Chapter 10: General Concepts

1. Maritime Law:
 The system of law which particularly relates to the affairs of business of the sea, ship, their crews and
navigation, and to maritime conveyance of persons and property.
 A corpus rules, concepts, and legal practices governing certain centrally important concerns of the business of
carrying goods and passengers by water.
2. Real and Hypothecary Nature.
That which distinguishes the maritime from the civil law and even the mercantile law in general is the real and
hypothecary nature of the former, and many securities of a real nature that maritime customs from time immemorial, the
laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interest which
are ventured and risked in maritime expeditions, such as the interest of the vessel and the agent, those of the owners of
the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.
a. Limited Liability Rule: No vessel, No liability.
The shipowner’s or agent’s liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer any
res to which it can attach.
b. Rationale.
The principle has not been rendered obsolete by the advances in modern technology which considerably lessen by the
risk involved in maritime trade.
2.01 Statutory Provisions.
Article 587. The ship agent shall also be civilly liable for the indemnities in favor of the third person which may
arise from the conduct of the captain in care of the goods which loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel withal her equipments and the freight it may have earned during the voyage.
2.02 Coverage of Limited Liability.
1. Liability to third persons 2. Acts of the captain 3. collisions
2.03 Shipowner entitled to limited Liability.
It is the shipowner who is entitled to the benefit of limited liability. The shipowner is the very person for whom the
Limited Liability Rule has been conceived to protect. The shipowner is the one who is supposed to be supported and
encouraged to pursue maritime commerce.
2.04 Exceptions to limited liability.
1. Where the injury or death to a passenger is due either to the fault of the shipowner, or to the concurring
negligence of the shipowner and the captain
2. Where the vessel is insured
3. In workmen’s compensation claims

 While the total destruction of the vessels extinguishes a maritime lien, as there is no longer any risk to which it can
attach, the total destruction of the vessel does not affect the liability of the owner for repairs of the vessel completed before
its loss.

2.05 Negligence of shipowner and agent.

The limited liability rule applies if the captain or the crew caused the damage or injury. For instance, the
shipowner’s or ship agent’s liability is limited to the value of the vessel if the damage was caused by the
unseaworthiness of the vessel caused by the negligence of the captain or crew during the voyage.
However, if the failure to maintain the seaworthiness of the vessel can be ascribed to the shipowner concurrently
with the captain then the limited liability principle cannot be invoked.
a. The carrier is liable for the damages to the full extent and not up to the value of the vessel if it was established that
the carrier was guilty of negligence in allowing the captain and crew to play mahjong during the voyage, in failing to
maintain the ship as seaworthy and in allowing the ship to carry more passengers than it was allowed to carry.
b. A similar conclusion was reach in another case where it was established that the sinking of the vessel was due to its
unseaworthiness even at the time of its departure because it was a top heavy; an excessive amount of cargo was
loaded on deck. Closer supervision of the part of the shipowner could have prevented the fatal miscalculation. As
such, the shipowner cannot escape liability through the expedient of filing a notice of abandonment of the vessel.
c. Authorizing the voyage notwithstanding its knowledge of a typhoon is tantamount to negligence that exempts from
the case from operation of the limited liability rule.
d. Where the collision was imputable to both of them, each vessel shall suffer her own damages and both shall be
solidarily liable for the damages occasioned to their cargo.
e. Burden of Proof.
The carrier or shipowner has the burden of showing that it exercise extraordinary diligence in the transport of the
goods it had on board in order to invoke the limited liability doctrine.

2.06 Not applicable to insurance claim.

The limited liability rule does not apply to insurance claims. Thus, in Vasquez v. CA, the SC found that while
typhoon was inevitable occurrence, yet having been kept posted on the coursed of the typhoon by weather bulletins
at intervals of 6 hrs. the captain and crew were well aware of the risk they were taking as they hopped from island
to island from Romblon up to Tanguingui. They held conferences, oblivious of the utmost diligence required of very
cautious persons; they decided to take a calculated risk. Unfortunately, the vessel later struck a reef, sustained
leaks and eventually sunk causing the death to some of its passengers. The SC explained that the total loss of the
vessel did not extinguish the liability of the carrier’s insurer.
 Despite the loss of the vessel, therefore, its insurance answers for the damages that a shipowner or agent may be
held liable for by reason of the death of its passengers.
a. Applicable to action of insurer in subrogation.
The limited liability rule applies to the paying insurer when it exercises its right of subrogation against the
shipowner. The cause of action of the shipper, hence, the insurer is subject to the defenses available to the
shipowner as if it were the shipper who directly sued the same insurer.
2.07 Workmen’s Compensation.
 The liability of the shipowner or agent under the provision of article 587 and 837 of the code of commerce is limited
to the value of the vessel with all her equivalent and freight earned during the voyage if the shipowner or agent
abandoned the ship with all the equipment and freight. However, it does not apply to the liability under the
workmen’s compensation act where even as in said case he vessel was lost, the liability thereunder is still
enforceable against the employer or shipowner.
 It must be noted, however, in this connection that the present workmen’s compensation regime is now
administered by the Employees Compensation Commission and is governed by the provisions of the labor Code. It
is not the employer who will be held liable but the ECC.
2.08 Abandonment.
Abandonment of the vessel, its appurtenances and freightage is an indispensable requirement before the shipowner
or ship agent can enjoy the benefits of the limited liability principle. If the carrier does not want to abandon the
vessel, then he is still liable even beyond the value of the vessel.
2.09 Procedure for enforcement.
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.
The rights of the 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 instances, 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.

Case:

Toni, a copra dealer, loaded 1,000 sacks of copra on board the vessel M/V Tonichi for shipment from Puerto Galera to
Manila. The cargo did not reach to manila because the vessel capsized and sank with all its cargo. When toni sued ichi for
damages based on breach of contract, the latter invoked the limited liability rule. A. what do you understand of the rule
invoked by ichi? B. Are there exemptions to the limited liability rule?

Answer:

a. Limited liability rule means that the liability of the shipowner for damages in case of loss is limited to the value of his
vessel. If the ship is totally lost, his liability extinguished. If the ship part thereof still exists, he can escape liability by
abandoning the vessel its appurtenances and its freight, The other properties of the shipowner cannot reached by the
person entitled to damages.

b. Yes, there are exemptions. The exemptions to the limited liability rule are:

1. Where the injury or death to a passenger is due either to the fault of the shipowner, or to the concurring
negligence of the shipowner and the captain
2. Where the vessel is insured
3. In workmen’s compensation claims
4. Expenses for repairs and provisioning of the ship prior to the departure thereof.

3. Protests.
The written statement by the master of a vessel or any authorized officer, attested by proper officer or a notary, to the
effect that damages has been suffered by the ship.
Protest is required under the Code of Commerce in the following cases:
1. When the vessel makes an arrival under stress.
2. Where the vessel is shipwrecked.
3. Where the vessel has gone through a hurricane or the captain believes that the cargo has suffered damages or
averages.
4. Maritime collisions.

4. Admiralty Jurisdiction.

a. In all other cases where the amount of the demand or claim is less than the jurisdictional amount in the RTC,
jurisdiction over admiralty and maritime cases are with the Metropolitan Trial Court, Municipal Trial Court or Municipal
Circuit Trial Court as the case may be.

b. The SC explained in Cresent Petroleum Ltd., v. M/V “Lok Maheswari” et al. that two test have been used to determine
whether a case involving a contract comes within the admiralty and maritime jurisdiction of a court - the locational
test and the subject matter test. The English rule follows the locational test wherein maritime and admiralty
jurisdiction, with a few exceptions, is exercised only on contracts made upon the sea and to be executed thereon.
 In International Harvester Company of the Phil. vs. Aragon the SC adopted the American rule and held that whether or
not a contract is maritime depends not on the place where the contract is made and is to be executed, making the
locality the test, but on the subject matter of the contract, making true criterion a maritime service or maritime
transaction.

c. A contract for furnishing supplies may be considered maritime and within the jurisdiction of admiralty. It may be invoked
before our courts through an action in rem or quasi in rem or an action in personam.

5. Forfeiture due to smuggling.

1.The vessel is used unlawfully in the importation or exportation of articles into or from the Philippines.
2. The articles are imported to or exported from any Philippine port of entry.
3.If the vessel has a capacity of less than 30 tons and is used in the importation of articles into any Philippine port or
place other than a port of the Sulu Sea where importation in such vessel may be authorized by the commissioner
with the approval of the department head.

6. Marine pollution

The marine pollution decree of 1976 provides it is hereby declares a national policy to prevent and control the pollution of
seas by the dumping of wastes and other matter which create hazards to human health, harm living resources and marine
life, damage amenities, or interfere with the legitimate uses of the sea within territorial jurisdiction of the Philippines.

7. Marine insurance.

In MARINA Memorandum Circular Nos. 09-18 and 09-21, domestic shipping operators are required to secure insurance
coverage for maritime accidents. The requirements covers domestic shipping who are carrying passenger.

7.01 Wreck Recovery and Pollution Liability Insurance.

The insurance coverage is generally secured from a P&I Mutual Club which refers to a group of shipowners and bareboat
characterers grouped together by becoming members of a protection and indemnity mutual association to cover any
liabilities arising out of the manage ment or navigation of their vessels.