ABOITIZ SHIPPING CORPORATION v. NEW INDIA ASSURANCE COMPANY, LTD.

May 2, 2006 | Quisumbing, J. | Limited liability rule

CASE SUMMARY: M/V P. Aboitiz, transporting cargos of textile and chemicals consigned to General
Textile, sank while on its way to Manila. Insurer New India paid General Textile and was subrogated
the latter’s rights. New India filed a complaint for damages against Aboitiz Shipping for the sinking of
the vessel. To minimize the damage to be paid, Aboitiz Shipping invoked the limited liability doctrine
(i.e., limit the amount to the insurance proceeds).
DOCTRINE: 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. 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.
NATURE: PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

FACTS:
 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 New India Assurance Company, Ltd.
 While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.
o Before departing, the vessel was advised by the Japanese Meteorological Center that it
was safe to travel to its destination. 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.
o On October 31, 1980, the vessel sank, but the captain and his crew were saved.
 In a Marine Protest filed by the captain, he stated 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.”
 General Textile lodged a claim with New India for the amount of loss. New India paid General
Textile and was subrogated to the rights of the latter.
o Based on surveyor Perfect, Lambert and Co. hired by New India, the cause was the
flooding of the holds brought about by the vessel’s questionable seaworthiness.
 New India filed a complaint for damages against Aboitiz, Franco-Belgian Services and the
latter’s local agent, F.E. Zuellig, Inc. (Zuellig).
o New India 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.
 Franco-Belgian Services and Zuellig claimed that they exercised extraordinary diligence in
handling the shipment. They also filed a cross-claim against Aboitiz Shipping alleging that the
loss occurred during the transshipment with Aboitiz Shipping.
 Aboitiz Shipping also raised the defense that the ship was seaworthy. The sinking of the vessel
was due to an unforeseen event and without fault or negligence on its part.
 The Board of Marine Inquiry (BMI) conducted its own investigation and exonerated the captain
and crew of any administrative liability; and declared the vessel seaworthy. But, Aboitiz
Shipping did not inform New India nor the trial court.

Rulings of the lower courts

[TC] ruled in favor of New India.
[CA] Affirmed in toto. 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.

Arguments before SC

1
 ABOITIZ SHIPPING CORPORATION v. NEW INDIA ASSURANCE COMPANY, LTD.
[Aboitiz Shipping] New India’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. (Monarch Insurance Co., Inc. v.
CA)
[New India] the doctrine of real and hypothecary nature of maritime law is not applicable in the
present case because Aboitiz Shipping was found to have been negligent.

ISSUE: W/N the limited liability doctrine, which limits New India’s award of damages to its pro rata
share in the insurance proceeds, applies in this case? NO!

RULING:
1. 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.
 In Monarch, we said that the sinking of the vessel was not due to force majeure, but to its
unseaworthy condition. Therein, we found Aboitiz Shipping concurrently negligent with the
captain and crew. But the Court stressed that the circumstances therein still made the doctrine
of limited liability applicable.
 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.

2. Common carriers are bound to observe extraordinary diligence over the goods they transport
according to all the circumstances of each case.
 In the event of loss, destruction or deterioration of the insured goods, common carriers are
responsible, unless they can prove that the loss, destruction or deterioration was brought
about by the causes specified in Article 1734, NCC. 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.
 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.
 Aboitiz Shipping 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, Aboitiz Shipping has
the burden of proving that the unseaworthiness of its vessel was not due to its fault or
negligence.
 Where the shipowner fails to overcome the presumption of negligence, the doctrine of
limited liability cannot be applied.

As applied
 We find that Aboitiz Shipping failed to discharge this burden. 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.
 The findings of the BMI are not deemed always binding on the courts. Besides, exoneration of
the vessel’s officers and crew by the BMI merely concerns their respective administrative
liabilities. It does not in any way operate to absolve the common carrier from its civil liabilities

DISPOSITION: WHEREFORE, the petition is DENIED for lack of merit.