition is devoid of merit.
The main thrust of the petition is that the findings of the trial court that the insurance policy covering the cargo was issued at
the time when the cargo was already pilfered and that the coverage under Marine Policy No. 100105 PAG never began and
that Marine Policy No. 100184 did not attach to the shipment because the shipment was never loaded on any vessel of the
defendant should be entitled to considerable weight.
The records of this case show that private respondent executed a continuous and open insurance coverage covering goods of
Marinduque imported into and exported from the Philippines which took effect after September 1, 1975, as contained in Marine
Open Policy No. 100184. 13 A similar insurance coverage was also executed by petitioner in favor of Marinduque for all its
goods shipped or moved within the territorial limits of the Philippines also effective after September 1, 1975 and contained in
Marine Open Policy No. 100185. 14

1. WORKMENS COMPENSATION; AWARD WITHOUT PREVIOUS NOTICE AND HEARING, WHEN JUSTIFIED; CASE AT
BAR. Petitioner Shipping Corporation was aware of the disappearance of its seaman and yet it did not file the
corresponding Employers Report of Accident within fourteen days from the date of the accident or within ten days after it
acquired knowledge thereof. Petitioner did not try, either to justify, or even explain, its failure to submit the report within the
statutory period. Consequently, petitioner is deemed to have admitted the validity of the claim for compensation, so that the
Regional Labor Administrator was justified in readily making the corresponding award, without previous notice and hearing.
DECISION
Appeal by certiorari, taken by petitioner Aboitiz Shipping Corporation, from an order and a resolution of the Workmens
Compensation Commission, sustaining a claim for compensation of respondents Demetria Oqueria and her children based
upon the alleged death of Demetrias husband and father of her children, Sofronio Buen.

The trial court in dismissing the complaint apparently relied on Marine Risk Note No. 017545 which was issued by private
respondent only on July 28, 1980 15 after the shipment in question was already pilfered. 16 Obviously the trial court mistook
said Marine Risk Note as an insurance policy when it is not. It is only an acknowledgment or declaration of the private
respondent confirming the specific shipment covered by its Marine Open Policy, the evaluation of the cargo and the
chargeable premium. 17

The record shows that Sofronio Buen, a seaman of petitioner "was lost at sea while the M/V Carmen was" navigating in the
high seas, near Kaubian Island, "making its voyage from Cebu City to Surigao del Norte, on October 14, 1961. A marine
protest was filed by the Master" of said vessel, "Publio Gacela, at Tandag, Surigao del Sur, after futile attempts had been made
to recover the body of Sofronio Buen" (in the language of the order appealed from). On January 3, 1962, in view of petitioners
failure to submit its "employers report of accident" prior thereto, Regional Office No. VIII wrote to the Manager of the Aboitiz
Co., Inc., a communication (Annex A) enclosing therewith the corresponding forms, with the request that the same be
accomplished and then returned to said office. On January 26, 1962, Aboitiz Co., Inc., replied stating that said vessel belongs,
not to said enterprise, but to petitioner Aboitiz Shipping Corporation, to which said letter (Annex A) and the aforementioned
forms were indorsed (see Annex B). Soon, thereafter, or on January 29, 1962, petitioner wrote to Regional Office No. VIII the
communication Annex C, acknowledging receipt of Annex A and enclosing therewith the aforementioned forms duly
accomplished.

The contention of the petitioner that it could not be liable for the pilferage of the cargo as it was stolen even before it was
loaded on its vessel is untenable. Petitioner received the cargo when it arrived in Manila at its offices at Pier 4, North Harbor
and it was while in its possession and before loading it in its vessel that the cargo was pilfered. Its liability is clear.chanrobles
lawlibrary : rednad

Soon, thereafter, or on February 20, 1962, the Regional Labor Administrator, who considered respondents claim for
compensation uncontroverted, made the award, Annex G, declaring that said respondents are entitled to a total compensation
of P3,806.40, and, accordingly, directing petitioner herein to pay this sum to the respondents, and the sum of P39.00 to the
Workmens Compensation Commission as fee thereof under Section 55 of the Workmens Compensation Act, as amended.

Petitioner also decries the proceedings before the lower court as ex-parte without affording it due process. The records
however show that the petitioner was declared in default and thus the evidence for Marinduque was received ex-parte in
accordance with the rules. Petitioner had only itself to blame under the circumstances.

On March 16, 1962, petitioner filed a motion, dated March 14, 1962, to set aside said award, which motion was denied in an
order of the Regional Labor Administrator of May 14, 1962. On June 21, 1962, petitioner moved for the review of said award of
February 20, 1962 and of the aforementioned order of May 14, 1962. By an order dated January 14, 1963, the petition for
review was denied by the Chairman of the Workmens Compensation Commission, upon the ground that the motion to set
aside the award had been filed out of time. On or about January 26, 1963, petitioner filed a motion for reconsideration of this
order of January 14, 1963. The motion was denied by the Workmens Compensation Commission en banc, on February 19,
1963.

The questioned shipment is covered by this continuing open insurance coverage from the time it was loaded aboard the SS
Arthur Maersk in Boston, U.S.A. to the time it was delivered to the possession of petitioner at its offices at Pier 4 in Manila until
it was pilfered when the great majority of the cargo was lost on July 3, 1980.

WHEREFORE, the petition is DISMISSED with costs against petitioner.

SO ORDERED
EN BANC
[G.R. No. L-20998. August 31, 1965.]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. DEMETRIA OQUERIA, and the minors MEMORACION, ELICITA,
MAXIMO and MARIETTA, all surnamed BUEN, represented by their mother, the respondent Demetria

Hence this appeal by certiorari taken by the petitioner, which maintains that the Workmens Compensation Commission erred:
(1) in holding that petitioner had not controverted the claim for compensation involved in this case; (2) in not holding that the
award of February 20, 1962 and the order of May 14, 1962, denying the petition to set aside said award, are illegal and invalid,
the award having been made without previous notice and hearing; (3) in impliedly presuming the death of Buen in
consequence of his disappearance from petitioners vessel; (4) in not holding that the filing by petitioner of the Employers
Report of Accident or Sickness on January 30, 1962, had satisfied the requirements of Section 1, Rule 14, of the Rules of the
Workmens Compensation Commission; (5) in not holding that in sending copy of the award dated February 20, 1962 to

10

petitioners manager instead of to petitioners counsel, the Commission contravened Section 2, Rule 27, of the Rules of Court;
(6) in not holding that the reglementary period to seek a review of such award commenced to run from receipt of notice thereof
by petitioners counsel; and (7) in concluding that said award has already become final and executory and in affirming said
award.
It is not disputed that Sofronio Buen disappeared from petitioners vessel while the same was navigating in the high seas on
October 14, 1961, that a watchman of the vessel discovered said disappearance on that same date, and that, after searching
in vain for the body of Sofronio, the Master of said vessel filed the corresponding protest. Petitioner was aware, therefore, of
said disappearance of Buen since October 14, 1961. Yet, it did not file the corresponding Employers Report of Accident within
fourteen (14) days from said date or within ten (10) days after it acquired knowledge of the accident. Pursuant to the second
paragraph of Section 45 of the Workmens Compensation Act, as amended, petitioner is deemed, accordingly to have
renounced the right to controvert the claim for compensation (National Development Co. vs WCC, Et Al., L-20504, March 31,
1965; Manila Railroad Co. v. Vda. de Chavez, etc., Et Al., L-20103, September 30, 1964; Agustin v. WCC, L-19957, September
29, 1964; Manila Railroad Co. v. Pineda, L-19773, May 30, 1964) unless it "submits reasonable grounds for the failure to make
the necessary reports, on the basis of which the commissioner may reinstate his right to controvert the claim." Although
petitioner did not submit its Employers Report of Accident and the Employers Supplementary Report of Accident until January
30, 1962, or 108 days after the accident, and after its agent had knowledge thereof, it did not try, either to justify, or even
explain, its failure to submit the report aforementioned within the statutory period. As a consequence despite the statement
in said Employers Report of Accident (Annex D) to the effect that it controverted the claim for compensation petitioner is
deemed, therefore, to have admitted the validity of respondents claim for compensation, so that the Regional Labor
Administrator was justified in readily making the corresponding award, without previous notice and hearing.
It is also, clear that, apart from the circumstance that the death of Buen is deemed admitted by petitioner in view of its failure to
controvert respondents claim for compensation, said death was properly deduced from the fact that Buen disappeared from
petitioners vessel while the same was navigating in the high seas; that, according to petitioners Supplementary Report of
Accident (Annex F), Buen must have jumped or fallen overboard; that Buen was then under the influence of Liquor, and,
hence, under circumstances unfavorable to an intelligent and effective effort on his part to save his life; that, despite diligent
search, his body could not be found, because of which the corresponding marine protest was filed by the Master of said
vessel; and that, up to the present, or almost four (4) years later, the whereabouts of Buen has not been located.
As regards the party on whom notice of the award should have been served, suffice it to say that, at the time of said award,
petitioners counsel had not, as yet, entered his appearance in the case. Accordingly, notice of said award was properly served
upon petitioner itself, on February 24, 1962. Petitioners motion of March 16, 1962, to set aside said award, was filed,
therefore, after the expiration of the period of fifteen (15) days prescribed therefor in Rule 23, Section 1, of the Rules of the
Commission. In other words, the award was then final and executory.
WHEREFORE, the order and the resolution appealed from are hereby affirmed, with costs against the petitioner. It is so
ordered.
THIRD DIVISION
[G.R. No. 100446. January 21, 1993.]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION,
LTD., Respondent.
SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; STAY OF EXECUTION OF JUDGMENT; GROUNDS THEREFOR.
This Court has always been consistent in its stand that the very purpose for its existence is to see to the accomplishment of
the ends of justice. Consistent with this view, a number of decisions have originated herefrom, the tenor of which is that no
procedural consideration is sacrosanct if such shall result in the subverting of substantial justice. The right to an execution after
finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that: ". . .
It is a truism that every court has the power to control, in the furtherance of justice, the conduct of its ministerial officers, and of
all other persons in any manner connected with a case before it, in every manner appertaining thereto. It has also been said
that: . . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise
equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will
remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be
necessary to carry out the judgment into effect and render it binding and operative, but also to such orders and such writs as
may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a
medium of consummating a wrong the court on proper application can prevent it." (at p. 359) and again in the case of Lipana
v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that: "The rule that once a decision becomes final and
executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes the imperative in the higher interest of justice to direct the suspension of its execution
(Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v. Tan, 85 Phil. 164); or
when certain facts and circumstances transpired after the judgment became final which would render the execution of the
judgment unjust (Cabrias v. Adil, 135 SCRA 354)." (at p. 201)
2. COMMERCIAL LAW; CODE OF COMMERCE; REAL AND HYPOTHECARY NATURE OF MARITIME LAW; MEANING;
ORIGIN AND PURPOSE. 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. It might be noteworthy to add in passing that despite the modernization
of the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, the
limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United
States and England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction,
and is governed by adherence to both international maritime conventions and generally accepted practices relative to maritime
trade and travel.
3. ID.; ID.; LIMITED LIABILITY RULE; WHEN RULE NOT APPLICABLE; WHEN RULE PROPERLY INVOKED; CASE AT BAR.
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it
originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles
587, 590, and 837, hereunder quoted in toto: "Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he
may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the
voyage. "Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587. "Each co-owner may exempt himself from this liability by the
abandonment, before a notary, of the part of the vessel belonging to him" "Art. 837. The civil liability incurred by shipowners in
the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage." Taken together with related articles, the foregoing cover only liability
for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837). In view of the foregoing, this Court
shall not take the application of such limited liability rule, which is a matter of near absolute application in other jurisdictions, so
lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its being are still apparently much in

11

existence and highly regarded. We now come to its applicability in the instant case. In the few instances when the matter was
considered by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule
does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73
Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of
Appeals, 186 SCRA 649 [1967]) . . . We must stress that the matter of the Limited Liability Rule as discussed was never in
issue in all prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in
issue before the trial courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine
arising from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any of
the cases a quo, as properly it could not have been made so since it was not relevant in said cases. The only time it could
come into play is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could
the matter have been raised, as it has now been brought before the Court.
4. ID.; ID.; ID.; RIGHTS OF VESSEL OWNER OR AGENT AKIN TO RIGHTS OF SHAREHOLDERS TO LIMITED LIABILITY
UNDER CORPORATION LAW; RIGHTS OF CLAIMANTS AGAINST VESSEL OWNER OR AGENT COMPARED TO RIGHTS
OF CREDITORS AGAINST INSOLVENT CORPORATION WITH SUFFICIENT ASSETS. 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 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. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that: "In the instant case, the stay
of execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the
judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors,
since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent
and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or preference over another by an attachment, execution or otherwise." 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.
5. ID.; ID.; ID.; COLLATION OF ALL CLAIMS PREPARATORY TO SETTLEMENT OUT OF INSURANCE PROCEEDS ON
VESSEL; NO CLAIMANT GIVEN PRECEDENCE OVER OTHERS; CASE AT BAR. 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 . . . In fairness to the claimants, and as a matter of equity, the total proceeds of the
insurance and pending freightage should now be deposited in trust. Moreover, petitioner should institute the necessary
limitation and distribution action before the proper admiralty court within 15 days from the finality of this decision, and
thereafter deposit with it the proceeds from the insurance company and pending freightage in order to safeguard the same
pending final resolution of all incidents, for final pro-rating and settlement thereof.

This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June 21,
1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner, Aboitiz
Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National Capital
Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondents prayer for execution for the full
amount of the judgment award. The trial court in so doing swept aside petitioners opposition which was grounded on the real
and hypothecary nature of petitioners liability as ship owner. The application of this established principle of maritime law would
necessarily result in a probable reduction of the amount to be recovered by private respondent, since it would have to share
with a number of other parties similarly situated in the insurance proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade as a
carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from
Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance Corporation,
Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo
consignees whose respective cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessels sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their
successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of
Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due to force majeure and that
subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court in said Civil
Case No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a result of force
majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and was later awarded, its claim. This decision in favor or
GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with
Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in said case in the
amount of P1,072,611.20 plus legal interest has given rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was seaworthy at
the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise elevated to this Court in
G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, Et Al., August 28, 1991 and was sustained. Part
of the task resting upon this Court, therefore, is to reconcile the resulting apparent contrary findings in cases originating out of
a single set of facts.
It is in this factual milieu that the instant petition 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 MV P. ABOITIZ, as based on the real
and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that a number of suits alleged
in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more
confusion than presently attends the instant case.
In support of the instant petition, the following arguments are submitted by the petitioner:chanrob1es virtual 1aw library
1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and
3. The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing that:cralawnad

DECISION

12

1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590, and 837 of the Code of
Commerce in the face of the facts found by the lower court (Civil Case No. 144425), upheld by the Appellate Court (CA G.R.
No. 10609), and affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case;
and

consummating a wrong the court on proper application can prevent it." (at p. 359)

2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated and the same issues
litigated should be decided in conformity therewith following the maxim stare decisis et non quieta movere. (pp. 225 to 279,
Rollo.).

"The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits
of certain exceptions as in cases of special and exceptional nature where it becomes the imperative in the higher interest of
justice to direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the
aims of justice (Pascual v. Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became
final which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354)." (at p. 201)

Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this Court
in G.R. No. 88159, Aboitiz Shipping Corporation v. The Honorable Court of Appeals and Allied Guaranty Insurance Company,
Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same settles
two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and
second is that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of
common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but
an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of
stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in Section 8
of the Bill of Lading and which limited the carriers liability to US$500.00 for the cargo whose value was therein sought to be
recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature
of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters
threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the
package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case
raises a completely different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other
than factual to the instant case.
This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full
judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability
enunciated under the appropriated articles of the Code of Commerce. The articles maybe ancient, but they are timeless and
have remained to be good law. Collaterally, determination of the question of whether execution of judgments which have
become final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence is
to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom,
the tenor of which is that no procedural consideration is sacrosanct if such shall result in the subverting of substantial justice.
The right to an execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355
[1985]), this Court ruled that:chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
". . . It is a truism that every court has the power to control, in the furtherance of justice, the conduct of its ministerial officers,
and of all other persons in any manner connected with a case before it, in every manner appertaining thereto. It has also been
said that:chanrob1es virtual 1aw library
. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise equitable
control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will remove
obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary to
carry out the judgment into effect and render it binding and operative, but also to such orders and such writs as may be
necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a medium of

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found
that:jgc:chanrobles.com.ph

We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.chanrobles virtual
lawlibrary
In deciding the instant case below, the Court of Appeals took refuge in this Courts decision in G.R. No. 89757 upholding
private respondents claims in that particular case, which the Court of Appeals took to mean that this Court has "considered,
passed upon and resolved Aboitizs contention that all claims for the losses should first be determined before GAFLACs
judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the limited liability principle"
(p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the circumstances peculiar to
that particular case, and was not meant to traverse the larger picture herein brought to fore, the circumstances of which
heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as discussed was never in issue in all
prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue
before the trial courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine arising
from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any of the cases
a quo, as properly it could not have been made so since it was not relevant in said cases. The only time it could come into play
is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could the matter have
been raised, as it has now been brought before the Court.
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.
It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of hightechnology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even practically
absolute in well-developed maritime countries such as the United States and England where it covers almost all maritime
casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international
maritime conventions and generally accepted practices relative to maritime trade and travel. This is highlighted by the following
excerpts on the limited liability of vessel owners and/or agents:chanrobles.com.ph : virtual law library
"SECTION 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or
destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel, or for
any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners shall
not exceed the amount or value of the interest of such owner in such vessel, and her freight then pending." (Section 183 of the

13

US Federal Limitation of Liability Act)

and
"1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims
arising from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or
privity of the owner;
(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board
the ship.
(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property
or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person not on board the
ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to the act, neglect or default
of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which
occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the
embarkation, carriage or disembarkation of its passengers.
(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with the
raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be on board
such ship) and any obligation or liability arising out of damage caused to harbor works, basins and navigable waterways."
(Section 1, Article I of the Brussels International Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates.
The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles 587, 590,
and 837, hereunder quoted in toto:jgc:chanrobles.com.ph
"ARTICLE 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the
conduct of the captain in the care of 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.chanrobles virtual
lawlibrary
"ARTICLE 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
"Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging
to him"
"ARTICLE 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be
understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage."
(Emphasis supplied)

have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when there is
an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila
Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649
[1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as the entirety
of the records in the instant case will show that there has been no actual finding of negligence on the part of petitioner. In its
Decision, the trial court merely held that:jgc:chanrobles.com.ph
". . . 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." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the Court of
Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and additional finding of fact.
Both merely 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 petitioner shipowner itself was negligent, and no tribunal,
including this Court, will add or subtract to such evidence to justify a conclusion to the contrary.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored by the
fact that in the Country Bankers case, supra, arising from the same sinking, the Court sustained the decision of the Court of
Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioners lap, absent a
factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is
directly attributable to the vessels crew and captain, more so on the part of the latter since Article 612 of the Code of
Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the
laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry.
While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding
therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally
incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not
pertain to the structural condition of the vessel which is the basis of the BMIs 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 cause to do so, such
incursion is definitely punitive in nature and must never be taken lightly.

In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near absolute
application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its
being are still apparently much in existence and highly regarded.

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. Thus, in the case of Lipana
v. Development Bank of Rizal earlier cited, We held that:jgc:chanrobles.com.ph

We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court, we

"In the instant case, the stay of execution of judgment is warranted by the fact that respondent bank was placed under

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

14

receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared
that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an advantage or preference over another by an attachment,
execution or otherwise." (at p. 261)
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.chanrobles law library : red
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.
Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183, Rollo), together
with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are still with the
Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would not, therefore, be
entirely correct to preclude the trial courts from making their own findings of fact in those cases and deciding the same by
allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence presented in each. We,
therefore, rule that the pro-rated share of each claim can only be found after all the cases shall have been decided.
In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now
be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper
admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and
settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV dated April
30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby directed to desist from
proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending determination of the totality of
claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action
and to deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of this
decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made permanent.
SO ORDERED.

1. ADMINISTRATIVE LAW; JUDICIAL REVIEW OF ADMINISTRATIVE DECISIONS; ADMINISTRATIVE FINDINGS OF FACTS

GENERALLY UPHELD BY THE COURTS; EXCEPTIONS; CASE AT BAR. As a general rule, administrative findings of facts
are not disturbed by the courts when supported by substantial evidence unless it is tainted with unfairness or arbitrariness that
would amount to abuse of discretion or lack of jurisdiction. In the instant case, the sinking of the vessel M/V "P. Aboitiz" was the
subject of an administrative investigation conducted by the Board of Marine Inquiry (BMI) whereby in a decision dated
December 26, 1984, it was found that the sinking of the vessel may be attributed to force majeure on account of a typhoon.
Said administrative investigation was conducted unilaterally. Private respondent GAFLAC was not notified or given an
opportunity to participate therein. It cannot thereby be bound by said findings and conclusions of the BMI. On the other hand,
the trial court and the appellant court found that the sinking of the M/V "P. Aboitiz" was not due to the waves caused by tropical
storm "Yoring" but due to the fault and negligence of petitioner, its master and crew. The said factual findings of the appellate
court and the trial court are finding on this Court. Its conclusion as to the negligence of the petitioner is supported by the
evidence.
2. CONSTITUTIONAL LAW; CARRIAGE OF GOODS BY SEA ACT; SECTION 4(5) THEREOF; LIABILITY OF THE COMMON
CARRIER ON LOST GOODS; BASIS THEREOF; CASE AT BAR. While it is true that in the bill of lading there is such
stipulation that the liability of the carrier is US$500.00 per package/container/customary freight, there is an exception, that is,
when the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
This is provided for in Section 4(5) of the Carriage of Goods by Sea Act. In this case the description of the nature and the value
of the goods shipped are declared and reflected in the bills of lading. Thus, it is the basis of the liability of the carrier as the
actual value of the loss.
3. ID.; ID.; ID.; THE TERM "CONTAINER" IN THE BILL OF LADING, HOW INTERPRETED. It is absurd to interpret
"container," as provided in the bill of lading to be valued at US$500.00 each, to refer to the container which is the modern
substitute for the hold of the vessel. The package/container contemplated by the law to limit the liability of the carrier should be
sensibly related to the unit in which the shipper packed the goods and described them, not a large metal object, functionally a
part of the ship, in which the carrier caused them to be contained. Such "container" must be given the same meaning and
classification as a "package" and "customary freight unit."cralaw virtua1aw library
4. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; EXECUTION PENDING APPEAL; PROPER IN CASE AT BAR. The
allegations in private respondents motion for execution pending appeal dated December 8, 1985 which were not traversed
that petitioner is facing many law suits arising from said sinking of its vessel involving cargo loss of no less than 50 million
pesos, in some cases of which judgment had been rendered against Aboitiz, and considering that its insurer is now bankrupt,
leaving Aboitiz alone to face and answer the suits, which may render any judgment for GAFLAC ineffectual, that the appeal is
interposed manifestly for delay and the willingness of GAFLAC to put up a bond certainly are cogent bases for the issuance of
an order of execution pending appeal.
DECISION
The extent of the liability of a carrier of goods is again brought to the fore in this case.

FIRST DIVISION
[G.R. No. 89757. August 6, 1990.]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. COURT OF APPEALS AND GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORPORATION, LTD., Respondents.
SYLLABUS

On October 28, 1980, the vessel M/V "P. Aboitiz" took on board in Hongkong for shipment to Manila some cargo consisting of
one (1) twenty (20)-footer container holding 271 rolls of goods foe apparel covered by Bill of Lading No. 515-M and one (1)
forty (40)-footer container holding four hundred forty-seven (447) rolls, ten (10) bulk and ninety-five (95) cartons of goods for
apparel covered by Bill of Landing No. 505-M. The total value, including invoice value, freightage, customs duties, taxes and
similar imports amount to US$39,885 for the first shipment while that of the second shipment amounts to US$94,190.55. Both
shipments were consigned to the Philippine Apparel, Inc. and insured with the General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC FOR short). The vessel is owned and operated by Aboitiz Shipping Corporation (Aboitiz for short.)
On October 31, 1980 on its way to Manila the vessel sunk and it was declared lost with all its cargoes. GAFLAC paid the
consignee the amounts US$39,885.85 or P319,086.80 and US$94,190.55 or P753,524.40 for the lost cargo. As GAFLAC was

15

subrogated to all the rights, interests and actions of the consignee against Aboitiz, it filed an action for damages against Aboitiz
in the Regional Trial Court of Manila alleging that the loss was due to the fault and negligence of Aboitiz and the master and
crew of its vessel in that they did not observe the extraordinary diligence required by law as regards common carriers.
After the issues were joined and the trial on the merits a decision was rendered by the trial court on June 29, 1985, the
dispositive part of which reads as follows:jgc:chanrobles.com.ph
"PREMISES CONSIDERED, the Court finds in favor of the plaintiff and against the defendant, ordering the latter to pay the
former actual damages in the sum of P1,072,611.20 plus legal interest from the date of the filing of the complaint on October
28, 1981, until full payment thereof, attorneys fees in the amount of 20% of the total claim and to pay the costs.
"SO ORDERED." 1
Not satisfied therewith, Aboitiz appealed to the Court of Appeals wherein in due course a decision was rendered on March 9,
1989 affirming in toto the appealed decision, with costs against defendant Aboitiz. 2

of the BMI exonerating the captain from any negligence "since it obviously had not taken into account the legal responsibility of
a common carrier towards the security of the passengers involved."cralaw virtua1aw library
This case was brought to court on October 28, 1981. The trial court was never informed of a parallel administrative
investigation that was being conducted by the BMI in any of the pleadings of the petitioner. It was only on March 22, 1985
when petitioner revealed to the trial court the decision of the BMI dated December 26, 1984 (one day after Christmas day). 7
The said decision appears to have been rendered over three (3) years after the case was brought to court.
Moreover, said administrative investigation was conducted unilaterally. Private respondent GAFLAC was not notified or given
an opportunity to participate therein. It cannot thereby be bound by said findings and conclusions of the BMI.
The trial court and the appellate court found that the sinking of the M/V "P. Aboitiz" was not due to the waves caused by
tropical storm "Yoning" but due to the fault and negligence of petitioner, its master and crew. The court reproduces with
approval said findings
"x

A motion for reconsideration of said decision filed by Aboitiz was denied in a resolution dated August 15, 1989.
Hence the herein petition for review alleging that the Court of Appeals decided the case not in accordance with law when
"1. The Court of Appeals held that findings of administrative bodies are not always binding on courts. This is especially so in
the case at bar where GAFLAC was not a party in the BMI proceedings and which proceedings was not adversary in
character. This ruling is contrary to the principle established in Vasquez v. Court of Appeals (138 SCRA 559), where it was
held that since the BMI possesses the required expertise in shipping matters and is imbued with quasi-judicial powers, its
factual findings are conclusive and binding on the court. Likewise, the case of Timber Export Inc. v. Retla Steamship Co. (CAG.R. No. 66143-R) also established the rule that decision of BMI must be given great materiality and weight to the
determination and resolution of the case.
2. The Court of Appeals also held that the trial court did not err when it fixed the liability of Aboitiz not on the basis of the
stipulation in the bills of lading at US$500.00 per package container but on the actual value of the shipment lost
notwithstanding the long line of cases decided by this Honorable Supreme Court holding a contrary opinion, as shown below.
3. The Court of Appeals also held that the trial court did not abuse its discretion in granting GAFLACs motion for execution
pending appeal notwithstanding the absence of reasonable and justifiable grounds to support the same." 3

After a careful examination of the evidence, the Court is convinced in the plaintiffs claim that the M/V Aboitiz and its cargo
were not lost due to fortuitous event or force majeure.
To begin with, paragraph 4 of the marine protest (Exh. "4", also Exhibit "M"), which is defendants own evidence, shows that
the wind force when the ill-fated ship foundered was 10 to 15 knots. According to the Beau fort Scale (Exhibit "I"), which is
admittedly an accurate reference for measuring wind velocity, the wind force of 10 to 15 knots is classified as scale No. 4 and
described as moderate breeze, small waves, becoming longer, fairly frequent white horses. Meteorologist Justo Iglesias, Jr.
himself affirms the above description of a wind force of 10 to 15 knots and adds that the weather condition prevailing under
said wind force is usual and foreseeable. Thus, Iglesias, Jr. testified:chanrob1es virtual 1aw library
Q In the marine protest of the master of the vessel of Aboitiz, there is reference to wind force from ten to 15 knots. In this
Beaufort Scale, will you be able to clarify what this wind force of 10 to 15 as stated in the marine protest?
A It will be under Force 4 of the Beaufort Scale.
Q What is the basis of your answer?
A 10 to 15 falls within this scale of the Beaufort Scale, Force 4.

Under the first issue petitioner states that the sinking of the vessel M/V "P. Aboitiz" was the subject of an administrative
investigation conducted by the Board of Marine Inquiry (BMI) whereby in a decision dated December 26, 1984, it was found
that the sinking of the vessel may be attributed to force majeure on account of a typhoon. Petitioner contends that these
findings are conclusive on the courts.
In rejecting the evidence offered by the petitioner the appellate court ruled
"But over and above all these considerations, the trial court did not err in not giving weight to the finding of the BMI that the
vessel sank due to a fortuitous event. Findings of administrative bodies are not always binding on courts. This is especially so
in the case at bar where plaintiff was not a party in the BMI proceedings and which proceeding was not adversary in
character." 4

Atty. Dollete:chanrob1es virtual 1aw library

May I read into the records, Your Honor. Force 4, descriptive term moderate breeze. Near velocity in knots 11-16 meters per
second, 5.5-7.9 in kilometers per hour to 20 to 28 kilometers per hour and 13 to 18 miles per hour. Sea the description of this
will be small waves becoming longer fairly frequent white horse (sic).
Q In the laymans language how do you interpret this white horses?
A It means white forms. At the top of the crest they were beginning to form white foams.
Q How about this moderate breeze as described under this Force 4 of the Beaufort Scale, how will you interpret that?

As a general rule, administrative findings of facts are not disturbed by the courts when supported by substantial evidence
unless it is tainted with unfairness or arbitrariness that would amount to abuse of discretion or lack of jurisdiction. 5 Even in
Vasquez v. Court of Appeals, 6 which is cited by petitioner, this Court ruled that We nevertheless disagree with the conclusion

A Moderate breeze will only give winds of 29 kilometers per hour which is equivalent to just extending your hand out of a
running car at that speed.

16

Q This weather condition between October 28 and November 1, 1980, will you classify this as extraordinary or ordinary?
A It was ordinary.
Q When you said ordinary, was it usual or unusual?

presumes that it was due to the carriers fault or negligence; that is necessary to protect the interest of the shipper which is at
the mercy of the carrier (Article 17O6, Civil Code; Anuran v. Puno, 17 SCRA 224; Nocum v. Laguna Tayabas Bus Co., 30
SCRA 69; Landigan v. Pangasinan Transportation Company, 88 SCRA 284). In the case at bar, the defendant failed to prove
that the loss of the subject cargo was not due to its fault or negligence." 8
The said factual findings of the appellate court and the trial court are finding on this Court. Its conclusion as to the negligence
of the petitioner is supported by the evidence.chanrobles virtual lawlibrary

A It is usual.
Q When you said it is usual it is foreseeable and predictable?
A For an experienced meteorologist like a ship captain, it is foreseeable.
Q When it is foreseeable, necessarily it follows that the weather could be predicted based on the weather bulletin or report?

The second issue raised to the effect that the liability of the petitioner should be fixed at US$500.00 per package/container, as
stipulated in the bill of lading and not at the actual value of the cargo, should be resolved against petitioner.
While it is true that in the bill of lading there is such stipulation that the liability of the carrier is US$500.00 per
package/container/customary freight, there is an exception, that is, when the nature and value of such goods have been
declared by the shipper before shipment and inserted in the bill of lading. This is provided for in Section 4(5) of the Carriage of
Goods by Sea Act to wit

A Yes, sir.
Q And usually the bulletin states the condition in other words, this weather condition which you testified to and reflected in your
Exhibit 7 is an ordinary occurrence within that area of Philippine responsibility?
A Yes, sir.
Q And in fact this weather condition is to be anticipated at that time of the year with respect to weather condition which is
reflected in Exhibit 7?

"(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 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.
By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that
mentioned in this paragraph may be fixed: Provided, that such maximum shall not be less than the figure above named. In no
event shall the carrier be liable for more than the amount of damage actually sustained.

A It is a regular occurrence.
x
x
x
Moreover, Capt. Racines again admitted in Court that his ill-fated vessel was 200 miles away from the storm Yoning when it
sank. Said Capt. Racines:chanrob1es virtual 1aw library
Q How far were you from this depression or weather disturbance on October 30, 1980?
A Two hundred miles.
x
x
x
Q In other words, this depression was far from your route because it took a northern approach whereas you were towards the
south approach?
A As I have said, I was 200 miles away from the disturbance.
x

x.

"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.
"In accordance with Article 1732 of the Civil Code, the defendant common carrier, from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to all the circumstances of each case. While the goods are in the possession of the
carrier, it is but fair that it exercise extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law

Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation
of the goods if the nature or value thereof has been knowingly and fraudulently mis-stated by the shipper in the bill of lading."
(Italics supplied.)
In this case the description of the nature and the value of the goods shipped are declared and reflected in the bills of lading.
Thus, it is the basis of the liability of the carrier as the actual value of the loss.
Moreover, it is absurd to interpret "container," as provided in the bill of lading to be valued at US$500.00 each, to refer to the
container which is the modern substitute for the hold of the vessel. 9 The package/container contemplated by the law to limit
the liability of the carrier should be sensibly related to the unit in which the shipper packed the goods and described them, not
a large metal object, functionally a part of the ship, in which the carrier caused them to be contained. 10 Such "container" must
be given the same meaning and classification as a "package" and "customary freight unit."cralaw virtua1aw library
The appellate court in disposing this issue quoted its decision in Allied Guarantee Insurance Co. Inc. v. Aboitiz Shipping
Corporation, CA GR. CV No. 04121, March 23, 1987, viz;chanroblesvirtualawlibrary
"Third. Still it is contended that the carriers liability is limited to $500.00, pursuant to section 8 of the Bill of Lading which
provides that The liability of the Carrier for any loss or damage to the goods shall in no case exceed the sum of U.S. $500.00
per package/container/customary freight unit, unless the value of the goods has been correctly declared and extra freight paid,
prior to the shipment and a signed declaration to this effect appears in the bill of lading, duly confirmed by the Carrier . . . It is
contended that the Bill of Lading does not indicate the value of the goods. Nor was the corresponding freight . . . paid prior to
shipment.
"Generally speaking a stipulation, limiting the common carriers liability to the value of the goods appearing in the bill of lading,

17

unless the shipper or owner declares a greater value, is valid. (Civil Code, Art. 1749). Such stipulation, however, must be
reasonable and just under the circumstances and must have been fairly and freely agreed upon. (St. Paul Fire & Marine
Insurance Co. v. Macondray Co., 70 SCRA 122, 126-127 (1976) In the case at bar, the goods shipped on the M/V "P. Aboitiz"
were insured for P278,530.50, which may be taken as their value. To limit the liability of the carrier to $500.00 would obviously
put it in its power to have taken the whole cargo. In Juan Ysmael & Co. v. Gabino Barreto & Co., 51 Phil. 90 (1927), it was held
that a stipulation limiting the carriers liability to $500.00 per package of silk when the value of such package was P2,500.00
unless the true value had been declared and the corresponding freight paid was void as against public policy. That ruling
applies to this case.
"Moreover, by the weight of modern authority, a carrier cannot limit its liability for injury or loss of goods shipped where such
injury or loss was caused by its own negligence. (Juan Ysmael & Co. v. Gabino Barreto & Co., supra) Here to limit the liability
of Aboitiz Shipping to $500.00 would nullify the policy of the law imposing on common carriers the duty to observe
extraordinary diligence in the carriage of goods.
"Indeed, it is even doubtful whether the word container in section 8 of the Bill of Lading includes containers which are a
substitute for the hold of a vessel. This provision limits the carriers liability to the sum of US$500.00 per
package/container/customary freight unit. By the rule of noscitur a sociis, the word container must be given the same
meaning as package and customary freight unit and therefore cannot possibly refer to modern containers which are used for
shipment of goods in bulk." 11

case on appeal, since both of their claims are secured by their corresponding bonds; and (3) it will put to equitable operation
Sec. 3 Rule 39 of the Revised Rules of Court. 12
The foregoing allegations which were not traversed that petitioner is facing many law suits arising from said sinking of its
vessel involving cargo loss of no less than 50 million pesos, in some cases of which judgment had been rendered against
Aboitiz, and considering that its insurer is now bankrupt, leaving Aboitiz alone to face and answer the suits, which may render
any judgment for GAFLAC ineffectual, that the appeal is interposed manifestly for delay and the willingness of GAFLAC to put
up a bond certainly are cogent bases for the issuance of an order of execution pending appeal.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
Finally, in a similar case for damages arising from the same incident entitled Aboitiz Shipping Corporation v. Honorable Court
of Appeals and Allied Guaranteed Insurance Company, Inc., G.R. No. 88159, this Court in a resolution dated November 13,
1989 dismissed the petition for lack of merit. Therein this Court held in part
"The appellate court affirmed the decision of the lower court based on its findings that the cause of sinking of the vessel was
due to its unseaworthiness and the failure of its crew and the master to exercise extraordinary diligence.

In the same light, the third issue questioning the order of execution pending appeal of the trial court must be resolved against
petitioner as well.

The petitioner, however, contends that the appellate court erred on this matter and insists that the contrary findings of the
Board of Marine Inquiry (BMI), which conducted a separate investigation to the effect that the proximate cause of the sinking of
the vessel was due to force majeure and that the officers and crew had exhausted all preventive measures to save the vessel
and her cargo but to no avail, should prevail. This, according to the petitioner is based on the doctrine of primary administrative
jurisdiction.

The averments in the motion for execution pending appeal dated December 8, 1985 are as follows

This argument is untenable.

"Aside from the fact that petitioner can easily post a supersedeas bond to stay execution, still other circumstances are present
peculiar in the incident of the sinking of M/V P. Aboitiz which would justify the issuance of execution pending appeal. There are
other decided cases adjudging petitioner liable in the lower court in the same incident. Other cases are on appeal, upcoming
and about to be decided. The value of cargo loss caused by the sinking of petitioners vessel is in the tune of no less than fifty
million pesos inclusive of interests fees and all claims. Its insurer has gone bankrupt and petitioner alone must face and
answer for all these claims. In one branch of the Regional Trial Court of Manila alone there are twenty five (25) cases pending
against petitioner involving the same loss of cargoes aboard M/V "P. Aboitiz" as per certification herewith attached as Annex
"A." This claims do not include others, pending in various courts in Metro Manila which would have to be satisfied ultimately by
petitioner, it being a common carrier which failed to exercise extraordinary diligence over the goods lost. The judgment sought
to be enforced may indeed be rendered imminently ineffectual in the ultimate analysis.

A cursory reading of the decision and resolution of the appellate court shows that the same took into consideration not only the
findings of the lower court but also the findings of the BMI. Thus, the appellate court stated:chanrob1es virtual 1aw library

The purpose of Sec. 2 Rule 39 would not be achieved or execution pending appeal would not be achieved if insolvency would
still be awaited. The remedy is available to petitioner under Sec. 3 Rule 39 of the Rules of Court but to place insolvency as a
condition to issuance of a writ of execution pending appeal would render it illusory and ineffectual.

The other issue raised is whether or not the carriers liability is limited to $500.00 pursuant to section 8 of the Bill of Lading.
The petitioner claims that the appellate court erred in disregarding the limitation of liability stipulated in the bill of lading. It
argues that the consignee agreed to this amount (and) therefore is bound by this rate and that there is no basis for the
appellate courts finding that the rate is unreasonable.chanrobles virtual lawlibrary

"Justice and equity therefore dictates, that as a consequence of the bond posted by private respondent and there being
several other cases against petitioner, decided as well as pending, the totality of which claims may render the appealed
decision imminently ineffectual and the further fact that the appeal being interposed is evidently for delay as a consequence of
the several adverse decisions against it as a common carrier in the lower court, a reconsideration of the decision dated
November 25, 1985 of the Honorable Court will be in consonance with law, jurisprudence and equity.
"In order to erase all apprehensions that the aforesaid judgment award will wind up ineffectual when not immediately executed,
it is most respectfully prayed that herein respondent be required to post a supersedeas bond. The statutory undertaking of
posting a bond will then achieve a three-pronged direction of justice, (1) it will cast no doubt on the solvency of the herein
petitioner; (2) it will not defeat or render phyrric a just resolution of the case whichever party prevails in the end or in the main

Indeed, the decision of the Board was based simply on its finding that the Philippine Coast Guard had certified the vessel to
be seaworthy and that it sank because it was exposed later to an oncoming typhoon plotted within the radius where the vessel
was positioned. This generalization certainly cannot prevail over the detailed explanation of the trial court in this case as basis
for its contrary conclusion. (Rollo, at p. 42)
We find no cogent reason to deviate from the factual findings of the appellate court and rule that the doctrine of primary
administrative jurisdiction is not applicable in the case at bar.

The argument is not well-taken. As aptly stated by the appellate court:chanrob1es virtual 1aw library
Generally speaking any stipulation, limiting the common carriers liability to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value is valid. (Civil Code, Art. 1749) Such stipulation, however, must be
reasonable and just under the circumstances and must have been fairly and freely agreed upon. (St. Paul Fire & Marine
Insurance Co. v. Macondray & Co., 70 SCRA 122, 126-127 [1976]. In the case at bar, the goods shipped on the M/V P. Aboitiz
were insured for P278,536.50, which may be taken as their value. To limit the liability of the carrier to $500.00 would obviously
put in its power to have taken the whole cargo. In Juan Ysmael & Co. v. Gabino Barretto & Co., 51 Phil. 90 [1927], it was held
that a stipulation limiting the carriers liability to P300.00 per package of silk, when the value of such package was P2,500.00,

18

unless the true value had been declared and the corresponding freight paid; was void as against public policy. That ruling
applies to this case.
As argued by the respondent, a limitation of liability in this case would render inefficacious the extraordinary diligence required
by law of common carriers." 13
The motion for reconsideration of said resolution filed by petitioner was denied with finality in a resolution dated January 8,
1990. Said resolution of the case had become final and executory, entry of judgment having been made and the records
remanded for execution on March 22, 1990.
Said case is now the law of the case applicable to the present petition.

THAN OTHER COMMON CARRIERS; REASON. It is of common knowledge that, by the very nature of petitioners
business as a shipper, the passengers of vessels are allotted a longer period of time to disembark from the ship than other
common carriers such as a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load,
such vessels are capable of accommodating a bigger volume of both as compared to the capacity of a regular commuter bus.
Consequently, a ship passenger will need at least an hour as is the usual practice, to disembark from the vessel and claim his
baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time. Verily,
petitioner cannot categorically claim, through the bare expedient of comparing the period of time entailed in getting the
passengers cargoes, that the ruling in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the
doctrine enunciated therein to the instant petition, we cannot in reason doubt that the victim Anacleto Viana was still a
passenger at the time of the incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he
had every right to do, from petitioners vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely
to their destination but also to afford them a reasonable time to claim their baggage.

WHEREFORE, the petition is dismissed with costs against petitioner.

SO ORDERED.

SECOND DIVISION
[G.R. No. 84458. November 6, 1989.]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. HON. COURT OF APPEALS, ELEVENTH DIVISION, LUCILA C.
VIANA, SPS. ANTONIO VIANA and GORGONIA VIANA, and PIONEER STEVEDORING CORPORATION, Respondents.
SYLLABUS
1. COMMERCIAL LAW; COMMON CARRIERS; CARRIER-PASSENGER RELATIONSHIP; CONTINUES UNTIL PASSENGER
HAS BEEN LANDED AT THE PORT OF DESTINATION AND HAS LEFT VESSEL OWNERS DOCK OR PREMISES. The
rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of destination and
has left the vessel owners dock or premises. Once created, the relationship will not ordinarily terminate until the passenger
has, after reaching his destination, safely alighted from the carriers conveyance or had a reasonable opportunity to leave the
carriers premises. All persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed
passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. The carrier-passenger
relationship is not terminated merely by the fact that the person transported has been carried to his destination if, for example,
such person remains in the carriers premises to claim his baggage.
2. ID.; ID.; ID.; EXISTENCE OF A REASONABLE CAUSE AS WILL JUSTIFY PRESENCE OF VICTIM ON OR NEAR
PETITIONERS VESSEL, A PRIMARY FACTOR. It is apparent from the case of La Mallorca v. Court of Appeals, et. al. that
what prompted the Court to rule as it did in said case is the fact of the passengers reasonable presence within the carriers
premises. That reasonableness of time should be made to depend on the attending circumstances of the case, such as the
kind of common carrier, the nature of its business, the customs of the place, and so forth, and therefore precludes a
consideration of the time element per se without taking into account such other factors. It is thus of no moment whether in the
cited case of La Mallorca there was no appreciable interregnum for the passenger therein to leave the carriers premises
whereas in the case at bar, an interval of one (1) hour had elapsed before the victim met the accident. The primary factor to be
considered is the existence of a reasonable cause as will justify the presence of the victim on or near the petitioners vessel.
We believe there exists such a justifiable cause.
3. ID.; ID.; ID.; PASSENGERS OF VESSELS ARE AUDITED A LONGER PERIOD OF TIME TO DISEMBARK FROM SHIP

4. ID.; ID.; ID.; VICTIM RETRIEVING HIS BAGGAGE, DEEMED A PASSENGER OF CARRIER. It is not definitely shown
that one (1) hour prior to the incident, the victim had already disembarked from the vessel. Petitioner failed to prove this. What
is clear to us is that at the time the victim was taking his cargoes, the vessel had already docked an hour earlier. In
consonance with common shipping procedure as to the minimum time of one (1) hour allowed for the passengers to
disembark, it may be presumed that the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if
he had already disembarked an hour earlier, his presence in petitioners premises was not without cause. The victim had to
claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly standard procedure in
the case of petitioners vessels that the unloading operations shall start only after that time. Consequently, under the foregoing
circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the time of his tragic death.
5. ID.; ID.; DUTIES THEREOF, CITED. Common carriers are, from the nature of their business and for reasons of public
policy, bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. More particularly, a common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances.
6. ID.; ID.; CONTRACT OF CARRIAGE; DEATH OR INJURY OF PASSENGER GIVES RISE TO AN ACTION FOR BREACH,
PROOF REQUIRED TO PROVE BREACH. Where a passenger dies or is injured, the common carrier is presumed to have
been at fault or to have acted negligently. This gives rise to an action for breach of contract of carriage where all that is
required of plaintiff is to prove the existence of the contract of carriage and its non-performance by the carrier, that is, the
failure of the carrier to carry the passenger safely to his destination, which, in the instant case, necessarily includes its failure
to safeguard its passenger with extraordinary diligence while such relation subsists.
7. ID.; ID.; ID.; PRESUMPTION OF VESSELS NEGLIGENCE; HIGHEST DEGREE OF CARE AND DILIGENCE REQUIRED.
The presumption is, therefore, established by law that in case of a passengers death or injury the operator of the vessel
was at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it to rebut the same. This is
in consonance with the avowed policy of the State to afford full protection to the passengers of common carriers which can be
carried out only by imposing a stringent statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a
rigid posture in the application of the law by exacting the highest degree of care and diligence from common carriers, bearing
utmost in mind the welfare of the passengers who often become hapless victims of indifferent and profit-oriented carriers. We
cannot in reason deny that petitioner failed to rebut the presumption against it. Under the facts obtaining in the present case, it
cannot be gainsaid that petitioner had inadequately complied with the required degree of diligence to prevent the accident from
happening.
8. ID.; ID.; ID.; EXTRAORDINARY DILIGENCE NOT SHOWN BY PRECAUTIONARY MEASURES OF PETITIONER. The
evidence does not show that there was a cordon of drums around the perimeter of the crane, as claimed by petitioner. It also
adverted to the fact that the alleged presence of visible warning signs in the vicinity was disputable and not indubitably

19

established. Thus, we are not inclined to accept petitioners explanation that the victim and other passengers were sufficiently
warned that merely venturing into the area in question was fraught with serious peril. Definitely, even assuming the existence
of the supposed cordon of drums loosely placed around the unloading area and the guards admonitions against entry therein,
these were at most insufficient precautions which pale into insignificance if considered vis-a-vis the gravity of the danger to
which the deceased was exposed. There is no showing that petitioner was extraordinarily diligent in requiring or seeing to it
that said precautionary measures were strictly and actually enforced to subserve their purpose of preventing entry into the
forbidden area. By no stretch of liberal evaluation can such perfunctory acts approximate the "utmost diligence of very cautious
persons" to be exercised "as far as human care and foresight can provide" which is required by law of common carriers with
respect to their passengers.
9. ID.; ID.; ID.; EVEN IF VICTIM IS CONTRIBUTORILY NEGLIGENT, PROXIMATE AND DIRECT CAUSE OF VICTIMS
DEATH IS PETITIONERS FAILURE TO OBSERVE EXTRAORDINARY DILIGENCE. While the victim was admittedly
contributorily negligent, still petitioners aforesaid failure to exercise extraordinary diligence was the proximate and direct cause
of, because it could definitely have prevented, the formers death. Moreover, in paragraph 5.6 of its petition, at bar, petitioner
has expressly conceded the factual finding of respondent Court of Appeals that petitioner did not present sufficient evidence in
support of its submission that the deceased Anacleto Viana was guilty of gross negligence. Petitioner cannot now be heard to
claim otherwise.
10. ID.; ID.; NEGLIGENCE; IMPUTATION THEREOF ON PRIVATE RESPONDENT CORPORATION, NOT PROPER;
RATIONALE. Aboitiz joined Pioneer in proving the alleged gross negligence of the victim, hence its present contention that
the death of the passenger was due to the negligence of the crane operator cannot be sustained both on grounds of estoppel
and for lack of evidence on its present theory. Even in its answer filed in the court below it readily alleged that Pioneer had
taken the necessary safeguards insofar as its unloading operations were concerned, a fact which appears to have been
accepted by the plaintiff therein by not impleading Pioneer as a defendant, and likewise inceptively by Aboitiz by filing its thirdparty complaint only after ten (10) months from the institution of the suit against it. Parenthetically, Pioneer is not within the
ambit of the rule on extraordinary diligence required of, and the corresponding presumption of negligence foisted on, common
carriers like Aboitiz. This, of course, does not detract from what we have said that no negligence can be imputed to Pioneer
but, that on the contrary, the failure of Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale
for our finding on its liability.
DECISION
In this appeal by certiorari, petitioner Aboitiz Shipping Corporation seeks a review of the decision 1 of respondent Court of
Appeals, dated July 29, 1988, the decretal portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, the judgment appealed from as modified by the order of October 27, 1982, is hereby affirmed with the
modification that appellant Aboitiz Shipping is hereby ordered to pay plaintiff-appellees the amount of P30,000.00 for the death
of Anacleto Viana; actual damages of P9,800.00; P160,000.00 for unearned income; P7,200.00 as support for deceaseds
parents;-P20,000.00 as moral damages; P10,000.00 as attorneys fees; and to pay the costs."cralaw virtua1aw library
The undisputed facts of the case, as found by the court a quo and adopted by respondent court, are as follows:chanrobles
virtual lawlibrary
"The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by defendant, at the
port at San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket (No. 117392) in the sum of P23.10
(Exh.B). On May 12, 1975, said vessel arrived at Pier 4, North Harbor, Manila, and the passengers therein disembarked, a
gangplank having been provided connecting the side of the vessel to the pier. Instead of using said gangplank, Anacleto Viana
disembarked on the third deck which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring
Corporation took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of Agreement
dated July 26, 1975 (Exh.2) between the third party defendant Pioneer Stevedoring Corporation and defendant Aboitiz

Shipping Corporation.
"The crane owned by the third party defendant and operated by its crane operator Alejo Figueroa was placed alongside the
vessel and one (1) hour after the passengers of said vessel had disembarked, it started operation by unloading the cargoes
from said vessel. While the crane was being operated, Anacleto Viana who had already disembarked from said vessel
obviously remembering that some of his cargoes were still loaded in the vessel, went back to the vessel, and it was while he
was pointing to the crew of the said vessel to the place where his cargoes were loaded that the crane hit him, pinning him
between the side of the vessel and the crane. He was thereafter brought to the hospital where he later expired three (3) days
thereafter, on May 15, 1975, the cause of his death according to the Death Certificate (Exh.C) being "hypostatic pneumonia
secondary to traumatic fracture of the pubic bone lacerating the urinary bladder" (See also Exh.B). For his hospitalization,
medical, burial and other miscellaneous expenses, Anacletos wife, herein plaintiff, spent a total of P9,800.00 (Exhibits E, E1, to E-5). Anacleto Viana who was only forty (40) years old when he met said fateful accident (Exh.E) was in good health.
His average annual income as a farmer or a farm supervisor was 400 cavans of palay annually. His parents, herein plaintiffs
Antonio and Gorgonia Viana, prior to his death had been recipient of twenty (20) cavans of palay as support or P120.00
monthly. Because of Anacletos death, plaintiffs suffered mental anguish and extreme worry or moral damages. For the filing of
the instant case, they had to hire a lawyer for an agreed fee of ten thousand (P10,000.00) pesos." 2
Private respondents Vianas filed a complaint 3 for damages against petitioner corporation (Aboitiz, for brevity) for breach of
contract of carriage.
In its answer, 4 Aboitiz denied responsibility contending that at the time of the accident, the vessel was completely under the
control of respondent Pioneer Stevedoring Corporation (Pioneer, for short) as the exclusive stevedoring contractor of Aboitiz,
which handled the unloading of cargoes from the vessel of Aboitiz. It is also averred that since the crane operator was not an
employee of Aboitiz, the latter cannot be held liable under the fellow-servant rule.chanrobles.com : virtual law library
Thereafter, Aboitiz, as third-party plaintiff, filed a third-party complaint 5 against Pioneer imputing liability thereto for Anacleto
Vianas death as having been allegedly caused by the negligence of the crane operator who was an employee of Pioneer
under its exclusive control and supervision.
Pioneer, in its answer to the third-party complaint, 6 raised the defenses that Aboitiz had no cause of action against Pioneer
considering that Aboitiz is being sued by the Vianas for breach of contract of carriage to which Pioneer is not a party; that
Pioneer had observed the diligence of a good father of a family both in the selection and supervision of its employees as well
as in the prevention of damage or injury to anyone including the victim Anacleto Viana; that Anacleto Vianas gross negligence
was the direct and proximate cause of his death; and that the filing of the third-party complaint was premature by reason of the
pendency of the criminal case for homicide through reckless imprudence filed against the crane operator, Alejo Figueroa.
In a decision rendered on April 17, 1980 by the trial court, 7 Aboitiz was ordered to pay the Vianas for damages incurred, and
Pioneer was ordered to reimburse Aboitiz for whatever amount the latter paid the Vianas. The dispositive portion of said
decision provides:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs:jgc:chanrobles.com.ph
"(1) ordering defendant Aboitiz Shipping Corporation to pay to plaintiffs the sum of P12,000.00 for the death of Anacleto Viana;
P9,800.00 as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan; P10,000.00
as attorneys fees; P5,000.00, value of the 100 cavans of palay as support for five (5) years for deceased (sic) parents, herein
plaintiffs Antonio and Gorgonia Viana computed at P50.00 per cavan; P7,200.00 as support for deceaseds parents computed
at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages, and costs;
and
"(2) ordering the third party defendant Pioneer Stevedoring Corporation to reimburse defendant and third party plaintiff-Aboitiz

20

Shipping Corporation the said amounts that it is ordered to pay to herein plaintiffs."cralaw virtua1aw library
Both Aboitiz and Pioneer filed separate motions for reconsideration wherein they similarly raised the trial courts failure to
declare that Anacleto Viana acted with gross negligence despite the overwhelming evidence presented in support thereof. In
addition, Aboitiz alleged, in opposition to Pioneers motion, that under the memorandum of agreement the liability of Pioneer as
contractor is automatic for any damages or losses whatsoever occasioned by and arising from the operation of its arrastre and
stevedoring service.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
In an order dated October 27, 1982, 8 the trial court absolved Pioneer from liability for failure of the Vianas and Aboitiz to
preponderantly establish a case of negligence against the crane operator which the court a quo ruled is never presumed, aside
from the fact that the memorandum of agreement supposedly refers only to Pioneers liability in case of loss or damage to
goods handled by it but not in the case of personal injuries, and, finally, that Aboitiz cannot properly invoke the fellow-servant
rule simply because its liability stems from a breach of contract of carriage. The dispositive portion of said order
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby modified insofar as third party defendant Pioneer Stevedoring Corporation is concerned
rendered in favor of the plaintiffs:jgc:chanrobles.com.ph
"(1) Ordering defendant Aboitiz Shipping Corporation to pay the plaintiffs the sum of P12,000.00 for the death of Anacleto
Viana; P9,000.00 (sic) as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan;
P10,000.00 as attorneys fees; P5,000.00 value of the 100 cavans of palay as support for five (5) years for deceaseds parents,
herein plaintiffs Antonio and Gorgonia Viana, computed at P50.00 per cavan; P7,200.00 as support for deceaseds parents
computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages,
and costs; and"
(2) Absolving third-party defendant Pioneer Stevedoring Corporation for (sic) any liability for the death of Anacleto Viana, the
passenger of M/V Antonia owned by defendant third party plaintiff Aboitiz Shipping Corporation it appearing that the negligence
of its crane operator has not been established therein."cralaw virtua1aw library
Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to respondent Court of Appeals which
affirmed the findings of the trial court except as to the amount of damages awarded to the Vianas.chanrobles lawlibrary :
rednad
Hence, this petition wherein petitioner Aboitiz postulates that respondent court erred:jgc:chanrobles.com.ph
"(A) In holding that the doctrine laid down by this Honorable Court in La Mallorca v. Court of Appeals, Et. Al. (17 SCRA 739,
July 27, 1966) is applicable to the case in the face of the undisputable fact that the factual situation under the La Mallorca case
is radically different from the facts obtaining in this case;
"(B) In holding petitioner liable for damages in the face of the finding of the court a quo and confirmed by the Honorable
respondent Court of Appeals that the deceased, Anacleto Viana was guilty of contributory negligence, which, we respectfully
submit, contributory negligence was the proximate cause of his death; specifically the Honorable respondent Court of Appeals
failed to apply Art. 1762 of the New Civil Code;"
(C) In the alternative assuming the holding of the Honorable respondent Court of Appeals that petitioner may be legally
condemned to pay damages to the private respondents we respectfully submit that it committed a reversible error when it
dismissed petitioners third party complaint against private respondent Pioneer Stevedoring Corporation instead of compelling
the latter to reimburse the petitioner for whatever damages it may be compelled to pay to the private respondents Vianas." 9
At threshold, it is to be observed that both the trial court and respondent Court of Appeals found the victim Anacleto Viana

guilty of contributory negligence, but holding that it was the negligence of Aboitiz in prematurely turning over the vessel to the
arrastre operator for the unloading of cargoes which was the direct, immediate and proximate cause of the victims death.
I. Petitioner contends that since one (1) hour had already elapsed from the time Anacleto Viana disembarked from the vessel
and that he was given more than ample opportunity to unload his cargoes prior to the operation of the crane, his presence on
the vessel was no longer reasonable and he consequently ceased to be a passenger. Corollarily, it insists that the doctrine in
La Mallorca v. Court of Appeals, Et. Al. 10 is not applicable to the case at bar.
The rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of destination
and has left the vessel owners dock or premises. 11 Once created, the relationship will not ordinarily terminate until the
passenger has, after reaching his destination, safely alighted from the carriers conveyance or had a reasonable opportunity to
leave the carriers premises. All persons who remain on the premises a reasonable time after leaving the conveyance are to be
deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. 12 The carrierpassenger relationship is not terminated merely by the fact that the person transported has been carried to his destination if,
for example, such person remains in the carriers premises to claim his baggage. 13
It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was enunciated, to
wit:jgc:chanrobles.com.ph
"It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger
alights from the carriers vehicle at a place selected by the carrier at the point of destination, but continues until the passenger
has had a reasonable time or a reasonable opportunity to leave the carriers premises. And, what is a reasonable time or a
reasonable delay within this rule is to be determined from all the circumstances. Thus, a person who, after alighting from a
train, walks along the station platform is considered still a passenger. So also, where a passenger has alighted at his
destination and is proceeding by the usual way to leave the companys premises, but before actually doing so is halted by the
report that his brother, a fellow passenger, has been shot, and he in good faith and without intent of engaging in the difficulty,
returns to relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger entitled
as such to the protection of the railroad company and its agents.chanrobles lawlibrary : rednad
"In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they alighted
from the bus. Racquel, the child that she was, must have followed the father. However, although the father was still on the
running board of the bus waiting for the conductor to hand him the bag or bayong, the bus started to run, so that even he (the
father) had to jump down from the moving vehicle. It was at this instance that the child, who must be near the bus, was run
over and killed. In the circumstances, it cannot be claimed that the carriers agent had exercised the utmost diligence of a
very cautious person required by Article 1755 of the Civil Code to be observed by a common carrier in the discharge of its
obligation to transport safely its passengers . . . The presence of said passengers near the bus was not unreasonable and they
are, therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract of carriage." 14
It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact of the passengers
reasonable presence within the carriers premises. That reasonableness of time should be made to depend on the attending
circumstances of the case, such as the kind of common carrier, the nature of its business, the customs of the place, and so
forth, and therefore precludes a consideration of the time element per se without taking into account such other factors. It is
thus of no moment whether in the cited case of La Mallorca there was no appreciable interregnum for the passenger therein to
leave the carriers premises whereas in the case at bar, an interval of one (1) hour had elapsed before the victim met the
accident. The primary factor to be considered is the existence of a reasonable cause as will justify the presence of the victim
on or near the petitioners vessel. We believe there exists such a justifiable cause.
It is of common knowledge that, by the very nature of petitioners business as a shipper, the passengers of vessels are allotted
a longer period of time to disembark from the ship than other common carriers such as a passenger bus. With respect to the

21

bulk of cargoes and the number of passengers it can load, such vessels are capable of accommodating a bigger volume of
both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at least an hour as is
the usual practice, to disembark from the vessel and claim his baggage whereas a bus passenger can easily get off the bus
and retrieve his luggage in a very short period of time. Verily, petitioner cannot categorically claim, through the bare expedient
of comparing the period of time entailed in getting the passengers cargoes, that the ruling in La Mallorca is inapplicable to the
case at bar. On the contrary, if we are to apply the doctrine enunciated therein to the instant petition, we cannot in reason
doubt that the victim Anacleto Viana was still a passenger at the time of the incident. When the accident occurred, the victim
was in the act of unloading his cargoes, which he had every right to do, from petitioners vessel. As earlier stated, a carrier is
duty bound not only to bring its passengers safely to their destination but also to afford them a reasonable time to claim their
baggage.
It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked from the vessel. Petitioner
failed to prove this. What is clear to us is that at the time the victim was taking his cargoes, the vessel had already docked an
hour earlier. In consonance with common shipping procedure as to the minimum time of one (1) hour allowed for the
passengers to disembark, it may be presumed that the victim had just gotten off the vessel when he went to retrieve his
baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioners premises was not without cause.
The victim had to claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly
standard procedure in the case of petitioners vessels that the unloading operations shall start only after that time.
Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the
time of his tragic death.chanrobles.com : virtual law library
II. Under the law, common carriers are, from the nature of their business and for reasons of public policy, bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to
all the circumstances of each case. 15 More particularly, a common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances. 16 Thus, where a passenger dies or is injured, the common carrier is presumed to have been at fault or to
have acted negligently. 17 This gives rise to an action for breach of contract of carriage where all that is required of plaintiff is
to prove the existence of the contract of carriage and its non-performance by the carrier, that is, the failure of the carrier to
carry the passenger safely to his destination, 18 which, in the instant case, necessarily includes its failure to safeguard its
passenger with extraordinary diligence while such relation subsists.
The presumption is, therefore, established by law that in case of a passengers death or injury the operator of the vessel was
at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it to rebut the same. This is in
consonance with the avowed policy of the State to afford full protection to the passengers of common carriers which can be
carried out only by imposing a stringent statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a
rigid posture in the application of the law by exacting the highest degree of care and diligence from common carriers, bearing
utmost in mind the welfare of the passengers who often become hapless victims of indifferent and profit-oriented carriers. We
cannot in reason deny that petitioner failed to rebut the presumption against it. Under the facts obtaining in the present case, it
cannot be gainsaid that petitioner had inadequately complied with the required degree of diligence to prevent the accident from
happening.
As found by the Court of Appeals, the evidence does not show that there was a cordon of drums around the perimeter of the
crane, as claimed by petitioner. It also adverted to the fact that the alleged presence of visible warning signs in the vicinity was
disputable and not indubitably established. Thus, we are not inclined to accept petitioners explanation that the victim and other
passengers were sufficiently warned that merely venturing into the area in question was fraught with serious peril. Definitely,
even assuming the existence of the supposed cordon of drums loosely placed around the unloading area and the guards
admonitions against entry therein, these were at most insufficient precautions which pale into insignificance if considered vis-avis the gravity of the danger to which the deceased was exposed. There is no showing that petitioner was extraordinarily
diligent in requiring or seeing to it that said precautionary measures were strictly and actually enforced to subserve their
purpose of preventing entry into the forbidden area. By no stretch of liberal evaluation can such perfunctory acts approximate

the "utmost diligence of very cautious persons" to be exercised "as far as human care and foresight can provide" which is
required by law of common carriers with respect to their passengers.
While the victim was admittedly contributorily negligent, still petitioners aforesaid failure to exercise extraordinary diligence
was the proximate and direct cause of, because it could definitely have prevented, the formers death. Moreover, in paragraph
5.6 of its petition, at bar, 19 petitioner has expressly conceded the factual finding of respondent Court of Appeals that petitioner
did not present sufficient evidence in support of its submission that the deceased Anacleto Viana was guilty of gross
negligence. Petitioner cannot now be heard to claim otherwise.chanrobles law library : red
No excepting circumstance being present, we are likewise bound by respondent courts declaration that there was no
negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the trial courts finding to that effect, hence our
conformity to Pioneers being absolved of any liability.
As correctly observed by both courts, Aboitiz joined Pioneer in proving the alleged gross negligence of the victim, hence its
present contention that the death of the passenger was due to the negligence of the crane operator cannot be sustained both
on grounds of estoppel and for lack of evidence on its present theory. Even in its answer filed in the court below it readily
alleged that Pioneer had taken the necessary safeguards insofar as its unloading operations were concerned, a fact which
appears to have been accepted by the plaintiff therein by not impleading Pioneer as a defendant, and likewise inceptively by
Aboitiz by filing its third-party complaint only after ten (10) months from the institution of the suit against it. Parenthetically,
Pioneer is not within the ambit of the rule on extraordinary diligence required of, and the corresponding presumption of
negligence foisted on, common carriers like Aboitiz. This, of course, does not detract from what we have said that no
negligence can be imputed to Pioneer but, that on the contrary, the failure of Aboitiz to exercise extraordinary diligence for the
safety of its passenger is the rationale for our finding on its liability.
WHEREFORE, the petition is DENIED and the judgment appealed from is hereby AFFIRMED in toto.
SO ORDERED.

THIRD DIVISION
[G.R. NO. 168402 : August 6, 2008]
ABOITIZ SHIPPING CORPORATION, Petitioner, v. INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the
insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the
wrongdoer who caused the damage.
Before Us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) which reversed the Decision2 of
the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus
interest and attorney's fees in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:

22

On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a
marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech
Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any,
payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi.
A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu
City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the
ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26,
1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking
representative, Aboitiz Transport System. The bill of lading7issued by Aboitiz contained the notation "grounded outside
warehouse."
The container van was stripped and transferred to another crate/container van without any notation on the condition of the
cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded on board petitioner's vessel, MV
Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It
was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the
Stripping Report9 dated August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at the
bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project
(STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig.
On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that
the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked
the condition of the container and other cargoes stuffed in the same container. He found that the container van and other
cargoes stuffed there were completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry
and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further
explained that the "grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the
cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo.12 The letter stated
that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found
to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly
sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The
letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment
Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained
water damage, molds, and corrosion which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of P276,540.00 for the damaged
condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official weather report from the
Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28
and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier
No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can
be gleaned from the bill of lading issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on
July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount ofP280,176.92 to consignee. A subrogation
receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum ofP280,176.92, plus interest and
attorney's fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the
fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint
stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit
was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being
baseless and without merit. The complaint is hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED
for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court
noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London

23

EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-ininterest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been
subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA
UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that
ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office
address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati,Metro Manila or that ICNA UK assigned
the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name
MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's
witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the
deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has
no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as
shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching Improvement Project.
Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has
no probative value.19 (Emphasis supplied)cralawlibrary
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in
the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized
to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12
March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under
Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the
Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments
and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the
Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis
supplied)cralawlibrary
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of
subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in
the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the
period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation
receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of
the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial
Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered
ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America
the sum ofP280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and
attorney's fees in the sum ofP50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim.
As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The
CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that
the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by
Philippine courts. x x x
x x x
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the
claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full
amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence
on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE
OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE
ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A
WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT
OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS
PROPER INDORSEMENT OF THE INSURANCE POLICYFROM THE ORIGINAL ASSURED MSAS CARGO
INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT
ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE
AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A
REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.

24

(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND
KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF
ABOITIZ.23(Underscoring supplied)cralawlibrary
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that
possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of
claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for
damages?
Our Ruling
We answer the triple questions in the affirmative.

Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged
shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the insurer to the
assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the
damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer.29

A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit
in local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be
necessary before it can institute suits.24 It may, however, bring suits on isolated business transactions, which is not prohibited
under Philippine law.25 Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the
marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it
has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the
lack of license per se, which bars a foreign corporation from access to our courts. 26

Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation equipped it
with a cause of action against petitioner in case of a contractual breach or negligence.30 This right of subrogation, however,
has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of
lading.31 Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own
acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the
insurer loses its claim against the latter.32

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the
present suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought the suit
and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the
Philippines as one of the foreign company's agents.

The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the
carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied
with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement
protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily
investigated. It is meant to safeguard the carrier from false and fraudulent claims.

As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the
shipper, in favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the
company who issued the insurance, or against any of its listed agents worldwide.27 MSAS accepted said provision when it
signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any,
payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured.
This is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the
owner of the interest insured. (Emphasis added)

Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the
damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the
claim must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or
average which may be found therein upon opening the packages, may be made, provided that the indications of the damage
or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim
shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against
the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied)cralawlibrary
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the
contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under
the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15,
1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But petitioner
admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed

25

by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to
inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the notice was allegedly
made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not
comply with the notice requirement under the law. There was no evidence presented that the notice was timely given. Neither
was there evidence presented that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC
case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be
given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their
application is limited to cases falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods
were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately,
Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical,
rather than a strict construction.37 We give due consideration to the fact that the final destination of the damaged cargo was a
school institution where authorities are bound by rules and regulations governing their actions. Understandably, when the
goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery
of the damaged condition of the goods, a report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have
corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to
immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period
was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim
for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the
Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required
by law.38 Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and
circumspection use for securing and preserving their own property rights.39 This standard is intended to grant favor to the
shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment. 40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner
failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre,
and the crates opened, it was discovered that the workbenches and work tools suffered damage due to "wettage" although by
then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised

extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its
part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were
delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it
was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On
August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the
shipment was outside a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting that
from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during
the same period, We can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other
party could be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature and
characteristic of the goods tendered for transport and that it exercised due care in handling them. 42Extraordinary diligence
must include safeguarding the shipment from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but only to the
carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that
the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained
by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into the
cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31,
1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it was
delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other
inevitable conclusion can be deduced from the foregoing established facts that damage from "wettage" suffered by the subject
cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep into the
cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject goods by claiming that the
notation "GROUNDED OUTSIDE WHSE." actually refers to the container and not the contents thereof or the cargoes. And yet
it presented no evidence to explain where did they place or store the subject goods from the time it accepted the same for
shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another container
and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If
the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where said
cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from the
container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellee's vessel
bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate any such
defect or damage, but when the container was stripped upon arrival in Cebu City port after being discharged from appellee's
vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit
"F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised
the extraordinary diligence required of common carriers.

26

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

1) P740,833 as actual value of the damaged appliance units;

SO ORDERED.

2) P16,660.33 as freightage;
3) P444,499 as unrealized income from the supposed sale of the units and;

20

The dorsal portion contained the provision stating that all claims shall be submitted to the office of the Company or to one (1)
of the "Agents" or "Representatives," as per list which included "Manila, Philippines, Insurance Co. of North America, Legaspi
Village, Makati CCPO Box 482."
24

Corporation Code, Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines, but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. See also
European Resources and Technologies, Inc. v. Ingenieuburo Birkhahn + Nolte, G.R. No. 159586, July 26, 2004, 435 SCRA
246, 255.

FIRST DIVISION
[G.R. NO. 155824 : January 31, 2007]
GILLAMAC'S MARKETING, INC., Petitioner, v. ABOITIZ SHIPPING CORPORATION AND THE HONORABLE COURT OF
APPEALS, Respondents.

4) P15,000 as attorney's fees.2

Private respondent countered that petitioner's unsuitable packaging of the appliance units caused the damage. It added that, if
at all it was liable, its liability was limited only to the actual value of the goods as appearing on the bill of lading. 3
After trial, the court a quo ruled in favor of petitioner. It held:
'From the evidence adduced by [petitioner], the Court is convinced that [private respondent] did not exercise extraordinary
diligence in taking care of [petitioner's cargoes] as required by law[;] [private respondent] being a common carrier' [F]urther,
[private respondent] incurred gross delay in the delivery of the cargoes of [petitioner]'
The Court is inclined to grant the other damages prayed for by [petitioner] in its complaint, although not in the amount prayed
for. For instance, with respect to the unearned income fixed by [petitioner] at 60% of the value of the cargo or the amount
ofP444,499.00 is found by the Court to be too speculative aside from being too high. The Court is inclined to grant a mark up
of only 15% of [petitioner's] principal by way of unearned income. The attorney's fees of 25% of [petitioner's] principal claim is
likewise found by the Court to be rather too high even if it is contingent. The Court is inclined to allow 10% thereof'
The Court takes note of the fact that the parties stipulated that the total price of the units shipped is P740,833.00

DECISION
xxx
At bar is a special civil action for certiorari under Rule 65 of the Rules of Court seeking the reversal of the Court of Appeals
(CA) resolutions in CA-G.R. CV No. 732521 dated February 15, 2002 and August 22, 2002, respectively.

WHEREFORE, judgment is hereby rendered in favor of [petitioner], Gillamac's Marketing, Inc. and against [private
respondent], Aboitiz Shipping Corporation, ordering [private respondent] to pay to [petitioner the following]:

The facts follow.

1) The amount of P740,833 as actual damages;
Petitioner Gillamac's Marketing, Inc. operates an appliance store in Ormoc City. On March 30, 1995, it sent assorted appliance
units on board the "MV Elcano," a commercial vessel owned and operated by private respondent Aboitiz Shipping Corporation.
The bill of lading issued by the latter stated that the appliances were worth P740,833 and they were to be delivered to
petitioner's Cavite branch within a week. However, it was only after nine months that private respondent delivered them.
Worse, they were delivered in bad condition. Petitioner refused to accept delivery and instead demanded payment of the
shipment's value.

2) The amount equivalent to 15% of the actual damages by way of unearned income;
3) Legal interest on the actual damages at 12% per annum to start from the time of the filing of the complaint until the whole
amount is fully paid;
4) The amount equivalent of 10% of the actual damages by way of attorney's fees and P15,000.00 as litigation expenses.

When the parties failed to settle amicably, petitioner filed in the Regional Trial Court (RTC) of Cebu City, Branch 9, a complaint
for collection of sum of money. Petitioner claimed that the damage to the appliance units was caused by private respondent's
failure to exercise extraordinary diligence. It sought the following reliefs, namely:

Plus costs.

27

SO ORDERED.4
Private respondent appealed the case to the CA. On October 31, 2001, the CA dismissed private respondent's appeal after it
failed to pay appeal and docket fees.5 Its counsel, Atty. Jose C. Palma, filed a motion for reconsideration (MR) of the above
resolution stating that he took care of his ailing father (who eventually died of kidney cancer) and instead asked a member of
his staff to pay the required fees. He later on discovered that the latter failed to pay the fees, hence, he immediately paid them.
The CA did not act on the motion but instead required petitioner (as then appellee in the CA) to file its comment on private
respondent's MR. On February 15, 2002, the CA recalled and set aside its October 31, 2001 resolution, and reinstated private
respondent's appeal.6 Petitioner filed its MR of this recall/reinstate order but the same was denied on August 22, 2002. 7
Aggrieved, petitioner is now before us assailing the CA's above resolutions. It ascribes grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the CA for reinstating private respondent's appeal despite the latter's failure to pay
the appeal and docket fees.8 According to petitioner, the non-payment of said fees was fatal to private respondent's case,
hence, the CA should have dismissed the same outright.
We disagree.
The failure to pay docket fees does not automatically result in the dismissal of an appeal, it being discretionary on the part of
the appellate court to give it due course or not.9 We will then not interfere with matters addressed to the sound discretion of the
CA in the absence of proof that the exercise of such discretion was tainted with bias or prejudice, or made without due
circumspection of the attendant circumstances of the case.10
In a special civil action for certiorari, there must be proof that the act of the tribunal or court emanated from the capricious and
whimsical exercise of judgment.11 Likewise, the use of discretion should have been arbitrary due to passion, prejudice or
personal hostility so patent and gross that it amounts to evasion to perform a positive duty under the law. 12 In the case at bar,
the records do not reveal nor does petitioner allege malice or prejudice on the part of the CA in reinstating private respondent's
appeal.
A perusal of the herein parties' pleadings also shows that private respondent's counsel had no intention to violate the rules. He
was also candid enough to have admitted his participation in the delay of the payment of the appeal and docket fees although
he later on paid them. In some cases,13 we condoned oversights of parties in failing to pay these fees on time to avoid undue
burden on their right to appeal. We are well aware of the importance of appeals, thus, we have advised courts to exercise
prudence in dismissing them. In the case of Yambao v. Court of Appeals,14 we declared:
Considering the importance and purpose of the remedy of appeal, an essential part of our judicial system, courts are welladvised to proceed with caution so as not to deprive a party of the right to appeal, but rather, ensure that every party-litigant
has the "amplest opportunity for the proper and just disposition of his cause, freed from constraints of technicalities." In line
with this policy, we have held that, in appealed cases, the failure to pay docket fees does not automatically result in the
dismissal of the appeal'

WHEREFORE, the assailed resolutions of the Court of Appeals in CA-G.R. CV No. 73252 dated February 15, 2002 and
August 22, 2002, respectively, are AFFIRMED. Accordingly, this petition is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

ECOND DIVISION
[G.R. NO. 168433 : February 10, 2009]
UCPB GENERAL INSURANCE CO., INC., Petitioner, v. ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO
INTERMODAL SERVICES, INC., and PIMENTEL CUSTOMS BROKERAGE CO.,Respondents.
DECISION
UCPB General Insurance Co., Inc. (UCPB) assails the Decision1 of the Court of Appeals dated October 29, 2004, which
reversed the Decision2 dated November 29, 1999 of the Regional Trial Court of Makati City, Branch 146, and its
Resolution3 dated June 14, 2005, which denied UCPB's motion for reconsideration.
The undisputed facts, culled from the assailed Decision, are as follows:
On June 18, 1991, three (3) units of waste water treatment plant with accessories were purchased by San Miguel Corporation
(SMC for brevity) from Super Max Engineering Enterprises, Co., Ltd. of Taipei, Taiwan. The goods came from Charleston,
U.S.A. and arrived at the port of Manila on board MV "SCANDUTCH STAR". The same were then transported to Cebu on
board MV "ABOITIZ SUPERCON II". After its arrival at the port of Cebu and clearance from the Bureau of Customs, the goods
were delivered to and received by SMC at its plant site on August 2, 1991. It was then discovered that one electrical motor of
DBS Drive Unit Model DE-30-7 was damaged.
Pursuant to an insurance agreement, plaintiff-appellee paid SMC the amount of P1,703,381.40 representing the value of the
damaged unit. In turn, SMC executed a Subrogation Form dated March 31, 1992 in favor of plaintiff-appellee.
Consequently, plaintiff-appellee filed a Complaint on July 21, 1992 as subrogee of SMC seeking to recover from defendants
the amount it had paid SMC.
On September 20, 1994, plaintiff-appellee moved to admit its Amended Complaint whereby it impleaded East Asiatic Co. Ltd.
(EAST for brevity) as among the defendants for being the "general agent" of DAMCO. In its Order dated September 23, 1994,
the lower court admitted the said amended complaint.

28

Upon plaintiff-appellee's motion, defendant DAMCO was declared in default by the lower court in its Order dated January 6,
1995.
In the meantime, on January 25, 1995, defendant EAST filed a Motion for Preliminary Hearing on its affirmative defenses
seeking the dismissal of the complaint against it on the ground of prescription, which motion was however denied by the court
a quo in its Order dated September 1, 1995. Such denial was elevated by defendant EAST to this Court through a Petition
for Certiorari on October 30, 1995 in CA G.R. SP No. 38840. Eventually, this Court issued its Decision dated February 14,
1996 setting aside the lower court's assailed order of denial and further ordering the dismissal of the complaint against
defendant EAST. Plaintiff-appellee moved for reconsideration thereof but the same was denied by this Court in its Resolution
dated November 8, 1996. As per Entry of Judgment, this Court's decision ordering the dismissal of the complaint against
defendant EAST became final and executory on December 5, 1996.
Accordingly, the court a quo noted the dismissal of the complaint against defendant EAST in its Order dated December 5,
1997. Thus, trial ensued with respect to the remaining defendants.

UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be given if the condition of the
cargo has been the subject of joint inspection such as, in this case, the inspection in the presence of the Eagle Express
representative at the time the cargo was opened at the ICTSI.
UCPB further claims that the issue of the applicability of Art. 366 of the Code of Commerce was never raised before the trial
court and should, therefore, not have been considered by the Court of Appeals.
Eagle Express, in its Memorandum9 dated February 7, 2007, asserts that it cannot be held liable for the damage to the
merchandise as it acted merely as a freight forwarder's agent in the transaction. It allegedly facilitated the transshipment of the
cargo from Manila to Cebu but represented the interest of the cargo owner, and not the carrier's. The only reason why the
name of the Eagle Express representative appeared on the Permit to Deliver Imported Goods was that the form did not have a
space for the freight forwarder's agent, but only for the agent of the shipping line. Moreover, UCPB had previously judicially
admitted that upon verification from the Bureau of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding whom the
original complaint was dismissed on the ground of prescription, which was the real agent of DAMCO Intermodal Services, Inc.
(DAMCO), the ship owner.

On November 29, 1999, the lower court rendered its assailed Decision, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered declaring DAMCO Intermodal Systems,
Inc., Eagle Express Lines, Inc. and defendant Aboitiz Shipping solidarily liable to plaintiff-subrogee for the damaged shipment
and orders them to pay plaintiff jointly and severally the sum of P1,703,381.40.

Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out, in its Memorandum10 dated March 29, 2007, that it
obviously cannot be held liable for the damage to the cargo which, by UCPB's admission, was incurred not during
transshipment to Cebu on

No costs.
SO ORDERED.
Not convinced, defendants-appellants EAGLE and ABOITIZ now come to this Court through their respective appeals x x x

Eagle Express argues that the applicability of Art. 366 of the Code of Commerce was properly raised as an issue before the
trial court as it mentioned this issue as a defense in its Answer to UCPB's Amended Complaint. Hence, UCPB's contention that
the question was raised for the first time on appeal is incorrect.

The appellate court, as previously mentioned, reversed the decision of the trial court and ruled that UCPB's right of action
against respondents did not accrue because UCPB failed to file a formal notice of claim within 24 hours from (SMC's) receipt
of the damaged merchandise as required under Art. 366 of the Code of Commerce. According to the Court of Appeals, the
filing of a claim within the time limitation in Art. 366 is a condition precedent to the accrual of a right of action against the carrier
for the damages caused to the merchandise.
In its Memorandum5 dated February 8, 2007, UCPB asserts that the claim requirement under Art. 366 of the Code of
Commerce does not apply to this case because the damage to the merchandise had already been known to the carrier.
Interestingly, UCPB makes this revelation: "x x x damage to the cargo was found upon discharge from the foreign carrier onto
the International Container Terminal Services, Inc. (ICTSI) in the presence of the carrier's representative who signed the
Request for Bad Order Survey6 and the Turn Over of Bad Order Cargoes.7 On transshipment, the cargo was already damaged
when loaded on board the inter-island carrier."8 This knowledge, UCPB argues, dispenses with the need to give the carrier a
formal notice of claim. Incidentally, the carrier's representative mentioned by UCPB as present at the time the merchandise
was unloaded was in fact a representative of respondent Eagle Express Lines (Eagle Express).

board one of Aboitiz's vessels, but was already existent at the time of unloading in Manila. Aboitiz also argues that Art. 366 of
the Code of Commerce is applicable and serves as a condition precedent to the accrual of UCPB's cause of action against
it.rbl r l l lbrr
The Memorandum11 dated June 3, 2008, filed by Pimentel Customs Brokerage Co. (Pimentel Customs), is also a reiteration of
the applicability of Art. 366 of the Code of Commerce.
It should be stated at the outset that the issue of whether a claim should have been made by SMC, or UCPB as SMC's
subrogee, within the 24-hour period prescribed by Art. 366 of the Code of Commerce was squarely raised before the trial court.
In its Answer to Amended Complaint12 dated May 10, 1993, Eagle Express averred, thus:
The amended complaint states no cause of action under the provisions of the Code of Commerce and the terms of the bill of
lading; consignee made no claim against herein defendant within twenty four (24) hours following the receipt of the alleged
cargo regarding the condition in which said cargo was delivered; however, assuming arguendo that the damage or loss, if any,
could not be ascertained from the outside part of the shipment, consignee never made any claim against herein defendant at
the time of receipt of said cargo; herein defendant learned of the alleged claim only upon receipt of the complaint.13

29

Likewise, in its Answer14 dated September 21, 1992, Aboitiz raised the defense that UCPB did not file a claim with it and that
the complaint states no cause of action.

latter of the contamination of the cargo. The Court ruled that the notice of claim was not timely made or relayed to respondent
in accordance with Art. 366 of the Code of Commerce.

UCPB obviously made a gross misrepresentation to the Court when it claimed that the issue regarding the applicability of the
Code of Commerce, particularly the 24-hour formal claim rule, was not raised as an issue before the trial court. The appellate
court, therefore, correctly looked into the validity of the arguments raised by Eagle Express, Aboitiz and Pimentel Customs on
this point after the trial court had so ill-advisedly centered its decision merely on the matter of extraordinary diligence.

The requirement to give notice of loss or damage to the goods is not an empty formalism. The fundamental reason or purpose
of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been
damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent of the
injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is still fresh
and easily investigated so as to safeguard itself from false and fraudulent claims.17

Interestingly enough, UCPB itself has revealed that when the shipment was discharged and opened at the ICTSI in Manila in
the presence of an Eagle Express representative, the cargo had already been found damaged. In fact, a request for bad order
survey was then made and a turnover survey of bad order cargoes was issued, pursuant to the procedure in the discharge of
bad order cargo. The shipment was then repacked and transshipped from Manila to Cebu on board MV Aboitiz Supercon II.
When the cargo was finally received by SMC at its Mandaue City warehouse, it was found in bad order, thereby confirming the
damage already uncovered in Manila.15
In charging Aboitiz with liability for the damaged cargo, the trial court condoned UCPB's wrongful suit against Aboitiz to whom
the damage could not have been attributable since there was no evidence presented that the cargo was further damaged
during its transshipment to Cebu. Even by the exercise of extraordinary diligence, Aboitiz could not have undone the damage
to the cargo that had already been there when the same was shipped on board its vessel.
That said, it is nonetheless necessary to ascertain whether any of the remaining parties may still be held liable by UCPB. The
provisions of the Code of Commerce, which apply to overland, river and maritime transportation, come into play.
Art. 366 of the Code of Commerce states:
Art. 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the packages, may be made, provided that the indications of the damage or
average which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim
shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against
the carrier with regard to the condition in which the goods transported were delivered.rbl r l l
lbrr
The law clearly requires that the claim for damage or average must be made within 24 hours from receipt of the merchandise
if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo.
In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation,16 Petitioner, as subrogee of Plastic Group Phil.,
Inc. (PGP), filed suit against respondent therein for the damage found on a shipment of chemicals loaded on board
respondent's barge. Respondent claimed that no timely notice in accordance with Art. 366 of the Code of Commerce was
made by petitioner because an employee of PGP merely made a phone call to respondent's Vice President, informing the

We have construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a carrier
for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition.
Otherwise, no right of action against the carrier can accrue in favor of the former.18
The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of Appeals, the claims
were dated October 30, 1991, more than three (3) months from receipt of the shipment and, at that, even after the extent of the
loss had already been determined by SMC's surveyor. The claim was, therefore, clearly filed beyond the 24-hour time frame
prescribed by Art. 366 of the Code of Commerce.
But what of the damage already discovered in the presence of Eagle Express's representative at the time the shipment was
discharged in Manila? The Request for Bad Order Survey and Turn Over Survey of Bad Order Cargoes, respectively dated
June 17, 1999 and June 28, 1991, evince the fact that the damage to the cargo was already made known to Eagle Express
and, possibly, SMC, as of those dates.
Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of Commerce but prescribes a period of three (3)
days within which notice of claim must be given if the loss or damage is not apparent. It states:
Sec. 3(6). Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or
his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery
thereof under the contract of carriage, such removal shall beprima facie evidence of the delivery by the carrier of the goods as
descibed in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt of the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey
or inspection.
UCPB seizes upon the last paragraph which dispenses with the written notice if the state of the goods has been the subject of
a joint survey which, in this case, was the opening of the shipment in the presence of an Eagle Express representative. It
should be noted at this point that the applicability of the above-quoted provision of the COGSA was not raised as an issue by
UCPB before the trial court and was only cited by UCPB in its Memorandum in this case.

30

UCPB, however, is ambivalent as to which party Eagle Express represented in the transaction. By its own manifestation, East
Asiatic, and not Eagle Express, acted as the agent through which summons
and court notices may be served on DAMCO. It would be unjust to hold that Eagle Express's knowledge of the damage to the
cargo is such that it served to preclude or dispense with the 24-hour notice to the carrier required by Art. 366 of the Code of
Commerce. Neither did the inspection of the cargo in which Eagle Express's representative had participated lead to the waiver
of the written notice under the Sec. 3(6) of the COGSA. Eagle Express, after all, had acted as the agent of the freight
consolidator, not that of the carrier to whom the notice should have been made.
At any rate, the notion that the request for bad order survey and turn over survey of bad cargoes signed by Eagle Express's
representative is construable as compliant with the notice requirement under Art. 366 of the Code of Commerce was
foreclosed by the dismissal of the complaint against DAMCO's representative, East Asiatic.

DECISION
Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the real and hypothecary doctrine
may be invoked by the shipowner in relation to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz on 31 October
1980. The petitions filed by Aboitiz Shipping Corporation (Aboitiz) commonly seek the computation of its liability in accordance
with the Court's pronouncement in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd.1 (hereafter referred to as "the 1993 GAFLAC case").
The three petitions stemmed from some of the several suits filed against Aboitiz before different regional trial courts by
shippers or their successors-in-interest for the recovery of the monetary value of the cargoes lost, or by the insurers for the
reimbursement of whatever they paid. The trial courts awarded to various claimants the amounts
of P639,862.02, P646,926.30, and P87,633.81 in G.R. NOS. 121833, 130752 and 137801, respectively.
ANTECEDENTS

As regards respondent Pimentel Customs, it is sufficient to acknowledge that it had no participation in the physical handling,
loading and delivery of the damaged cargo and should, therefore, be absolved of liability.
Finally, UCPB's misrepresentation that the applicability of the Code of Commerce was not raised as an issue before the trial
court warrants the assessment of double costs of suit against it.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 68168, dated October 29,
2004 and its Resolution dated June 14, 2005 are AFFIRMED. Double costs against petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. NO. 121833 : October 17, 2008]
ABOITIZ SHIPPING CORPORATION, Petitioners, v. COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC.,
COMPAGNIE MARITIME DES CHARGEURS REUNIS, and F.E. ZUELLIG (M), INC.,Respondents.
[G.R. NO. 130752 : October 17, 2008]
ABOITIZ SHIPPING CORPORATION, Petitioners, v. COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his
capacity as Presiding Judge of the RTC, Branch 20; ASIA TRADERS INSURANCE CORPORATION, and ALLIED
GUARANTEE INSURANCE CORPORATION, Respondents.
[G.R. NO. 137801 : October 17, 2008]
ABOITIZ SHIPPING CORPORATION, Petitioners, v. EQUITABLE INSURANCE CORPORATION,Respondents.

G.R. No. 121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several defendants for the
collection of the amounts of the cargoes allegedly paid by Malayan under various marine cargo policies2 issued to the
insurance claimants. The five civil cases, namely, Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526 and No.
138879, were consolidated and heard before the Regional Trial Court (RTC) of Manila, Branch 54.
The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan International Shipping Corporation, a
foreign corporation based in Malaysia, its local ship agent, Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz. The
defendants in Civil Case No. 138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its local ship agent, F.E.
Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil Case No. R-81-526 only against CMCR and Zuellig. Thus,
defendants CMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifth complaint docketed as Civil Case No.
138879, only Aboitiz was impleaded as defendant.
The shipments were supported by their respective bills of lading and insured separately by Malayan against the risk of loss or
damage. In the five consolidated cases, Malayan sought the recovery of amounts totaling P639,862.02.
Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and prescription. It also claimed that M/V P.
Aboitiz was seaworthy, that it exercised extraordinary diligence and that the loss was caused by a fortuitous event.
After trial on the merits, the RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable on the
money claims. The decretal portion reads:
WHEREFORE, judgment is hereby rendered as follows:
1. In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and ordered to pay to the plaintiffs jointly and
severally the amount of P128,896.79; the third-party defendant Aboitiz is adjudged liable to reimburse and ordered to pay the
defendants or whosoever of them paid the plaintiff up to the said amount;
2. In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Sixty ThreeThousand Seven Hundred Thirteen Pesos and Thirty-Eight Centavos (P163,713.38).

31

3. In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the sum of Seventy Three
Thousand Five Hundred Sixty-Nine Pesos and Ninety-Four Centavos (P73,569.94); and Sixty-Four Thousand Seven Hundred
Four Pesos and Seventy-Seven Centavos (P64,704.77);
4. In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred FiftySix Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four Centavos (P156,287.64);
In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of Fifty-Two Thousand
Six Hundred Eighty-Nine Pesos and Fifty Centavos (P52,689.50).
All the aforesaid award shall bear interest at the legal rate from the filing of the respective complaints. Considering that there is
no clear showing that the cases fall under Article 2208, Nos. 4 and 5, of the Civil Code, and in consonance with the basic rule
that there be no penalty (in terms of attorney's fees) imposed on the right to litigate, no damages by way of attorney's fees are
awarded; however, costs of the party/parties to whom judgment awards are made shall be made by the party ordered to pay
the said judgment awards.
SO ORDERED.3

Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation (Allied) filed
separate actions for damages against Aboitiz to recover by way of subrogation the value of the cargoes insured by them and
lost in the sinking of the vessel M/V P. Aboitiz. The two actions were consolidated and heard before the RTC of Manila, Branch
20.
Aboitiz reiterated the defense of force majeure. The trial court rendered a decision11 on 25 April 1990 ordering Aboitiz to pay
damages in the amount of P646,926.30. Aboitiz sought reconsideration, arguing that the trial court should have considered the
findings of the Board of Marine Inquiry that the sinking of the M/V P. Aboitiz was caused by a typhoon and should have applied
the real and hypothecary doctrine in limiting the monetary award in favor of the claimants. The trial court denied Aboitiz's
motion for reconsideration.
Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this Court promulgated the decision in the
1993 GAFLAC case. The Court of Appeals subsequently rendered a decision on 30 May 1994, affirming the RTC decision.12
Aboitiz appealed the Court of Appeals decision to this Court.13 In a Resolution dated 20 September 1995,14 the Court denied
the petition for raising factual issues and for failure to show that the Court of Appeals committed any reversible error. Aboitiz's
motion for reconsideration was also denied in a Resolution dated 22 November 1995.15

Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as CA-G.R. SP No.
35975-CV. During the pendency of the appeal, the Court promulgated the decision in the 1993 GAFLAC case.

The 22 November 1995 Resolution became final and executory. On 26 February 1996, Asia Traders and Allied filed a motion
for execution before the RTC of Manila, Branch 20. Aboitiz opposed the motion. On 16 August 1996, the trial court granted the
motion and issued a writ of execution.

On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded Aboitiz's argument that the
sinking of the vessel was caused by a force majeure, in view of this Court's finding in a related case, Aboitiz Shipping
Corporation v. Court of Appeals, et al. (the 1990 GAFLAC case).4 In said case, this Court affirmed the Court of Appeals' finding
that the sinking of M/V P. Aboitiz was caused by the negligence of its officers and crew. It is one of the numerous collection
suits against Aboitiz, which eventually reached this Court in connection with the sinking of M/V P. Aboitiz.

Alleging that it had no other speedy, just or adequate remedy to prevent the execution of the judgment, Aboitiz filed with the
Court of Appeals a petition for certiorari and prohibition with an urgent prayer for preliminary injunction and/or temporary
restraining order docketed as CA-G.R. SP No. 41696.16 The petition was mainly anchored on this Court's ruling in the
1993 GAFLAC case.

As to the computation of Aboitiz's liability, the Court of Appeals again based its ruling on the 1990 GAFLAC case that Aboitiz's
liability should be based on the declared value of the shipment in consonance with the exceptional rule under Section 4(5)5 of
the Carriage of Goods by Sea Act.

On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the assailed decision dismissing the
petition.17 Based on the trial court's finding that Aboitiz was actually negligent in ensuring the seaworthiness of M/V P. Aboitiz,
the appellate court held that the real and hypothecary doctrine enunciated in the 1993 GAFLAC case may not be applied in the
case.

Aboitiz moved for reconsideration6 to no avail. Hence, it filed this Petition for Review on Certioraridocketed as G.R. No.
121833.7 The instant petition is based on the following grounds:
THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE AMOUNT FROM ASC TO THAT AMOUNT
STIPULATED IN THE BILL OF LADING.
IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT THE TOTAL LIABILITY OF ASC IS
LIMITED TO THE VALUE OF THE VESSEL OR THE INSURANCE PROCEEDS THEREOF. 8
9

On 4 December 1995, the Court issued a Resolution denying the petition. Aboitiz moved for reconsideration, arguing that the
limited liability doctrine enunciated in the 1993 GAFLAC case should be applied in the computation of its liability. In the
Resolution10 dated 6 March 1996, the Court granted the motion and ordered the reinstatement of the petition and the filing of a
comment.
G.R. No. 130752

In view of the denial of its motion for reconsideration,18 Aboitiz filed before this Court the instant Petition for Review
on Certiorari docketed as G.R. No. 130752.19 The petition attributes the following errors to the Court of Appeals:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER COURT HAD MADE AN EXPRESS
FINDING OF THE ACTUAL NEGLIGENCE OF ABOITIZ IN THE SINKING OF THE M/V P. ABOITIZ THEREBY DEPRIVING
ABOITIZ OF THE BENEFIT OF THE DOCTRINE OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW. 20
THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO THE GAFLAC CASE DECIDED BY THE HONORABLE
COURT WHICH SUPPORTS THE APPLICABILITY OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN
THE PRESENT CASE.21
G.R. No. 137801
On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for damages against Aboitiz to recover by
way of subrogation the value of the cargoes insured by Equitable that were lost in the sinking of M/V P. Aboitiz.22 The

32

complaint, which was docketed as Civil Case No. 138395, was later amended to implead Seatrain Pacific Services S.A. and
Citadel Lines, Inc. as party defendants.23 The complaint against the latter defendants was subsequently dismissed upon
motion in view of the amicable settlement reached by the parties.
On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment24 ordering Aboitiz to pay Equitable the amount
of P87,633.81, plus legal interest and attorney's fees.25 It found that Aboitiz was guilty of contributory negligence and,
therefore, liable for the loss.
In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of limited liability and claimed that the typhoon
was the proximate cause of the loss. On 27 November 1998, the Court of Appeals rendered a decision, affirming the RTC
decision.26
The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the sinking of the vessel were due to its
unseaworthiness and the failure of the crew to exercise extraordinary diligence. Said findings were anchored on the
1990 GAFLAC case and on this Court's resolution dated November 13, 1989 in G.R. No. 88159, dismissing Aboitiz's petition
and affirming the findings of the appellate court on the vessel's unseaworthiness and the crew's negligence.
Its motion for reconsideration27 having been denied,28 Aboitiz filed before this Court a Petition for Review on Certiorari,
docketed as G.R. No. 137801,29 raising this sole issue, to wit:
WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME LAW (ALSO KNOWN AS
THE "LIMITED LIABILITY RULE") APPLIES.30

The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the 1990 GAFLACcase, where the
General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution of
the monetary award against Aboitiz. The trial court granted GAFLAC's prayer for execution of the full judgment award. The
appellate court dismissed Aboitiz's petition to nullify the order of execution, prompting Aboitiz to file a petition with this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of execution of
judgment to prevent the impairment of the other creditors' shares. Invoking the rule on the law of the case, private respondent
therein countered that the 1990 GAFLAC case had already settled the extent of Aboitiz's liability.
Following the doctrine of limited liability, however, the Court declared in the 1993 GAFLAC case that claims against Aboitiz
arising from the sinking of M/V P. Aboitiz should be limited only to the extent of the value of the vessel. Thus, the Court held
that the execution of judgments in cases already resolved with finality must be stayed pending the resolution of all the other
similar claims arising from the sinking of M/V P. Aboitiz. Considering that the claims against Aboitiz had reached more than
100, the Court found it necessary to collate all these claims before their payment from the insurance proceeds of the vessel
and its pending freightage. As a result, the Court exhorted the trial courts before whom similar cases remained pending to
proceed with trial and adjudicate these claims so that the pro-rated share of each claim could be determined after all the cases
shall have been decided.32
In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based on the trial court's finding therein
that Aboitiz was not negligent. The Court explained, thus:

ISSUES

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

The principal issue common to all three petitions is whether Aboitiz can avail limited liability on the basis of the real and
hypothecary doctrine of maritime law. Corollary to this issue is the determination of actual negligence on the part of Aboitiz.

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well as the entirety of the records in
the instant case will show that there has been no actual finding of negligence on the part of petitioner. x x x

These consolidated petitions similarly posit that Aboitiz's liability to respondents should be limited to the value of the insurance
proceeds of the lost vessel plus pending freightage and not correspond to the full insurable value of the cargoes paid by
respondents, based on the Court's ruling in the 1993 GAFLAC case.

The same is true of the decision of this Court in G.R. No. 89757 affirming the decision of the Court of Appeals in CA-G.R. CV
No. 10609 since both decisions did not make any new and additional finding of fact. Both merely 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 petitioner shipowner itself was negligent, and no tribunal, including this Court, will add or subtract to
such evidence to justify a conclusion to the contrary.33 (Citations entitled) (Emphasis supplied)cralawlibrary

Respondents in G.R. No. 121833 counter that the limited liability rule should not be applied because there was a finding of
negligence in the care of the goods on the part of Aboitiz based on this Court's Resolution dated 4 December 1995 in G.R. No.
121833, which affirmed the trial court's finding of negligence on the part of the vessel's captain. Likewise, respondent in G.R.
No. 137801 relies on the finding of the trial court, as affirmed by the appellate court, that Aboitiz was guilty of negligence.
Respondents in G.R No. 130752 argue that this Court had already affirmed in toto the appellate court's finding that the vessel
was not seaworthy and that Aboitiz failed to exercise extraordinary diligence in the handling of the cargoes. This being the law
of the case, Aboitiz should not be entitled to the limited liability rule as far as this petition is concerned, respondents contend.

The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law that the shipowner or agent's
liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no
liability" expresses in a nutshell the limited liability rule.34
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of Commerce,
thus:

RULING of the COURT

These consolidated petitions are just among the many others elevated to this Court involving Aboitiz's liability to shippers and
insurers as a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in the South China Sea. One of those
petitions is the 1993 GAFLAC case, docketed as G.R. No. 100446.31

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.

33

Art. 590. The co-owners of the 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.

aside or the lower courts awarded damages only to the extent of the claimants' proportionate share in the insurance proceeds
of the vessel.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging
to him.

In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the sinking of M/V P.
Aboitiz was caused by the concurrence of the unseaworthiness of the vessel and the negligence of both Aboitiz and the
vessel's crew and master and not because of force majeure. Notwithstanding this finding, the Court did not reverse but
reiterated instead the pronouncement inGAFLAC to the effect that the claimants be treated as "creditors in an insolvent
corporation whose assets are not enough to satisfy the totality of claims against it." 43 The Court explained that the peculiar
circumstances warranted that procedural rules of evidence be set aside to prevent frustrating the just claims of
shippers/insurers. Thus, the Court in Monarch Insurance ordered Aboitiz to institute the necessary limitation and distribution
action before the proper RTC and to deposit with the said court the insurance proceeds of and the freightage earned by the illfated ship.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and freightage served during the voyage.
These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and
freightage earned in the voyage, provided that the owner or agent abandons the vessel.35 When the vessel is totally lost in
which case there is no vessel to abandon, abandonment is not required. Because of such total loss the liability of the
shipowner or agent for damages is extinguished.36However, despite the total loss of the vessel, its insurance answers for the
damages for which a shipowner or agent may be held liable.37
Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment of the vessel, as where the loss or injury was due to the fault of the shipowner and the captain. The international
rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to
cases where the injury or average was occasioned by the shipowner's own fault.38 Likewise, the shipowner may be held liable
for injuries to passengers notwithstanding the exclusively real and hypothecary nature of maritime law if fault can be attributed
to the shipowner.39
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied the doctrine of limited liability
in view of the absence of an express finding that Aboitiz's negligence was the direct cause of the sinking of the vessel. The
circumstances in the 1993 GAFLAC case, however, are not obtaining in the instant petitions.
A perusal of the decisions of the courts below in all three petitions reveals that there is a categorical finding of negligence on
the part of Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly stated that the captain of M/V P. Aboitiz was
negligent in failing to take a course of action that would prevent the vessel from sailing into the typhoon. In G.R. No. 130752,
the RTC concluded that Aboitiz failed to show that it had exercised the required extraordinary diligence in steering the vessel
before, during and after the storm. In G.R. No. 137801, the RTC categorically stated that the sinking of M/V P. Aboitiz was
attributable to the negligence or fault of Aboitiz. In all instances, the Court of Appeals affirmed the factual findings of the trial
courts.
The finding of actual fault on the part of Aboitiz is central to the issue of its liability to the respondents. Aboitiz's contention, that
with the sinking of M/V P. Aboitiz, its liability to the cargo shippers and shippers should be limited only to the insurance
proceeds of the vessel absent any finding of fault on the part of Aboitiz, is not supported by the record. Thus, Aboitiz is not
entitled to the limited liability rule and is, therefore, liable for the value of the lost cargoes as so duly alleged and proven during
trial.

However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping Corporation v. New India Assurance Company,
Ltd.44 (New India), reiterating the well-settled principle that the exception to the limited liability doctrine applies when the
damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. Where the
shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied.45 In New India,
the Court clarified that the earlier pronouncement in Monarch Insurance was not an abandonment of the doctrine of limited
liability and that the circumstances therein still made the doctrine applicable.46
In New India, the Court declared that Aboitiz failed to discharge its burden of showing that it exercised extraordinary diligence
in the transport of the goods it had on board in order to invoke the limited liability doctrine. Thus, the Court rejected Aboitiz's
argument that the award of damages to respondent therein should be limited to its pro rata share in the insurance proceeds
from the sinking of M/V P. Aboitiz.
The instant petitions provide another occasion for the Court to reiterate the well-settled doctrine of the real and hypothecary
nature of maritime law. As a general rule, a ship owner's liability is merely co-extensive with his interest in the vessel, except
where actual fault is attributable to the shipowner. Thus, as an exception to the limited
liability doctrine, a shipowner or ship agent may be held liable for damages when the sinking of the vessel is attributable to the
actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the vessel. The instant petitions cannot
be spared from the application of the exception to the doctrine of limited liability in view of the unanimous findings of the courts
below that both Aboitiz and the crew failed to ensure the seaworthiness of the M/V P. Aboitiz.
WHEREFORE, the petitions in G.R. NOS. 121833, 130752 and 137801 are DENIED. The decisions of the Court of Appeals in
CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.

Events have supervened during the pendency of the instant petitions. On two other occasions, the Court ruled on separate
petitions involving monetary claims against Aboitiz as a result of the 1980 sinking
5

of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins. Co., Inc v. Court of Appeals,40 Allied
Guarantee Insurance Company v. Court of Appeals41 and Equitable Insurance Corporation v. Court of Appeals42 (hereafter
collectively referred to as Monarch Insurance) promulgated on 08 June 2000. This time, the petitioners consisted of claimants
against Aboitiz because either the execution of the judgment awarding full indemnification of their claims was stayed or set

(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. x x x

34

EN BANC
G.R. No. 120051, December 10, 2014
CITY OF MANILA, HON. ALFREDO S. LIM, AS MAYOR OF THE CITY OF MANILA, AND ANTHONY Y. ACEVEDO, CITY
TREASURER, Petitioners, v. HON. ANGEL VALERA COLET, AS PRESIDING JUDGE, REGIONAL TRIAL COURT OF
MANILA (BR. 43), AND MALAYSIAN AIRLINE SYSTEM, Respondents.
[G.R. NO. 121613]
MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, LTD., FLAGSHIP TANKERS CORP., CORE INDO MARITIME
CORP., AND CORE MARITIME CORP., Petitioners, v. CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO
ATIENZA,1 SANGGUNIANG PANLUNGSOD AND CITY TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NO. 121675]
EASTERN SHIPPING LINES, INC., Petitioner, v. CITY COUNCIL OF MANILA, THE MAYOR OF MANILA AND THE CITY OF
MANILA, Respondents.
[G.R. NO. 121704]
WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING CORPORATION, CARLOS A. GOTHONG
LINES, INC., ABOITIZ SHIPPING CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ HAULERS, INC.,
AND SOLID SHIPPING LINES CORPORATION, Petitioners, v. REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY
OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD, AND CITY
TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NOS. 121720-28]
PNOC SHIPPING AND TRANSPORT CORPORATION, Petitioner, v. HON. JUAN T. NABONG, JR., PRESIDING JUDGE,
REGIONAL TRIAL COURT OF MANILA, BRANCH 32; THE CITY OF MANILA; MAYOR ALFREDO LIM; VICE MAYOR LITO
ATIENZA; SANGGUNIANG PANLUNGSOD, AND CITY TREASURER ANTHONY ACEVEDO, Respondents.

COSCO CONTAINER LINES AND HEUNG-A SHIPPING CO., LTD., BOTH REPRESENTED BY THEIR RESIDENT AGENT,
WALLEM PHILIPPINES SHIPPING, INC.; DSR SENATOR LINES, COMPANIA SUD AMERICANA DE VAPORES S.A., AND
ARIMURA SANGYO COMPANY, LTD., ALL REPRESENTED BY THEIR RESIDENT AGENT, C.F. SHARP SHIPPING
AGENCIES, INCORPORATED; PACIFIC INTERNATIONAL LINES (PTE) LTD. AND PACIFIC EAGLE LINES (PTE) LTD.,
BOTH REPRESENTED BY THEIR RESIDENT AGENT, TMS SHIP AGENCIES, INC.; COMPAGNIE MARITIME D
AFFRETEMENT (CMA), REPRESENTED BY ITS RESIDENT AGENT, INCHCAPE SHIPPING SERVICES; EVERETT
ORIENT LINES, INC., REPRESENTED BY ITS RESIDENT AGENT, EVERETT STEAMSHIP CORPORATION; YANGMING
MARINE TRANSPORT CORP., REPRESENTED BY ITS RESIDENT AGENT, SKY INTERNATIONAL, INC.; NIPON YUSEN
KAISHA, REPRESENTED BY ITS RESIDENT AGENT, FIL-JAPAN SHIPPING CORPORATION; HYUNDAI MERCHANT
MARINE CO. LTD., REPRESENTED BY ITS RESIDENT AGENT, CITADEL LINES; MALAYSIAN INTERNATIONAL
SHIPPING CORPORATION BERHAD, REPRESENTED BY ITS RESIDENT AGENT, ROYAL CARGO AGENCIES, INC.;
BOLT ORIENT LINE, REPRESENTED BY ITS RESIDENT AGENT, FILSOV SHIPPING COMPANY, INC.; MITSUI-O.S.K.
LINES, LTD., REPRESENTED BY ITS RESIDENT AGENT, MAGSAYSAY AGENCIES, INC.; PHILS., MICRONESIA &
ORIENT NAVIGATION CO. (PMSO LINE), REPRESENTED BY ITS RESIDENT AGENT, VAN TRANSPORT COMPANY,
INC.; LLOYD TRIESTINO DI NAVIGAZIONE S.P.A.N. AND COMPAGNIE GENERALE MARITIME, BOTH REPRESENTED
BY THEIR RESIDENT AGENT, F.E. ZUELLIG (M), INC.; AND MADRIGAL-WAN HAI LINES, Petitioners, v. CITY OF
MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD AND CITY TREASURER
ANTHONY Y. ACEBEDO, Respondents.
[G.R. NO. 122335]
SULPICIO LINES, INC., Petitioner, v. REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA MAYOR
ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD AND CITY TREASURER ANTHONY
ACEVEDO, Respondents.
[G.R. NO. 122349]
ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., IN ITS OWN BEHALF AND IN REPRESENTATION OF ITS
MEMBERS, Petitioner, v. CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG
PANLUNGSOD AND CITY TREASURER ANTHONY ACEVEDO, Respondents.
[G.R. NO. 124855]
DONGNAMA SHIPPING CO., LTD. AND KYOWA SHIPPING LTD. HEREIN REPRESENTED BY SKY INTERNATIONAL,
INC., Petitioners, v. COURT OF APPEALS, CITY OF MANILA MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY
COUNCIL OF MANILA, AND CITY TREASURER ANTHONY ACEVEDO, Respondents.

[G.R. NOS. 121847-55]

MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, SEA-LAND SERVICES, INC., OVERSEAS FREIGHTERS
SHIPPING, INC., DONGNAMA SHIPPING CO., LTD., FLAGSHIP TANKERS, CORE INDO MARITIME CORP., CORE
MARITIME CORP., AND EASTERN SHIPPING LINES, INC., Petitioners, v. CITY OF MANILA, HON. MAYOR ALFREDO S.
LIM, HON. VICE MAYOR LITO ATIENZA, JR., SANGGUNIANG PANLUNGSOD NG MAYNILA, AND CITY TREASURER
ANTHONY Y. ACEBEDO AND THEIR AGENTS OR REPRESENTATIVES, AND HON. JUDGE JUAN C. NABONG, JR.,
BRANCH 32, REGIONAL TRIAL COURT OF MANILA, RESPONDENTS, WILLIAM LINES, INC., NEGROS NAVIGATION
CO., INC., LORENZO SHIPPING CORPORATION, CARLOS A. GOTHONG LINES, INC., ABOITIZ SHIPPING
CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ HAULERS, INC., SOLID SHIPPING LINES
CORPORATION AND PNOC SHIPPING & TRANSPORT CORPORATION, Intervenors.
[G.R. NO. 122333]

DECISION
Before the Court are 10 consolidated Petitions, the issue at the crux of which is the constitutionality and/or validity of Section
21(B) of Ordinance No. 7794 of the City of Manila, otherwise known as the Revenue Code of the City of Manila (Manila
Revenue Code), as amended by Ordinance No. 7807.2chanRoblesvirtualLawlibrary
I
ANTECEDENT FACTS
The Manila Revenue Code was enacted on June 22, 1993 by the City Council of Manila and approved on June 29, 1993 by
then Manila Mayor Alfredo S. Lim (Lim). Section 21(B) of said Code originally provided:chanroblesvirtuallawlibrary

35

Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC. On any of the
following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National
Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of three percent (3%) per annum on the gross
sales or receipts of the preceding calendar year is hereby imposed:

the amount of P1,100,000.00 for municipal license tax or business tax; and to have Section 21(B) of the Manila Revenue
Code, as amended, on which said assessment for municipal license tax or business tax was based, be declared invalid or null
and void. Civil Case No. 94-69052 was assigned to the Regional Trial Court (RTC) of Manila, Branch 43.
On April 3, 1995, RTC-Branch 43 rendered a Decision4 in favor of MAS. The dispositive portion of said Decision
reads:chanroblesvirtuallawlibrary

xxxx
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons
who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of
animal-drawn two-wheel vehicle.
Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on September 27, 1993 and approved by
Mayor Lim on September 29, 1993, already amending several provisions of the Manila Revenue Code. Section 21 of the
Manila Revenue Code, as amended, imposed a lower tax rate on the businesses that fell under it, and paragraph (B) thereof
read as follows:chanroblesvirtuallawlibrary
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC On any of the
following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National
Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT
(1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed:

WHEREFORE, the foregoing disquisitions considered, judgment is hereby rendered in favor of the plaintiff against the
defendants:ChanRoblesVirtualawlibrary
1.

Declaring the consignation valid and made in accordance with law;

2.

Ordering defendants to issue to plaintiff the mayors permit or permit to operate for 1994, the necessary certificates
and official receipts evidencing payment of [plaintiffs] liabilities for mayors permit fee and other regulatory fees for
1994; and,

3.

Declaring Section 21(B) of Ordinance No. 7794, as amended by Ordinance No. 7807, of the City of Manila as
invalid or null and void insofar as it imposes a business tax on transportation contractors, persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, or that plaintiff is exempt
from the tax imposed by said section 21(B).

4.

Declaring plaintiffs obligation to the defendant City of Manila for mayors permit fee and other regulatory fees for
1994 as having been paid and extinguished without any liability for surcharges, interests or any additional amount
whatsoever.

xxxx
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons
who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of
animal-drawn two-wheel vehicle.
The City of Manila, through its City Treasurer, began imposing and collecting the business tax under Section 21(B) of the
Manila Revenue Code, as amended, beginning January 1994.
G.R. No. 120051
Malaysian Airline System (MAS) is a foreign corporation organized and existing under the laws of Malaysia. It is licensed to
engage in business in the Philippines by the Securities and Exchange Commission (SEC), particularly in the airline business
which involves the transportation of passengers and cargo for hire. Its principal office and place of business in the Philippines
is located in the City of Manila.
As MAS was renewing its business permit for 1994, it was assessed by the City Treasurer of Manila on January 17, 1994 for
the following taxes and fees:chanroblesvirtuallawlibrary
Mayors permit and regulatory fees
Municipal license tax or business tax
Total

10,307.50
1,100,000.00
P 1,110,307.503

MAS, believing that it was exempt from the municipal license tax or business tax, tendered, via Far East Bank and Trust
Company (FEBTC) Check No. 06564 dated January 19, 1994, only the amount of P10,307.50 for the mayors permit and
regulatory fees. The City Treasurer of Manila refused to accept FEBTC Check No. 06564.
Consequently, on January 20, 1994, MAS instituted Civil Case No. 94-69052, to consign with the trial court the amount of
P10,307.50 for mayors permit and regulatory fees; to challenge the assessment against it by the City Treasurer of Manila in

Not having been proven, the prayer for the payment of attorneys fees is denied.
No pronouncement as to costs.5
The City of Manila, Mayor Lim, and City Treasurer Anthony Y. Acevedo (Acevedo) filed with the Court a Petition for Review
on Certiorari,6 assailing the Decision dated April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052 based on pure
questions of law. They assigned the following errors on the part of RTC-Branch 43:chanroblesvirtuallawlibrary
4.1. That the trial court erred in declaring Section 21(B) of [the Manila Revenue Code, as amended,] as invalid or null and void.
4.2. That the trial court erred in declaring the consignation valid and made in accordance with law.7
The City of Manila, Mayor Lim, and City Treasurer Acevedo prayed in their Petition that the Court (1) reverse and set aside the
assailed RTC Decision; and (2) affirm the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as
amended. The Petition was docketed as G.R. No. 120051.
MAS filed its Comment,8 to which the City of Manila, Mayor Lim, and City Treasurer Acevedo filed their
Reply.9chanRoblesvirtualLawlibrary
G.R. No. 121613
Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of the Manila Revenue Code,
as amended, before they were issued their business permits for 1994, several corporations, with principal offices in Manila and

36

operating as transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air
or water, filed their respective petitions before the Manila RTC against the City of Manila, Mayor Lim, Vice Mayor Lito Atienza
(Atienza), the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo. Said petitions were
separately docketed and raffled to different RTC Branches, to wit:chanroblesvirtuallawlibrary
Civil Case No.

Petitioner

RTC-Branch No.

94-68861

Maersk Filipinas, Inc. (Maersk)

32

94-68862

American President Lines, Ltd. (APL)

33

94-68863

Sea-Land Services, Inc. (Sea-Land)

34

94-68919

Overseas Freighters Shipping, Inc. (OFSI)

55

94-68936

Dongnama Shipping Co., Ltd. (Dongnama) and Kyowa Shipping, Ltd.

(Kyowa)

47

94-68939

Flagship Tankers Corp. (Flagship Tankers)

21

94-68940

Core Indo Maritime Corp. (CIMC)

21

94-68941

Core Maritime Corp. (CMC)

21

10

94-69028

Eastern Shipping Lines, Inc. (Eastern Shipping)

All of the aforementioned cases were later consolidated before RTC-Branch 32.
Several more corporations with principal offices in Manila and engaged in the same line of business as the above-named
petitioner corporations filed petitions/complaints-in-intervention in the pending cases, namely: William Lines, Inc. (William
Lines); Negros Navigation Co., Inc. (Negros Navigation); Lorenzo Shipping Corp. (Lorenzo Shipping); Carlos A. Gothong
Lines, Inc. (Gothong Lines); Aboitiz Shipping Corp., Aboitiz Air Transport Corp., and Aboitiz Haulers, Inc. (collectively referred
to as the Aboitiz Group); Solid Shipping Lines Corp. (Solid Shipping); and PNOC Shipping & Transport Corp. (PSTC).
Petitioner and intervenor corporations essentially sought the (1) declaration of Section 21(B) of the Manila Revenue Code, as
amended, as void/invalid for being contrary to the Constitution and the Local Government Code (LGC) of 1991; (2) refund of
the business taxes that the petitioner and intervenor corporations paid under protest; and (3) the issuance of a temporary
restraining order (TRO), writ of preliminary injunction, writ of prohibition, and/or writ of permanent injunction to enjoin the
implementation of Section 21(B) of the Manila Revenue Code, as amended.
RTC-Branch 32 issued a TRO11 on January 14, 1994 in favor of petitioners Maersk, APL, Flagship Tankers, CIMC, and CMC.
The TRO was effective for 20 days and ordered respondent City of Manila and local officials to cease and desist from
implementing Section 21(B) of the Manila Revenue Code, as amended, while the prayer for a writ of preliminary injunction was
scheduled for presentation of evidence. On February 3, 1992, after hearing, RTC-Branch 32 issued an Order granting the
prayer of petitioners Maersk, APL, Flagship Tankers, CIMC, CMC, and OFSI for the issuance of a Writ of Preliminary
Injunction,12 with the condition that each of said petitioner corporations should post an injunction bond in the amount of
P50,000.00. The Writ of Preliminary Injunction enjoined respondent City of Manila and local officials from: (1) imposing,
enforcing, assessing, and collecting the taxes under Section 21(B) of the Manila Revenue Code, as amended; and (2) denying
to petitioners Maersk, APL, Flagship Tankers, CIMC, CMC, and OFSI their business permits and licenses for 1994. In another
Order dated April 22, 1994, RTC-Branch 32 granted the prayer of intervenor corporations for the issuance of a similar Writ of
Preliminary Injunction.
In its Decision13 dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 9468940, 94-68941, and 94-69028, RTC-Branch 32 upheld the power of the respondent City of Manila, as a local government

unit (LGU), to levy the business tax under Section 21(B) of the Manila Revenue Code, as amended, consistent with the basic
policy of local autonomy. Ultimately, RTC-Branch 32 decreed:chanroblesvirtuallawlibrary
WHEREFORE, the petitions, the supplemental petitions, and the petitions or complaints in intervention in all these cases are
DISMISSED.
All temporary restraining orders are cancelled, all writs of preliminary injunction are recalled and dissolved, and the injunction
bonds cancelled.14
Maersk, APL, Flagship Tankers, CIMC, and CMC (collectively referred to herein as Maersk, et al.,), filed a direct appeal before
the Court. Initially, Maersk, et al.,, filed a motion for extension of time to file their petition for review on certiorari. Upon filing of
said motion, they were assessed docket and legal fees in the amount of P420.00, which they fully paid. The motion for
extension of time was granted by the Court in a Resolution15 dated October 4, 1995. Within the extended period, Maersk, et
al.,, filed their Petition for Review on Certiorari with prayer for issuance of a writ of preliminary injunction and TRO,16 docketed
as G.R. No. 121613, naming RTC-Branch 32, the City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, as respondents. Maersk, et al.,,submitted for resolution by the Court a
lone question of law, viz.:chanroblesvirtuallawlibrary
Whether or not Section 21(B) of Ordinance No. 7794, otherwise known as the Revenue Code of the City of Manila, as
amended by Section 1(G) of Ordinance No. 7807, is valid and constitutional.17
Meanwhile, Maersk, et al.,, also filed with RTC-Branch 32 a Motion to Stay or Restore Writ of Preliminary Injunction, presenting
a Memorandum issued by City Treasurer Acevedo already ordering the collection of the business tax under Section 21(B) of
the Manila Revenue Code, as amended. In an Order18 dated October 16, 1995, RTC-Branch 32 granted the Motion of
Maersk, et al.,, after finding the same to be meritorious and in conformity with Rule 39, Section 4 of the Rules of Court, on the
condition that Maersk,et al.,, would increase their injunction bond from P50,000.00 each to P800,000.00 each, or for a total of
P4,000,000.00. With this latest development, Maersk, et al.,, filed with the Court a Supplemental Petition and Motion praying
for the confirmation of the RTC Order dated October 16, 1995 restoring the Writ of Preliminary Injunction and deletion of the
name of RTC-Branch 32 from the caption of the Petition in G.R. No. 121613 as the trial court is not a necessary party.
On October 23, 1995 though, the Court issued a Resolution19 in G.R. No. 121613 in which it resolved as
follows:chanroblesvirtuallawlibrary
On the basis of the foregoing, the Court RESOLVED to DISMISS the petition for review oncertiorari for non-compliance with
the above-mentioned requirement no. 1, [Maersk, et al.,,] having failed to remit the amount of P202.00 as payment for the
balance of the prescribed legal fees.
Accordingly, the supplemental petition and motion of [Maersk, et al.,.,] dated October 17, 1995 praying that the lower courts
order restoring the Writ of Preliminary Injunction be confirmed and that the Regional Trial Court of Manila, Branch 32, be
deleted from the caption of the petition for not being a necessary party is NOTED WITHOUT ACTION.
Maersk, et al.,, filed a Motion for Reconsideration20 of the foregoing Resolution dated October 23, 1995 of the Court.
Maersk, et al.,, argued that the dismissal of their Petition by minute resolution would deprive them of their property rights on
mere technical grounds. Maersk, et al.,, had no intention of not paying the amount of P202.00, which consisted of sheriffs fee
of P200.00 and clerks commission of P2.00, charged in connection with their prayer for the issuance of a preliminary
injunction and TRO. While Maersk, et al.,, did include such a prayer in their Petition, the same had already become moot and
academic after RTC-Branch 32 issued the Order dated October 16, 1995 restoring and reinstating the Writ of Preliminary
Injunction in favor of Maersk, et al., In their Supplemental Petition and Motion in G.R. No. 121613, Maersk, et al.,, was then
only seeking the confirmation by the Court of the Order dated October 16, 1995 of RTC-Branch 32 and, in effect, withdrawing
their prayer for the issuance of a writ of preliminary injunction and TRO by the Court. Besides, Maersk, et al.,, submitted that

37

the sheriffs fee of P200.00 and clerks commission of P2.00 were not part of the legal fees required for perfecting an appeal
from the decision of the Court of Appeals or the RTC. The sheriffs fee and clerks commission would merely be deposited
with the Court, which implied that said amounts would be refunded to Maersk, et al.,, in case the Court decided not to issue
the TRO prayed for. In fact, when Maersk, et al.,, filed their motion for extension of time to file their petition for review
on certiorari, they fully paid the docket and legal fees as computed by the cashier of the Court; and when they actually filed
their Petition for Review on Certiorariwith prayer for issuance of a writ of preliminary injunction and TRO, they were not
assessed and required to pay additional legal fees. In any event, Maersk, et al.,, had already deposited with the Cashiers
Office of the Court the amount of P202.00. Maersk, et al.,, asserted that their case is meritorious and that dismissal is
discretionary for the appellate court and discretion must be exercised wisely and prudently, never capriciously, with a view to
substantial justice. Consequently, Maersk, et al.,, prayed that the Court reconsider its Resolution dated October 23, 1995 and
give due course to and squarely resolve their Petition and Supplemental Petition and Motion in G.R. No. 121613.

94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, before RTC-Branch 32.

Counsel for Maersk, et al.,, subsequently submitted a joint Memorandum21 for the petitioners in G.R. Nos. 121613, 122333,
and 122349.

xxxx

G.R. No. 121675

B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power couched in general terms is the exception
referred or adverted to in Section 133(j) of the LGC.

Eastern Shipping was the petitioner in Civil Case No. 94-69028, which was consolidated with Civil Case Nos. 94-68861, 9468862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, and 94-68941, before RTC-Branch 32.

C. The RTC erred in holding that there are only four basic requirements for a valid exercise of the power of the City of Manila
to levy tax. 27

Since the Decision dated August 28, 1995 of RTC-Branch 32 in the consolidated cases was contrary to its interest, Eastern
Shipping appealed the same before the Court through a Petition for Review on Certiorariwith Prayer for Preliminary Injunction
and/or Temporary Restraining Order,22 with the City Council of Manila, the Mayor of Manila, and the City of Manila, as
respondents. In its Petition, docketed as G.R. No. 121675, Eastern Shipping raised pure questions of law and argued two
fundamental issues:chanroblesvirtuallawlibrary

In their Memorandum,28 William Lines, et al.,, focused their discussion on the following issues:chanroblesvirtuallawlibrary

I.

WHETHER OR NOT SECTION 21 OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.

II.

IN THE REMOTE POSSIBILITY THAT THE QUESTIONED ORDINANCE IS DECLARED VALID AND
CONSTITUTIONAL, WHETHER OR NOT [EASTERN SHIPPING] IS LIABLE TO PAY THE BUSINESS TAX BASED
ON GROSS RECEIPTS DERIVED FROM INCOMING FREIGHTS ONLY OR OUTGOING FREIGHTS ONLY OR
BOTH.23

The Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of
Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo, filed a joint Comment24 on the Petitions in G.R.
Nos. 121675, 121720-28, and 121847-55. Eastern Shipping later on filed its Memorandum.25chanRoblesvirtualLawlibrary
G.R. No. 121704
William Lines, Negros Navigation, Lorenzo Shipping, Gothong Lines, the Aboitiz Group, and Solid Shipping (collectively
referred to herein as William Lines, et al.,) are duly organized domestic corporations principally engaged in the business of
operating domestic shipping vessels for the transportation of cargoes and passengers, except Aboitiz Air Transport Corp.,
which is engaged in the transportation of cargoes by air, and Aboitiz Haulers, Inc. which is engaged in the business of
domestic freight and hauling by land. William Lines, et al.,, all have principal addresses in Manila.
William Lines, et al.,, paid under protest to the City of Manila the business taxes assessed against them for the first quarter of
1994, based on Section 21(B) of the Manila Revenue Code, as amended. They were intervenors in Civil Case Nos. 94-68861,

William Lines, et al.,, challenged the Decision dated August 28, 1995 rendered by RTC-Branch 32 in said civil cases through a
Petition for Review on Certiorari with Prayer for Issuance of a Preliminary Injunction and for a Temporary Restraining
Order,26 docketed as G.R. No. 121704. They identified as respondents the City of Manila, Mayor Lim, Vice Mayor Atienza, City
Treasurer Acevedo, the Sangguniang Panlungsod ng Maynila, and RTC-Branch 32 Presiding Judge Juan C. Nabong, Jr.
(Nabong). William Lines, et al.,,assigned three major errors purportedly committed by RTC-Branch
32:chanroblesvirtuallawlibrary
A. The RTC erred in failing to declare the aforecited Section 21(B) of [the Manila Revenue Code, as amended, as] ultra vires
and therefore null and void because such sections violate the Provisions of the LGC x x x.

I.

IS COMPLIANCE WITH THE GUIDELINES AND LIMITATIONS SET FORTH IN BOOK II TITLE I OF THE LOCAL
GOVERNMENT [CODE] (LGC) NECESSARY FOR THE VALIDITY OF SEC. 21(B) OF [THE MANILA REVENUE
CODE, AS AMENDED]?

II.

DID SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED] VIOLATE SUCH GUIDELINES AND
LIMITATIONS OF THE LGC?

III.

IS SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] INVALID, ULTRA VIRES AND UNLAWFUL? 29

G.R. Nos. 121720-28

PSTC is a government owned and controlled corporation engaged in the business of shipping, tinkering, lighterage, barging,
towing, transport, and shipment of goods, chattels, petroleum and other products, marine, and maritime commerce in general.
Pursuant to Section 21(B) of the Manila Revenue Code, as amended, PSTC was assessed by the City of Manila for business
tax in the amount of P2,233,994.35, representing 50% of 1% of the gross receipts earned by PSTC in the year 1993 which
amounted to P446,798,871.87. The total amount of business tax due was payable in four equal parts every quarter of 1994.
PSTC paid under protest on January 19, 1994 the business tax for the first quarter of 1994 in the amount of P558,498.59, and
on April 20, 1994 the business tax for the second quarter of 1994 in the amount of P558,498.59, evidenced by Municipal
License Receipt Nos. 003483 and 0057675, respectively. PSTC claimed it had no other recourse but to pay to the City of
Manila the assessed local business tax, considering the latter had threatened to cancel its license to operate if said taxes were
not paid. PSTC, by way of letters dated February 21, 1994 and April 27, 1994, filed protests or claims for refund with the City
Treasurer of Manila, but the letters were not acted upon.
PSTC intervened in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and
94-69028 before RTC-Branch 32.

38

CONSTITUTIONAL.
Unsatisfied with the Decision dated August 28, 1995 rendered by RTC-Branch 32 in the said civil cases, PSTC filed with the
Court a Petition for Review on Certiorari with Prayer for Temporary Restraining Order and/or Preliminary Injunction,30 against
Presiding Judge Nabong of RTC-Branch 32, the City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, and
the Sangguniang Panlungsod ng Maynila. In its Petition, docketed as G.R. No. 121720-28, PSTC maintained that RTCBranch 32 erred thus:chanroblesvirtuallawlibrary
I
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILA, A MERE MUNICIPAL
CORPORATION, HAS NO INHERENT POWER OF TAXATION.cralawred
II
EVEN ASSUMING ARGUENDO THAT SUCH POWER IS CATEGORICALLY GRANTED BY STATUTE, THE SAME IS
SUBJECT TO SUCH GUIDELINES AND LIMITATIONS PROVIDED BY CONGRESS UNDER SECTION 133 OF THE LOCAL
GOVERNMENT CODE OF 1991 AND, AS TO WHICH, NONE WAS GIVEN TO RESPONDENT CITY OF MANILA.cralawred
III
IN FAILING TO REALIZE AND CONSIDER THAT AN ORDINANCE WHICH AMENDS, ENLARGES OR LIMITS THE
PROVISIONS OF A STATUTE CONSTITUTES AN UNCONSTITUTIONAL AND ILLEGAL DEROGATION OF LEGISLATIVE
POWER, HENCE, THE ORDINANCE IS INVALID AND VOID AB-INITIO.
IV
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILAS [REVENUE CODE, AS
AMENDED, PARTICULARLY SECTION 21(B) THEREOF] WHICH IMPOSES 50% OF 1% OF THE GROSS SALES OR
RECEIPT OF THE NEXT PRECEDING YEAR, ON TOP OF THE NATIONAL INTERNAL REVENUE TAXES ALREADY
IMPOSED UNDER THE NATIONAL INTERNAL REVENUE CODE, IS UNREASONABLE, UNJUST, UNFAIR OR
OPPRESSIVE, CONFISCATORY, AND CONTRAVENES THE CONSTITUTION OR STATUTE, HENCE, THE ORDINANCE IS
INVALID AND NULL AND VOID AB-INITIO.cralawred
V
IN FAILING TO REALIZE AND CONSIDER THAT THE TAX IMPOSED UNDER SECTION 21(B) OF [THE MANILA REVENUE
CODE, AS AMENDED,] PARTAKES THE NATURE OF A SALES TAX OR A PERCENTAGE TAX BEYOND THE TAXING
POWER OF THE RESPONDENT CITY OF MANILA TO IMPOSE, HENCE, UNENFORCEABLE BY RESPONDENT CITY
OFFICIALS.cralawred
VI
IN FAILING TO REALIZE AND CONSIDER THAT [PSTC] IS SPECIFICALLY EXEMPTED FROM LOCAL GOVERNMENT
TAXES IMPOSED UNDER THE LOCAL GOVERNMENT CODE OF 1991, PURSUANT TO SECTION 115 OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REPUBLIC ACT 7761.31
As mentioned previously, the Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza,
the City Council of Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo, filed a joint Comment on the
Petitions in G.R. Nos. 121675, 121720-28, and 121847-55.
PSTC filed its Memorandum,32 summing up its issues and arguments, to wit:chanroblesvirtuallawlibrary
ISSUES SUBMITTED FOR RESOLUTION

2. IN THE NEGATIVE[,] WHETHER OR NOT RESPONDENTS CAN BE COMPELLED TO REFUND THE TAXES
WRONGFULLY AND ERRONEOUSLY COLLECTED UNDER THE ASSAILED ORDINANCE.cralawred
ARGUMENTS IN SUPPORT OF THE MEMORANDUM
I. THE ASSAILED ORDINANCE IS A CLEAR USURPATION OF LEGISLATIVE POWER, HENCE, UNCONSTITUTIONAL
AND VOID AB-INITIO.
II. THE ASSAILED ORDINANCE IN ITSELF IS UNJUST, UNFAIR, OR EXCESSIVE, CONFISCATORY AND IN RESTRAINT
OF TRADE AND IN EFFECT CONSTITUTES AN UNLAWFUL TAKING OF PROPERTY WITHOUT DUE PROCESS OF
LAW.33
G.R. Nos. 121847-55
OFSI is a domestic corporation engaged in business as a transportation contractor. It also represents, as a general agent in
the Philippines, ZIM Israel Navigation Co., Ltd. and Gold Star Line, Hong Kong, which are engaged in the transport by
common carrier of export/import goods to and from the Philippines. Its offices are located in Intramuros, Manila.
OFSI questioned the legality of Section 21(B) of the Manila Revenue Code, as amended, in a Petition for Declaratory Relief
with Prayer for Preliminary Injunction and/or Temporary Restraining Order, which was docketed as Civil Case No. 94-68919
and originally raffled to RTC-Branch 55. Civil Case No. 94-68919 was eventually consolidated with Civil Case Nos. 94-68861,
94-68862, 94-68863, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028 before RTC-Branch 32. During the pendency
of said civil cases, OFSI paid under protest on January 20, 1994 the business tax for the first quarter of 1994 amounting to
P181,928.97. Pursuant to Section 196 of the Local Government Code (LGC), OFSI wrote the City Treasurer of Manila a letter
dated March 1, 1994 claiming refund of the business tax it had paid. The letter was received by the City Treasurers Office of
Manila on March 3, 1994. The City Treasurers Office of Manila had seven days from receipt of the letter to refund the amount
paid, but more than two months had passed and OFSI received no response from the City Treasurer. To avoid multiplicity of
suits, OFSI filed a Supplemental Petition in Civil Case No. 94-68919 to incorporate its claim for refund of the business tax it
had paid for the first quarter of 1994.
Aggrieved by the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 9468919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, OFSI sought recourse from the Court by filing a Petition for
Review by Certiorari with Prayer for the Issuance of a Preliminary Injunction and/or Temporary Restraining Order,34 naming as
respondents the City of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of Manila, City Treasurer Acevedo, and
Presiding Judge Nabong of RTC-Branch 32. The Petition of OFSI, docketed as G.R. Nos. 121847-55, presented for
consideration and resolution of the Court the following:chanroblesvirtuallawlibrary
Assignment of Errors
THE RESPONDENT HONORABLE JUDGE ERRED IN HIS FINDING THAT SECTION 21(B) OF [THE MANILA REVENUE
CODE, AS AMENDED,] IS VALID AND CONSTITUTIONAL.cralawred
Legal Issues Involved In This Petition
WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.

1. WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND

39

WHETHER OR NOT A WRIT OF PRELIMINARY INJUNCTION AND/OR TEMPORARY RESTRAINING ORDER MAY BE
ISSUED BY THE HONORABLE COURT.35
In a subsequent Manifestation,36 OFSI informed the Court that RTC-Branch 32 issued an Order dated October 26, 1995
granting its Motion to Restore Injunction Pending Appeal; reinstating and restoring the Writ of Preliminary Injunction lifted on
August 28, 1995; and requiring OFSI to post a bond in the increased amount of P300,000.00.
A joint Comment on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55 was filed by the Office of the City Legal
Officer, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod ng
Maynila, and City Treasurer Acevedo.
The Reply37 of OFSI was the last pleading filed in G.R. Nos. 121847-55.

G.R. No. 122335

Sulpicio Lines, Inc. (Sulpicio Lines) is a domestic corporation, holding office in North Harbor, Manila, whose principal business
is the operation of domestic shipping vessels for the transportation of cargoes and passengers.
Sulpicio Lines and Gothong Lines jointly filed a complaint for declaratory relief with prayer for the issuance of a writ of
preliminary injunction, which was docketed as Civil Case No. 94-69141 and raffled to RTC-Branch 44. Sulpicio Lines and
Gothong Lines asked the trial court to determine the validity of Section 21(B) of the Manila Revenue Code, as amended, as
well as the rights and duties of said shipping companies thereunder. However, after being informed that Maersk already filed a
similar case, i.e., Civil Case No. 94-68861 before RTC-Branch 32, Gothong Lines decided to withdraw as complainant in Civil
Case No. 94-69141 and simply intervene in Civil Case No. 94-68861. As a result, Sulpicio Lines became the sole complainant
in Civil Case No. 94-69141. Sulpicio Lines then filed a Motion to Consolidate Civil Case No. 94-69141 with Civil Case No. 9468861 which was granted.

G.R. No. 122333

After RTC-Branch 32 rendered its Decision in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939,
94-68940, 94-68941, and 94-69028 on August 28, 1995, upholding the constitutionality and validity of Section 21(B) of the
Manila Revenue Code, as amended, and lifting the Writs of Preliminary Injunction issued in said cases, the City of Manila and
its officials resumed the enforcement of the local business tax in question. City Treasurer Acevedo issued a Memorandum
dated September 7, 1995, instructing Oscar S. Dizon, Acting Chief, License Division, City Treasurers Office of Manila, to
prepare the complete staff work for the collection of the unpaid taxes, plus interests imposed by Section 21(B) of the Manila
Revenue Code, as amended, against shipping companies and other common carriers.
A Petition for Prohibition with Temporary Restraining Order and/or Preliminary Injunction 38 was jointly filed before the Court by
several foreign and domestic corporations doing business in Manila as shipping companies and/or common carriers, namely:
Cosco Container Lines (Cosco) and Heung-A Shipping Co., LTD., both represented by their resident agent, Wallem Philippines
Shipping, Inc.; DSR Senator Lines, Compania Sud Americana de Vapores S.A., and Arimura Sangyo Company, Ltd., all
represented by their resident agent, C.F. Sharp Shipping Agencies, Inc.; Pacific International Lines (PTE) Ltd. and Pacific
Eagle Lines (PTE) Ltd., both represented by their resident agent, TMS Ship Agencies, Inc.; Compagnie Maritime D
Affretement (CMA), represented by its resident Agent, Inchcape Shipping Services; Everett Orient Lines, Inc., represented by it
resident agent, Everett Steamship Corporation; Yangming Marine Transport Corp., represented by its resident agent, Sky
International, Inc.; Nipon Yusen Kaisha, represented by its resident agent, Fil-Japan Shipping Corporation; Hyundai Merchant
Marine Co., Ltd., represented by its resident agent, Citadel Lines; Malaysian International Shipping Corporation Berhad,
represented by its resident agent, Royal Cargo Agencies, Inc.; Bolt Orient Line, represented by its resident agent, FILSOV
Shipping Company, Inc.; Mitsui-O.S.K. Lines, Ltd., represented by its resident agent, Magsaysay Agencies, Inc.; Phils.,
Micronesia & Orient Navigation Co. (PMSO Line), represented by its resident agent, Van Transport Company, Inc.; Lloyd
Triestino di Navigazione S.P.A.N. and Compagnie Generale Maritime, both represented by their resident agent, F.E. Zuellig
(M), Inc.; and Madrigal-Wan Hai Lines (collectively referred to herein as Cosco, et al.,).
The Petition of Cosco, et al.,, was docketed as G.R. No. 122333. In their Petition, Cosco, et al.,, presented for resolution of
the Court the principal issue of whether or not Section 21(B) of the Manila Revenue Code, as amended, is constitutional.
Cosco, et al.,, posited that Section 21(B) of the Manila Revenue Code, as amended, is unconstitutional and void ab
initio because it was enacted by the Sangguniang Panlungsod ng Maynila, which was presided over by Vice Mayor Atienza,
approved by Mayor Lim, and implemented and enforced by City Treasurer Acevedo, ultra vires and in violation of constitutional
and statutory limitations on the taxing power of LGUs. Hence, Cosco, et al.,, prayed for the issuance of a writ of prohibition to
restrain, enjoin, and prohibit respondents City of Manila, Mayor Lim, Vice Mayor Atienza, Sangguniang Panlungsod, and City
Treasurer Acevedo, from enforcing Section 21(B) of the Manila Revenue Code, as amended.
A joint Memorandum was filed on behalf of the petitioners in G.R. Nos. 121613, 122333, and 122349.

On August 28, 1995, RTC-Branch 32 rendered a Decision in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 9468936, 94-68939, 94-68940, 94-68941, and 94-69028. Civil Case No. 94-69141 was not included in the caption of the
Decision, although the complaint of Sulpicio Lines was mentioned in the body of the same Decision.
Sulpicio Lines did not formally receive a copy of the aforementioned Decision dated August 28, 1995 of RTC-Branch 32 and
was merely informed of the same by the petitioners/intervenors in the other civil cases. This prompted Sulpicio Lines to file
with RTC-Branch 32 a Motion for Clarificatory Order seeking to verify if said Decision included and was binding on Sulpicio
Lines. Acting on the Motion of Sulpicio Lines, RTC-Branch 32 issued an Order39 on October 16, 1995, which
reads:chanroblesvirtuallawlibrary
Although Civil Case No. 94-64191 is not included in the caption of the above Decision, the Decision against all the petitioners,
intervenors, most specifically against intervenor Carlos A. Gothong Lines, Inc. is binding and enforceable against Sulpicio
Lines, Inc. because Civil Case No. 94-64191 had been consolidated with Civil Case No. 94-68861.
WHEREFORE, the Decision and the dispositive portion of the Decision rendered on August 28, 1995, shall apply to and binds
Sulpicio Lines, Inc. x x x.
After Sulpicio Lines confirmed that the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 9468862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, was also applicable to and binding
upon it, it filed with the Court a Petition for Review on Certiorari with Prayer for Issuance of a Preliminary Injunction and for a
Temporary Restraining Order,40 against the City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the
Sangguniang Panlungsod ng Maynila, and Presiding Judge Nabong of RTC-Branch 32. The appeal of Sulpicio Lines was
docketed as G.R. No. 122335.
The assignment of errors in the Petition of Sulpicio Lines was the same as that in the Petition of William Lines, et al.,, in G.R.
No. 121704, viz.:chanroblesvirtuallawlibrary
A. The RTC erred in failing to declare that the aforecited Section 21(B) of [the Manila Revenue Code, as amended, as] ultra
vires and therefore null and void because such sections of the Ordinances of the City of Manila violate the Provisions of the
LGC x x x
xxxx
B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power couched in general terms is the exception
referred or adverted to in Section 133(j) of the LGC.

40

C. The RTC erred in holding that there are only four basic requirements for a valid exercise of the power of the City of Manila
to levy tax.41
On January 31, 1996, the Court issued a Resolution42 referring the Petition of Sulpicio Lines in G.R. No. 122335 to the Court of
Appeals for proper determination and disposition pursuant to Section 9, paragraph 3 of Batas Pambansa Blg. 129, which
granted the Court of Appeals exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards
of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commission.

In its Resolution dated December 2, 1997, the Court dispensed with the filing of a Comment by the respondents in G.R. Nos.
122335, 122349, and 124855.
The only other pleading in G.R. No. 122349 is a joint Memorandum filed on behalf of the petitioners in G.R. Nos. 121613,
122333, and 122349.
G.R. No. 124855

At the Court of Appeals, the Petition of Sulpicio Lines was docketed as CA-G.R. SP No. 39973. In a Resolution43 dated April
12, 1996, the appellate court directed the respondents City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo,
the Sangguniang Panlungsod ng Maynila, and Presiding Judge Nabong of RTC-Branch 32, to file their Comments.
In the meantime, Sulpicio Lines filed with the Court in G.R. No. 122335 a Motion for Reconsideration of the Resolution dated
January 31, 1996 and for Consolidation.44 Sulpicio Lines prayed that the Resolution dated January 31, 1996 of the Court in
G.R. No. 122335 be withdrawn; that the rollo of G.R. No. 122335 be transmitted back to the Court; and that G.R. No. 122335
be consolidated with the other cases pending before the Court en banc questioning the Decision dated August 28, 1995 of
RTC-Branch 32 which upheld the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as amended.
After several copies of its Resolutions were returned unserved on the respondents in G.R. Nos. 122335, 122349, and 124855,
the Court issued a Resolution45 on December 2, 1997 dispensing with the filing of a Comment by the respondents in the three
cases.
G.R. No. 122349
The Association of International Shipping Lines, Inc. (AISL) is a non-stock domestic corporation the members of which are
mostly foreign corporations duly licensed to do business in the Philippines, specifically: American Transport Lines, Inc.,
represented by its resident agent, Anchor International Shipping Agency, Inc.; Australian National Line, Fleet Trans
International, and United Arab Shipping Co., all represented by their resident agent, Jardine Davies Transport; Dongnama
Shipping Co., Ltd., represented by its resident agent, Uni-Ship Incorporated; Hanjin Shipping Company, Ltd., represented by
its resident agent, MOF Company, Inc.; Hapag-Lloyd A/G, represented by its resident agent, Hapag-Lloyd Phils., Inc.;
Kawasaki Kisen Kaisha, represented by its resident agent, Transmar Agencies, Inc.; Knutsen Line, represented by its resident
agent, AWB Trade International; Kyowa Line, represented by its resident agent, Sky International, Inc.; Neptune Orient Line,
represented by its resident agent, Overseas Agency Services, Inc.; Orient Overseas Container Line, represented by its
resident agent, OOCL (Philippines), Inc.; P&O Containers, Ltd., P&O Swire Containers and WILH Wilhelmsen Line A/S, all
represented by their resident agent, Soriamont Steamship Agencies; Regional Container Lines (Pte) Ltd., represented by its
resident agent, South China Lines Phils., Inc.; Senator Line Bremen Germany, represented by its resident agent, C.F. Sharp &
Company; Tokyo Senpaku Kaisha, Ltd., represented by its resident agent, Fil-Japan Shipping Corporation; Uniglory Line,
represented by its resident agent, Don Tim Shipping Corporation; Wan Hai Lines, Ltd., represented by its resident agent,
Eastern Shipping Agencies, Inc.; Westwind Line, represented by its resident agent, Westwind Shipping Corporation; Zim Israel
Navigation Co., Ltd., represented by its resident agent, Overseas Freighters Shipping, Inc.; Eastern Shipping Lines, Inc.;
Nedlloyd Lines, Inc.; Philippine President Lines, Ltd.; and Sea-Land Service, Inc.

Dongnama and Kyowa are foreign corporations, organized and existing under the laws of the Republic of Korea and Japan,
respectively. Both shipping companies are doing business in the Philippines through their resident agent, Sky International,
Inc. (Sky International), with office in Binondo, Manila.
Dongnama and Kyowa, through Sky International, lodged a petition to declare unconstitutional Section 21(B) of the Manila
Revenue Code, as amended, with prayer for a writ of preliminary injunction and TRO, docketed as Civil Case No. 94-68936
and initially raffled to RTC-Branch 47, but later consolidated with Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919,
94-68939, 94-68940, 94-68941, and 94-69028 before RTC-Branch 32. On August 28, 1995, RTC-Branch 32 rendered its
Decision in the consolidated civil cases upholding the constitutionality and validity of Section 21(B) of the Manila Revenue
Code, as amended.
Dongnama and Kyowa then filed with the Court a Petition for Certiorari with Urgent Prayer for Restraining Order, seeking the
annulment or modification of the foregoing Decision of RTC-Branch 32. The Petition was docketed as G.R. No. 122120.
Instead of consolidating G.R. No. 122120 with the other pending cases that challenge the constitutionality and validity of
Section 21(B) of the Manila Revenue Code, as amended, the Court issued a Resolution dated October 23, 1995 referring the
Petition in G.R. No. 122120 to the Court of Appeals for the following reason:chanroblesvirtuallawlibrary
Considering that under Section 19 (sic), paragraph (1) of Batas Pambansa Blg. 129, the Court of Appeals now exercises
original jurisdiction to issue writs of mandamus, prohibitions, certiorari, habeas corpus, and quo warranto, and auxiliary writs or
processes, whether or not in aid of its appellate jurisdiction, the Court resolved to REFER this case to the Court of Appeals, for
disposition.47
The Petition for Certiorari of Dongnama and Kyowa was docketed as CA-G.R. SP No. 39188 before the Court of Appeals. The
Court of Appeals rendered its Decision48 in CA-G.R. SP No. 39188 on March 29, 1996, finding no merit in the Petition of
Dongnama and Kyowa as RTC-Branch 32 did not act with grave abuse of discretion when it ruled in its Decision dated August
28, 1995 that Section 21(B) of the Manila Revenue Code, as amended, is valid and in clear conformity with the law and the
Constitution. In the end, the appellate court adjudged:chanroblesvirtuallawlibrary
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is hereby DENIED for lack of merit. 49
Dongnama and Kyowa went back before the Court by way of Petition for Review on Certiorari under Rule 65 of the Rules of
Court, docketed as G.R. No. 124355, based on a lone assignment of error:chanroblesvirtuallawlibrary

After RTC-Branch 32 rendered its Decision dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 9468919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, upholding the constitutionality and validity of Section 21(B)
of the Manila Revenue Code, as amended; and City Treasurer Acevedo issued the Memorandum dated September 7, 1995
ordering the collection of the business tax under the questioned provision of the local tax ordinance, AISL, for itself and on
behalf and for the benefit of its above-named members, filed before the Court a Petition for Prohibition with Temporary
Restraining Order and/or Preliminary Injunction46 against the City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer
Acevedo, and the Sangguniang Panlungsod ng Maynila. The Petition of AISL, docketed as G.R. No. 122349, was
substantially similar to the Petition of Cosco, et al.,, in G.R. No. 122333.

41

RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN ASSUMING JURISDICTION OVER
SUPREME COURT G.R. NO. 122120 ENTITLED DONGNAMA SHIPPING CO. LTD., AND KYOWA SHIPPING LTD. HEREIN
REPRESENTED BY SKY INTERNATIONAL INC. VS. HON. JUDGE JUAN C. NABONG JR., CITY OF MANILA, MAYOR
ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY COUNCIL OF MANILA, AND CITY TREASURER ANTHONY ACEVEDO
WHEN IN FACT AS PER SUPREME COURTS RESOLUTION DATED 23 OCTOBER 1995 IN RELATION [TO] SECTION 9,
PARAGRAPH (1) BATAS PAMBANSA BLG. 129, THE ORIGINAL JURISDICTION PERTAINING TO THE COURT OF
APPEALS REFERS TO THE ISSUANCE OF WRIT OF CERTIORARI, AMONG OTHERS AND NOT TO PETITION
FORCERTIORARI ON THE GROUND OF GRAVE ABUSE OF DISCRETION WHICH THE HON. SUPREME COURT HAS
EXCLUSIVE JURISDICTION.50
Dongnama and Kyowa specifically prayed:chanroblesvirtuallawlibrary
1. That this petition be given due course;
2. That the Decision dated 29 March 1996 be annulled and set aside pending the resolution of the same to be decided
together with other related cases by this Court;
3. That respondents Court of Appeals jurisdiction over the instant case be limited to the issue on the propriety of the prayer for
preliminary injunction and restraining order in relation to the assailed Decision dated 28 August 1995 by RTC-Manila, Branch
32.51

The Court granted Atty. Cruzs prayer in a Resolution58 dated April 24, 2012. Atty. Dela Cruz once more moved for an
extension of time to comply with the Resolution dated July 5, 2011, which the Court granted in a Resolution 59 dated November
20, 2012.
In a Resolution60 dated July 16, 2013, the Court took notice that Atty. Dela Cruz failed to comply with the Resolution dated July
5, 2011 within the extended period which expired on November 8, 2012. Resultantly, the Court resolved to require Atty. Dela
Cruz to (a) show cause why he should not be disciplinarily dealt with or held in contempt for such failure; and (b) comply with
the Resolution dated July 5, 2011, both within 10 days from notice.
Atty. Sitro G. Tajonera (Tajonera) of the Office of the City Legal Officer of Manila filed a Manifestation and Motion for Leave to
Withdraw Petition in G.R. No. 12005161 dated August 12, 2013. Atty. Tajonera moved for the withdrawal of the Petition in G.R.
No. 120051 on the ground that the issues therein had been rendered moot and academic by the Decisions of the Court
in Coca-Cola Bottlers Philippines, Inc. v. City of Manila 62 and City of Manila v. Coca-Cola Bottlers Philippines, Inc.63 (Coca-Cola
cases), which declared with finality the unconstitutionality of Section 21 of the Manila Revenue Code, as amended.
Atty. Dela Cruz likewise filed a Compliance with the Courts Show Cause Resolution dated July 16, 2013. According to Atty.
Dela Cruz, he already resigned as City Legal Officer of Manila effective May 31, 2013. Still, Atty. Dela Cruz
explained:chanroblesvirtuallawlibrary

The Court, in a Resolution dated December 2, 1997, dispensed with the filing of a Comment by the respondents in G.R. Nos.
122335, 122349, and 124855.

c. Due to the multifarious duties that undersigned attended to and the many legal problems that confronted the Mayor whom
he had to assist in resolving them, he inadvertently overlooked the deadline set for submission of his compliance of the Courts
directive which in fact lapsed without him having been reminded by Atty. Karen Peralta of the unfulfilled obligation to this
Honorable Court.

Dongnama and Kyowa eventually filed a Memorandum.52chanRoblesvirtualLawlibrary

d. For this, he acknowledges that he was remiss in his duty to the Court and in delegating it to another.

Consolidation of the 10 Petitions

[e.] Undersigned begs the Courts clemency on his inability to submit the pleading required of him and his fault in relying on his
subordinate-lawyer to assist him in complying with the Courts directive.

The foregoing 10 cases were consolidated at different times and stages.53chanRoblesvirtualLawlibrary

On December 2, 1997, the Court issued a Resolution54 giving due course to the Petitions and requiring the parties to
simultaneously file their Memoranda within 20 days from notice.
Among the parties to the 10 Petitions, Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; Cosco, et al.,; AISL; and
Dongnama and Kyowa (petitioners in G.R. Nos. 121613, 121675, 121704, 121720-28, 122333, 122349, and 124855,
respectively) complied with the Resolution dated December 2, 1997 and submitted their Memoranda.

[f.] Undersigned assures the Court that henceforth, he shall not commit the same mistake or any neglect of duty or lack of
respect to the Court.64
II
ARGUMENTS OF THE PARTIES
There is only one vital issue in all the 10 cases: Whether or not Section 21(B) of the Manila Revenue Code, as amended, was
in conformity with the Constitution and the laws and, therefore, valid.

In a Resolution55 dated April 23, 2002, the Court resolved to consider the cases submitted for deliberation.
The Court issued a Resolution56 on July 5, 2011 requiring the parties to the 10 cases to move in the premises.
A copy of the Resolution dated July 5, 2011 was served upon and received by Atty. Renato G. Dela Cruz (Dela Cruz), City
Legal Officer of Manila, on behalf of the City of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of
Manila/Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo, the petitioners in G.R. No. 120051 and
respondents in the other nine cases.
Atty. Dela Cruz filed a Manifestation57 informing the Court that despite exerting effort, he could no longer locate the records for
the 10 cases. The former lawyers who handled the cases had long ceased to be connected with the City of Manila and both
were already deceased. Thus, Atty. Dela Cruz prayed that he be furnished copies of the petitions and pleadings in the cases
and be given a fresh period of 10 days from receipt thereof to submit his compliance with the Resolution dated July 5, 2011.

There are two fundamental and opposing positions on the issue. Presented below are summaries of the arguments in support
of each.
Section 21(B) of the Manila Revenue
Code, as amended, was constitutional
and valid.
The City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod ng Maynila, and City Treasurer Acevedo
argued that Section 21(B) was constitutional and valid. RTC-Branch 32, in its Decision dated August 28, 1995 in Civil Case
Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, and the Court of
Appeals, in its Decision dated March 29, 1996 in CA-G.R. SP No. 39188, adopted the same position.

42

The 1987 Constitution granted LGUs the power to create their own sources of revenue and to levy taxes, fees, and charges
subject to the guidelines and limitations provided by Congress, consistent with the policy of local autonomy. This grant was
reiterated in Section 129 of the LGC and the scope of tax powers of a city such as Manila is described in Section 151 also of
the LGC. Hence, the Constitution and Congress, through the LGC, expressly granted LGUs the general power to tax.
The enactment of Section 21(B) of the Manila Revenue Code, as amended, is statutorily ingrained. It is based on the
exempting clause at the beginning of Section 133, in conjunction with Section 143(h), of the LGC. The relevant provisions of
the Code are reproduced below:chanroblesvirtuallawlibrary
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight
by hire and common carriers by air, land or water, except as provided in this Code;
SEC. 143. Tax on Business. The municipality may impose taxes on the following businesses:
xxxx
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem
proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the
preceding calendar year.
The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed
herein. (Emphases supplied.)
Inasmuch as transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air
or water, are engaged in business subject to excise, value added, or percentage tax under the National Internal Revenue
Code (NIRC), as amended, then the City of Manila could lawfully levy local business tax under Section 21(B) of the Manila
Revenue Code, as amended. It is irrelevant which of Sections 133(j) and 143(h) of the LGC is the special or general provision
since there is an exempting clause in Section 133, that is, Unless otherwise provided herein, which means that even if the
businesses enumerated therein are exempted from the levy of local tax, if there is a provision to the contrary, such as Section
143(h), the Sanggunian concerned could still impose the local tax. As an alternative argument, Section 133(j) of the LGC is
the general provision on the limitations on the taxing power of the LGUs, while Section 143(h) of the LGC is the specific
provision on the businesses which the LGUs could tax; and per the rules of statutory construction, the latter prevails over the
former. To rule otherwise and adopt the construction put forward by the opposing parties would render Section 143(h) of the
LGC a hollow decorative provision with no subject to tax.
Moreover, the business tax imposed by Section 21(B) of the Manila Revenue Code, as amended, complied with the limitations
and conditions in the LGC for a valid local tax: (1) The rate of tax did not exceed 2% of gross sales or receipts of the
preceding calendar year; (2) The tax is consistent with the basic policy of local autonomy; (3) The tax is not unjust, excessive,
oppressive, confiscatory, or contrary to declared national policy; and (4) That a prior public hearing was conducted for the
purpose of enacting the Manila Revenue Code, as amended.
Section 21(B) of the Manila Revenue Code, as amended, also enjoyed the presumption of constitutionality and validity. This
presumption can only be overridden by overwhelming evidence to the contrary. InDrilon v. Lim,65 the Court already declared
the Manila Revenue Code as valid given that the procedural requirements for the enactment of the same had been observed.

Lastly, taxes are the lifeblood of the nation. Tax exemptions are construed strictly against the taxpayer, and the burden is upon
the person claiming exemption from the tax to show a clear grant of exemption by organic law or statute.
Section 21(B) of the Manila Revenue
Code, as amended, was null and void
for being contrary to the Constitution
and the LGC.
On the other end of the spectrum, MAS; Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et al.,;
Sulpicio Lines; AISL; and Dongnama and Kyowa, asserted that Section 21(B) of the Manila Revenue Code, as amended, was
null and void because it violated the Constitution and the LGC. It was the position affirmed by RTC-Branch 43 in its Decision
dated April 3, 1995 in Civil Case No. 94-69052.
Under the Philippine system of government, the power of taxation, while inherent in the State in view of its sovereign
prerogatives, is not inherent in municipal corporations or LGUs. LGUs may exercise the power only if and to the extent that it
is delegated to them. One of the common limitations on the power to tax of LGUs is Section 133(j) of the LGC, carried over
from the Local Tax Code of 1973.
Section 133(j) expressly states that the taxing powers of the LGUs shall not extend to the transportation business. Section
133(j) of the LGC is a special provision, which prevails over Section 143(h) of the same Code, a general provision. This
interpretation would give effect to both Sections 133(j) and 143(h) of the LGC, and contrary to the assertion of the City of
Manila and its public officials, would not render Section 143(h) useless, meaningless, and nugatory. There are other
businesses which the LGUs may tax under Section 143(h). Besides, in case of any doubt, any tax ordinance or revenue
measure shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer, for taxes, being burdens,
are not to be presumed beyond what the applicable statute expressly and clearly declares.
In addition, although Section 21(B) of the Manila Revenue Code, as amended, imposed what was denominated as a business
tax, in reality it was a percentage or sales tax. Business tax is imposed on the privilege of doing business, though it may be
computed as a percentage of gross sales. For business tax, there is no set ratio between volume of sales and the amount of
tax. Cities and municipalities are given the power to impose business tax under Section 143(h) of the LGC. In contrast,
percentage or sales tax is based on gross sales or receipts. The percentage bears a direct relationship to the sales or receipts
generated by a business, without regard for the extent of operation or size of the business. Cities and municipalities may
validly impose a tax on business, but consonant with the limitations on local taxation, they may not impose percentage or sales
tax on top of what is already imposed in the NIRC. Section 21(B) of the Manila Revenue Code, as amended, imposing on
transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, a
tax of 50% of 1% of the gross sales or receipts from the preceding year on top of the national taxes already imposed by the
NIRC was unjust, unfair, excessive, confiscatory, and in restraint of economic trade.
And finally, Section 21(B) of the Manila Revenue Code, as amended, violated the rule on uniformity in taxation. Uniformity in
taxation should not be construed in a pure geographical sense, i.e., that the questioned tax was imposed with the same force
and effect on all businesses located in Manila. Shipping companies should be differentiated from other businesses. Aside
from the risks and responsibilities the shipping companies shoulder, their services are not confined within the territorial limits of
Manila alone but extend to other parts of the world. It is not uniformity for the shipping companies to be classed and taxed
under the same category with other common carriers domiciled and plying Manila territory 24 hours a day.
III
RULING OF THE COURT
Resolution of pending incidents in

43

several cases.
Before delving into the merits of the 10 cases, there are pending incidents in three cases that first need to be addressed:
(1) G.R. No. 120051: The City Legal Officer of Manila, as counsel for the City of Manila, Mayor Lim, and City Treasurer
Acevedo, petitioners in G.R. No. 120051, filed a Manifestation and Motion for Leave to Withdraw Petition in G.R. No. 120051,
on the ground that the issues therein had been rendered moot and academic by the Decisions of the Court in the Coca-Cola
cases, which declared with finality the unconstitutionality of Section 21 of the Manila Revenue Code, as amended.
The Court resolves to deny the motion to withdraw.
There already had been an exchange of pleadings between the parties in G.R. No. 120051, i.e., Petition, Comment, and
Reply. In a Resolution dated December 2, 1997, the Court also already considered G.R. No. 120051 and all the other nine
consolidated cases submitted for deliberation. At this stage, the decision to grant or not to grant the motion to withdraw is fully
within the discretion of the Court.66chanRoblesvirtualLawlibrary

every citizen has the right to assume and trust that a public officer charged by law with certain duties knows his duties and
performs them in accordance with law. To penalize such citizen for relying upon said officer in all good faith is repugnant to
justice.
The ruling in Segovia was applied by this Court in subsequent cases where an appellants right to appeal was threatened by
the mistake of public officers in computing the correct amount of docket fee. Respondents draw attention to Rule 41, 4 of the
1997 Rules of Civil Procedure which provides that the appellate court docket and other lawful fees must be paid in full to the
clerk of the court which rendered the judgment or final order appealed from within the period for taking the appeal. They argue
that this Rule has overruled the decision in Segovia.
This contention is untenable. Rule 41, 4 must be read in relation to Rule 50, 1(c) which provides
that:ChanRoblesVirtualawlibrary
An appeal may be dismissed by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:
xxxx
(c) Failure of the appellant to pay the docket and other lawful fees as provided in Section 4 of Rule 41.

The Court denies the motion to withdraw because the assertion by the City Legal Officer of Manila that theCoca-Cola
cases already rendered the issues in G.R. No. 120051 moot and academic is erroneous. The Court did not declare in
the Coca-Cola cases that Section 21 of the Manila Revenue Code, as amended, was unconstitutional. What the Court held in
the two Coca-Cola cases was that Ordinance Nos. 7988 and 8011 (approved by then Mayor Atienza on February 25, 2000 and
February 22, 2001, respectively), amending Section 21 of the Manila Revenue Code, were null and void for (a) failure to
comply with the publication requirement for tax ordinances under Section 188 of the LGC; and (b) deletion of an exempting
proviso found in Section 143(h) of the LGC and the prior Section 21 of the Manila Revenue Code, which opened the door to
the double taxation of Coca-Cola. Section 21 of the Manila Revenue Code, as it was amended by Ordinance No. 7807, and
more specifically, paragraph (B) thereof, was not the subject of a constitutional review by the Court in the Coca-Cola cases.
As for Atty. Dela Cruzs Compliance with the Courts Show Cause Resolution, the Court finds the same satisfactory, although
he is reminded to be more conscientious of his duties as legal counsel in the future, despite the heavy volume of his work load.
(2) G.R. No. 121613: In a Resolution dated October 23, 1995, the Court dismissed the Petition of Maersk, et al.,, for the
latters failure to deposit sheriffs fee and clerks commission in the total amount of P202.00; and in light of said dismissal,
noted without action the Supplemental Petition and Motion of Maersk, et al.,, praying for the confirmation of the Writ of
Preliminary Injunction restored by RTC-Branch 32 and deletion of RTC-Branch 32 from the caption of G.R. No. 121613 for not
being a necessary party. In their pending Motion for Reconsideration of the Resolution dated October 23, 1995, Maersk, et
al.,, prayed that the Court give due course to and squarely resolve their Petition and Supplemental Petition and Motion.
The Court resolves to grant the Motion for Reconsideration of Maersk, et al., It sets aside the Resolution dated October 23,
1995; reinstates the Petition of Maersk, et al.,, in G.R. No. 121613; and gives due course to the Petition and Supplemental
Petition and Motion of Maersk, et al.,, in the said case.
Of particular relevance to the plight of Maersk, et al.,, herein is the following discussion of the Court inAyala Land, Inc. v.
Carpo67:chanroblesvirtuallawlibrary
To be sure, the remedy of appeal is a purely statutory right and one who seeks to avail thereof must comply with the statute or
rule. For this reason, payment of the full amount of the appellate court docket and other lawful fees within the reglementary
period is mandatory and jurisdictional. However, as we have ruled in Aranas v. Endona, the strict application of the
jurisdictional nature of the above rule on payment of appellate docket fees may be mitigated under exceptional circumstances
to better serve the interest of justice. As early as 1946, in the case of Segovia v. Barrios, we ruled that where an appellant in
good faith paid less than the correct amount for the docket fee because that was the amount he was required to pay by the
clerk of court, and he promptly paid the balance, it is error to dismiss his appeal because

xxxx
With the exception of 1(b), which refers to the failure to file notice of appeal or the record on appeal within the period
prescribed by these Rules, the grounds enumerated in Rule 50, 1 are merely directory and not mandatory. This is plain from
the use of the permissive may in the text of the statute. Despite the jurisdictional nature of the rule on payment of docket fee,
therefore, the appellate court still has the discretion to relax the rule in meritorious cases. The ruling in Segovia is still good law
which the appellate court, in the exercise of its discretion, must apply in circumstances such as that in the present case where
an appellant was, from the start, ready and willing to pay the correct amount of docket fee, but was unable to do so due to the
error of an officer of the court in computing the correct amount. To hold otherwise would be unjust and unwarranted. (Citations
omitted.)
The Court notes that Revised Circular No. 1-88, effective July 1, 1991, which was cited in the Resolution dated October 23,
1995 as basis for the dismissal of the Petition of Maersk, et al.,, also used the word may in the first paragraph
thereof:chanroblesvirtuallawlibrary
(1) Payment of docketing and other fees. Section 1 of Rule 45 requires that petitions for review be filed and the required fees
paid within the prescribed period. Unless exempted by law or rule, such fees must be fully paid in accordance with this
Circular; otherwise, the Court may deny the petition outright. The same rule shall govern petitions under Rule 65. (Emphasis
supplied.)
Hence, denial of the petition for review outright for failure to pay docketing and other fees within the prescribed period was also
directory and not mandatory upon the Court under Revised Circular No. 1-88.
In the exercise of its discretion, the Court determines that there was meritorious reason why Maersk, et al.,, paid docket and
other legal fees within the prescribed period, but short of the P202.00 for sheriffs fee and clerks commission. Maersk, et al.,,
were already assessed and required to pay the docket and legal fees when they filed their Motion for Extension of Time to File
Petition for Review on Certiorari. The Motion did not yet indicate that the intended Petition would include a prayer for a TRO,
so the receiving clerk did not assess Maersk, et al.,, for sheriffs fee and clerks commission. When Maersk, et al.,, actually
filed their Petition with prayer for the issuance of a writ of preliminary injunction and TRO, they were no longer assessed
additional fees by the receiving clerk. Maersk, et al.,, found out about the deficiency in their legal fees upon their receipt of the
Resolution dated October 23, 1995 already dismissing their Petition and noting without action their Supplemental Petition and
Motion. Maersk, et al.,, immediately filed a Motion for Reconsideration of said Resolution, and also deposited their balance of
P202.00 with the Court.

44

Given the circumstances, Maersk, et al.,, cannot be faulted for their failure to pay the required legal fees for such failure was
clearly not a dilatory tactic nor intended to circumvent the Rules of Court. On the contrary, the subsequent payment by
Maersk, et al.,, of the P202.00 deficiency even before the Court had passed upon their Motion for Reconsideration was
indicative of their good faith and willingness to comply with the Rules.68chanRoblesvirtualLawlibrary
Acting on the Supplemental Petition and Motion of Maersk, et al.,, the Court further resolves to NOTE WITHOUT ACTION the
prayer to confirm the Writ of Preliminary Injunction restored by RTC-Branch 32 in light of the present judgment, and
to GRANT the prayer to delete RTC-Branch 32 from the caption of the case as it was not a necessary party.
(3) G.R. No. 122335: In a Resolution dated January 31, 1996, the Court referred the Petition of Sulpicio Lines to the Court of
Appeals. There is a pending Motion for Reconsideration of the Resolution dated January 31, 1996 filed by Sulpicio Lines
seeking the withdrawal of the Resolution dated January 31, 1996 and transmittal of the rollo of G.R. No. 122335 from the Court
of Appeals back to the Court.
The Court resolves to grant the Motion for Reconsideration of Sulpicio Lines. It sets aside the Resolution dated January 31,
1996 and gives due course to the Petition of Sulpicio Lines in G.R. No. 122335.
The Petition for Review on Certiorari of Sulpicio Lines, filed under Rule 42 of the old Rules of Court, should not have been
referred to the Court of Appeals. It is true that under Section 9, paragraph (3) of Batas Pambansa Blg. 129, the Court of
Appeals has (e)xclusive appellate jurisdiction over all final judgments, resolutions, orders or awards of Regional Trial Courts x
x x. However, Rule 42 of the old Rules of Court, then in effect, allowed an appeal straight from the RTC (formerly called
Court of First Instance) to the Supreme Court when the appeal raised pure questions of law:chanroblesvirtuallawlibrary
RULE 42
APPEAL FROM COURTS OF FIRST INSTANCE
TO SUPREME COURT
Section 1. Procedure. The procedure of appeal to the Supreme Court from Courts of First Instance shall be governed by the
same rules governing appeals to the Court of Appeals, except as hereinafter provided.
Section 2. Appeals on pure question of law. Where the appellant states in his notice of appeal or record on appeal that he
will raise only questions of law, no other question shall be allowed, and the evidence need not be elevated.
A cursory reading of the Petition for Review on Certiorari of Sulpicio Lines would readily reveal that it appealed the Decision
dated August 28, 1995 of RTC-Branch 32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939,
94-68940, 94-68941, and 94-69028 based only on questions of law. The Petition did not raise any question of fact and did not
require the presentation or elevation of evidence.
In G.R. No. 124855, Dongnama and Kyowa questioned the Resolution dated October 23, 1995, which similarly referred their
original Petition for Certiorari, docketed as G.R. No. 122120, to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 39188. The Resolution dated October 23, 1995 cited as basis for the referral Section 9, paragraph (1) of Batas Pambansa
Blg. 129 which gave the Court of Appeals [o]riginal jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas
corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction. The Court,
however, will no longer address the propriety of the referral of the original Petition of Dongnama and Kyowa to the Court of
Appeals since said issue has become moot and academic after the appellate court rendered its Decision in CA-G.R. SP No.
39188 on March 29, 1996. The Court will simply treat the Petition in G.R. No. 124855 as an appeal of the Decision dated
March 29, 1996 of the Court of Appeals in CA-G.R. SP No. 39188.
Ruling on the merits of the 10 Petitions.

The Court rules in favor of MAS; Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et al.,; Sulpicio
Lines; AISL; and Dongnama and Kyowa. Section 21(B) of the Manila Revenue Code, as amended, was null and void for being
beyond the power of the City of Manila and its public officials to enact, approve, and implement under the LGC.
It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the
power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may
provide. The Court expounded in Pelizloy Realty Corporation v. The Province of Benguet69 that:chanroblesvirtuallawlibrary
The power to tax is an attribute of sovereignty, and as such, inheres in the State. Such, however, is not true for provinces,
cities, municipalities and barangays as they are not the sovereign; rather, they are mere territorial and political subdivisions of
the Republic of the Philippines.
The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized in Icard v. City Council of
Baguio:ChanRoblesVirtualawlibrary
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter or
statute must plainly show an intent to confer that power or the municipality, cannot assume it. And the power when granted is
to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be
resolved against the municipality. Inferences, implications, deductions all these have no place in the interpretation of the
taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the Constitution or
by statute. Section 5, Article X of the 1987 Constitution is clear on this point:ChanRoblesVirtualawlibrary
Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
Per Section 5, Article X of the 1987 Constitution, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges. Nevertheless, such authority is subject
to such guidelines and limitations as the Congress may provide.
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160, otherwise known as
the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUs found below.
First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:
1.

Taxation shall be uniform in each LGU.

2.

Taxes, fees, charges and other impositions shall:

a.

be equitable and based as far as practicable on the taxpayers ability to pay;

b.

be levied and collected only for public purposes;

c.

not be unjust, excessive, oppressive, or confiscatory;

d.

not be contrary to law, public policy, national economic policy, or in the restraint of trade.

45

3.

The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4.

The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject to
the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically provided by
the LGC.

5.

Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs. x x x. (Underscoring and citations
omitted.)
Among the common limitations on the taxing power of LGUs is Section 133(j) of the LGC, which states that [u]nless otherwise
provided herein, the taxing power of LGUs shall not extend to [t]axes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as
provided in this Code[.]
Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of
transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air,
land, or water. Yet, confusion arose from the phrase unless otherwise provided herein, found at the beginning of the said
provision. The City of Manila and its public officials insisted that said clause recognized the power of the municipality or city,
under Section 143(h) of the LGC, to impose tax on any business subject to the excise, value-added or percentage tax under
the National Internal Revenue Code, as amended. And it was pursuant to Section 143(h) of the LGC that the City of Manila
and its public officials enacted, approved, and implemented Section 21(B) of the Manila Revenue Code, as amended.
The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of the same Code, and Section 21(B) of
the Manila Revenue Code, as amended, was manifestly in contravention of the former.
First, Section 133(j) of the LGC is a specific provision that explicitly withholds from any LGU, i.e., whether the province, city,
municipality, or barangay, the power to tax the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or water.
In contrast, Section 143 of the LGC defines the general power of the municipality (as well as the city, if read in relation to
Section 15170 of the same Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g) thereof identify the
particular businesses and fix the imposable tax rates for each, paragraph (h) is apparently the catch-all provision allowing the
municipality to impose tax on any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax[.]
The succeeding proviso of Section 143(h) of the LGC, viz., Provided, That on any business subject to the excise, value-added
or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of
gross sales or receipts of the preceding calendar year[,] is not a specific grant of power to the municipality or city to impose
business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a maximum rate of imposable
business tax in case the business taxed under Section 143(h) of the LGC happens to be subject to excise, value added, or
percentage tax under the NIRC.
The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific
exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on statutory construction that specific
provisions must prevail over general ones.71 A special and specific provision prevails over a general provision irrespective of
their relative positions in the statute. Generalia specialibus non derogant. Where there is in the same statute a particular

enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the
particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general
language as are not within the provisions of the particular enactment.72chanRoblesvirtualLawlibrary
In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing business tax on the gross
receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water, when said sanggunian was already specifically prohibited from doing so. Any exception to the
express prohibition under Section 133(j) of the LGC should be just as specific and unambiguous.
Second, the construction adopted by the Court gives effect to both Sections 133(j) and 143(h) of the LGC. In construing a law,
care should be taken that every part thereof be given effect and a construction that could render a provision inoperative should
be avoided, and inconsistent provisions should be reconciled whenever possible as parts of a harmonious
whole.73chanRoblesvirtualLawlibrary
As pointed out by William Lines, et al.,, in their Petition, despite the prohibition against LGUs imposing tax on the gross
receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water, under Section 133(j) of the LGC, there are still other multiple businesses subject to excise, value
added, or percentage tax under the NIRC, which the municipalities and cities can still tax pursuant to Section 143(h) of the
LGC, such as:ChanRoblesVirtualawlibrary
1)
Hotels and motels under Sec. 113 of the NIRC;
2)
Caterers, taxed under Sec. 114 of the NIRC;
3)
Dealers in securities, taxed under Sec. 116 of the NIRC;
4)
Franchise holders, taxed under Sec. 117 of the NIRC;
5)
Senders of overseas dispatch, message or communication originating in the Philippines, taxed under Sec. 118 of the
NIRC;
6)
Banks and non-bank financial intermediaries, taxed under Sec. 119 of the NIRC;
7)
Finance companies, taxed under Sec. 120 of the NIRC;
8)
Agents of foreign insurance companies, taxed under Sec. 122 of the NIRC;
9)
Amusement places, taxed under Sec. 123 of the NIRC;
10) Winners in horse races, taxed under Sec. 124 of the NIRC; and
11) Those who sell, barter, or exchange shares of stocks, taxed under Sec. 124-A of the NIRC.74
Thus, Section 143(h) of the LGC would not be a hollow decorative provision with no subject to tax. On the contrary, it would
be Section 133(j) of the LGC which would become inoperative should the Court accept the construction proffered by the City of
Manila and its public officials, because then, there would be no instance at all when the gross receipts of the transportation
contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water,
would not be subject to tax by the LGUs.
Third, Section 5(b) of the LGC itself, on Rules of Interpretation, provides:chanroblesvirtuallawlibrary
SEC. 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply:
xxxx
(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit
enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government unit
pursuant to the provisions of this Code shall be construed strictly against the person claiming it[.]
The Court strictly construes Section 21(B) of the Manila Revenue Code, as amended, against the City of Manila and its public

46

officials and liberally in favor of the transportation contractors, persons engaged in the transportation of passengers or freight
by hire, and common carriers by air, land, or water. Strictly assessed against the guidelines and limitations set forth in the
LGC, Section 21(B) of the Manila Revenue Code, as amended, was enacted ultra vires.

business. Local government units may impose taxes on top of what is already being imposed by the National Internal Revenue
Code which is the so-called common carriers tax. We do not want a duplication of this tax, so we just provided for an
exception under Section 125 (now Section 137) that a province may impose this tax at a specific rate.

And fourth, the construction adopted by the Court is in accordance with the consistent intention of the laws to withhold from the
LGUs the power to tax transportation contractors, persons engaged in the transportation of passengers or freight by hire, and
common carriers by air, land, or water.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .
It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business
tax against common carriers is to prevent a duplication of the so-called common carriers tax.

Even prior to Section 133(j) of the LGC, Section 5(e) of Presidential Decree No. 231, otherwise known as The Local Tax Code,
as amended, already limited the taxing powers of LGUs as follows:chanroblesvirtuallawlibrary

Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal
Revenue Code. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the
purpose of the Local Government Code. (Citations omitted.)

SEC. 5. Common limitations on the taxing powers of local government. The exercise of the taxing powers of provinces,
cities, municipalities and barrios shall not extend to the imposition of the following:
xxxx
(e) Taxes on the business of transportation contractors and persons engaged in the transportation of passengers or freight by
hire and common carries by air, land or water except as otherwise provided in this Code, and taxes or fees for the registration
of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof;
The Court, in First Philippine Industrial Corp. v. Court of Appeals,75 expounded on the lawmakers reason for exempting the
gross receipts of common carriers from the taxing powers of the LGUs:chanroblesvirtuallawlibrary
From the foregoing disquisition, there is no doubt that petitioner is a common carrier and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code x x x
xxxx
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are
illuminating:ChanRoblesVirtualawlibrary
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states: SEC. 121 (now Sec. 131). Common Limitations on the
Taxing Powers of Local Government Units. . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government units. May we know the reason why the transportation business
is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states
that local government units may not impose taxes on the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the power
to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is the
exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker is the imposition of taxes by local government units on the carrier

Consistent with the foregoing legislative intent, Republic Act No. 7716, more popularly known as the Expanded Value-Added
Tax (E-VAT) Law, which took effect after the LGC on May 28, 1994, expressly amended the NIRC of 1977 and added to
Section 115 of the latter on Percentage tax on carriers and keepers of garages, the following proscription: The gross receipts
of common carriers derived from their incoming and outgoing freight shall not be subjected to the local taxes imposed under
Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
IV
DISPOSITIVE PORTION
WHEREFORE, in view of the foregoing, the Court hereby RESOLVES:
1. In G.R. No. 120051: (a) to DENY the Motion to Withdraw the Petition filed by the Office of the City Legal Officer on behalf of
the City of Manila, Mayor Atienza, and City Treasurer Acevedo; and (b) toDECLARE as SATISFACTORY the Compliance
submitted by Atty. Dela Cruz;
2. In G.R. No. 121613: (a) to GRANT the Motion for Reconsideration of Maersk, et al.,; (b) to SET ASIDEthe Resolution dated
October 23, 1995; (c) to REINSTATE the Petition of Maersk, et al.,; (d) to GIVE DUE COURSE to the Petition and the
Supplemental Petition and Motion of Maersk, et al.,; (e) as regards the Supplemental Petition and Motion of Maersk, et al.,,
to NOTE WITHOUT ACTION the prayer to confirm the Writ of Preliminary Injunction restored by RTC-Branch 32 in light of the
present judgment, and toGRANT the prayer to delete RTC-Branch 32 from the caption of the case for not being a necessary
party; and
3. In G.R. No. 122335: (a) to GRANT the Motion for Reconsideration of Sulpicio Lines; (b) to SET ASIDEthe Resolution dated
January 31, 1996; and (c) to GIVE DUE COURSE to the Petition of Sulpicio Lines.
Furthermore, the Court hereby DECIDES:
1. To DECLARE Section 21(B) of the Manila Revenue Code, as amended, null and void for being in violation of the guidelines
and limitations on the taxing powers of the LGUs under the LGC;
2. In G.R. No. 120051: (a) to DENY the Petition of the City of Manila, Mayor Lim, and City Treasurer Acevedo; and (b)
to AFFIRM the Decision dated April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052; and
3. In G.R. Nos. 121613, 121675, 121704, 121720-28, 121847-55, 122333, 122335, 122349, and 124855: (a) to GRANT the
Petitions of Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco,et al.,; Sulpicio Lines; AISL; and
Dongnama and Kyowa, respectively; (b) to REVERSE and SET ASIDEthe Decision dated August 28, 1995 of RTC-Branch 32
in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028, and
the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP No. 39188; (c) to ORDER the City of Manila to

47

refund to Maersk, et al.,; Eastern Shipping; William Lines, et al.,; PSTC; OFSI; Cosco, et al.,; Sulpicio Lines; AISL; and
Dongnama and Kyowa the business taxes assessed and collected against said corporations under Section 21(B) of the Manila
Revenue Code, as amended; and (d) to MAKE PERMANENT the Writs of Preliminary Injunction restored by RTC-Branch 32
during the pendency of the Petitions at bar.
SO ORDERED.cralawlawlibrary

execution of the judgment in favor of the petitioner, Allied Guarantee Insurance Company (hereafter "Allied") against Aboitiz
insofar as it impairs the rights of the other claimants to their pro-rata share in the insurance proceeds from the sinking of the
M/V P. Aboitiz, in accordance with the rule on limited liability; and G.R. No. 95578 is a petition for review under Rule 45 of the
Rules of Court seeking a reversal of the decision of the Court of Appeals dated August 24, 1990 and its resolution dated
October 4, 1990 in C.A. G.R. Civil Case No. 15071 which modified the judgment of the lower court by applying the
hypothecary rule on limited liability to limit the lower courts award of actual damages to petitioner Equitable Insurance
Corporation (hereafter "Equitable") to its pro-rata share in the insurance proceeds from the sinking of the M/V P. Aboitiz.

On November 26, 2013, the City Council of Manila had already enacted Ordinance No. 8331, otherwise known as the 2013
Omnibus Revenue Code of the City of Manila.
70

SEC. 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

SECOND DIVISION
G.R. No. 92735. June 8, 2000
MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon. Judge AMANTE
PURISIMA, Petitioners, v. COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, Respondents.
[G.R. No. 94867. June 8, 2000
ALLIED GUARANTEE INSURANCE COMPANY, Petitioner, v. COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24
and ABOITIZ SHIPPING CORPORATION,Respondents.
[G.R. No. 95578. June 8, 2000
EQUITABLE INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS, Former First Division Composed of Hon.
Justices RODOLFO NOCON, PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ SHIPPING
CORPORATION, Respondents.
DECISION
Before us are three consolidated petitions. G.R. No. 92735 is a petition for review filed under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which set aside the writ of
execution issued by the lower court for the full indemnification of the claims of the petitioners, Monarch Insurance Company
(hereafter "Monarch") and Tabacalera Insurance Company, Incorporated (hereafter "Tabacalera") against private respondent,
Aboitiz Shipping Corporation (hereafter "Aboitiz") on the ground that the latter is entitled to the benefit of the limited liability rule
in maritime law; G.R. No. 94867 is a petition for certiorari under Rule 65 of the Rules of Court to annul and set aside the
decision of the Court of Appeals dated August 15, 1990 in CA-G.R. SP No. 20844 which ordered the lower court to stay the

All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common carrier owned and operated
by Aboitiz, sank on her voyage from Hong Kong to Manila on October 31, 1980. Seeking indemnification for the loss of their
cargoes, the shippers, their successors-in-interest, and the cargo insurers such as the instant petitioners filed separate suits
against Aboitiz before the Regional Trial Courts. The claims numbered one hundred and ten (110) for the total amount
of P41,230,115.00 which is almost thrice the amount of insurance proceeds of P14,500,000.00 plus earned freight
of P500,000.00 according to Aboitiz. To this day, some of these claims, including those of herein petitioners, have not yet been
settled.
G.R. No. 92735.
Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were consequently
subrogated to their rights, interests and actions against Aboitiz, the cargo carrier.1 Because Aboitiz refused to compensate
Monarch, it filed two complaints against Aboitiz, docketed as Civil Cases Nos. 82-2767 and 82-2770. For its part, Tabacalera
also filed two complaints against the same defendant, docketed as Civil Cases Nos. 82-2768 and 82-2769. As these four (4)
cases had common causes of action, they were consolidated and jointly tried.2crlwvirtualibrry
In Civil Case No. 82-2767 where Monarch also named Malaysian International Shipping Corporation and Litonjua Merchant
Shipping Agency as Aboitizs co-defendants, Monarch sought recovery of P29,719.88 representing the value of three (3) pallets
of glass tubing that sank with the M/V P. Aboitiz, plus attorneys fees of not less than P5,000.00, litigation expenses, interest at
the legal rate on all these amounts, and cost of suit.3Civil Case No. 82-2770 was a complaint filed by Monarch against Aboitiz
and co-defendants Compagnie Maritime des Chargeurs Reunis and F.E. Zuellig (M), Inc. for the recovery of P39,579.66
representing the value of one case of motor vehicle parts which was lost when the M/V P. Aboitiz sank on her way to Manila,
plus attorneys fees of not less than P10, 000.00 and cost of suit. 4crlwvirtualibrry
Tabacalera sought against Franco Belgian Services, F. E. Zuellig and Aboitiz in Civil Case No. 82-2768 the recovery
of P284,218.00 corresponding to the value of nine (9) cases of Renault spare parts, P213,207.00 for the value of twenty-five
(25) cases of door closers and P42,254.00 representing the value of eighteen (18) cases of plastic spangle, plus attorneys
fees of not less than P50,000.00 and cost of suit.5 In Civil Case No. 82-2769, Tabacalera claimed from Hong Kong Island
Shipping Co., Ltd., Citadel Lines and Aboitiz indemnification in the amount of P75,058.00 for the value of four (4) cartons of
motor vehicle parts that foundered with the M/V P. Aboitiz, plus attorneys fees of not less thanP20,000.00 and cost of
suit.6crlwvirtualibrry
In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the ground that the sinking of its cargo vessel
was due to force majeure or an act of God.7Aboitiz was subsequently declared as in default for its failure to appear during the
pre-trial. Its counsel filed a motion to set aside the order of default with notice of his withdrawal as such counsel. Before the

48

motion could be acted upon, Judge Bienvenido Ejercito, the presiding judge of the trial court, was promoted to the then
Intermediate Appellate Court. The cases were thus re-raffled to Branch VII of the RTC of Manila presided by Judge Amante P.
Purisima, the co-petitioner in G.R. No. 92735. Without resolving the pending motion to set aside the order of default, the trial
court set the cases for hearing. However, since Aboitiz had repeatedly failed to appear in court, the trial court denied the said
motion and allowed Monarch and Tabacalera to present evidence ex-parte.8crlwvirtualibrry
Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a surveyor commissioned to investigate the
possible cause of the sinking of the cargo vessel. The survey established that on her voyage to Manila from Hong Kong, the
vessel did not encounter weather so inclement that Aboitiz would be exculpated from liability for losses. In his note of protest,
the master of M/V P. Aboitiz described the wind force encountered by the vessel as from ten (10) to fifteen (15) knots, a
weather condition classified as typical and moderate in the South China Sea at that particular time of the year. The survey
added that the seaworthiness of the vessel was in question especially because the breaches of the hull and the serious
flooding of two (2) cargo holds occurred simultaneously in "seasonal weather."9crlwvirtualibrry
In due course, the trial court rendered judgment against Aboitiz but the complaint against all the other defendants was
dismissed. Aboitiz was held liable for the following: (a) in Civil Case No. 82-2767, P29,719.88 with legal interest from the filing
of the complaint until fully paid plus attorneys fees of P30,000.00 and cost of suit; (b) in Civil Case No. 82-2768, P539,679.00
with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus attorneys fees of P30,000.00,
litigation expenses and cost of suit; (c) in Civil Case No. 82-2769, P75,058.00 with legal interest of 12% per annum from date
of filing of the complaint until fully paid, plus P5,000.00 attorneys fees, litigation expenses and cost of suit, and (d) in Civil Case
No. 82-2770, P39,579.66 with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus attorneys
fees of P5,000.00, litigation expenses and cost of suit.
Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift the order of default. The court denied the
motion on August 27, 1986.10 Aboitiz appealed to the Court of Appeals but the appeal was dismissed for its failure to file
appellants brief. It subsequently filed an urgent motion for reconsideration of the dismissal with prayer for the admission of its
attached appellants brief. The appellate court denied that motion for lack of merit in a Resolution dated July 8,
1988.11crlwvirtualibrry
Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158, the petition was denied in the Resolution
of October 10, 1988 for being filed out of time. Aboitizs motion for the reconsideration of said Resolution was similarly
denied.12 Entry of judgment was made in the case.13crlwvirtualibrry
Consequently, Monarch and Tabacalera moved for execution of judgment. The trial court granted the motion on April 4,
198914 and issued separate writs of execution. However, on April 12, 1989, Aboitiz, invoking the real and hypothecary nature of
liability in maritime law, filed an urgent motion to quash the writs of execution.15 According to Aboitiz, since its liability is limited
to the value of the vessel which was insufficient to satisfy the aggregate claims of all 110 claimants, to indemnify Monarch and
Tabacalera ahead of the other claimants would be prejudicial to the latter. Monarch and Tabacalera opposed the motion to
quash.16crlwvirtualibrry
On April 17, 1989, before the motion to quash could be heard, the sheriff levied upon five (5) heavy equipment owned by
Aboitiz for public auction sale. At said sale, Monarch was the highest bidder for one (1) unit FL-151 Fork Lift (big) and one (1)
unit FL-25 Fork Lift (small). Tabacalera was also the highest bidder for one (1) unit TCH TL-251 Hyster Container Lifter, one (1)

unit Hyster Top Lifter (out of order), and one (1) unit ER-353 Crane. The corresponding certificates of sale17 were issued to
Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a supplement to its motion, to add the fact
that an auction sale had taken place. On April 19, 1989, Judge Purisima issued an order denying the motion to quash but
freezing execution proceedings for ten (10) days to give Aboitiz time to secure a restraining order from a higher
court.18 Execution was scheduled to resume to fully satisfy the judgment when the grace period shall have lapsed without such
restraining order having been obtained by Aboitiz.
Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer for preliminary injunction and/or
temporary restraining order under CA-G.R. No. SP-17427.19 On March 29, 1990, the appellate court rendered a Decision the
dispositive portion of which reads:
"WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of execution, auction sale, certificates of
sale, and the assailed orders of respondent Judge dated April 4 and April 19, 1989 insofar as the money value of those
properties of Aboitiz, levied on execution and sold at public auction, has exceeded the pro-rata shares of Monarch and
Tabacalera in the insurance proceeds of Aboitiz in relation to the pro-rata shares of the 106 other claimants.
"The writ of prohibition is also granted to enjoin respondent Judge, Monarch and Tabacalera from proceeding further with
execution of the judgments in question insofar as the execution would satisfy the claims of Monarch and Tabacalera in excess
of their pro-rata shares and in effect reduce the balance of the proceeds for distribution to the other claimants to their
prejudice.
"The question of whether or how much of the claims of Monarch and Tabacalera against the insurance proceeds has already
been settled through the writ of execution and auction sale in question, being factual issues, shall be threshed out before
respondent Judge.
"The writ of preliminary injunction issued in favor of Aboitiz, having served its purpose, is hereby lifted. No pronouncement as
to costs.
"SO ORDERED."20crlwvirtualibrry
Hence, the instant petition for review on certiorari where petitioners Monarch, Tabacalera and Judge Purisima raise the
following assignment of errors:
1..... The appellate court grievously erred in re-opening the Purisima decisions, already final and executory, on the alleged
ground that the issue of real and hypothecary liability had not been previously resolved by Purisima, the appellate court, and
this Hon. Supreme Court;
2..... The appellate court erred when it resolved that Aboitiz is entitled to the limited real and hypothecary liability of a ship
owner, considering the facts on record and the law on the matter.

49

3..... The appellate court erred when it concluded that Aboitiz does not have to present evidence to prove its entitlement to the
limited real and hypothecary liability.
4..... The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v. CA and Allied Guaranty Insurance Co.,
Inc." (G.R. No. 88159), decided by this Honorable Supreme Court as early as November 13, 1989, considering that said case,
now factual and executory, is in pari materia with the instant case.
5..... The appellate court erred in not concluding that irrespective of whether Aboitiz is entitled to limited hypothecary liability or
not, there are enough funds to satisfy all the claimants.
6..... The appellate court erred when it concluded that Aboitiz had made an "abandonment" as envisioned by Art. 587 of the
Code of Commerce.
7..... The appellate court erred when it concluded that other claimants would suffer if Tabacalera and Monarch would be fully
paid.
8..... The appellate court erred in concluding that certiorari was the proper remedy for Aboitiz.21crlwvirtualibrry
G.R. NOS. 94867 & 95578
Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited, filed a complaint against Aboitiz for the
recovery of P278,536.50 representing the value of 676 bags of PVC compound and 10 bags of ABS plastic lost on board the
M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus attorneys fees, exemplary damages and
costs.22 Docketed as Civil Case No. 138643, the case was heard before the Regional Trial Court of Manila, Branch XXIV,
presided by Judge Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel Manufacturing Corporation, filed an amended
complaint against Franco Belgian Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85 representing the
value of 76 drums of synthetic organic tanning substances and 1,000 kilograms of optical bleaching agents which were also
lost on board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus 25% attorneys fees, exemplary
damages, litigation expenses and costs of suit.23 Docketed as Civil Case No. 138396, the complaint was assigned to the
Regional Trial Court of Manila, Branch VIII.
In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for the amounts being recovered, alleging
that the loss was due to a fortuitous event or an act of God. It prayed for the dismissal of the cases and the payment of
attorneys fees, litigation expenses plus costs of suit. It similarly relied on the defenses of force mejeure, seaworthiness of the
vessel and exercise of due diligence in the carriage of goods as regards the croslaim of its co-defendants. 24crlwvirtualibrry
In support of its position, Aboitiz presented the testimonies of Capt. Gerry N. Racines, master mariner of the M/V P. Aboitiz,
and Justo C. Iglesias, a meteorologist of the Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA). The gist of the testimony of Capt. Racines in the two cases follows:

The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October 29, 1980 after securing a departure
clearance from the Hong Kong Port Authority. The departure was delayed for two hours because he (Capt. Racines) was
observing the direction of the storm that crossed the Bicol Region. He proceeded with the voyage only after being informed
that the storm had abated. At about 8:00 oclock in the morning of October 30, 1980, after more than twelve (12) hours of
navigation, the vessel suddenly encountered rough seas with waves about fifteen to twenty-five feet high. He ordered his chief
engineer to check the cargo holds. The latter found that sea water had entered cargo hold Nos. 1 and 2. He immediately
directed that water be pumped out by means of the vessels bilge pump, a device capable of ejecting 180 gallons of water per
minute. They were initially successful in pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his chief engineer that the water level in the
cargo holds was rapidly rising. He altered the vessels course and veered towards the northern tip of Luzon to prevent the
vessel from being continuously pummeled by the waves. Despite diligent efforts of the officers and crew, however, the vessel,
which was approximately 250 miles away from the eye of the storm, began to list on starboard side at 27 degrees. Capt.
Racines and his crew were not able to make as much headway as they wanted because by 12:00 noon of the same day, the
cargo holds were already flooded with sea water that rose from three to twelve feet, disabling the bilge pump from containing
the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18 degrees North, longitude 170 degrees East in the
South China Sea in between Hong Kong, the Philippines and Taiwan with the nearest land being the northern tip of Luzon,
around 270 miles from Cape Bojeador, Bangui, Ilocos Norte. Responding to the captains distress call, the M/V Kapuas
(Capuas) manned by Capt. Virgilio Gonzales rescued the officers and crew of the ill-fated M/V P. Aboitiz and brought them to
Waileen, Taiwan where Capt. Racines lodged his marine protest dated November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, testified in both cases that during the inclusive dates
of October 28-31, 1980, a stormy weather condition prevailed within the Philippine area of responsibility, particularly along the
sea route from Hong Kong to Manila, because of tropical depression "Yoning."25 PAGASA issued weather bulletins from
October 28-30, 1980 while the storm was still within Philippine territory. No domestic bulletins were issued the following day
when the storm which hit Eastern Samar, Southern Quezon and Southern Tagalog provinces, had made its exit to the South
China Sea through Bataan.
Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were lost due to force majeure, relying mainly
on the marine protest filed by Capt. Racines as well as on the Beaufortale of Wind. In his marine protest under oath, Capt.
Racines affirmed that the wind force on October 29-30, 1980 was only ten (10) to fifteen (15) knots. Under the Beaufortale of
Wind, said wind velocity falls under scale No. 4 that describes the sea condition as "moderate breeze," and "small waves
becoming longer, fairly frequent white horses."26crlwvirtualibrry
To fortify its position, Equitable presented Rogelio T. Barboza who testified that as claims supervisor and processor of
Equitable, he recommended payment to Axel Manufacturing Corporation as evidenced by the cash voucher, return check and
subrogation receipt. Barboza also presented a letter of demand to Aboitiz which, however, the latter
ignored.27crlwvirtualibrry
On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No. 138643 as follows:

50

"WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping Company to pay plaintiff Allied Guarantee
Insurance Company, Inc. the sum ofP278,536.50, with legal interest thereon from March 10, 1981, then date of the filing of the
complaint, until fully paid, plus P30,000.00 as attorneys fees, with costs of suit.

3..... Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the
questioned decision (Annex "C" hereof) is without application in the face of the facts found by the lower court, sustained by the
Court of Appeals in CA-G.R. No. 04121 and affirmed in toto by the Supreme Court in G.R. No. 88159.

"SO ORDERED."28crlwvirtualibrry

4..... Certiorari as a special remedy is unavailing for private respondent as there was no grave abuse of discretion nor lack or
excess of jurisdiction for Judge Mabunay to issue the order of April 4, 1990 which was in accord with law and jurisprudence,
nor were there intervening facts and/or supervening events that will justify respondent court to issue a writ of certiorari or a
restraining order on a final and executory judgment of the Honorable Supreme Court.32crlwvirtualibrry

A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor of plaintiff and against defendant Aboitiz
Shipping Corporation, to pay the sum of P194, 794. 85 with legal rate of interest thereon from February 27, 1981 until fully
paid; attorneys fees of twenty-five (25%) percent of the total claim, plus litigation expenses and costs of litigation.
SO ORDERED."29crlwvirtualibrry
In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV No. 04121. On March 23, 1987, the
Court of Appeals affirmed the decision of the lower court. A motion for reconsideration of the said decision was likewise denied
by the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then filed a petition for review with this Court docketed as G.R. No.
88159 which was denied for lack merit. Entry of judgment was made and the lower courts decision in Civil Case No. 138643
became final and executory. Allied prayed for the issuance of a writ of execution in the lower court which was granted by the
latter on April 4, 1990. To stay the execution of the judgment of the lower court, Aboitiz filed a petition for certiorari and
prohibition with preliminary injunction with the Court of Appeals docketed as CA-G.R. SP No. 20844.30 On August 15, 1990, the
Court of Appeals rendered the assailed decision, the dispositive portion of which reads as follows:
"WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990 granting the execution is hereby set aside.
The respondent Judge is further ordered to stay the execution of the judgment insofar as it impairs the rights of the 100 other
claimants to the insurance proceeds including the rights of the petitioner to pay more than the value of the vessel or the
insurance proceeds and to desist from executing the judgment insofar as it prejudices the pro-rata share of all claimants to the
insurance proceeds. No pronouncement as to costs.
"SO ORDERED."31crlwvirtualibrry
Hence, Allied filed the instant petition for certiorari, mandamus and injunction with preliminary injunction and/or restraining
order before this Court alleging the following assignment of errors:
1..... Respondent Court of Appeals gravely erred in staying the immediate execution of the judgment of the lower court as it
has no authority nor jurisdiction to directly or indirectly alter, modify, amend, reverse or invalidate a final judgment as affirmed
by the Honorable Supreme Court in G.R. No. 88159.
2..... Respondent Court of Appeals with grave abuse of discretion amounting to lack or excess of jurisdiction, brushed aside
the doctrine in G.R. No. 88159 which is now the law of the case and observance of time honored principles of stare
decisis, res adjudicataand estoppel by judgment.

From the decision of the trial court in Civil Case No. 138396 that favored Equitable, Aboitiz likewise appealed to the Court of
Appeals through CA-G.R. CV No. 15071. On August 24, 1990, the Court of Appeals rendered the Decision quoting extensively
its Decision in CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the appeal as follows:
"WHEREFORE, we hereby affirm the trial courts awards of actual damages, attorney s fees and litigation expenses, with the
exception of legal interest, in favor of plaintiff-appellee Equitable Insurance Corporation as subrogee of the consignee for the
loss of its shipment aboard the M/V `P. Aboitiz and against defendant-appellant Aboitiz Shipping Corporation. However, the
amount and payment of those awards shall be subject to a determination of the pro-rata share of said appellee in relation to
the pro-rata shares of the 109 other claimants, which determination shall be made by the trial court. This case is therefore
hereby ordered remanded to the trial court which shall reopen the case and receive evidence to determine appellees pro-rata
share as aforesaid. No pronouncement as to costs.
"SO ORDERED."33crlwvirtualibrry
On September 12, 1990, Equitable moved to reconsider the Court of Appeals Decision. The Court of Appeals denied the
motion for reconsideration on October 4, 1990.34Consequently, Equitable filed with this Court a petition for review alleging the
following assignment of errors:
1..... Respondent Court of Appeals, with grave abuse of discretion amounting to lack or excess of jurisdiction, erroneously
brushed aside the doctrine in G.R. No. 88159 which is now the law of the case as held in G.R. No. 89757 involving the same
and identical set of facts and cause of action relative to the sinking of the M/V `P. Aboitiz and observance of the time honored
principles of stare decisis, and estoppel by judgment.
2..... Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the assailed
decision and resolution is without application in the face of the facts found by the trial court which conforms to the conclusion
and finding of facts arrived at in a similar and identical case involving the same incident and parties similarly situated in G.R.
No. 88159 already declared as the `law of the case in a subsequent decision of this Honorable Court in G.R. No. 89757
promulgated on August 6, 1990.
3..... Respondent Court of Appeals gravely erred in concluding that limited liability rule applies in case of loss of cargoes when
the law itself does not distinguish; fault of the shipowner or privity thereto constitutes one of the exceptions to the application of
limited liability under Article 587, 590 and 837 of the Code of Commerce, Civil Code provisions on common carriers for breach
of contract of carriage prevails.35crlwvirtualibrry

51

These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the Resolution of August 5, 1991 on the
ground that the petitioners "have identical causes of action against the same respondent and similar reliefs are prayed
for."36crlwvirtualibrry
The threshold issue in these consolidated petitions is the applicability of the limited liability rule in maritime law in favor of
Aboitiz in order to stay the execution of the judgments for full indemnification of the losses suffered by the petitioners as a
result of the sinking of the M/V P. Aboitiz. Before we can address this issue, however, there are procedural matters that need to
be threshed out.
First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge Amante Purisima, whose decision in the
Regional Trial Court is sought to be upheld, is named as a co-petitioner. In Calderon v. Solicitor General,37 where the petitioner
in the special civil action of certiorari and mandamus was also the judge whose order was being assailed, the Court held that
said judge had no standing to file the petition because he was merely a nominal or formal party-respondent under Section 5 of
Rule 65 of the Rules of Court. He should not appear as a party seeking the reversal of a decision that is unfavorable to the
action taken by him. The Court there said:
"Judge Calderon should be reminded of the well-known doctrine that a judge should detach himself from cases where his
decision is appealed to a higher court for review. The raison detre for such doctrine is the fact that a judge is not an active
combatant in such proceeding and must leave the opposing parties to contend their individual positions and for the appellate
court to decide the issues without his active participation. By filing this case, petitioner in a way ceased to be judicial and has
become adversarial instead."38crlwvirtualibrry
While the petition in G.R. No. 92735 does not expressly show whether or not Judge Purisima himself is personally interested in
the disposition of this petition or he was just inadvertently named as petitioner by the real parties in interest, the fact that Judge
Purisima is named as petitioner has not escaped this Courts notice. Judges and litigants should be reminded of the basic rule
that courts or individual judges are not supposed to be interested "combatants" in any litigation they resolve.
Second. The petitioners contend that the inapplicability of the limited liability rule to Aboitiz has already been decided on by no
less than this Court in G.R. No. 88159 as early as November 13, 1989 which was subsequently declared as "law of the case"
in G.R. No. 89757 on August 6, 1990. Herein petitioners cite the aforementioned cases in support of their theory that the
limited liability rule based on the real and hypothecary nature of maritime law has no application in the cases at bar.
The existence of what petitioners insist is already the "law of the case" on the matter of limited liability is at best illusory.
Petitioners are either deliberately misleading this Court or profoundly confused. As elucidated in the case of Aboitiz Shipping
Corporation vs. General Accident Fire and Life Assurance Corporation,39crlwvirtualibrry
"An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280-282, Rollo) shows that the same settles two
principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and second is
that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of common
carriers.
"It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but
an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of

stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in Section 8
of the Bill of Lading and which limited the carriers liability to US$500.00 for the cargo whose value was therein sought to be
recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature
of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters
threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the
package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case
raises a completely different issue."40crlwvirtualibrry
Third. Petitioners asseverate that the judgments of the lower courts, already final and executory, cannot be directly or indirectly
altered, modified, amended, reversed or invalidated.
The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, is not an
absolute one. We have allowed the suspension of execution in cases of special and exceptional nature when it becomes
imperative in the higher interest of justice.41 The unjust and inequitable effects upon various other claimants against Aboitiz
should we allow the execution of judgments for the full indemnification of petitioners claims impel us to uphold the stay of
execution as ordered by the respondent Court of Appeals. We reiterate our pronouncement in Aboitiz Shipping Corporation vs.
General Accident Fire and Life Assurance Corporation on this very same issue.
"This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full
judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability
enunciated under the appropriate articles of the Code of Commerce. x x x. Collaterally, determination of the question of
whether execution of judgments which have become final and executory may be stayed is also an issue.
"We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence
is to see the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom,
the tenor of which is that no procedural consideration is sancrosanct if such shall result in the subverting of justice. The right to
execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1885]), this Court
ruled that:
xxx............ xxx............ xxx
x x x every court having jurisdiction to render a particular judgment has inherent power to
enforce it, and to exercise equitable control over such enforcement. The court has authority to
inquire whether its judgment has been executed, and will remove obstructions to the
enforcement thereof. Such authority extends not only to such orders and such writs as may
be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to
be perverted and made a medium of consummating a wrong the court on proper application
can prevent it."42crlwvirtualibrry
Fourth. Petitioners in G.R. No. 92735 aver that it was error for the respondent Court of Appeals to allow Aboitiz the benefit of
the limited liability rule despite its failure to present evidence to prove its entitlement thereto in the court below. Petitioners
Monarch and Tabacalera remind this Court that from the inception of G.R. No. 92735 in the lower court and all the way to the

52

Supreme Court, Aboitiz had not presented an iota of evidence to exculpate itself from the charge of negligence for the simple
reason that it was declared as in default.43crlwvirtualibrry

Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of the vessel belonging
to him.

It is true that for having been declared in default, Aboitiz was precluded from presenting evidence to prove its defenses in
the court a quo. We cannot, however, agree with petitioners that this circumstance prevents the respondent Court of Appeals
from taking cognizance of Aboitiz defenses on appeal.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and the freightage served during the voyage.

It should be noted that Aboitiz was declared as in default not for its failure to file an answer but for its absence during pre-trial
and the trial proper. In Aboitiz answer with counterclaim, it claimed that the sinking of the M/V P. Aboitiz was due to an act of
God or unforeseen event and that the said ship had been seaworthy and fit for the voyage. Aboitiz also alleged that it
exercised the due diligence required by law, and that considering the real and hypothecary nature of maritime trade, the
sinking justified the extinguishment of its liability for the lost shipment.44crlwvirtualibrry
A judgment of default does not imply a waiver of rights except that of being heard and presenting evidence in defendants favor.
It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal
section45 requires the latter to adduce evidence in support of his allegations as an indispensable condition before final
judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiffs causes of
action find support in the law or that the latter is entitled to the relief prayed for.46 This is especially true with respect to a
defendant who had filed his answer but had been subsequently declared in default for failing to appear at the trial since he has
had an opportunity to traverse, via his answer, the material averments contained in the complaint. Such defendant has a better
standing than a defendant who has neither answered nor appeared at trial.47 The former should be allowed to reiterate all
affirmative defenses pleaded in his answer before the Court of Appeals. Likewise, the Court of Appeals may review the
correctness of the evaluation of the plaintiffs evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue of its entitlement to the limited liability rule for the first time on
appeal thus, the respondent Court of Appeals may properly rule on the same.
However, whether or not the respondent Court of Appeals erred in finding, upon review, that Aboitiz is entitled to the benefit of
the limited liability rule is an altogether different matter which shall be discussed below.
Rule on Limited Liability. The petitioners assert in common that the vessel M/V P. Aboitiz did not sink by reason of force
majeure but because of its unseaworthiness and the concurrent fault and/or negligence of Aboitiz, the captain and its crew,
thereby barring Aboitiz from availing of the benefit of the limited liability rule.

Article 837 applies the principle of limited liability in cases of collision, hence, Arts. 587 and 590 embody the universal principle
of limited liability in all cases. In Yangco v. Laserna,48 this Court elucidated on the import of Art. 587 as follows:
"The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to
that which he is entitled as of right to abandon-the vessel with all her equipments and the freight it may have earned during the
voyage. It is true that the article appears to deal only with the limited liability of the shipowners or agents for damages arising
from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language
and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the
language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the captain."49crlwvirtualibrry
"No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowners or agents liability is merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel
extinguishes maritime liens because there is no longer any res to which it can attach.50 This doctrine is based on the real and
hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages
during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to
encourage shipbuilding and maritime commerce it was deemed necessary to confine the liability of the owner or agent arising
from the operation of a ship to the vessel, equipment, and freight, or insurance, if any.51crlwvirtualibrry
Contrary to the petitioners theory that the limited liability rule has been rendered obsolete by the advances in modern
technology which considerably lessen the risks involved in maritime trade, this Court continues to apply the said rule in
appropriate cases. This is not to say, however, that the limited liability rule is without exceptions, namely: (1) where the injury or
death to a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and the
captain;52 (2) where the vessel is insured; and (3) in workmens compensation claims.53crlwvirtualibrry
We have categorically stated that Article 587 speaks only of situations where the fault or negligence is committed solely by the
captain. In cases where the ship owner is likewise to be blamed, Article 587 does not apply. Such a situation will be covered by
the provisions of the Civil Code on common carriers.54crlwvirtualibrry

The principle of limited liability is enunciated in the following provisions of the Code of Commerce:
Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct
of the captain in the care of goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the
vessel with all the equipments and the freight it may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results
of the acts of the captain referred to in Art. 587.

A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz would absolve Aboitiz from any and all
liability pursuant to Article 1734(1) of the Civil Code which provides in part that common carriers are responsible for the loss,
destruction, or deterioration of the goods they carry, unless the same is due to flood, storm, earthquake, lightning, or other
natural disaster or calamity. On the other hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or negligence of
Aboitiz, the ship captain and crew of the M/V P. Aboitiz would render inapplicable the rule on limited liability. These issues are
therefore ultimately questions of fact which have been subject of conflicting determinations by the trial courts, the Court of
Appeals and even this Court.

53

In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving Monarchs and Tabacaleras evidence, the trial
court found that the complete loss of the shipment on board the M/V P. Aboitiz when it sank was neither due to a fortuitous
event nor a storm or natural cause. For Aboitiz failure to present controverting evidence, the trial court also upheld petitioners
allegation that the M/V P. Aboitiz was unseaworthy.55 However, on appeal, respondent Court of Appeals exculpated Aboitiz
from fault or negligence and ruled that:
"x x x, even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault(distinguished from civil liability) cannot be laid on the
shipowners door. Such fault was directly attributable to the captain. This is so, because under Art. 612 of the Code of
Commerce, among the inherent duties of a captain, are to examine the vessel before sailing and to comply with the laws on
navigation."56 ;
and that:
"x x x although the shipowner may be held civilly liable for the captains fault x x x having abandoned the vessel in question,
even if the vessel was unseaworthy due to the captains fault, Aboitiz is still entitled to the benefit under the rule of limited
liability accorded to shipowners by the Code of Commerce."57crlwvirtualibrry
Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court, which found that the sinking of the M/V
P. Aboitiz was not due to an act of God or force majeure. It added that the evidence presented by the petitioner Equitable
demonstrated the negligence of Aboitiz Shipping Corporation in the management and operation of its vessel M/V P.
Aboitiz.58crlwvirtualibrry
However, Aboitiz appeal was favorably acted upon by the respondent Court of Appeals which reiterated its ruling in G.R. No.
92735 that the unseaworthiness of the M/V P. Aboitiz was not a fault directly attributable to Aboitiz but to the captain, and that
Aboitiz is entitled to the benefit of the limited liability rule for having abandoned its ship.59crlwvirtualibrry
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the M/V P. Aboitiz was not lost due to a
fortuitous event or force majeure, and that Aboitiz had failed to satisfactorily establish that it had observed extraordinary
diligence in the vigilance over the goods transported by it.60crlwvirtualibrry
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and found that the sinking of the vessel was due
to its unseaworthiness and the failure of its crew and master to exercise extraordinary diligence. 61 Subsequently, however,
Aboitiz petition before the Court of Appeals, docketed as CA-G.R. SP No. 20844 (now G.R. No. 94867) to annul and set aside
the order of execution issued by the lower court was resolved in favor of Aboitiz. The Court of Appeals brushed aside the issue
of Aboitiz negligence and/or fault and proceeded to allow the application of the limited liability rule "to accomplish the aims of
justice."62 It elaborated thus: "To execute the judgment in this case would prejudice the substantial right of other claimants who
have filed suits to claim their cargoes that was lost in the vessel that sank and also against the petitioner to be ordered to pay
more than what the law requires."63crlwvirtualibrry
It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by reason of force majeure is not a novel one
for that question has already been the subject of conflicting pronouncements by the Supreme Court. In Aboitiz Shipping
Corporation v. Court of Appeals,64 this Court approved the findings of the trial court and the appellate court that the sinking of
the M/V P. Aboitiz was not due to the waves caused by tropical storm "Yoning" but due to the fault and negligence of Aboitiz, its

master and crew.65 On the other hand, in the later case of Country Bankers Insurance Corporation v. Court of Appeals,66 this
Court issued a Resolution on August 28, 1991 denying the petition for review on the ground that the Court of Appeals
committed no reversible error, thereby affirming and adopting as its own, the findings of the Court of Appeals that force
majeurehad caused the M/V P. Aboitiz to founder.
In view of these conflicting pronouncements, we find that now is the opportune time to settle once and for all the issue of
whether or not force majeure had indeed caused the M/V P. Aboitiz to sink. After reviewing the records of the instant cases, we
categorically state that by the facts on record, the M/V P. Aboitiz did not go under water because of the storm "Yoning."
It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during the inclusive dates of October 28-31, 1980, a
stormy weather condition prevailed within the Philippine area of responsibility, particularly along the sea route from Hong Kong
to Manila, because of tropical depression "Yoning".67 But even Aboitiz own evidence in the form of the marine protest filed by
Captain Racines affirmed that the wind force when the M/V P. Aboitiz foundered on October 31, 1980 was only ten (10) to
fifteen (15) knots which, under the Beaufortale of Wind, falls within scale No. 4 that describes the wind velocity as "moderate
breeze," and characterizes the waves as "small x x x becoming longer, fairly frequent white horses."68 Captain Racines also
testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200) miles away from storm "Yoning" when it
sank.69crlwvirtualibrry
The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V P. Aboitiz has also been subject of
conflicting rulings by this Court. In G.R. No. 100373,Country Bankers Insurance Corporation v. Court of Appeals, this Court
found no error in the findings of the Court of Appeals that the M/V P. Aboitiz sank by reason of force majeure, and that there
was no negligence on the part of its officers and crew. In direct contradiction is this Courts categorical declaration in Aboitiz
Shipping Corporation v. Court of Appeals,70 to wit:
"The trial court and the appellate court found that the sinking of the M/V P. Aboitiz was not due to the waves caused by tropical
storm "Yoning" but due to the fault and negligence of petitioner, its master and crew. The court reproduces with approval said
findings x x x."71crlwvirtualibrry
However, in the subsequent case of Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd.,72 this Court exculpated Aboitiz from fault and/or negligence while holding that the unseaworthiness of the M/V P. Aboitiz
was only attributable to the negligence of its captain and crew. Thus,
"On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioners lap, absent a
factual basis for such conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is
directly attributable to the vessels crew and captain, more so on the part of the latter since Article 612 of the Code of
Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the
laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry.
While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding
therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally
incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not
pertain to the structural condition of the vessel which is the basis of the BMIs 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."73crlwvirtualibrry

54

It therefore becomes incumbent upon this Court to answer with finality the nagging question of whether or not it was the
concurrent fault and/or negligence of Aboitiz and the captain and crew of the ill-fated vessel that had caused it to go under
water.

Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.,[80] promulgated on January 21, 1993,
that claimants be treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims
against it."81 To do so, the Court set out in that case the procedural guidelines:

Guided by our previous pronouncements and illuminated by the evidence now on record, we reiterate our findings in Aboitiz
Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.[74] , that the unseaworthiness of the M/V
P. Aboitiz had caused it to founder. We, however, take exception to the pronouncement therein that said unseaworthiness
could not be attributed to the ship owner but only to the negligent acts of the captain and crew of the M/V P. Aboitiz. On the
matter of Aboitiz negligence, we adhere to our ruling in Aboitiz Shipping Corporation v. Court of Appeals,75 that found Aboitiz,
and the captain and crew of the M/V P. Aboitiz to have been concurrently negligent.

"In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence
over the others by the simple expedience of having completed its action earlier than the rest. Thus, execution of judgment in
earlier completed cases, even those already final and executory must be stayed pending completion of all cases occasioned
by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should
the insurance proceeds and freightage be not enough to satisfy all claims.

During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735), petitioners Monarch and Tabacalera presented a
survey from Perfect Lambert, a surveyor based in Hong Kong that conducted an investigation on the possible cause of the
sinking of the vessel. The said survey established that the cause of the sinking of the vessel was the leakage of water into the
M/V P. Aboitiz which probably started in the forward part of the No. 1 hull, although no explanation was proffered as to why the
No. 2 hull was likewise flooded. Perfect Lambert surmised that the flooding was due to a leakage in the shell plating or a defect
in the water tight bulk head between the Nos. 1 and 2 holds which allowed the water entering hull No.1 to pass through hull
No. 2. The surveyor concluded that whatever the cause of the leakage of water into these hulls, the seaworthiness of the
vessel was definitely in question because the breaches of the hulls and serious flooding of the two cargo holds occurred
simultaneously in seasonal weather.76crlwvirtualibrry
We agree with the uniform finding of the lower courts that Aboitiz had failed to prove that it observed the extraordinary
diligence required of it as a common carrier. We therefore reiterate our pronouncement in Aboitiz Corporation v. Court of
Appeals[77] on the issue of Aboitiz liability in the sinking of its vessel, to wit:
"In accordance with Article 1732 of the Civil Code, the defendant common carrier from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to all circumstances of the case. While the goods are in the possession of the carrier, it
is but fair that it exercise extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law presumes
that it was due to the carriers fault or negligence; that is necessary to protect the interest of the shipper which is at the mercy
of the carrier x x x. In the case at bar, the defendant failed to prove hat the loss of the subject cargo was not due to its fault or
negligence."78crlwvirtualibrry
The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in
the face of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the
ship captain and crew of the M/V P. Aboitiz. This is in accordance with the rule that in cases involving the limited liability of
shipowners, the initial burden of proof of negligence or unseaworthiness rests on the claimants. However, once the vessel
owner or any party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its part with
respect to the matter of negligence or unseaworthiness is shifted to it.79 This burden, Aboitiz had unfortunately failed to
discharge. That Aboitiz failed to discharge the burden of proving that the unseaworthiness of its vessel was not due to its fault
and/or negligence should not however mean that the limited liability rule will not be applied to the present cases. The peculiar
circumstances here demand that there should be no strict adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated. The rule on limited liability should be applied in accordance with the latest ruling in Aboitiz

"x x x............ x x x............ x x x.

" In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now
be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper
admiralty court within 15 days from finality of this decision, and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and
settlement thereof."82 (Underscoring supplied.)
There is no record that Aboitiz has instituted such action or that it has deposited in trust the insurance proceeds and freightage
earned. The pendency of the instant cases before the Court is not a reason for Aboitiz to disregard the aforementioned order
of the Court. In fact, had Aboitiz complied therewith, even these cases could have been terminated earlier. We are inclined to
believe that instead of filing the suit as directed by this Court, Aboitiz tolerated the situation of several claimants waiting to get
hold of its insurance proceeds, which, if correctly handled must have multiplied in amount by now. By its failure to abide by the
order of this Court, it had caused more damage to the claimants over and above that which they have endured as a direct
consequence of the sinking of the M/V P. Aboitiz. It was obvious that from among the many cases filed against it over the
years, Aboitiz was waiting for a judgment that might prove favorable to it, in blatant violation of the basic provisions of the Civil
Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly rather than exert effort towards the
consolidation of all claims. Consequently, courts have arrived at conflicting decisions while claimants waited over the years for
a resolution of any of the cases that would lead to the eventual resolution of the rest. Aboitiz failed to give the claimants their
due and to observe honesty and good faith in the exercise of its rights.83crlwvirtualibrry
Aboitiz blatant disregard of the order of this Court in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd.[84] cannot be anything but willful on its part. An act is considered willful if it is done with knowledge of its
injurious effect; it is not required that the act be done purposely to produce the injury.85 Aboitiz is well aware that by not
instituting the said suit, it caused the delay in the resolution of all claims against it. Having willfully caused loss or injury to the
petitioners in a manner that is contrary to morals, good customs or public policy, Aboitiz is liable for damages to the
latter.86crlwvirtualibrry

55

Thus, for its contumacious act of defying the order of this Court to file the appropriate action to consolidate all claims for
settlement, Aboitiz must be held liable for moral damages which may be awarded in appropriate cases under the Chapter on
human relations of the Civil Code (Articles 19 to 36).87crlwvirtualibrry
On account of Aboitiz refusal to satisfy petitioners claims in accordance with the directive of the Court in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., it acted in gross and evident bad faith. Accordingly,
pursuant to Article 2208 of the Civil Code,88 petitioners should be granted attorneys fees.
WHEREFORE , the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The decisions of the Court of Appeals in
CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R. SP No. 20844 dated August 15, 1990, and CA-G.R. CV No. 15071
dated August 24, 1990 are AFFIRMED with the MODIFICATION that respondent Aboitiz Shipping Corporation is ordered to

pay each of the respective petitioners the amounts of P100,000.00 as moral damages and P50,000.00 as attorneys fees, and
treble the cost of suit.
Respondent Aboitiz Shipping Corporation is further directed to comply with the Order promulgated by this Court on January 21,
1993 in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., G.R. No. 100446, January
21, 1993, to (a) institute the necessary limitation and distribution action before the proper Regional Trial Court, acting as
admiralty court, within fifteen (15) days from the finality of this decision, and (b) thereafter to deposit with the said court the
insurance proceeds from the loss of the vessel, M/V P. Aboitiz, and the freightage earned in order to safeguard the same
pending final resolution of all incidents relative to the final pro-rating thereof and to the settlement of all claims.
SO ORDERED.

56