MONARCH INSURANCE CO., INC vs.

COURT OF APPEALS and

ABOITIZ SHIPPING CORPORATION
G.R. No. 92735. June 8, 2000

FACTS:

This is a case of consolidated petitions by Monarch

Insurance Company, Tabacalera Insurance Co., Allied Guarantee
Insurance Company and Equitable Insurance Corporation against
Aboitiz Shipping Corporation, the owner of the M/V P. Aboitiz, a
common carrier which sank on her voyage from Hongkong to
Manila on October 31, 1980. Petitioners are insurers of lost
cargoes who were subrogated to the rights, interests and actions
of the various consignees against Aboitiz, the cargo carrier.

Aboitiz rejected responsibility for the claims on the ground

that the sinking of its cargo vessel was due to force majeure or an
act of God. Aboitiz invoked the real and hypothecary nature of
liability in maritime law thereby making its liability limited only to
the value of the vessel. Petitioners, on the other hand, contend
that Aboitiz had not presented evidence to exculpate itself from
the charge of negligence, and that the vessel sank 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.

ISSUE:

Whether or not the doctrine of limited liability applies in the

instant case.

RULING:

Yes. The failure of Aboitiz to present sufficient evidence to

exculpate itself from fault and/or negligence in the sinking of its
vessel in the face of the foregoing expert testimony constrains us
to hold that Aboitiz was concurrently at fault and/or negligent with
the ship captain and crew of the M/V P. Aboitiz. This is in
accordance with the rule that in cases involving the limited
liability of ship-owners, the initial burden of proof of negligence or
unseaworthiness rests on the claimants. However, once the
vessel owner or any party asserts the right to limit its liability, the
burden of proof as to lack of privity or knowledge on its part with
respect to the matter of negligence or unseaworthiness is shifted
to it. This burden, Aboitiz had unfortunately failed to discharge.
That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or
negligence should not however mean that the limited liability rule
will not be applied to the present cases. The peculiar
circumstances here demand that there should be no strict
adherence to procedural rules on evidence lest the just claims of
shippers/insurers be frustrated. The rule on limited liability should
be applied in accordance with the latest ruling in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd.,] promulgated on January 21, 1993, that
claimants be treated as "creditors in an insolvent corporation
whose assets are not enough to satisfy the totality of claims
against it."
 ABOITIZ vs. CA (G.R. No. 121833 October 17, 2008)ABOITIZ vs.
CA. (G.R. No. 130752 October 17, 2008)ABOITIZ vs. EQUITABLE
INSURANCE CORP. (G.R. No.137801 October 17, 2008)

FACTS:

G.R. No. 121833: The defendant, a foreign corporation

based in Malaysia, its local ship agent, Litonjua Merchant
Shipping Agency (Litonjua), and Aboitiz. Aboitiz argument that the
sinking of the vessel was caused by a force majeure. G.R. No.
130752: 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.
Aboitiz reiterated the defense of force majeure. 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.
Aboitiz invoked the doctrine of limited liability and claimed that
the typhoon was the proximate cause of the loss.

ISSUE:

WON, Aboitiz can avail limited liability on the basis

of the real and hypothecary doctrine of maritime law.

DECISION:

NO. 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 ship owner.
Thus, as an exception to the limited liability doctrine, a ship owner
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
ship owner 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 finding 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 are DENIED.
 Aboitiz Shipping Corporation V. General Accident Fire and Life
Assurance Corporation, Ltd.

569 SCRA 71/GR No. 100446

January 21, 1993

Facts:

Aboitiz Shipping is the owner of M/V P. Aboitiz, a vessel w/c

sank on a voyage from Hongkong to the Philippines. The sinking of
the vessel gave rise to the filing of several suits for recovery of the
lost cargo either by the shippers, their successors-in-interest, or
the cargo insurers like General Accident Fire and Life Assurance
Corporation (GAFLAC).

Upon initial investigation by the Board of Marine Inquiry

(BMI), it found that the sinking was due to force majeure and that
the subject vessel was seaworthy at the time it sank. The trial
court ruled against the carrier on the ground that the loss did not
occur as a result of force majeure. This was then affirmed by the
CA and ordered the immediate execution of the full judgment
award. However, other cases have resulted in the finding that the
vessel was seaworthy at the time of the sinking, and that such
sinking was due to force majeure.

Due to the different rulings, Aboitiz seeks a pronouncement

as to the applicability of the doctrine of limited liability on the
totality of the claims vis a vis the losses brought about by the
sinking of the vessel M/V P. ABOITIZ, as based on the real and
hypothecary nature of maritime law. Aboitiz argued that
the Limited Liability Rule warrants immediate stay of execution
of judgment to prevent impairment of other creditors' shares.

Issues:

1. Whether the Limited Liability Rule arising out of the real

and hypothecary nature of maritime law should apply in the
present case at bar and its related cases.

2. Whether there was negligence on the part of Aboitiz

Shipping as owner of the vessel so as to make the Limited Liability
Rule unavailable to it.
Ruling:

1. The SC ruled in the affirmative. The real and hypothecary

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

The Limited Liability Rule in the Philippines is taken up in Book III

of the Code of Commerce, particularly in Articles 587, 590, and
837, hereunder quoted in toto:

Art. 587. The ship agent shall also be civilly liable for
the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning the vessel
with all her equipment and the freight it may have
earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable

in the proportion of their interests in the common fund
for the results of the acts of the captain referred to in
Art. 587.

Each co-owner may exempt himself from this liability

by the abandonment, before a notary, of the part of the
vessel belonging to him.

Art. 837. The civil liability incurred by 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.
 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.

2. The SC ruled in the negative. In its Decision, the trial court

merely held that the sinking was not due to a force majeure.
Decisions in other cases affirmed the factual findings of the trial
court, adding that the cause of the sinking of the vessel was
because of unseaworthiness due to the failure of the crew and the
master to exercise extraordinary diligence. However, there
appears to have been no evidence presented sufficient to form a
conclusion that Aboitiz the shipowner itself was negligent, and no
tribunal, including this Court will add or subtract to such evidence
to justify a conclusion to the contrary.

The findings of the trial court and the Court of Appeals,

whose finding of "unseaworthiness" clearly did not pertain to the
structural condition of the vessel which is the basis of the BMI's
findings, but to the condition it was in at the time of the sinking,
which condition was a result of the acts of the captain and the
crew.
The rights of a vessel owner or agent under the Limited
Liability Rule are akin to those of the rights of shareholders to
limited liability under our corporation law. Both are privileges
granted by statute, and while not absolute, must be swept aside
only in the established existence of the most compelling of
reasons. In the absence of such reasons, this Court chooses to
exercise prudence and shall not sweep such rights aside on mere
whim or surmise, for even in the existence of cause to do so, such
incursion is definitely punitive in nature and must never be taken
lightly.

Moreover the rights of parties to claim against an agent or

owner of a vessel may be compared to those of creditors against
an insolvent corporation whose assets are not enough to satisfy
the totality of claims as against it. While each individual creditor
may, and in fact shall, be allowed to prove the actual amounts of
their respective claims, this does not mean that they shall all be
allowed to recover fully thus favoring those who filed and proved
their claims sooner to the prejudice of those who come later. In
such an instance, such creditors too would not also be able to gain
access to the assets of the individual shareholders, but must limit
their recovery to what is left in the name of the corporation. In
both insolvency of a corporation and the sinking of a vessel, the
claimants or creditors are limited in their recovery to the
remaining value of accessible assets. In the case of a lost vessel,
these are the insurance proceeds and pending freightage for the
particular voyage.

In the instant case, there is, therefore, a need to collate all

claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage
at the time of its loss. No claimant can be given precedence over
the others by the simple expedience of having filed or completed
its action earlier than the rest. Thus, execution of judgment in
earlier completed cases, even those already final and executory,
must be stayed pending completion of all cases occasioned by the
subject sinking. Then and only then can all such claims be
simultaneously settled, either completely or pro-rata should the
insurance proceeds and freightage be not enough to satisfy all
claims.
 INTERNATIONAL CONTAINER TERMINAL SERVICES,
INC., petitioner, vs. PRUDENTIAL GUARANTEE & ASSURANCE
CO., INC., respondent.

[G.R. No. 134514. December 8, 1999]

Facts:

Mother vessel Tao He loaded and received on board in San

Francisco, California, a shipment of five lots of canned foodstuff
complete and in good order and condition for transport to Manila
in favor of Duel Food Enterprises (consignee) under “shipper’s load
and count”.

The shipment arrived at the port of Manila and discharged by the

vessel MS Wei He in favor of ICTSI for safekeeping. The brokerage
withdrew the shipment and delivered the same to the consignee.
An inspection there revealed that 161 cartoons were missing
valued at P85,984.40. Consignee learned of such shortage on June
4, 1990. It filed claim for loss on October 2, 1990. Claim for
indemnification of the loss having been denied by ICTSI and the
brokerage, consignee sought payment from Prudential (insurer)
under the marine cargo policy.

The appellate court found ICTSI negligent in its duty to exercise

due diligence over the shipment. It also ruled that the filing of a
claim depended on the issuance of a certificate of loss by ICTSI
based on the liability clause printed on the back of the arrastre
and wharfage receipt. Since ICTSI did not issue such a certificate
despite being informed of the shortage, the 15-day period given to
the consignee for filing a formal claim never began. Prudential,
therefore can hold the ICTSI liable for the shortage.

Issues:

1) Was ICTSI negligent in its duty to exercise due diligence over

the shipment?
2) Did the consignee fail to file a formal claim within the period
stated on the dorsal side of the arrastre and wharfage receipt?
Held:

1) No. The consigned goods were shipped under “shipper’s load

and count”. This means that the shipper was solely responsible for
the loading of the container, while the carrier was oblivious to the
contents of the shipment. Protection against pilferage of the
shipment was the consignee’s lookout. The arrastre operator was
not required to verify the contents of the container received and
to compare them with those declared by the shipper because as
earlier stated, the cargo was at the shipper’s load and count. The
arrastre operator was expected to deliver to the consignee only
the container received from the carrier.

The legal relationship between the arrastre and consignee is akin

to that between a warehouseman and a depositor. As to both the
nature of the functions and the place of their performance,
arrastre operator’s services are clearly not maritime in
character.

2) Yes. In order to hold the arrastre operator liable for lost or

damaged goods, the claimant should file with the operator a claim
for the value of said goods “within the 15-day period from the date
of discharge of the last package from the carrying vessel.” The
filing within the period is in the nature of a prescriptive period for
bringing an action and is a condition precedent to holding the
arrastre operator liable. In an endeavor to promote fairness, equity
and justness, however, a long line of cases has held that the 15-
day period for filing claims should be counted from the date the
consignee learns of the loss, damage or misdelivery of goods.

In the case at bar, the consignee had all the time to make a formal
claim from the day it discovered the shortage in the shipment,
which was June 4, 1990, as shown by the records. By the time the
claim for the loss was filed on October 2, 1990, four months had
already elapsed from the date of delivery. In any event, within 15
days from the time the loss was discovered, the consignee could
have filed a provisional claim, which would have constituted
substantial compliance with the rule. Its failure to do so relieved
the arrastre operator of any liability for the non-delivery of the
goods. The rationale between the time limit is that, without it, a
consignee could too easily concoct or fabricate claims and
deprive the arrastre operator of the best opportunity to prove
immediately their veracity.
ABOITIZ SHIPPING V. NEW INDIA ASSURANCE CO. 531 SCRA 134
(2007)

FACTS:

Textile cargo owned by General Textile was shipped to

Manila using M/V P. Aboitiz. Before departing, the vessel was
advised that it was safe to travel to its destination, but while at
sea, the vessel received a report of a typhoon moving within its
path. It was at the edge of a typhoon when its hull leaked. The
vessel sank, but the captain and his crew were saved.

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. After investigation, the
cause was found to be the vessel’s unseaworthiness.

General filed a complaint with Aboitiz and the trial court

consequently ruled in favor of the former.

Petitioner elevated the case to the Court of Appeals, which

in turn, affirmed the trial court’s decision. It moved for
reconsideration but the same was denied. Hence, this petition for
review.

ISSUE:

WON the limited liability doctrine applies in this case

RULING:

No. Where the ship owner fails to overcome the presumption

of negligence, the doctrine of limited liability cannot be applied.

From the nature of their business and for reasons of public

policy, common carriers are bound to observe
extraordinary diligence over the goods they transport according
to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods,
common carriers are responsible, unless they can prove that the
loss, destruction or deterioration was brought about by the causes
specified in Article 1734 of the Civil Code. 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 ship owner is also presumed to be negligent
since it is tasked with the maintenance of its vessel. Though this
duty can be delegated, still, the ship owner must exercise close
supervision over its men.

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

G..R. No. 156978 May 2, 2006

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 respondent New India
Assurance Company, Ltd. While in Hong Kong, the cargo was
transferred to M/V P. Aboitiz for transshipment to Manila.

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. 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.

Both the trial and the appellate courts found that the sinking
was not due to the typhoon but to its unseaworthiness.

ISSUE:

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

RULING;

Petition DENIED. Where the shipowner fails to overcome the

presumption of negligence, the doctrine of limited liability cannot
be applied.

From the nature of their business and for reasons of public

policy, common carriers are bound to observe extraordinary
diligence over the goods they transport according to all the
circumstances of each case. In the event of loss, destruction or
deterioration of the insured goods, common carriers are
responsible, unless they can prove that the loss, destruction or
deterioration was brought about by the causes specified in Article
1734 of the Civil Code. 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.

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. 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.
 CENTRAL SHIPPING CORPORATION V. INSURANCE CO. OF
NORTH AMERICA 437 SCRA 511 (2004)

Facts:

On July 25, 1990 at Puerto Princesa, Palawan, the

[petitioner] received on board its vessel, the M/V Central Bohol,
376 pieces [of] Philippine Apitong Round Logs and undertook to
transport said shipment to Manila for delivery to Alaska Lumber
Co., Inc. The cargo was insured for P3,000,000.00 against total
loss under [respondents] Marine Cargo Policy No. MCPB-00170.

On July 25, 1990, upon completion of loading of the cargo,

the vessel left Palawan and commenced the voyage to Manila.

At about 0125 hours on July 26, 1990, while enroute to Manila, the
vessel listed about 10 degrees starboardside, due to the shifting
of logs in the hold. At about 0128 hours, after the listing of the
vessel had increased to 15 degrees, the ship captain ordered his
men to abandon ship and at about 0130 hours of the same day the
vessel completely sank. Due to the sinking of the vessel, the cargo
was totally lost.

[Respondent] alleged that the total loss of the shipment was

caused by the fault and negligence of the [petitioner] and its
captain and as direct consequence thereof the consignee suffered
damage in the sum of P3,000,000.00. The consignee, Alaska
Lumber Co. Inc., presented a claim for the value of the shipment
to the [petitioner] but the latter failed and refused to settle the
claim, hence [respondent], being the insurer, paid said claim and
now seeks to be subrogated to all the rights and actions of the
consignee as against the [petitioner].

[Petitioner], while admitting the sinking of the vessel,

interposed the defense that the vessel was fully manned, fully
equipped and in all respects seaworthy; that all the logs were
properly loaded and secured; that the vessels master exercised
due diligence to prevent or minimize the loss before, during and
after the occurrence of the storm. It raised as its main defense
that the proximate and only cause of the sinking of its vessel and
the loss of its cargo was a natural disaster, a tropical storm which
neither [petitioner] nor the captain of its vessel could have
foreseen.

ISSUE(S):

(1) whether the carrier is liable for the loss of the cargo?
These issues involve a determination of factual questions of
whether the loss of the cargo was due to the occurrence of a
natural disaster; and if so, whether its sole and proximate cause
was such natural disaster or whether petitioner was partly to
blame for failing to exercise due diligence in the prevention of that
loss.

RULING:

Even if the weather encountered by the ship is to be deemed a

natural disaster under Article 1739 of the Civil Code, petitioner
failed to show that such natural disaster or calamity was the
proximate and only cause of the loss. Human agency must be
entirely excluded from the cause of injury or loss. In other words,
the damaging effects blamed on the event or phenomenon must
not have been caused, contributed to, or worsened by the
presence of human participation. The defense of fortuitous event
or natural disaster cannot be successfully made when the injury
could have been avoided by human precaution.

Hence, if a common carrier fails to exercise due diligence -- or

that ordinary care that the circumstances of the particular case
demand -- to prevent or minimize the loss before, during and after
the occurrence of the natural disaster, the carrier shall be deemed
to have been negligent. The loss or injury is not, in a legal sense,
due to a natural disaster under Article 1734(1).

(2) whether the doctrine of limited liability is applicable.

The doctrine of limited liability under Article 587 of the Code

of Commerce is not applicable to the present case. This rule does
not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain. It has
already been established that the sinking of M/V Central Bohol had
been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs.
Closer supervision on the part of the shipowner could have
prevented this fatal miscalculation. As such, the shipowner was
equally negligent. It cannot escape liability by virtue of the limited
liability rule.
 NEGROS NAVIGATION CO., INC., petitioner vs. THE COURT OF
APPEALS, RAMON MIRANDA, SPS. RICARDO and VIRGINIA DELA
VICTORIA, respondents.

GR NO. 110398

FACTS:

Petitioner’s ship M/V Don Juan sank on April 22, 1980 after it
collided with the M/V Tacloban City, an oil tanker owned by the
Philippine National Oil Company (PNOC) and the PNOC Shipping
and Transport Corporation (PNOC/STC). Several of her passengers
perished and some of the victims’ bodies were brought to shore
but the four members of the private respondents’ families were
never found.

Private respondents filed a complaint before the Regional

Trial Court of Manila, Branch 34 against the petitioner and the
PNOC seeking damages for the death of Ardita dela Victoria
Miranda, Rosario V. Miranda, Ramon Miranda, Jr. and Elfreda dela
Victoria.

The petitioner admitted that private respondents purchased

tickets and the ticket numbers were listed in the passenger
manifest, however, denied that the four relatives of private
respondents actually boarded the vessel as their bodies were
never recovered. It further averred that their ship was seaworthy
and manned by a full and competent crew and that the collision
was entirely the fault of the crew of the M/T Tacloban City.

Both the trial court and the appellate court relied on the
finding of this Court in Mecenas v. Intermediate Appellate Court in
finding petitioner guilty of negligence and in failing to exercise the
extraordinary diligence required of it in the carriage of
passengers, which case was brought for the death of the Mecenas
couple. Petitioner criticizes the lower court’s reliance in the
Mecenas case, arguing that although this case arose out of the
same incident as that involved in Mecenas, the parties are
different and trial was conducted separately. Petitioner contends
that the decision in this case should be based on the allegations
and defenses pleaded and evidence adduced in it or, in short, on
the record of this case.

ISSUES:

1) Whether the ruling in Mecenas vs. Court of Appeals finding

the crew members of petitioner to be grossly negligent in the
performance of their duties, is binding in this case;

2) Whether the total loss of the M/V Don Juan extinguished

petitioners liability; and

3) Whether the award for damages in Mecenas v.

Intermediate Appellate Court can be applied in this case.

RULING:

First Issue:

Adherence to the Mecenas case is dictated by this Court’s

policy of maintaining stability in jurisprudence in accordance with
the legal maxim stare decisis et non quieta movere (Follow past
precedents and do not disturb what has been settled.) In this case,
the same questions relating to the same event have been put
forward by parties similarly situated as in a previous case litigated
and decided by a competent court, the rule of stare decisis is a
bar to any attempt to relitigate the same issue.

Second Issue:

The rule is well-entrenched in our jurisprudence that a

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.

In Mecenas, this Court found petitioner guilty of negligence

in (1) allowing or tolerating the ship captain and crew members in
playing mahjong during the voyage, (2) in failing to maintain the
vessel seaworthy and (3) in allowing the ship to carry more
passengers than it was allowed to carry. Petitioner is, therefore,
clearly liable for damages to the full extent.
Third Issue:

Here is where the principle of stare decisis does not apply in

view of differences in the personal circumstances of the victims.
For that matter, differentiation would be justified even if private
respondents had joined the private respondents in the Mecenas
case.

The doctrine of stare decisis works as a bar only against

issues litigated in a previous case. Where the issue involved was
not raised nor presented to the court in the previous case, the
decision in the previous case is not stare decisis of the question
presently presented.

The decision of the Court of Appeals is AFFIRMED with

modification and petitioner is ORDERED to pay private
respondents damages.
 The Phil. American Gen. Insurance Co., Inc.

vs Court of Appeals and Felman Shipping Lines

G.R. No. 116940 June 11, 1997

Facts:

OnJuly 6, 1983 Coca-cola loaded on board MV Asilda, owned

and operated by Felman, 7,500 cases of 1-liter Coca-Cola soft drink
bottles to be transported to Zamboanga City to Cebu. The
shipment was insured with The Phil. American General Insurance
Co., Inc. (Philamgen).

On July 7, the vessel sank in Zamboanga Del Norte. July 15,

Coca - Cola filed a claim with respondent Felman for recovery of
damages. Felman denied thus prompted Coca-Cola to file an
insurance claim with Philamgen. Philamgen later on claimed its
right of subrogation against Felman which disclaimed any liability
for the loss.

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

RTC dismissed the complaint of Philamgen. CA set aside the

dismissal and remanded the case to the lower court for trial on the
merits. Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. It ruled that the

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

On appeal, CA rendered judgment finding the vessel

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

Issues:

(a) Whether the vessel was seaworthy,

(b) Whether limited liability rule should apply, and

(c) Whether Philamgen was properly subrogated to the rights

against Felman.

Ruling:

(a) The vessel was unseaworthy. The proximate cause thru

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

(b) Art. 587 of the Code of Commerce is not applicable, the

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

(c) Generally, in marine insurance policy, the assured

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

The result of the admission of seaworthiness by Philamgen

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

On the matter of subrogation, it is provided that;

Art. 2207. If the plaintiff's property has been insured,

and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party
shall be entitled to recover the deficiency from the person causing
the loss or injury.

Pan Malayan Insurance Corp. vs CA: The right of subrogation

is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.

Therefore, the payment made by PHILAMGEN to Coca-Cola

Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.
 ALLIED BANKING CORPORATION v. CHENG YONG

472 SCRA 101 October 6 2005

FACTS:

Sometime before 1981, Philippine Pacific Fishing Company,

Inc. (Philippine Pacific), through its then Vice-Chairman of the
Board and concurrent President Marilyn Javier, obtained from
Allied Banking Corporation (Allied Bank), a packing credit
accommodation amounting to One Million Seven Hundred Fifty
Two Thousand Pesos (P1,752,000.00).

To secure the obligation, Marilyn Javier and the spouses

Cheng Yong and Lilia Gaw (spouses Cheng, for short), executed a
Continuing Guaranty/Comprehensive Surety bearing date 27 March
1981. Later, Philippine Pacific, due to business reverses and
alleged misuse of corporate funds by its operating officers,
defaulted in the payment of said obligation. Philippine Pacific
executed in favor of Allied Bank a promissory note dated 12
August 1981 in the same amount as the packing credit
accommodation. Aside from affixing their signatures on the same
promissory note in their capacity as officers of Philippine Pacific,
the spouses Cheng also signed the note in their personal
capacities and as co-makers thereof.

As it turned out, Philippine Pacific failed to pay according to

the schedule of payments set out in the promissory note of 12
August 1981, prompting the spouses Cheng to secure the note
with substantial collateral by executing a deed of chattel
mortgage in favor of Allied Bank over a fishing vessel, Jean III, a
Japanese- manufactured vessel with refrigerated hatches and
glass freezers, owned by the spouses and registered in their
names.

ISSUE(S):

Whether or not the Loss of the mortgaged Fishing Vessel Jean

III must be borne by the respondent bank considering that the
vessel was in its possession and control at the time of the loss?
RULING:

Allied Bank’s foreclosure of the chattel mortgage constituted

over the vessel Jean III was justified. The loss of the mortgaged
chattel brought about by its sinking must be borne not by Allied
Bank but by the spouses Cheng. As owners of the fishing vessel, it
was incumbent upon the spouses to insure it against loss. Thus,
when the vessel sank before the chattel mortgage could be
foreclosed, uninsured as it is, its loss must be borne by the
spouses Cheng.
 Cruz v. Sun Holdings, Inc. 622 Scra 389, June 29, 2010

Facts:

The petitioner spouses Cruz are beach resort guests who

availed the tour package-contract offered by the respondent Sun
Holding, Inc. It includes staying at the Coco Beach Island Resort
and with transportation to and from the Resort, and the point of
departure in Batangas. On September 10, 2000 the quests are
originally scheduled to leave the Resort in the afternoon, but were
advised to stay for another night because of strong winds and
heavy rains. But on the following day, as it was still windy, the
diving instructor and other employees together with 25 other
Resort guests trekked to the other side of the Coco Beach
Mountain that was sheltered from the wind where they boarded
M/B Coco Beach III, which was to ferry them to Batangas.

Petitioner filed with the Regional Trial Court (RTC) of Pasig

City for damages arising from the death of their son Ruelito C. Cruz
(Ruelito) who perished with his wife. The respondent counter that
they are not liable because it was an accident cause by a
fortuitous event, M/B Coco Beach III is not a common carrier but a
private ferry used incidental to its business. It is not offered to the
public and they did not charge a separate fee or fare for its ferry
services.

The RTC ruled in favor of Sun Holding, Inc. and CA affirmed

the ruling of the lower court.

Issue:

WON M/B Coco Beach III is not a common carrier but a

private ferry boat used incidental to its business.

Ruling:

M/B Coco Beach III is a common carrier. Article 1732

provides common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.

The above article makes no distinction between one whose

principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity
(in local idiom, as a sideline). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general
community or population, and one who offers services or solicits
business only from a narrow segment of the general population.

Under the Civil Code, common carriers, from the nature of

their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each
case. They are bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence
of very cautious persons, with due regard for all the
circumstances. When a passenger dies or is injured in the
discharge of a contract of carriage, it is presumed that the
common carrier is at fault or negligent. In fact, there is even no
need for the court to make an express finding of fault or
negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence.

The evidence shows that PAGASA issued 24-hour public

weather forecasts and tropical cyclone warnings for shipping on
September 10 and 11, 2000 advising of tropical depressions in
Northern Luzon which would also affect the province of Mindoro.
By the testimony of Dr. Frisco Nilo, supervising weather specialist
of PAGASA, squalls are to be expected under such weather
condition. The elements of a "fortuitous event" are: (a) the cause
of the unforeseen and unexpected occurrence, or the failure of the
debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a
normal manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the
creditor. To fully free a common carrier from any liability, the
fortuitous event must have been the proximate and only cause of
the loss. And it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the
fortuitous event.

xxx WHEREFORE, the Court of Appeals Decision of August 19,

2008 is REVERSED and SET ASIDE. Judgment is rendered in favor
of petitioners ordering respondent to pay petitioners damages.
 Loadstar Shipping vs. Honorable Court of Appeals

315 SCRA 339, 1999, Sept. 28, 1999

Facts:

On November 19, 1984, Loadstar received on board its

vessel M/V Cherokee the following goods for shipment:

1. 705 bales of lawanit hardwood

2. 27 boxes and crates of tilewood assemblies and others

3. 49 bundles of mouldings, R & W (3) Apitong Bolidenized

The goods were insured amounting to P6,067,178, to Manila

Insurance Co. The vessel is insured by Prudential Guarantee and
Assurance, Inc. On November 20, 1984, on its way to Manila from
Agusan, the vessel sank off Limasawa Island. As a result of the
total loss of its shipment, the consignee made a claim with
loadstar which however was ignored. As the insurer, MIC paid the
consignee P6,075,000 for the value of the goods lost, and filed a
complaint against Loadstar and PGAI, claiming subrogation into
the rights of the consignee. MIC thereafter filed a complaint
against loadstar alleging that the sinking of the vessel was due to
fault and negligence of loadstar and its employees.

In its answer, Loadstar denied any liability for the loss of the
shipper’s goods and claimed that the sinking of its vessel was due
to force majeure. The court a quo rendered judgment in favor of
MIC., prompting loadstar to elevate the matter to the Court of
Appeals, which however, agreed with the trial court and affirmed
its decision in toto. On appeal, loadstar maintained that the vessel
was a private carrier because it was not issued a Certificate of
Public Convenience, it did not have a regular trip or schedule nor
a fixed route, and there was only “one shipper, one consignee for
a special cargo.

Issues:

1. Whether or not M/V Cherokee was a private carrier so as to

exempt it from the provisions covering common carrier?
 2. Whether or not Loadstar exercised the degree of diligence
required under the circumstance.

Held:

(1) The Supreme court held that Loadstar is a common

carrier. It is not necessary that the carrier be issued a
certificate of public convenience, and this public character
is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.
There was no charter party. The bills of lading failed to show
any special arrangement, but only a general provision to the
effect that the M/V "Cherokee" was a "general cargo carrier."
Furthermore, the bare fact that the vessel was carrying a
particular type of cargo for one shipper, which appears to be
purely coincidental, is not reason enough to convert the
vessel from a common to a private carrier, especially where,
as in this case, it was shown that the vessel was also
carrying passengers.

(2) The doctrine of limited liability does not apply where

there was negligence on the part of the vessel owner or
agent. Loadstar was at fault or negligent in not maintaining
a seaworthy vessel and in having allowed its vessel to sail
despite knowledge of an approaching typhoon. In any event,
it did not sink because of any storm that may be deemed as
force majeure, inasmuch as the wind condition in the area
where it sank was determined to be moderate. Since it was
remiss in the performance of its duties, Loadstar cannot hide
behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.

Submitted by: Rememarie Deligero

 CALTEX (PHILIPPINES), INC., petitioner, vs. SULPICIO LINES,
INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S.
GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO,
EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.

G.R. No. 131166 September 30, 1999

Facts:

On December 19, 1987, at about 8:00 p.m., MT Vector, a

tramping motor tanker owned and operated by Vector Shipping
Corporation carried on board gasoline and other oil products
owned by Caltex by virtue of a charter contract from Limay,
Bataan enroute to Masbate.

On December 20, 1987, at about 6:30 a.m., MV Doña Paz, a

passenger and cargo vessel owned and operated by Sulpicio Lines,
Inc. left the port of Tacloban headed for Manila.

At about 10:30 p.m. of December 20, 1987, the two vessels

collided in the open sea. The MV Doña Paz carried an estimated
4,000 passengers and only 24 survived the tragedy after having
been rescued from the burning waters. Among those who perished
were public school teacher Sebastian Cañezal (47 years old) and
his daughter Corazon Cañezal (11 years old).

On March 22, 1988, the board of marine inquiry found that the
MT Vector, its registered operator Francisco Soriano, and its
owner and actual operator Vector Shipping Corporation, were at
fault and responsible for its collision with MV Doña Paz.

On February 13, 1989, Teresita Cañezal and Sotera E.

Cañezal, Sebastian Cañezal's wife and mother respectively, filed
with the Regional Trial Court, Branch 8, Manila, a complaint for
"Damages Arising from Breach of Contract of Carriage" against
Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party complaint
against Francisco Soriano, Vector Shipping Corporation and
Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT
Vector was unseaworthy.

On September 15, 1992, the trial court rendered decision

dismissing the third party complaint and ordered Sulpicio the
payment of damages.
 On appeal interposed by Sulpicio Lines, Inc., on April 15,
1997, the Court of Appeals modified the trial court's ruling and
included petitioner Caltex as one of those liable for damages.

Hence, petition filed to the Supreme Court.

Issues:

1. Whether or not a charterer has liability for damages under

Philippine Maritime laws.
2. Whether or not a charter party agreement will turn a
common carrier into a private one.
3. Whether or not Caltex be liable for damages.

Ruling:

1. The charterer has no liability for damages under Philippine

Maritime laws.

Caltex and Vector entered into a contract of affreightment, also

known as a voyage charter. A contract of affreightment is one by
which the owner of a ship or other vessel lets the whole or part of
her to a merchant or other person for the conveyance of goods, on
a particular voyage, in consideration of the payment of freight. A
contract of affreightment may be either time charter, wherein the
leased vessel is leased to the charterer for a fixed period of time,
or voyage charter, wherein the ship is leased for a single voyage.
In both cases, the charter-party provides for the hire of the vessel
only, either for a determinate period of time or for a single or
consecutive voyage, the ship owner to supply the ship's store, pay
for the wages of the master of the crew, and defray the expenses
for the maintenance of the ship.

A contract of affreightment leaves the general owner in

possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is
free from liability to third persons in respect of the ship.

2. No. A charter party agreement does not turn a common

carrier into a private one.

The parties entered into a voyage charter, which retains the

character of the vessel as a common carrier.

In Planters Products, Inc. vs. Court of Appeals, the court ruled

that It is only when the charter includes both the vessel and its
crew, as in a bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or
voyage charter retains possession and control of the ship,
although her holds may, for the moment, be the property of the
charterer.

In Coastwise Lighterage Corporation vs. Court of Appeals, the

court ruled that although a charter party may transform a common
carrier into a private one, the same however is not true in a
contract of affreightment.

A common carrier is a person or corporation whose regular

business is to carry passengers or property for all persons who
may choose to employ and to remunerate him. MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code.

Under the Carriage of Goods by Sea Act, the carrier shall be

bound before and at the beginning of the voyage to exercise due
diligence to make the ship seaworthy and properly man, equip, and
supply the ship.

3. No. Caltex has no liability.

The charterer of a vessel has no obligation before transporting

its cargo to ensure that the vessel it chartered complied with all
legal requirements. The duty rests upon the common carrier
simply for being engaged in "public service." Because of the
implied warranty of seaworthiness, shippers of goods, when
transacting with common carriers, are not expected to inquire into
the vessel's seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers
and hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the public
in general is concerned. By the same token, we cannot expect
passengers to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all the
carrier's employees are qualified. Such a practice would be an
absurdity in a business where time is always of the essence.
Considering the nature of transportation business, passengers and
shippers alike customarily presume that common carriers possess
all the legal requisites in its operation.

Clearly, as a mere voyage charterer; Caltex had the right to

presume that the ship was seaworthy. The court sets aside the
decision of the Court of Appeals insofar as it held Caltex liable
under the third party complaint to reimburse/indemnify defendant
Sulpicio Lines, Inc.
 SAN MIGUEL CORPORATION vs. HEIRS OF SABINIANO INGUITO

384 SCRA 87 (2002)

Facts:

San Miguel Corporation entered into a Time Charter Party

Agreement with Julius Ouano, doing business under the name and
style J. Ouano Marine Services. Under the terms of the agreement,
SMC chartered the M/V Doa Roberta owned by Julius Ouano for a
period of two years, from June 1, 1989 to May 31, 1991, for the
purpose of transporting SMCs beverage products from its
Mandaue City plant to various points in Visayas and Mindanao.
Pertinent portions of the Time Charter Party Agreement state:

1. OWNER [i.e., Ouano] warrants ownership, title and interest over

the vessel DOA ROBERTA and represents that on the date the
vessel is placed at CHARTERERs San Miguel Corporation] disposal
the following shall be the accurate or approximate description of
the particulars and capacities of the vessel and her equipment:

2. That for and in consideration of the premises hereinafter

stipulated, the OWNER hereby lets, demises and the CHARTERER
hereby hires the use and service of the aforementioned vessel;

4. OWNER warrants that the vessel is seaworthy and in proper,

useful and operational condition and in the event that CHARTERER
finds any defect in the vessel with regards to its working order,
condition and function, CHARTERER shall immediately notify
OWNER of this fact;

9. There shall be no employer-employee relations between the

OWNER and/or its vessels crew on one hand and the CHARTERER
on the other. The crew of the vessel shall continue to be under the
employ, control and supervision of the OWNER. Consequently,
damage or loss that may be attributable to the crew, including loss
of the vessel used shall continue to be the responsibility of, and
shall be borne, by the OWNER; the OWNER further covenants to
hold the CHARTERER free from all claims and liabilities arising out
of the acts of the crew and the condition of the vessel;

10. The OWNER shall undertake to pay all compensation of all the
vessels crew, including the benefits, premia and protection in
accordance with the provisions of the New Labor Code and other
applicable laws and decrees and the rules and regulations
promulgated by competent authorities as well as all of the SSS
premium. Thus, it is understood that the crew of he vessel shall
and always remain the employees of the OWNER;
11. The OWNER shall be responsible to and shall indemnify the
CHARTERER for damages and losses arising from the
incompetence and/or negligence of, and/or the failure to observe
the required extra-ordinary diligence by the crew. It shall be
automatically liable to the CHARTERER for shortlanded shipment
and wrong levels, the value of which shall be withheld from the
OWNERs collectibles with the CHARTERER. However, in the case
of wrong levels, CHARTERER shall immediately reimburse OWNER
after the formers laboratory shall be able to determine that the
bottles were never opened after it left the Plant;

On November 11, 1990, during the term of the charter, SMC

issued sailing orders to the Master of the MN Doa Roberta, Captain
Sabiniano Inguito for transporting its products to Opol, Cagayan.
expected to arrival Nov. 13, 1990

Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping

was spotted on the direction of Eastern Visayas. SMC Radio
Operator Rogelio P. Moreno contacted several times to Captain
Inguito through the radio and advised him to take shelter. Captain
Inguito replied that they will proceed since the typhoon was far
away from them and said that they can manage.

At 2:30 a.m. of November 13, 1990, the M/V Dona Roberta sank.
Out of the 25 officers and crew on board the vessel, only five
survived, namely, Fernando Bucod, Rafael Macairan, Chenito
Sugabo, Ramil Pabayo and Gilbert Gonzaga.

The heirs of the deceased captain and crew, as well as the

survivors,of the ill-fated M/V Doa Roberta filed a complaint for tort
against San Miguel Corporation and Julius Ouano,

Julius Ouano filed an answer with cross-claim, alleging that the

proximate cause of the loss of the vessel and its officers and crew
was the fault and negligence of SMC, which had complete control
and disposal of the vessel as charterer and which issued the
sailing order for its departure despite being forewarned of the
impending typhoon.

SMC countered that it was Ouano who had the control,

supervision and responsibilities over the navigation of the vessel.
This notwithstanding, and despite his knowledge of the incoming
typhoon, Ouano never bothered to initiate contact with his vessel.
Contrary to his allegation, SMC argued that the proximate cause
of the sinking was Ouanos breach of his obligation to provide SMC
with a seaworthy vessel duly manned by competent crew
members. SMC interposed counterclaims against Ouano for the
value of the cargo lost in the sea tragedy.
Issue:

Whether or not the charter contract is a bareboat or demise

charter or a contract of affreightment.

Ruling:

In deciding the cases at bar, the Court of Appeals correctly

resolved the issues with an initial discussion of the definition and
kinds of charter parties. Preliminarily, a charter party is a contract
by virtue of which the owner or the agent of a vessel binds himself
to transport merchandise or persons for a fixed price. It has also
been defined as a contract by virtue of which the owner or the
agent of the vessel leases for a certain price the whole or a portion
of the vessel for the transportation of goods or persons from one
port to another.

A charter party may either be a (1) bareboat or demise charter

or (2) contract of affreightment. Under a demise or bareboat
charter, the charterer mans the vessel with his own people and
becomes, in effect, the owner of the ship for the voyage or service
stipulated, subject to liability for damages caused by negligence.

In a contract of affreightment, on the other hand, the owner of

the vessel leases part or all of its space to haul goods for others.
It is a contract for special service to be rendered by the owner of
the vessel. Under such contract the ship owner retains the
possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for
his payment of the charter hire.[ Otherwise put, a contract of
affreightment is one by which the owner of a ship or other vessel
lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of
the payment of freight.

A contract of affreightment may be either time charter,

wherein the leased vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charterer provides for the hire of
the vessel only, either for a determinate period of time or for a
single or consecutive voyage, the ship owner to supply the ships
store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.

If the charter is a contract of affreightment, which leaves the

general owner in possession of the ship as owner for the voyage,
the rights and the responsibilities of ownership rest on the owner.
The charterer is free from liability to third persons in respect of
the ship.

We concur with the findings of the Court of Appeals that the

charter party in these cases was a contract of affreightment,
contrary to petitioner Ouanos protestation that it was a demise
charter, as shown by the g stipulations in the Time Charter Party
Agreement.
 PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT
DEVELOPMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, CHINA BANKING
CORPORATION, respondents.
G.R. No. 128661. August 8, 2000

FACTS:

The Philippine International Shipping Corporation

(hereinafter PISC) applied for and was granted by petitioner
National Investment and Development Corporation (hereinafter
NIDC) To finance the acquisition of seven (7) ocean-going vessels,
namely M/V Asean Liberty, M/V Asean Independence, M/V Asean
Mission, M/V Asean Knowledge, M/V Asean Nations, M/V Asean
Greatness, and M/V Asean Objectives, under guaranty
accommodations. Meanwhile, on March 12, 1979, PISC entered
into a Contract Agreement with Hong Kong United Dockyards, Ltd.
for the repair and conversion of the vessel M/V Asean Liberty at a
contract price of HK$2,200,000.00 variable as provided therein.
Meanwhile, on March 12, 1979, PISC entered into a Contract
Agreement with Hong Kong United Dockyards, Ltd. for the repair
and conversion of the vessel M/V Asean Liberty at a contract price
of HK$2,200,000.00 variable as provided therein.

On May 28, 1979, the Central Bank of the Philippines authorized

PISC to open with private respondent China Banking Corporation
(hereinafter CBC) a standby letter of credit for US$545,000.00 in
favor of Citibank, N.A. (hereinafter Citibank) to cover the repair
and partial conversion of the vessel M/V Asean Liberty. This was
pursuant to the letter of the Central Bank of the Philippines dated
May 28, 1979 as amended on June 20, 1979.

On June 15, 1979, PISC executed an Application and

Agreement for Commercial Letter of Credit for $545,000.00 with
private respondent CBC in favor of Citibank. Pursuant to this
application and agreement, private respondent CBC issued on
September 12, 1979 its Irrevocable Standby Letter of Credit No.
79/4174 for US$545,000.00 in favor of Citibank for account of PISC.

On September 17, 1979, a Promissory note for US$545,000.00

was executed by PISC in favor of Citibank pursuant to the Loan
Agreement for US$545,000.00 between PISC, as borrower, and
Citibank, as lender.

Upon failure of PISC to fulfill its obligations under the said

promissory note, Citibank sent to private respondent CBC a letter
dated March 25, 1983 drawing on Letter of Credit No. 79/4174. In
this letter, Citibank certified that the draft attached thereto for
US$242,225.00 represented the principal balance due to Citibank
as of March 17, 1983 under the promissory note executed by PISC,
the proceeds of which were used for the repair and conversion of
M/V Asean Liberty. Thus, on March 30, 1983, CBC instructed its
correspondent Irving Trust Co., by cable, to pay to Citibank the
amount of US$242,225.00. On the same date, Irving Trust Co.
advised private respondent CBC by mail that the amount of
US$242,225.00 had been debited against CBCs Account No.
8033278269 and remitted to Citibank.

On May 10, 1983, for failure of PISC to settle its obligations in

the amount of US$64,789,470.96, petitioner PNB conducted, thru
the Sheriffs Office, an auction sale of the mortgaged vessels,
except for the vessel M/V Asean Objective. Petitioner NIDC
emerged as the highest bidder in these auctions.

On May 27, 1983, claiming that the foreclosure sale of its

mortgaged vessels was illegal, unjust, irregular, and oppressive,
PISC instituted before the Regional Trial Court of Makati, a civil
case against petitioners for the annulment of the foreclosure and
auction sale of its vessels and damages.

In the meantime, NIDC acquired the vessels as highest bidder

in the foreclosure thereof initiated by PNB, NIDC having thereafter
disposed of said vessels in favor of the National Steel Corporation
(NSC).

The appellate court held petitioners PNB/NIDC liable to CBC

only for the amount of US$242,225.00, which was used for the
repair and conversion of the M/V Asean Liberty, as it was only this
amount which CBC was able to prove as being a preferred
maritime lien. Moreover, such amount was to be paid by
petitioners PNB/NIDC from the proceeds of the foreclosure sale of
the vessel M/V Asean Liberty. Private respondent CBCs other
claims of US$648,000.54 and US$2.7 Million were found by the
appellate court as not being in the nature of maritime liens and as
such, recoverable only from PISC, not from herein petitioners
PNB/NIDC. Hence, petitioners PNB/NIDC instituted petition for
review on certiorari.

ISSUE:

Whether or not private respondent CBC’s claim for

US$242,225.00 is in the nature of a maritime lien. If so, whether
or not private respondent CBCs claim under its Standby Letter
of Credit No. 79/4174 is a maritime lien and that said maritime
lien is preferred over the mortgage lien of petitioners PNB/NIDC
on the foreclosed vessel M/V Asean Liberty.

RULING:

There is no merit in the contentions of petitioners.

The applicable law on the matter is Presidential Decree No.

1521, otherwise known as the Ship Mortgage Decree of
1978. Sections 17 and 21 of the said Presidential Decree provides
as follows:

Sec. 17. Preferred Maritime Liens, Priorities, Other

Liens (a) Upon the sale of any mortgaged vessel in any extra-
judicial sale or by order of a district court of the Philippines in
any suit in rem in admiralty for the enforcement of a preferred
mortgage lien thereon, all pre-existing claims on the vessel,
including any possessory common-law lien of which a lienor is
deprived under the provisions of Section 16 of this Decree,
shall be held terminated and shall thereafter attach, in like
amount and in accordance with the priorities established
herein to the proceeds of the sale. The preferred mortgage lien
shall have priority over all claims against the vessel, except
the following claims in the order stated: (1) expenses and fees
allowed and costs taxed by the court and taxes due to the
government; (2) crews wages; (3) general average; (4) salvage;
including contract salvage; (5) maritime liens arising prior in
time to the recording of the preferred mortgage; and (6)
damages arising out of tort; and (7) preferred mortgage
registered prior in time.

(b) If the proceeds of the sale should not be sufficient to

pay all creditors included in one number or grade, the residue
shall be divided among them pro rata. All credits not paid,
whether fully or partially shall subsist as ordinary credits
enforceable by personal action against the debtor. The record
of judicial sale or sale by public auction shall be recorded in
the Record of Transfers & Encumbrances of Vessels in the port
of documentation.

Sec. 21. Maritime Lien for Necessaries; persons entitled

to such lien. Any person furnishing repairs, supplies, towage,
use of dry dock or maritime railway, or other necessaries to
any vessel, whether foreign or domestic, upon the order of the
owner, shall have a maritime lien on the vessel, which may be
enforced by suit in rem, and it shall be necessary to allege or
prove that credit was given to the vessel.
 Under these provisions, any person furnishing repairs, supplies,
or other necessaries to a vessel on credit will have a maritime lien
on the said vessel. Such maritime lien, if it arose prior to the
recording of a preferred mortgage lien, shall have priority over the
said mortgage lien.

In the instant case, it was Hongkong United Dockyards, Ltd.

which originally possessed a maritime lien over the vessel M/V
Asean Liberty by virtue of its repair of the said vessel on
credit. Under the Contract Agreement dated March 12, 1979
between Hongkong United Dockyards, Ltd. and PISC, the former,
as contractor, obligated itself to repair and convert the vessel M/V
Asean Liberty, which was owned by PISC. Section 7 of the said
Agreement provides as follows:

(7) a) The Owner will, before the commencement of work,

provide an Irrevocable Documentary Credit for the
Contract Price plus an estimate to cover the cost of
extra work. The banks and wording of the Credit are
to be agreed by the Contractor.

b) Payment will be:

(1) Before departure of vessel from Contractors

yard: 20% of contract price;

(2) 60 days from departure of vessel from

Contractors yard: 40% of contract price;

(3) 90 days from departure of vessel from

Contractors yard: 40% of contract price.

The foregoing provision of the contract agreement indubitably

shows that credit was given to the vessel M/V Asean Liberty by
Hongkong United Dockyards, Ltd. and as a result, a maritime lien
in favor of Hongkong United Dockyards, Ltd. was constituted on
the said vessel by virtue of Section 21 of the Ship Mortgage Decree
of 1978.

From the documentary evidence thus presented, it is clear that

private respondents claim is predicated on the payment it made to
Citibank by virtue of the Irrevocable Letter of Credit it established
in the latter’s favor. Per express provisions of the Letter of Credit,
the same was established to guarantee your (Citibank) loan in the
principal amount of US$545,000.00 to Philippine International
Shipping Corporation, the proceeds of which loan, according to
accountee, are to finance partially the conversion cost of the
vessel M/V Asean Liberty.

In short, private respondent CBC was a guarantor of the loan

extended by Citibank to PISC. It was Citibank, which advanced the
money to PISC. It was only upon the failure of PISC to fulfill its
obligations under its promissory note to Citibank that private
respondent CBC was called upon by Citibank to exercise its duties
under the Standby Letter of Credit.

It is the holding of the appellate court; however, that private

respondent stepped into the shoes of Hongkong United Dockyards,
Ltd. by legal subrogation and thus acquired the maritime lien of
the latter over the vessel M/V Asean Liberty. Thus:

It is not disputed that CBCs claim for US$242,225.00 and

US$648,002.54 refer to the repair and conversion of two (2) of
PISCs vessels, namely M/V Asean Liberty and M/V Asean Mission,
undertaken by Hongkong United Dockyards, Ltd. and the China
Shipbuilding Corporation of Taiwan, respectively, upon the order
of the owner, as deposed by George Lim, the President of the
PISC. Such being the case, maritime liens on the vessels
concerned arose conformably with the aforequoted provision of
Section 21 of P.D. No. 1521. True it is that under the law the
persons entitled to the lien are the Hongkong United Dockyards,
Ltd. and the China Shipbuilding Corporation of Taiwan, they being
the ones who furnished the repair works. However, since it was
CBC who paid off these lienors, it stepped into the shoes of the
latter by subrogation. This is the prevailing doctrine in American
jurisprudence which holds that: A creditor who advances money
specifically for the purpose of discharging a maritime lien is
subrogated to the lienors rights. Significantly, the Federal
Maritime Lien Act, like our Ship Mortgage Decree of 1978, provides
that, any person furnishing repairs, supplies, towage, use of
drydock or marine railway, or other necessaries, to any foreign or
domestic vessel on the order of the owner of such vessel, or of a
person authorized by the owner of such vessel, or of a person
authorized by the owner has a maritime lien on the vessel which
may be enforced by suit in rem. The only difference is that under
the Federal Maritime Lien Act, it is not necessary to allege or prove
that the credit was given to the vessel. Hence, insofar as the
creation of the lien and the persons entitled to the lien are
concerned, American jurisprudence is highly
persuasive. Furthermore, Article 1302 (2) of our Civil Code
explicitly provides:

Art. 1302 (2). It is presumed that there is legal subrogation:

xxx xxx xxx

(2) When a third person not interested in the obligation

pays with the express or tacit approval of the debtor;

xxx xxx xxx.

 Accordingly, since CBCs payment to the lienors was with the
express consent of the debtor owner of the vessels repaired, legal
subrogation took place in CBCs favor.

The provisions of our Ship Mortgage Decree of 1978 were

patterned quite closely after the U.S. Ship Mortgage Act of
1920. Significantly, the Federal Maritime Lien Act of the United
States, like our Ship Mortgage Decree of 1978, provides that any
person furnishing repairs, supplies, towage, use of drydock, or
marine railway, or other necessaries, to any foreign or domestic
vessel on the order of the owner of such vessel, or of a person
authorized by the owner has a maritime lien on the vessel, which
may be enforced by suit in rem. Being of foreign origin, the
provisions of the Ship Mortgage Decree of 1978 may thus be
construed with the aid of foreign jurisprudence from which they
are derived except insofar as they conflict with existing laws or
are inconsistent with local customs and institutions.

As held by the public respondent Court of Appeals, those who

provide credit to a master of a vessel for the purpose of
discharging a maritime lien also acquire a lien over the said
vessel. Under American jurisprudence, furnishing money to a
master in good faith to obtain repairs or supplies or to remove
liens, in order to forward the voyage of the vessel, raises a lien
just as though the things (for which) money was obtained to pay
for had been furnished by the lender. Likewise, advances to
discharge maritime liens create a lien on the vessel, and one
advancing money to discharge a valid lien gets a lien of equal
dignity with the one discharged. There is no reason why these
doctrines cannot be given persuasive application in the instant
case considering that they do not violate or contravene any of our
existing laws. Moreover, as pointed out by the appellate court,
these doctrines are in accord with our provisions on subrogation
particularly Art. 1302, paragraph 2 of the New Civil Code which
provides that there is legal subrogation when a third person, not
interested in the fulfillment in the obligation, pays with the
express or tacit approval of the debtor.

Under these doctrines, a person who extends credit for the

purpose of discharging a maritime lien is not entitled to the said
lien where the funds were not furnished to the ship on the order of
the master and there was no evidence that the money was actually
used to pay debts secured by the lien. As applied in the instant
case, it becomes necessary to prove that the credit advanced by
Citibank to PISC was actually utilized for the repair and conversion
of the vessel M/V Asean Liberty. Otherwise, Citibank could not
have acquired the maritime lien of Hongkong United Dockyards,
Ltd. over the vessel M/V Asean Liberty.
 The maritime lien of private respondent CBC thus arose prior in
time to the recording of petitioners mortgage on September 25,
1979. As such, said maritime lien has priority over the said
mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree
of 1978, a preferred mortgage lien shall have priority over all
claims against the vessel except, among others, maritime liens
arising prior in time to the recording of the preferred mortgage.
 POLIAND INDUSTRIAL LTD. V NDC 467 SCRA 500

(AUGUST 22, 2005)

FACTS:

Between 1979 and 1981, Asian Hardwood (HK corp) loaned

to Galleon, a domestic company engaged in maritime transport of
goods, $3.3M. Said loan were to be used to augment Galleon’s
working capital due to the purchase of new shipping vessels. As a
result, Galleon incurred an obligation amounting to $3.39M in favor
of Asian Hardwood. To finance its acquisitions of the vessels,
Galleon obtained loans from several Japanese lenders. In October
1979, Galleon and DBP executed a deed of undertaking where DBP
guaranteed the prompt payment of Galleon’s loans with the
Japanese lenders. In return, Galleon mortgaged five of its vessels
in favor of DBP.

Sometime in January 1981, Marcos issued Letter of

Instruction (LOI) no. 1155 ordering NDC to acquire the entire
shares of Galleon payable without interest within 5 years. Also,
DBP was to advance to Galleon within 3 years from its effectivity
the principal amount and interest of Galleon’s obligations. August
1981, Galleon and NDC executed a MOA for the share purchase
agreement after which NDC is to assume management and
operations of Galleon (although its president, Cuenca, is to remain
in his post until May 1982). Using its own funds, NDC paid Asian
Hardwood on January 1982 $1M as partial payment for Galleon’s
obligations.

In February 1982, LOI no. 1195 was issued directing the

foreclosure of the mortgage of the said vessels due to Galleon’s
failure to pay its debts; subsequently, said vessels were
foreclosed and sold to NDC. Asian Hardwood assigned its rights
over the outstanding obligation of Galleon ($2.31M) to World
Universal Trading who in turn assigned it to petitioner Poliand
sometime in July 1989.

In 1991, Poliand demanded from Galleon, NDC and DBP the

satisfaction of the outstanding balance. Petitioner claimed that
under LOI no. 1155 and MOA between Galleon and NDC, Galleon,
NDC and DBP are solidarily liable to Polian as assignee of the
rights of the credit advances.
 DBP denied being a party to any of the alleged loan
transactions; also alleged that Poliand had no cause of action
against DBP as it did not sign any memorandum to act as
guarantor for the loans obtained by Galleon. NDC denied any
participation in the execution of the loan accommodations,
alleging that it was acting as only as a manager of Galleon. It
cannot be liable for Galleon’s obligations since no purchase and
sale agreement was executed and the delivery of required shares
of stock of Galleon did not take place.

RTC found that DBP and NDC are liable under LOI no. 1155
and NDC was liable based on the MOA executed where it agreed
that it will prioritize repayments of Galleon’s liabilities. CA,
however, rendered a modified judgment, absolving DBP of any
liability in view of POLIAND’s failure to clearly prove its action
against DBP. The appellate court also discharged NDC of any
liability arising from the credit advances/loan obligations obtained
by GALLEON on the ground that NDC did not acquire ownership of
GALLEON but merely assumed control over its management and
operations. However, NDC was held liable to POLIAND for the
payment of the preferred maritime lien based on LOI No. 1195
which directed NDC to “discharge such maritime liens as may be
necessary to allow the foreclosed vessels to engage on the
international shipping business,” as well as attorney’s fees and
costs of suit.

ISSUE:

Whether or not LOI no. 1155 has the force and effect of law,
thus making NDC and/or DBP liable to Polian on the loan
accommodations and credit advances incurred by Galleon.

RULING:

Since no such execution and consequent transfer of

shareholdings took place, NDC did not acquire ownership of
GALLEON. Furthermore, Poliand could not prove that it had any
cause of action against DBP.

LOI No. 1155 does not have the force and effect of law and
cannot be a valid source of obligation. Letters of instructions are
simply directives of the President of the Philippines, issued in the
exercise of his administrative power of control, to heads of
departments and/or officers under the executive branch of the
government for observance by the officials and/or employees
thereof. Being administrative in nature, they do not have the force
and effect of a law and, thus, cannot be a valid source of
obligation. However, since Marcos, at the time of execution of said
LOI had both legislative and executive powers, it must be
determined if the LOI was executed in performance of his
legislative powers. To form part of the law of the land, the decree,
order or LOI must be issued by the President in the exercise of his
extraordinary power of legislation as contemplated in Section 6 of
the 1976 amendments to the Constitution, whenever in his
judgment, there exists a grave emergency or threat or imminence
thereof, or whenever the interim Batasan Pambansa or the regular
National Assembly fails or is unable to act adequately on any
matter for any reason that in his judgment requires immediate
action.

POLIAND does not have any cause of action against DBP

under LOI No. 1155. Being a mere administrative issuance, LOI No.
1155 cannot be a valid source of obligation because it did not
create any privity of contract between DBP and POLIAND or its
predecessors-in-interest.
NEGROS NAVIGATION CORP. vs TSUNEISHI HEAVY INDUSTRIES
INC., CEBU
572 SCRA 434 (2008)

The Facts

The undisputed facts are as follows:

NNC is a shipping company that is primarily engaged in the

business of transporting through shipping vessels, passengers and
cargoes at various ports of call in the country. THI, on the other
hand, is engaged in the business of shipbuilding and repair. NNC
engaged the services of THI for the repair of its vessels.

On February 9, 2004, THI filed a case for sum of money and

damages with prayer for issuance of writ of attachment against
NNC before the Regional Trial Court of Cebu (Cebu RTC). The
action is based on the unpaid services for the repair of NNCs
vessels, otherwise known as repairman’s lien. Thus on March 5,
2004, the Cebu RTC issued an Order granting the issuance of a
writ of preliminary attachment against the properties of NNC in
particular M/V St. Peter the Apostle.

On March 29, 2004, NNC filed a Petition for Corporate

Rehabilitation with Prayer for Suspension of Payments with the
RTC of Manila (Manila RTC). The Manila RTC granted the NNCs
petition and issued a Stay Order on April 1, 2004. The said Order
reads:

Petitioner Negros Navigation Co., Inc. filed a Petition alleging

that it is a domestic corporation with principal place of
business at Pier 2, North Harbor, Tondo, Manila; that since
its incorporation, it had been very viable and financially
profitable; that because of the Asian Currency Crisis and the
devaluation of the Peso, it found itself in difficulty in paying
its obligations with creditors; that as a consequence,
petitioner foresees its inability to meet its obligations as
they fall due; that since the obligations would not be met,
complications and problems will arise that will impair and
affect the operation of the corporation and its effort to
rehabilitate its business; that one of its creditors, Tsuneishi
Heavy Industries, Inc., already attached one shipping vessel
of the corporation; and other creditors are threatening to
 sue; but despite the foregoing, petitioner still foresee the
prospect of paying its debts if only given a breathing
spell. Hence, it is presenting a Rehabilitation Plan for
approval of its creditors as well as this Court.

THI maintains that its maritime liens against the vessels of

NNC were impaired by the issuance of the stay order. THI argues
that the issuance of the stay order by the Manila RTC, acting as
rehabilitation court, was erroneous considering that maritime
liens cannot be enforced, divested, and otherwise affected or
dealt with except by an admiralty court in an admiralty
proceeding in rem. THI cited various foreign jurisprudence to the
effect that maritime liens are enforceable only by a suit in rem.

Moreover, THI argues that the Manila RTC, in granting the

stay order, divested the Cebu RTC, which is acting as an admiralty
court, of its jurisdiction over the maritime case of THI. It insists
that its maritime liens over the vessels of NNC must be upheld,
notwithstanding NNCs rehabilitation proceedings. It stresses that
in in rem proceedings to enforce maritime liens, the vessels alone
may be impleaded as defendants. The vessels themselves answer
for the liens, and lienholders like THI have the substantive
statutory right under PD 1521 to insist on the vessels
responsibility because an action in rem is a proceeding against
the ship itself. It also emphasizes that a maritime lien is not
affected by bankruptcy or reorganization, citing Gilmore and Black
as reference.

The Issues

1. Whether or not maritime liens against the vessels are

impaired in view of the issuance of stay order.

2. Whether or not Manila RTC divests the Cebu RTC of its

jurisdiction over the maritime claims of THI against NNC

3. Whether or not maritime liens are affected by bankruptcy or

reorganization.

The Ruling of the Court

1. The argument of THI is misplaced.

 Rehabilitation contemplates continuance of corporate life
and activities in an effort to restore and reinstate the
corporation to its former position of successful operation
and solvency. The purpose of rehabilitation proceedings is
precisely to enable the company to gain a new lease on life
and thereby allow creditors to be paid their claims from its
earnings. The rehabilitation of a financially distressed
corporation benefits its employees, creditors, stockholders
and, in a larger sense, the general public.

It is undisputed that THI holds a preferred maritime lien over

NNCs assets by virtue of THIs unpaid services. The issuance
of the stay order by the rehabilitation court does not impair
or in any way diminish THIs preferred status as a creditor of
NNC. The enforcement of its claim through court action was
merely suspended to give way to the speedy and effective
rehabilitation of the distressed shipping company. Upon
termination of the rehabilitation proceedings or in the event
of the bankruptcy and consequent dissolution of the
company, THI can still enforce its preferred claim upon NNC.

2. The Manila RTC acting as a rehabilitation court merely

suspended the proceedings in the admiralty case in the Cebu
RTC. It did not divest the Cebu RTC of its jurisdiction over
the maritime claims of THI against NNC. The preferred
maritime lien of THI can still be enforced upon the
termination of the rehabilitation proceedings, or if it such be
unsuccessful, upon the dissolution of the corporation.

3. True enough, a maritime lien is not affected by bankruptcy

or reorganization. However, in the instant case, we are not
dealing with bankruptcy or reorganization; rather, we are
confronted with NNCs rehabilitation. If we follow the
argument of THI and allow the continued enforcement of its
claims against NNC, we would, in effect, violate provisions
of PD 902-A. To reiterate, the rationale behind PD 902-A is to
effect a feasible and viable rehabilitation of an ailing
corporation.
 JULUIS OUANO VS COURT OF APPEALS

211 SCRA 434 (2008)

FACTS:

As found by respondent court, petitioner is the registered

owner and operator of the motor vessel known as M/V Don Julio
Ouano. On October 8, 1980, petitioner leased the said vessel to
respondent Rafols under a charter party. The consideration for the
letting and hiring of said vessel was P60,000.00 a month, with
P30,000.00 as down payment and the balance of P30,000.00 to be
paid within twenty (20) days after actual departure of the vessel
from the port of call. It was also expressly stipulated that the
charterer should operate the vessel for his own benefit and should
not sublet or sub-charter the same without the knowledge and
written consent of the owner.

On October 11, 1980, Rafols contracted with respondent

Market Developers, Inc. (hereafter, MADE) through its group
manager, respondent Julian O. Chua, under an agreement
denominated as a "Fixture Note" to transport 13,000 bags of
cement from Iligan City to General Santos City, consigned to
respondent Supreme Merchant Construction Supply, Inc. (SMCSI,
for brevity) for a freightage of P46,150.00 The fixture note did not
have the written consent of petitioner.

Rafols had on board the M/V Don Julio Ouano his sobre cargo
(jefe de viaje) when it departed from Iligan City until the cargo of
cement was unloaded in General Santos City, the port of
destination.

The entire cargo was thereafter unloaded at General Santos

City Port and delivered to the consignee, herein respondent SMCI,
without any attempt on the part of either the captain of M/V Don
Julio Ouano or the said sobre cargo of Rafols, or even of petitioner
himself who was then in General Santos City Port, to hold and keep
in deposit either the whole or part of the cement cargo to answer
for freightage. Neither was there any demand made on any of the
respondents for a bond to secure payment of the freightage, nor to
assert in any manner the maritime lien for unpaid freight over the
cargo by giving notice thereof to the consignee SMCI. The cement
was sold in due course of trade by SMCI to its customers in
October and November, 1980.

ISSUE:

1. WHETHER OR NOT THE PETITIONER HAS LIEN ON CARGO

2. WHETHER OR NOT AN UNCONDITIONAL RELEASE OF

CARGO CONSTITUTES WAIVER THEREOF

HELD:

1. NO. Herein petitioner, as owner of the vessel, has no lien

on the cargo. A charter party may, among other
classifications, be of two kinds: One is where the owner
agrees to carry a cargo which the charterer agrees to
provide, and the second is where there is an entire
surrender by the owner of the vessel to the charterer, who
hires the vessel as one hires a house, takes her empty,
and provides the officers and provisions, and, in short, the
entire outfit. In such a contract, the charterer is
substituted in place of the owner and becomes the owner
for the voyage. This second type is also known as a
bareboat charter or otherwise referred to as a demise of
the vessel.

In a charter party of the second kind, not only the entire

capacity of the ship is let but the ship itself, and the
possession is passed to the charterer. The entire control
and management of it is given up to him.The general
owner loses his lien for freight, but the lien itself is not
destroyed, the charterer is substituted in his place, in
whose favor the lien continues to exist when goods are
taken on freight. The general owner, however, has no
remedy for the charter of his vessel but his personal
action on the covenants of the charter party. It is a
contract in which he trusts in the personal credit of the
charterer.

Therefore, where the charter constitutes a demise of the

ship and the charterer is the owner for the voyage, and
that is the kind of charter party involved in the instant
case, the general owner has no lien on the cargo for the
hire of the vessel, in the absence of an express provision
therefor as in the case at bar.

2. YES. Even on the assumption that petitioner had a lien

on the cargo for unpaid freight, the same was deemed
waived when the goods were unconditionally released to
the consignee at the port of destination. A carrier has
such a lien only while it retains possession of the goods,
so that delivery of the goods to the consignee or a third
person terminates, or constitutes a waiver of, the lien. the
lien of a carrier for the payment of freight charges is
nothing more than the right to withhold the goods, and is
inseparably associated with its possession and
dependent upon

The shipowner’s lien for freight is not in the nature of a

hypothecation which will remain a charge upon the goods
after he has parted with possession, but is simply the right
to retain them until the freight is paid, and is therefore lost
by an unconditional delivery of the goods to the
consignee. 22

Petitioner’s invocation of Overseas Factors, Inc., Et. Al. v.

South Sea Shipping Co., Et Al., 23 therefore, is ineffectual
and unavailing. In said case, the cargo was still in the
possession of the carrier whose officers and crew refused
to unload the same unless the balance of the freight was
paid. In this case before us, the cargo had already been
unconditionally delivered to the consignee SMCI without
protest.

WHEREFORE, the petition is DENIED and the assailed

judgment of respondent Court of Appeals is hereby
AFFIRMED.
 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG,
PA/AMERICAN INTERNATIONAL UNDERWRITER (PHIL.) INC.,

vs.

STOLT-NIELSEN PHILIPPINES, INC. and COURT OF APPEALS

G.R. No. 87958. April 26, 1990

Facts:

On January 1985, United Coconut Chemicals, Inc.

(hereinafter referred to as SHIPPER) shipped a particular goods on
board MT "Stolt Sceptre," a tanker owned by Stolt-Nielsen
Philippines Inc. (hereinafter referred to as CARRIER), from
Philippines, consigned to "Nieuwe Matex" at Netherlands, covered
by Tanker Bill of Lading. The shipment was insured under a marine
cargo policy with Petitioner National Union Fire Insurance
Company of Pittsburg (hereinafter referred to as INSURER), a non-
life American insurance corporation, through its settling agent in
the Philippines, the American International Underwriters
(Philippines), Inc.

It appears that the Bill of Lading issued by the CARRIER

contained a general statement of incorporation of the terms of a
Charter Party between the SHIPPER and Parcel Tankers, Inc. Upon
receipt of the cargo by the CONSIGNEE in the Netherlands, it was
found to be discolored and totally contaminated. The claim filed
by the SHIPPER-ASSURED with the CARRIER having been denied,
the INSURER indemnified the SHIPPER. On April 1986, as
subrogee, the INSURER filed suit against the CARRIER, before the
RTC of Makati for recovery of the sum of money. The CARRIER
moved to dismiss/suspend the proceedings on the ground that the
RTC had no jurisdiction over the claim the same being an
arbitrable one; that as subrogee of the SHIPPER-ASSURED, the
INSURER is subject to the provisions of the Bill of Lading, which
includes a provision that the shipment is carried under and
pursuant to the terms of the Charter Party, dated 21 December
1984, between the SHIPPER-ASSURED and Parcel Tankers, Inc.
providing for arbitration.

On July 1987, the RTC denied the Motion, but subsequently

reconsidered its action, and deferred resolution on the Motion to
Dismiss/Suspend Proceedings until trial on the merits "since the
ground alleged in said motion does not appear to be indubitable."

The CARRIER then resorted to a Petition for Certiorari and

Prohibition with prayer for Preliminary Injunction and/or
Temporary Restraining Order before the respondent Appellate
Court seeking the annulment of the RTC Order. On April 1989, the
respondent Court held that the RTC order is SET ASIDE and
ordered to refer claims of INSURER for arbitration.

Aggrieved, hence the petition.

Issues:

(1) Whether or not the RTC Order deferring resolution of the

CARRIER's Motion to Dismiss constitutes an interlocutory order,
which can not be the subject of a special civil action on certiorari
and prohibition.

(2) Whether or not the terms of the Charter Party, particularly

the provision on arbitration, binding on the INSURER.

Held:

(1) The case falls under the exception. While a Court Order
deferring action on a motion to dismiss until the trial is
interlocutory and cannot be challenged until final judgment, still,
where it clearly appears that the trial Judge or Court is proceeding
in excess or outside of its jurisdiction, the remedy of prohibition
would lie since it would be useless and a waste of time to go ahead
with the proceedings.

(2) Yes, the terms of the Charter Party, between the SHIPPER
and Parcel Tankers, Inc. is binding to the INSURER.

It is clear that the Bill of Lading incorporates by reference

the terms of the Charter Party. It is settled law that the charter
may be made part of the contract under which the goods are
carried by an appropriate reference in the Bill of Lading. This
should include the provision on arbitration even without a specific
stipulation to that effect. The entire contract must be read
together and its clauses interpreted in relation to one another and
not by parts.

Moreover, in cases where a Bill of Lading has been issued by

a carrier covering goods shipped aboard a vessel under a charter
party, and the charterer is also the holder of the bill of lading, "the
bill of lading operates as the receipt for the goods, and as
document of title passing the property of the goods, but not as
varying the contract between the charterer and the shipowner”.
The Bill of Lading becomes, therefore, only a receipt and not the
contract of carriage in a charter of the entire vessel, for the
contract is the Charter Party and is the law between the parties
who are bound by its terms and condition provided that these are
not contrary to law, morals, good customs, public order and public
policy.
 NATIONAL FOOD AUTHORITY vs. CA G.R. No. 96453, August 4,
1999

Facts:

National Food Authority (NFA), thru its officers, entered into

a “Letter of Agreement for Vessel/Barge Hire with Hongfil for the
shipment of 200,000 bags of corn grains from Cagayan de Oro City
to Manila. The loading of bags of corn grains in the vessel
commenced but it took a longer period of 21 days, 15 hours, and
18 minutes to finish than as was certified by the arrastre firm as
there was a strike staged by the arrastre workers in view of the
refusal of the striking stevedores to attend to their work. The
vessel was allowed to depart for the port of Manila and arrived
there, but unfortunately, it took a longer period of 20 days, 14
hours and 33 minutes to finish the unloading than the discharging
rate certified by the Port of Manila, due to the unavailability of a
berthing space for the vessel M/V CHARLIE/DIANE. Only 166,798
bags were unloaded at the Port of Manila.

After the discharging was completed, NFA paid Hongfil the

amount of P1,006,972.11 covering the shipment of corn grains.
Thereafter, Hongfil sent its billing to NFA claiming payment for
freight covering the shut-out load or deadfreight as well as
demurrage, allegedly sustained during the loading and unloading
of subject shipment of corn grains. When NFA refused to pay the
amount reflected in the billing, Hongfil brought the present action
against NFA.

Issues:

1) Can petitioners be held liable for deadfreight?

2) Can petitioners be held liable for demurrage?

Held:

1) Yes. It bears stressing that subject Letter of Agreement is

considered a Charter Party. A charter party is classified into (1)
“bareboat” or “demise” charter and (2) contract of affreightment.
Subject contract is one of affreightment, whereby the owner of the
vessel leases part or all of its space to haul goods for others. It is
a contract for special service to be rendered by the owner of the
vessel. Under such contract, the ship retains possession,
command, and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his
payment of the charter hire.

Under the law, the cargo not loaded is considered a dead

freight. It is the amount paid by or recoverable from a charterer of
a ship for the portion of the ship’s capacity the latter contracted
for but failed to occupy. Explicit and succinct is the law that the
liability for dead freight is on the charterer. (Article 680 of the
Code of Commerce).

2) No. Demurrage is the sum fixed in a charter party as

remuneration to the owner of the ships for the detention of his
vessel beyond the number of days allowed by the charter party for
loading or unloading or for sailing. Liability for demurrage, using
the word in its technical sense, exists only when expressly
stipulated in the contract.

Shipper or charterer is liable for the payment of demurrage

claims when he exceeds the period for loading and unloading as
agreed upon or the agreed “laydays”. The period for such may or
may not be stipulated in the contract. A charter party may either
provide for a fixed laydays or contain general or indefinite words
such as “customary quick dispatch” or “as fast as the streamer
can load”. In the case at bar, the charter party provides merely for
a general or indefinite words of “customary quick dispatch”. Such
stipulation implies that loading and unloading of the cargo should
be within a reasonable time.

The charterer NFA could not be held liable for demurrage for
it appears that cause of delay was not imputable to either of the
parties. The cause of delay during the loading was the strike
staged by the crew of the arrastre operator, and the unavailability
of a berthing space for the vessel during the unloading. Here, the
Court holds that the delay sued upon was still within the
“reasonable time” embraced in the stipulation of “Customary
Quick Dispatch”.

Furthermore, considering the subject contract of affreightment

contains an express provision “Demurrage/Dispatch: NONE”, the
same left the parties with no recourse but to apply the literal
meaning of such stipulation
 KENG HUA PAPER PRODUCTS CO. INC. vs COURT OF
APPEALS

286 SCRA 257 (1998)

FACTS:

Characters:

a) Keng Hua Paper Products - consignee, receiver of shipment.

b) Sea-Land Service Inc. – shipping company, transporter of waste

paper

c) Ho Kee Waste Paper – shipper

Keng hua purchased from Ho Kee fifty tons of waste paper.

With partial shipment permitted. On June 29. 1982, Sea-Land
received at its Hong Kong terminal a sealed container containing
67 bales of unsorted waste paper for shipment to Keng Hua in
Manila. A bill of lading to cover the shipment was issued by Sea-
Land.

However, the June 29 shipment was 10 tons more than the

remaining balance of the purchase/order, as manifested under the
letter of credit. (Keng Hua ordered 50 tons. 10 tons na lang dapat
yung kulang/balance. Pero yung June 29 shipment, 20 tons of
water paper.)

On July 9. 1982, the shipment was discharged at the Manily

Internation Container Port. Notices of arrival were transmitted to
Keng Hua but if failed to discharged the shipment from the
container from the expiration of the free time period (July 29) until
the shipment was unloaded on November 22. 1983 (481 days)

During the 481-day period. Demurrage charges accrued. Numerous

demands for Keng Hua to pay but it refused to settle its obligation.

Procedural History :

- Sea-Land sued Keng Hua for collection and damages.

- The Regional Trial Court of Manila rendered judgment in
favor of Sea-Land, and ordered Keng Hua to pay P67.340 as
demurrage charges with interest at the legal rate from the
date of the extrajudicial demand. Also, Keng Hua must pay
 10% of the total amount due as attorney’s fees/litigation
expenses.
- Court of appeals affirmed in toto the RTC.
-

ISSUES:

1) WoN Keng Hua accepted the bill of landing.

2) WoN the award of P67.340 to Sea-Land was proper.
3) WoN Keng Hua was correct in not accepting the over
shipment.
4) WoN the award of legal interest from the date if Sea-Land’s
extrajudicial demand was proper.

PETITIONER’S AGRUMENTS:

- If Keng Hua accepted the shipment, it would be violated be

Central bank rules and regulations and cust in and tariff
laws. It would be tantamount to smuggles. It would make
Keng Hua vulnerable to legal sanctions.
- Sea-Land has no cause of action against Keng Hua because
Keng Hua did not hire Sea-Land. The cause of action should
be against the shipper, Ho Kee. The demurrage was a
consequence of the shipper’s mistake of shipping more that
what was bought.
- Keng Hua duly notified Sea-Land about the wrong shipment
through a letter dated January 24. 1983.
- Keng Hua is not bound by the bill of lading because it never
gave its consent. It admits “physical acceptance” of the bill
of lading. But argues that its subsequent actions belie the
findings that it accepted the terms.
- Notice of Refused or On Hand Freight: proof that Keng Hua
declined to accept the shipment.

RESPONDENT’S ARGUMENTS:

- Non really, just that Keng Hua should pay demurrage charges
since it delayed Sea-Land’s vessel by failing to unload the
shipment during the free time period.

RULING:

1) YES, Keng Hua accepted and is thus bound by the bill of

lading.
-
- A bill of lading has two functions:
a) Receipt for the goods shipped.\
b) A contract by which three parties (shipper, carrier, and
consignee) undertake specific responsibilities and
assume stipulated obligations.
- A bill of lading delivered and accepted constitutes the
contract of carriage even though not signed because the
accepted of a paper containing the terms of a proposed
contract generally constitutes an acceptance of the contract
and of all its terms and conditions of which the acceptor has
actual or constructive notice
- Acceptance = perfect and binding contract
- The bill of lading between Ho Kee, Keng Hua, and Sea-Land
was a valid and valid and PERFECTED contract. For the
failure to discharge the shipment within the grace period.
- SC not persuaded by Keng Hua’s arguments. Keng Hua did
not immediately object to or dissent from any term or
stipulated in the bill of landing. It waited for SIX MONTHS to
send a letter to Sea-Land saying that it would not accept the
shipment.
- The inaction for such a long period conveys the clear
inference that it accepted the terms and conditions of the
bill of lading.
- Re: Notice of refused or On hand Freight: said notice was not
written by Keng Hua: it was sent by Sea-Land to Keng Hua
for months after it received the bill of lading. Its only
significance is to highlight Keng
- Issue of WoN Keng Hua accepted the bill of lading is raised
for the first time in the SC (Not raised in the lower courts)
Hence, it is barred by estoppel.
- Prolonged failure to receive and discharge cargo -> violation
of terms of bill of lading -> liability for demurrage

2) YES, it is proper

- Keng Hua argued that Sea_Land made no demand for the sum
if P67.340. also, Sea_Land’s loss and prevention manager
(P50,260) and its counsel (P37.800) asked for different
amounts.
- The amount for P67.340 was a factual conclusion of the trial
court, affirmed by the Court of Appeals, and is therefore
binding on the SC. Such finding is supported by extant
evidence
- Re: discrepancy in amounts demanded: result of the variance
if dates when the demands were made April 24. 1983
P37.800. it already ballooned to P67.340 by November 22.
 3) NO.

- Re: Violation of laws: mere apprehension of violating said

laws, without a clear demonstration that taking delivery of
the shipping has become legally impossible, cannot defeat
Keng Hua’s obligations under the bill of lading.

4) NO.

- Based on NCC 2209: interest rate is six percent per annum.

- Bill of lading did not specify the amount of demurrage: this
was only established during the trial court decision. Hence ,
the rate is 6% to be computed from the trial court
decision(Sept 28.1990), plus 12% on the total then
outstanding from the time judgment becomes final and
executory until its satisfaction.

* In a letter of credit: there are three distinct and independent

contracts.

a) contract of sale between buyer and seller

b) contract of buyer with issuing bank

c) letter of credit proper where bank promises to pay seller

- These three are to be maintained in perpetual separation.

- The contract of carriage in the bill of lading must be TREATED

INDEPENDENTLY of the contract of sale and contract with
issuing bank. Any discrepancy between the contract of sale
and letter of credit will NOT AFFECT the validity of the
contract if carriage un the bill of lading.

- The carrier cannot be expected to go beyond the representation

of the shipper in the bill of lading and to verify their accuracy
vis-à-vis the contract of sale and the letter of credit.

- Carrier had no knowledge of the contents of the container.

DISPOSITIVE :

- CA decision is AFFIRMED, legal interest MODIFIED to 6% to be

computed from the trial court decision (Sept 28. 1990). Plus
12% on the total then outstanding from the time judgment
becomes final and executory until its satisfaction.
 VLASONS SHIPPING, INC vs. CA and NATIONAL STEEL
CORPORATION

[G.R. No. 112350. December 12, 1997]

NATIONAL STEEL CORPORATION vs. CA and VLASONS

SHIPPING, INC.

[G.R. No. 112287. December 12, 1997]

FACTS:

National Steel Corporation (NSC) as charterer and defendant

Vlasons Shipping, Inc. (VSI) as owner, entered into a contract of
voyage charter hire (affreightment). Whereby NSC hired VSI’s
vessel, the MV ‘VLASONS I to make one (1) voyage to load steel
products at Iligan City. And discharge them at North Harbor,
Manila VSI carried passengers or goods only for those it chose
under a “special contract of charter party.

The vessel arrived with the cargo in Manila, but when the
vessel’s three (3) hatches containing the shipment were opened,
nearly all the skids of tin plates and hot rolled sheets were
allegedly found to be wet and rusty.NSC filed its complaint against
defendant before the RTC wherein it claimed that it sustained
losses as a result of the act, neglect and default of the master and
crew in the management of the vessel as well as the want of due
diligence on the part of the defendant to make the vessel
seaworthy all in violation of defendant’s undertaking under their
Contract of Voyage Charter Hire.

In its answer, defendant denied liability for the alleged

damage claiming that the MV VLASONS I was seaworthy in all
respects for the carriage of plaintiff’s cargo, that said vessel was
not a common carrier inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the charter party.

The trial court ruled in favor of VSI, it was affirmed by the CA

on appeal.
ISSUE:

Whether or not Vlasons Shipping, Inc. (VSI) is a private

carrier.

RULING:

Yes.

At the outset, it is essential to establish whether VSI

contracted with NSC as a common carrier or as a private carrier.
The resolution of this preliminary question determines the law,
standard of diligence and burden of proof applicable to the present
case.

Article 1732 of the Civil Code defines a common carrier as

“persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to
the public.” It has been held that the true test of a common carrier
is the carriage of passengers or goods, provided it has space, for
all who opt to avail themselves of its transportation service for a
fee. A carrier which does not qualify under the above test is
deemed a private carrier. Generally, private carriage is undertaken
by special agreement and the carrier does not hold himself out to
carry goods for the general public. The most typical, although not
the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period
of time or a voyage or voyages.

In the instant case, it is undisputed that VSI did not offer its
services to the general public. As found by the Regional Trial
Court, it carried passengers or goods only for those it chose under
a “special contract of charter party.” As correctly concluded by
the Court of Appeals, the MV Vlasons I “was not a common but a
private carrier.” Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the
cargo, are determined primarily by stipulations in their contract of
private carriage or charter party. Recently, in Valenzuela
Hardwood and Industrial Supply, Inc., vs. Court of Appeals and
Seven Brothers Shipping Corporation, the Court ruled:

“In a contract of private carriage, the parties may freely

stipulate their duties and obligations which perforce would be
binding on them. Unlike in a contract involving a common carrier,
private carriage does not involve the general public. Hence, the
stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently,
the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection
given by law in contracts involving common carriers.”
 Planters Products v. Court of Appeals, 226 SCRA 476 (1993)

G.R. No. 101503. September 15, 1993

Facts:

Planters Products, Inc. purchased from Mitsubishi

International Corporation 9,329.7069 metric tons of Urea 46%
fertilizer, which the latter shipped aboard the cargo vessel M/V
Sun Plum on June 16, 1974. Prior to its voyage, a time-charter
party was entered into between Mitsubishi as shipper, and Kyosei
Kisen Kabushiki Kaisha as shipowner. Before loading the fertilizer
aboard the vessel, four of her holds were presumably inspected by
the charterer’s representative and found it fit to take the load.
After loading the cargo, the steel hatches were closed with heavy
iron lids, covered with 3 layers of tarpaulin then tied with steel
bonds. It remained sealed throughout the entire voyage.

Upon arrival of the vessel, petitioner unloaded the cargo,

which took 11 days. A private marine and cargo surveyor, Cargo
Superintendents Company, Inc. (CSCI) was hired by petitioner to
determine the outturn of the cargo shipped. CSCI reported
shortage of 106.726 metric tons, and contamination of 18 metric
tons due to dirt. PPI sent a claim letter against Soriamont
Steamship Agencies, the resident agent of KKKK. The request was
denied, hence, PPI filed an action for damages before the CFI
Manila. The lower court sustained the petitioner’s claim, but such
decision was reversed by the appellate court, which absolved the
carrier from liability. The appellate court ruled that the vessel was
a private carrier and not a common carrier by reason of the charter
party.

Issues:

(1) Whether a common carrier becomes a private carrier by reason

of a charter party

(2) Whether the ship owner was able to prove the exercise of the
diligence required under the circumstances

Ruling:
(1) A "charter-party" is defined as a contract by which an entire
ship, or some principal part thereof, is let by the owner to another
person for a specified time or use; Charter parties are of two types:
(a) contract of affreightment which involves the use of shipping
space on vessels leased by the owner in part or as a whole, to
carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the
charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including
the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is
leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage.

Upon the other hand, the term "common or public carrier" is

defined in Art. 1732 of the Civil Code. The definition extends to
carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a casual
occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not
a part of the general business or occupation, although involving
the carriage of goods for a fee, the person or corporation offering
such service is a private carrier. Article 1733 of the New Civil Code
mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance
over the goods they carry. In the case of private carriers, however,
the exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in case of loss, destruction or deterioration of
the goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise
rests on them. On the contrary, no such presumption applies to
private carriers, for whosoever alleges damage to or deterioration
of the goods carried has the onus of proving that the cause was
the negligence of the carrier.

When petitioner chartered the vessel M/V "Sun Plum", the

ship captain, its officers and compliment were under the employ
of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer,
a stranger to the crew and to the ship, with the duty of caring for
his cargo when the charterer did not have any control of the means
in doing so. This is evident in the present case considering that
the steering of the ship, the manning of the decks, the
determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner.
It is only when the charter includes both the vessel and its crew,
as in a bareboat or demise that a common carrier becomes private,
at least insofar as the particular voyage covering the charter-party
is concerned.

(2) In an action for recovery of damages against a common carrier

on the goods shipped, the shipper or consignee should first prove
the fact of shipment and its consequent loss or damage while the
same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that
he has exercised extraordinary diligence required by law or that
the loss, damage or deterioration of the cargo was due to
fortuitous event, or some other circumstances inconsistent with
its liability. To our mind, respondent carrier has sufficiently
overcome, by clear and convincing proof, the prima facie
presumption of negligence.

Before the fertilizer was loaded, the four (4) hatches of the
vessel were cleaned, dried and fumigated. After completing the
loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with
steel bonds. The hatches remained close and tightly sealed while
the ship was in transit as the weight of the steel covers made it
impossible for a person to open without the use of the ship's boom.
It was also shown during the trial that the hull of the vessel was
in good condition, foreclosing the possibility of spillage of the
cargo into the sea or seepage of water inside the hull of the vessel.
When M/V "Sun Plum" docked at its berthing place,
representatives of the consignee boarded, and in the presence of
a representative of the shipowner, the foreman, the stevedores,
and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores
unloaded the cargo under the watchful eyes of the shipmates who
were overseeing the whole operation on rotation basis.

The period during which private respondent was to observe

the degree of diligence required of it as a public carrier began from
the time the cargo was unconditionally placed in its charge after
the vessel's holds were duly inspected and passed scrutiny by the
shipper, up to and until the vessel reached its destination and its
hull was re-examined by the consignee, but prior to unloading. A
shipowner is liable for damage to the cargo resulting from
improper stowage only when the stowing is done by stevedores
employed by him, and therefore under his control and supervision,
not when the same is done by the consignee or stevedores under
the employ of the latter.

Common carriers are not responsible for the loss, destruction or

deterioration of the goods if caused by the character of the goods
or defects in the packaging or in the containers. The primary cause
of these spillages is the clamped shell which does not seal very
tightly. Also, the wind tends to blow away some of the materials
during the unloading process. The probability of the cargo being
damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in
"bulk," thereby exposing it to the inimical effects of the elements
and the grimy condition of the various pieces of equipment used
in transporting and hauling it. If there was loss or contamination
of the cargo, it was more likely to have occurred while the same
was being transported from the ship to the dump trucks and finally
to the consignee's warehouse.

Bulk shipment of highly soluble goods like fertilizer carries

with it the risk of loss or damage, more so, with a variable weather
condition prevalent during its unloading, as was the case at bar.
This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to
deterioration; as well as the inadequacy of its packaging which
further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remiss in
the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.
 LEA MER INDUSTRIES, INC., Petitioners,

vs.

MALAYAN INSURANCE CO., INC.,* Respondent.

G.R. No. 161745. September 30, 2005

FACTS:

Ilian Silica Mining entered into a contract of carriage with

Lea Mer Industries, Inc., for the shipment of 900 metric tons of
silica sand valued at ₱565,000. Consigned to Vulcan Industrial and
Mining Corporation, the cargo was to be transported from Palawan
to Manila. On October 25, 1991, the silica sand was placed on
board Judy VII, a barge leased by Lea Mer. During the voyage, the
vessel sank, resulting in the loss of the cargo.

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of

the lost cargo.To recover the amount paid and in the exercise of
its right of subrogation, Malayan demanded reimbursement from
Lea Mer, which refused to comply. Consequently, Malayan
instituted a Complaint with the Regional Trial Court (RTC) of
Manila on September 4, 1992, for the collection of ₱565,000
representing the amount that respondent had paid Vulcan.

Trial Court : dismissed the Complaint, upon finding that the

cause of the loss was a fortuitous event.1The RTC noted that the
vessel had sunk because of the bad weather condition brought
about by Typhoon Trining. The court ruled that petitioner had no
advance knowledge of the incoming typhoon, and that the vessel
had been cleared by the Philippine Coast Guard to travel from
Palawan to Manila.

Court of Appeals : Reversing the trial court, the CA held that

the vessel was not seaworthy when it sailed for Manila. Thus, the
loss of the cargo was occasioned by petitioner’s fault, not by a
fortuitous event.

Hence, this recourse.

ISSUE: whether petitioner is liable for the loss of the cargo

HELD: Yes

Rule on Common Carriers

 Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods, or both -- by land, water, or air -- when this
service is offered to the public for compensation. Petitioner is
clearly a common carrier, because it offers to the public its
business of transporting goods through its vessels. Thus, the Court
corrects the trial court’s finding that petitioner became a private
carrier when Vulcan chartered it. The distinction is significant,
because a demise or bareboat charter indicates a business
undertaking that is private in character. Consequently, the rights
and obligations of the parties to a contract of private carriage are
governed principally by their stipulations, not by the law on
common carriers.

The Contract in the present case was one of affreightment, as

shown by the fact that it was petitioner’s crew that manned the
tugboat M/V Ayalit and controlled the barge Judy VII. Necessarily,
petitioner was a common carrier, and the pertinent law governs
the present factual circumstances.

Extraordinary Diligence Required

Common carriers are bound to observe extraordinary
diligence in their vigilance over the goods and the safety of the
passengers they transport, as required by the nature of their
business and for reasons of public policy. Extraordinary diligence
requires rendering service with the greatest skill and foresight to
avoid damage and destruction to the goods entrusted for carriage
and delivery.

Common carriers are presumed to have been at fault or to have

acted negligently for loss or damage to the goods that they have
transported.T his presumption can be rebutted only by proof that
they observed extraordinary diligence, or that the loss or damage
was occasioned by any of the following causes:

"(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."

Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall
be responsible for a fortuitous event which could not be foreseen,
or which, though foreseen, was inevitable." Thus, if the loss or
damage was due to such an event, a common carrier is exempted
from liability. To excuse the common carrier fully of any liability,
the fortuitous event must have been the proximate and only cause
of the loss. Moreover, it should have exercised due diligence to
prevent or minimize the loss before, during and after the
occurrence of the fortuitous event.

Loss in the Instant Case

The evidence presented by petitioner in support of its
defense of fortuitous event was sorely insufficient. As required by
the pertinent law, it was not enough for the common carrier to
show that there was an unforeseen or unexpected occurrence. It
had to show that it was free from any fault -- a fact it miserably
failed to prove.

First, petitioner presented no evidence that it had attempted

to minimize or prevent the loss before, during or after the alleged
fortuitous event. Its witness, Joey A. Draper, testified that he
could no longer remember whether anything had been done to
minimize loss when water started entering the barge.

Second, the alleged fortuitous event was not the sole and
proximate cause of the loss. There is a preponderance of evidence
that the barge was not seaworthy when it sailed for Manila.
Respondent was able to prove that, in the hull of the barge, there
were holes that might have caused or aggravated the sinking.
Because the presumption of negligence or fault applied to
petitioner, it was incumbent upon it to show that there were no
holes; or, if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes.
Its witness, Domingo A. Luna, testified that the barge was in "tip-
top" or excellent condition, but that he had not personally
inspected it when it left Palawan. The submission of the Philippine
Coast Guard’s Certificate of Inspection of Judy VII, dated July 31,
1991, did not conclusively prove that the barge was seaworthy.
 COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents

G.R. No. 114167. July 12, 1995

Facts:

Pag-asa Sales, Inc. entered into a contract to transport

molasses from the province of Negros to Manila with Coastwise
Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat MT
Marica, which is likewise owned by Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the
barges, "Coastwise 9", struck an unknown sunken object. The
forward buoyancy compartment was damaged, and water gushed
in through a hole "two inches wide and twenty-two inches
long"1 As a consequence, the molasses at the cargo tanks were
contaminated and rendered unfit for the use it was intended. This
prompted the consignee, Pag-asa Sales, Inc. to reject the
shipment of molasses as a total loss. Thereafter, Pag-asa Sales,
Inc. filed a formal claim with the insurer of its lost cargo, herein
private respondent, Philippine General Insurance Company
(PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and
it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the
amount of P700,000.00, representing the value of the damaged
cargo of molasses

Philgen then filed an action against Coastwise to recover the

money it paid, claiming to be subrogated to the claims which the
consignee may have against the carrier. Both the trial court and
the Court of Appeals ruled against Coastwise.

The RTC awarded the amount prayed for by PhilGen.

On Coastwise Lighterage's appeal to the Court of Appeals, the

award was affirmed.

Issues:

(1) Whether Coastwise was transformed into a private carrier by

virtue of the contract it entered into with Pag-asa, and whether it
exercised the required degree of diligence
(2) Whether Philgen was subrogated into the rights of the
consignee against the carrier

Held:

(1) Pag-asa Sales, Inc. only leased three of petitioner's

vessels, in order to carry cargo from one point to another, but the
possession, command mid navigation of the vessels remained with
petitioner Coastwise Lighterage. Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier,
but remained a common carrier and was still liable as such. The
law and jurisprudence on common carriers both hold that the mere
proof of delivery of goods in good order to a carrier and the
subsequent arrival of the same goods at the place of destination
in bad order makes for a prima facie case against the carrier. It
follows then that the presumption of negligence that attaches to
common carriers, once the goods it is sports are lost, destroyed
or deteriorated, applies to the petitioner. This presumption, which
is overcome only by proof of the exercise of extraordinary
diligence, remained unrebutted in this case. Jesus R. Constantino,
the patron of the vessel "Coastwise 9" admitted that he was not
licensed. Coastwise Lighterage cannot safely claim to have
exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel
which eventually met the fateful accident. It may also logically,
follow that a person without license to navigate, lacks not just the
skill to do so, but also the utmost familiarity with the usual and
safe routes taken by seasoned and legally authorized ones. Had
the patron been licensed he could be presumed to have both the
skill and the knowledge that would have prevented the vessel's
hitting the sunken derelict ship that lay on their way to Pier 18. As
a common carrier, petitioner is liable for breach of the contract of
carriage, having failed to overcome the presumption of negligence
with the loss and destruction of goods it transported, by proof of
its exercise of extraordinary diligence.

(2) Article 2207 of the Civil Code is founded on the well-

settled principle of subrogation. If the insured property is
destroyed or damaged through the fault or negligence of a party
other than the assured, then the insurer, upon payment to the
assured will be subrogated to the rights of the assured to recover
from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated
as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any private of contract or
upon written assignment of, claim. It accrues simply upon
payment of the insurance claim by the insurer.
 MACONDRAY & CO., INC. vs. PROVIDENT INSURANCE
CORPORATION (G.R. No. 154305. December 9, 2004)

FACTS:

CANPOTEX SHIPPING SERVICES LIMITED INC (CANPOTEX),

shipped and loaded on board the vessel M/V Trade Carrier, 5000
metric tons of Standard Grade Muriate of Potash in bulk for
transportation to and delivery at the port of Sangi, Toledo City,
Cebu, in favor of ATLAS FERTILIZER CORPORATION (ATLAS).
Subject shipments were insured with PROVIDENT against all risks.

When the shipment arrived, ATLAS discovered that the

shipment sustained losses. PROVIDENT paid for losses. Formal
claims was then filed with TRADE & TRANSPORT and
MACONDRAY but the same refused and failed to settle the same.

MACONDRAY denied liability over the losses for having no

absolute relation with defendant TRADE AND TRANSPORT, the
alleged operator of the vessel who transported the subject
shipment; that accordingly, MACONDRAY is the local
representative of the CANPOTEX; the charterer of M/V TRADE
CARRIER and not party to this case; that it has no control over the
acts of the captain and crew of the Carrier and cannot be held
responsible for any damage arising from the fault or negligence of
said captain and crew; that upon arrival at the port of Sangi,
Toledo City, Cebu, the M/V Trade Carrier discharged the full
amount of shipment.

ISSUE:

Whether or not MACONDRAY is an agent and thus liable for

any loss sustained by any party from the vessel owned by TRADE
& TRANSPORT.

RULING:

Yes. Although MACONDRAY is not an agent of TRADE &

TRANSPORT, it can still be the ship agent of the vessel M/V Trade
Carrier. Article 586 of the Code of Commerce states that a ship
agent is the person entrusted with provisioning or representing the
vessel in the port in which it may be found. Hence, whether acting
as agent of the owner of the vessel or as agent of the charterer,
petitioner will be considered as the ship agent and may be held
liable as such, as long as the latter is the one that provisions or
represents the vessel. The trial court and the CA found evidence
that petitioner was appointed as local agent of the vessel,
represented such vessel in the Port of Manila and was the ship
agent. As ship agent, it may be held civilly liable in certain
instances. The Code of Commerce provides:

Article 586. The shipowner and the ship agent shall be civilly
liable for the acts of the captain and for the obligations contracted
by the latter to repair, equip, and provision the vessel, provided
the creditor proves that the amount claimed was invested for the
benefit of the same.

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 equipments and the freight it may have
earned during the voyage.
COASTWISE LIGHTERAGE CORPORATION vs COURT OF APPEALS
245 SCRA 796 (1995)

Facts:

Pag-asa Sales, Inc. entered into a contract to transport

molasses from the province of Negros to Manila with Coastwise
Lighterage Corporation, using the latter's dumb barges. The
barges were towed in tandem by the tugboat MT Marica, which is
likewise owned by Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of

the barges, "Coastwise 9", struck an unknown sunken object. The
forward buoyancy compartment was damaged, and water gushed
in through a hole. As a consequence, the molasses at the cargo
tanks were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to
reject the shipment of molasses as a total loss.

Thereafter, Pag-asa Sales, Inc. filed a formal claim with the

insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company and against the carrier, herein
petitioner, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa
Sales, Inc., the amount of P700,000.00, representing the value of
the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise

Lighterage before the Regional Trial Court of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa Sales,
Inc. for the latter's lost cargo. PhilGen now claims to be
subrogated to all the contractual rights and claims which the
consignee may have against the carrier, which is presumed to
have violated the contract of carriage.

Issue:

1. Whether or not petitioner Coastwise Lighterage was

transformed into a private carrier by virtue of the contract of
affreightment.
 2. Whether or not the insurer was subrogated into the rights
of the consignee against the carrier.

Ruling:

1. No. A contract of affreightment is one in which the owner

of the vessel leases part or all of its space to haul goods for others.
It is a contract for special service to be rendered by the owner of
the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for
his payment of the charter hire. An owner who retains possession
of the ship though the hold is the property of the charterer,
remains liable as carrier and must answer for any breach of duty
as to the care, loading and unloading of the cargo.

Petitioner admits that the contract it entered into with the

consignee was one of affreightment. Pag-asa Sales, Inc. only
leased three of petitioner's vessels, in order to carry cargo from
one point to another, but the possession, command and navigation
of the vessels remained with petitioner Coastwise Lighterage.

Therefore, Coastwise Lighterage, by the contract of affreightment,

was not converted into a private carrier, but remained a common
carrier and was still liable as such.

2. Yes. Article 2207 of the Civil Code provides that if the

plaintiffs 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 violated the contract.

Article 2207 of the Civil Code is founded on the well-settled

principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the
assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the
wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operated as an equitable
assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused
the loss. The right of 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.

Undoubtedly, upon payment by respondent insurer PhilGen of

the amount of P700,000.00 to Pag-asa Sales, Inc., the consignee
of the cargo of molasses totally damaged while being transported
by petitioner Coastwise Lighterage, the former was subrogated
into all the rights which Pag-asa Sales, Inc. may have had against
the carrier, herein petitioner Coastwise Lighterage.
 Philippines First Insurance Co

vs

Wallem Philippines Shipping

582 SCRA 457 (2009)

Facts:

October 1995, Anhui Chemicals Import and Export Corp.

loaded on board M/S Offshore Master a shipment consisting of
sodium sulphate anhydrous, complete and in good order for
transportation to and delivery at the port of Manila for consignee,
covered by a clean bill of lading.

On October 16, 1995, the shipment arrived in port of manila

and was discharged which caused various degrees of spillage and
losses as evidence by the turn over survey of the arrastre operator.
Asia Star Freight delivered the shipments from pier to the
consignees in Quezon City, during the unloading, it was found by
the consignee that the shipment was damaged and in bad
condition.

April 29, 1996, the consignee filed a claim with Wallem for
the value of the damaged shipment, to no avail. Since the shipment
was insured with Phil. First Insurance against all risks in the
amount of P2,470,213.50. The consignee filed a claim against the
First Insurance. First insurance after examining the turn-over
survey, the bad order certificate and other documents paid the
consignee but later on sent a demand letter to Wallem for the
recovery of the amount paid to the consignee (in exercise of its
right of subrogation). Wallem did not respond to the claim.

First Insurance then instituted an action before RTC for

damages against Wallem. RTC held the shipping company and the
arrastre operator solidarily liable since both are charged with the
obligation to deliver the goods in good order condition.

The CA reversed and set aside the RTC's decision. CA says

that there is no solidary liability between the carrier and the
arrastre because it was clearly established that the damage and
losses of the shipment were attributed to the mishandling by the
arrastre operator in the discharge of the shipment.

Issues:

1. Whether or not the Court of Appeals erred in not holding that as

a common carrier, the carriers duties extend to the obligation to
safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of
the damaged shipment;

3. Whether or not Wallems failure to answer the extra judicial

demand by petitioner for the cost of the lost/damaged shipment is
an implied admission of the formers liability for said goods;

4. Whether or not the courts below erred in giving credence to the

testimony of Mr. Talens.

Ruling:

(1) Yes, the vessel is a common carrier, and thus the

determination of the existence or absence of liability will be
gauged on the degree of diligence required of a common carrier.
(2) The first and second issue will be resolved concurrently.

(3) The damage of the shipment was documented by the

turn0over survey and request for bad order survey, with these
documents, petitioner insist that the shipment incurred damages
while still in the care and responsibility of Wallem before it was
turned over to the arrastre operator. However, RTC found the
testimony of Mr. Talens (cargo surveyor) that the loss was caused
by the mishandling of the arrastre operator. This mishandling was
affirmed by the CA which was the basis for declaring the arrastre
operator solely liable for the damage.

It is established that damage or losses were incurred by the

shipment during the unloading. As common carrier, they are bound
to observe extraordinary diligence in the vigilance over the goods
transported by them. Subject to certain exceptions enumerated
under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from
the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same
are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.

For marine vessels, Article 619 of the Code of Commerce

provides that the ship captain is liable for the cargo from the time
it is turned over to him at the dock or afloat alongside the vessel
at the port of loading, until he delivers it on the shore or on the
discharging wharf at the port of unloading, unless agreed
otherwise.

COGSA provides that under every contract of carriage of

goods by sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care, and discharge of such goods,
shall be subject to the responsibilities and liabilities and entitled
to the rights and immunities set forth in the Act. Section 3 (2)
thereof then states that among the carriers responsibilities are to
properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

On the other hand, the functions of an arrastre operator

involve the handling of cargo deposited on the wharf or between
the establishment of the consignee or shipper and the ship's
tackle. Being the custodian of the goods discharged from a vessel,
an arrastre operator's duty is to take good care of the goods and
to turn them over to the party entitled to their possession.

Handling cargo is mainly the arrastre operator's principal

work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage
to shipments under its custody. Thus, in this case the appellate
court is correct insofar as it ruled that an arrastre operator and a
carrier may not be held solidarily liable at all times. But the precise
question is which entity had custody of the shipment during its
unloading from the vessel?

The records are replete with evidence which show that the
damage to the bags happened before and after their discharge and
it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem.
 It is settled in maritime law jurisprudence that cargoes while
being unloaded generally remain under the custody of the carrier.
In the instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the
carrier. Consequently, the carrier is liable for the damage or losses
caused to the shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial courts finding of
actual damages in the amount of P397,879.69 has to be sustained.

(4) Mr Talens credibility must be respected.

CA's decision is set aside. Wallem is liable.

INTER-ORIENT MARITIME ENTERPRISES, INC., SEA HORSE SHIP,
INC. and TRENDA WORLD SHIPPING (MANILA), INC.,

petitioners, vs.

NATIONAL LABOR RELATIONS COMMISSION and RIZALINO D.

TAYONG, 235 SCRA 2678 (1994)

FACTS:

Respondents. On 16 July 1989, while at the Port of Hongkong

and in the process of unloading cargo, Captain Tayong received a
weather report that a storm" code-named “Gordon” would shortly
hit Hongkong. Precautionary measures were taken to secure the
safety of the vessel, as well as its crew. On &1 July 1989, Captain
Tayong followed-up the requisition by the former captain of the
Oceanic Mindoro for supplies of oxygen and acetylene, necessary
for the welding-repair of the vessel*s leaking turbo-charger and
the economizer.

While the vessel was en route from Hongkong to Singapore,

Captain Tayong reported that the vessel had stopped in mid-ocean
for six (6) hours and forty-five (45) minutes due to a leaking
economizer. He was instructed to shut down economizer and use
the auxiliary boiler instead. When the vessel arrived at the port of
Singapore, the Chief Engineer reminded Captain Tayong that the
oxygen and acetylene supplies had not been delivered.

Captain Tayong called the shipowner, Sea Horse -hip

Management, Ltd., in 4ondonand informed the" that the departure
of the vessel for South Africa may be affected because of the delay
in the delivery of the supplies. He was advised to contact Mr.
Clark, the Technical Director, for a solution for the supply of said
oxygen and acetylene. Mr. Clark responded that by shutting off
the water to the turbo chargers and using the auxiliary boiler,
there should be no further problems.

Captain Tayong, however, communicated to Sea Horse his

reservations regarding proceeding to South Africa without the
requested supplies, and was advised to wait for the supplies. On
August 1, 1989, the supplies were delivered and they immediately
sailed for Richard Bay.
 When the vessel arrived at the port of Richard Bay, South
Africa on 5ugust 16,1989, Captain Tayong was instructed to turn-
over his post to the new captain. He was thereafter repatriated to
the Philippines, without being informed of the charges against him.
The PO25 dismissed the complaint for illegal dismissal filed by
Captain Tayong, holding that there was valid cause for his
untimely repatriation.

The NLRC reversed and set aside the decision of the PO25
and directed petitioners to pay the Captain (a) his salary for the
unexpired portion of the contract at: USS 1900.00 a month, plus
one (1) month leave benefit; and (b)attorney’s fees equivalent to
ten percent (10) of the total award due.

Issue:

Whether or not Capt. Tayong*s refusal to sail from Singapore

to South Africa without the supply of said oxygen and acetylene
was an actual and sufficient basis for the alleged loss of trust or
confidence on the part of the petitioner?

Ruling:

Master or captain, for purposes of maritime commerce, is

one who has command a vessel. A captain commonly performs
three (3) distinct roles; (1) he is a general agent of the shipowner;
(2) he is a representative of the country under whose flag he
navigates. Of these roles, by far the most important is the role
performed by the captain as commander of vessel; for such role
(which, to our mind, is analogous to that of Chief Executive
Officer”. (CEO) of a present -day corporate enterprise) has to do
with the operation and preservation of the vessel during its voyage
and the protection of the passengers (if any) and crew and cargo.

It is a basic principle of admiralty law that in navigating a

merchantman, the master must be left free to exercise his own
best judgement. The requirements of safe navigation compel us to
reject any suggestion that the judgement and discretion of the
captain of a vessel may be confined within a straitjacket, even in
this age of electronic communications. Indeed, if the ship captain
is convinced, as a reasonably prudent and competent mariner
acting in good faith that the shipowner’s pr ship agent’s
instructions insisted upon by radio or telefax from their offices
thousand miles away) will result, in the very specific
circumstances facing him, in imposing unacceptable risks of loss
or serious danger to ship or crew, he cannot casually seek
absolution from his responsibility, if a marine casualty occurs, in
such instructions.

The critical question, therefore, is whether or not Captain

Tayong had reasonable grounds to believe that the safety of the
vessel and the crew under his command or the possibility of
substantial delay at sea required him to wait for the delivery of the
supplies needed for the repair of the turbo-charger and the
economizer before embarking on the long voyage.

Under all the circumstances of this case, we, along with the
NLRC, are unable to hold that captain Tayong’s decision (arrived
at after consultation with the vessel’s Chief Engineer) to wait
seven (7) hours in Singapore for the delivery on board the Oceanic
Mindoro of the requisitioned supplies needed for the welding-
repair, on board the ship, of the turbo-charger and the economizer
equipment of the vessel, constituted "merely arbitrary, capricious
or grossly insubordinate behaviour on his part.
 CRISLYNDON T. SADAGNOT vs. REINIER PACIFIC
INTERNATIONAL SHIPPING, INC. and
NEPTUNE SHIPMANAGEMENT
SERVICES, PTE., LTD. of SINGAPORE, G.R. No. 152636, August 8,
2007

FACTS:

Respondents hired the petitioner as Third Officer of the

vessel MV Baotrans. Petitioner alleged that while on board
MV Baotrans, the vessels Master ordered him to perform hatch
stripping, a deck work.Petitioner refused the order on the ground
that it was not related to his duties as Third Officer. Petitioner
alleged that when the order was issued, he was on watch standing
duty and was doing nautical publications as required by standard
maritime practice.

On 9 May 1996, petitioner filed an action for illegal dismissal,

non-payment of allotment, termination pay, damages, and
attorneys fees against respondents. Respondents alleged that
petitioner was repatriated because of his willful disregard of and
failure to obey the Masters lawful orders. Respondents alleged
that petitioners refusal to obey the order constituted
insubordination and was a direct affront to the authority of the
Master.

The Court of Appeals noted that petitioners repatriation was

based on a report in the logbook duly signed by the Master and the
Chief Officer.

ISSUE:

1. Whether the Court of Appeals erred in adopting the logbook

entry as evidence of petitioners misconduct.
2. Whether petitioner was validly dismissed from
employment.
RULING:

1. No. The ships logbook is the official record of a ships voyage

which its captain is obligated by law to keep. It is where the
captain records the decisions he has adopted, a summary of
the performance of the vessel, and other daily event. The
entries made in the ships logbook by a person performing a
duty required by law are prima facie evidence of the facts
stated in the logbook. Hence, we sustain the Court of
Appeals in giving weight to the logbook entry.

2. Yes. The petitioner was validly dismissed. Petitioner’s duties

as a Third Officer are as follows:

2.2.4 INSTRUCTIONS TO THE THIRD OFFICER (3/0)

The Third Officer reports to the Master on navigational

matters and the Chief Officer on cargo,
maintenance and operational matters.

2.2.4.1 The Third Officer shall be directly responsible to

the Chief Officer who will assign him to duties
both at sea and in port.

2.2.4.6 The Third Officer shall carry out duties

assigned by the Master other than those
mentioned herewith.

Petitioners duties clearly indicate that he shall carry out

duties assigned by the Master. Petitioner cannot claim that the
order to assist in hatch stripping was beyond his duties as a Third
Officer because it is covered under duties assigned by the
Master. Petitioner insists that there was no urgent need to perform
deck work at the time the Master issued the order since loading
was still 12 days from the time he was ordered to do hatch
stripping. The urgency of the work to be done is within the sound
discretion of the Master and is not for petitioner to
decide. Petitioners attitude only emphasized his disposition to
disobey the Master.
 Article 282 of the Labor Code provides that an employer
may terminate an employment for any of the following
causes:

(a) Serious misconduct or willful disobedience by the

employee of the lawful orders of his employer or
representative in connection with his work;

xxxx

Willful disobedience requires the concurrence of two

requisites: (a) the employees assailed conduct must have been
willful, that is, characterized by a wrongful and perverse attitude;
and (b) the order violated must have been reasonable, lawful,
made known to the employee, and must pertain to the duties
which he had been engaged to discharge. Petitioners duties
include duties assigned by the Master, we cannot sustain
petitioners allegation that the order is not part of his duties as a
Third Officer. Since petitioner was dismissed from employment for
a valid cause, he is not entitled to any salary for the unexpired
portion of his employment contract.
 Trans-Asia Shipping vs. Court of Appeals

G.R. No. 118126. March 4, 1996

Facts:

Plaintiff Atty. Renato Arroyo bought a ticket from herein

petitioner for the voyage of M/V Asia Thailand Vessel to Cagayan
de Oro from Cebu City. Arroyo boarded the vessel in the evening of
November 12, 1991 at around 5:30. At that instance, plaintiff
noticed that some repair works were being undertaken on the
evening of the vessel. The vessel departed at around 11:00 in the
evening with only one engine running. After an hour of slow
voyage, vessel stopped near Kawit Island and dropped its anchor
threat. After an hour of stillness, some passenger demanded that
they should be allowed to return to Cebu City for they were no
longer willing to continue their voyage to Cagayan de Oro City. The
captain acceded to their request and thus the vessel headed back
to Cebu City. At Cebu City, the plaintiff together with the other
passengers who requested to be brought back to Cebu City was
allowed to disembark. Thereafter, the vessel proceeded to
Cagayan de Oro City. Plaintiff, the next day boarded the M/V Asia
Japan for its voyage to Cagayan de Oro City, likewise a vessel of
the defendant. On account of this failure of defendant to transport
him to the place pf destination on November 12, 1991, plaintiff
filed before the trial court a complaint for damages against the
defendant.

The trial court rendered its decision and ruled that the action
was only for breach of contract, with Articles 1170, 1172, and
1173 of the Civil Code as applicable law - not Article 2180 of the
same Code.

The Court of Appeals reversed the trial courts decision by

applying Article 1755 in relation to Articles 2201, 2208, 2217, and
2232 of the Civil Code.

Issue:

Whether or not the failure of a common carrier to maintain

in seaworthy condition its vessel involved in a contract of carriage
a breach of its duty.

Ruling:

Yes. Undoubtedly, there was, between the petitioner and

private respondent a contract of carriage. Under Article 1733 of
the Civil Code, the petitioner was bound to observed extraordinary
diligence in ensuring the safety of the private respondent. That
meant that the petitioner was pursuant to the Article 1755 off the
said Code, bound to carry the private respondent safely as far as
human care and foresight could provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances. In this case, the Supreme Court is in full accord
with the Court of Appeals that the petitioner failed or discharged
this obligation.

Before commencing the contact of voyage, the petitioner

undertook some repairs on the cylinder head of one of the vessel’s
engines. But even before it could finish these repairs it allowed the
vessel to leave the port of origin on only one functioning engine,
instead of two. Moreover, even the lone functioning engine was not
in perfect condition at sometime after it had run its course, in
conked out. Which cause the vessel to stop and remain adrift at
sea, thus in order to prevent the ship from capsizing, it had to drop
anchor. Plainly, the vessel was unseaworthy even before the
voyage begun. For the vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with the
sufficient number of competent officers and crew. The Failure of
the common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.
 SINGA SHIP MANAGEMENT PHILS., INC., petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION and WINEFREDO Z.
SUA, respondents. 276 SCRA 201 (1997)

Facts:

Singa Ship Management Phils., Inc is the local manning agent

of the Singa Ship Management Pte., Ltd., a company based in
Singapore. While private respondent Winefredo Z. Sua was
employed by the petitioner as radio officer on board the Vessel
M/V Singa Wilstream. Petitoner herein filed a complaint against
private respondent before the POEA adjudication office for
desertion, insubordination and grace abuse of authority. Petitioner
alleged that when the M/V Singa Wilstream was anchored in Los
Angeles, California, private respondent and some members of the
crew, went on shore leave. By the end of the Day, the group missed
the last boat and hired a service boat to take them to the ship. The
group arrived late. The ship captain reprimanded them for
returning late and admonished private respondent in particular,
being the highest ranking member in the group. Private respondent
who was drunk shouted inappropriate remarks to the captain. That
made the captain order the Bosun Rodolfo Sarmiento to take
private respondent to his cabin who again cried out and hurled
invectives at the captain and the Bosun. The Bosun the proceeded
to the mess hall and seated with other crew members watching
television. Out of nowhere, private respondent appeared and went
to the Bosun uttering: “Why you want to challenge me?” Private
respondent then grabbed an air pistol from his waist and with the
pistol’s handle struck the Bosun hitting his Nape and forehead.
Luckily, the fight was prevented by the other crew members. Late
in the morning, chief officer Rakesh Nanda went down to inspect
the bunker and saw private respondent lowering his bag to the
bunker barge. The chief officer tried to dissuade private
respondent from leaving the ship. But private respondent refused
saying: “Sorry but I don’t want to sail with the captain!” He then
boarded the barge and left the ship. The chief officer then reported
to the captain who informed the Coast Guard of private
respondent’s desertion. The ship was left without a radio
officerand was not allowed to leave Los Angeles. The ship was
also placed on “off-hire” for two days until a replacement arrived.
Petitioner prayed for the imposition against private respondent of
the appropriate sanctions under POEA Standard Contract of
Employment. The POEA rendered its decision in favor of the
petitioner. Private respondent then appealed to the National Labor
Relations Commission where it modified the decision of the POEA
administrator after finding that private respondent did not
voluntarily resign but was dismissed by the ship captain.

Issue:

Whether or not the NLRC gravely abused its decision when it

reversed the POEA’s decision by misconstruing and making a
wrong interpretation of the act of “desertion”.

Ruling:

The Supreme Court affirmed the ruling of the NLRC.

"Desertion," in maritime law, is defined as:

"The act by which a seaman deserts and abandons a ship or

vessel, in which he had engaged to perform a voyage, before the
expiration of his time, and without leave. By desertion, in maritime
law, is meant, not a mere unauthorized absence from the ship,
without leave, but an unauthorized absence from the ship with an
intention not to return to her service; or as it is often expressed,
animo non revertendi, that is, with an intention to desert."[10]

Desertion has been defined as (1) a seaman's abandonment of duty

by quitting ship, not only without leave or permission, but without
justifiable cause, before termination of engagement; and (2) with
the intent of not returning to the ship's duty.It is essential that
there be an animo non revertendi, an intention not to return. Once
the facts constituting the abandonment and intent not to return
are proven, the seaman may be dismissed by the master, or he
may be suspended by the POEA for three years as minimum
penalty or delisted from the POEA registry as maximum penalty.

In the case at bar, private respondent's act of leaving the vessel

was precipitated by a heated argument between him and the ship
captain. Respondent arrived late from shore leave. The master
reprimanded him and refused to pay for their service boat. So he
shouted at the master "Fuck your ass captain! I don't want to sail
with you!" Later, he appeared at the crew mess hall and overheard
the bosun talking about him. This made him angry and he struck
the bosun with his pistol. A while later, private respondent was
seen with baggage in hand leaving the ship and uttering the words:
"Sorry, but I don't want to sail with the captain!"

Contrary to petitioner's allegations, the words private respondent

uttered do not indicate the firm intention to leave and not to return
to his job. At best, the words can be interpreted as expressing
what private respondent felt towards his master. They do not
unequivocably establish the intent to abandon his job, never to
return. Neither do his acts reinforce this intent to abandon. After
hurling invectives at the master, private respondent calmed down
and returned to his cabin. The record is silent as to the events that
occurred after he struck the bosun. In fine the totality of the
circumstances of the case does not show animo non revertendi
and private respondent cannot be deemed to have deserted the
vessel.

We agree with the finding of the respondent Commission that

private respondent was, at the height of their argument, ordered
by the captain to disembark from the vessel. To the mind of private
respondent, the order to disembark was an order of dismissal from
his job especially after he had assaulted the bosun. This explains
why after the incident he did not report to petitioner's office in
Manila nor did he file a complaint with the POEA. Moreover, being
a seaman and radio officer was private respondent's means of
livelihood. It is hard to believe that he, simply because of a conflict
with the ship captain, would decide to abandon his work and not
return to it. As noted by the Solicitor General, private respondent
would not intentionally get himself stranded in a foreign land
without means of support if he was not dismissed. The fact that
he did not voluntarily resign but was dismissed from his
employment is more in keeping with the ordinary experience of
mankind.
 AMERICAN HOME ASSURANCE V. COURT OF APPEALS

208 SCRA 343 (1992)

FACTS:

That on or about June 19, 1988, Cheng Hwa Pulp Corporation

shipped 5,000 bales of bleached kraft pulp from Haulien, Taiwan
on board "SS Kaunlaran", which is owned and operated by herein
respondent National Marine Corporation.The said shipment was
consigned to Mayleen Paper, Inc. of Manila, which insured the
shipment with herein petitioner American Home Assurance Co. as
evidenced by Bill of Lading.

On June 22, 1988, the shipment arrived in Manila and was

discharged into the custody of the Marina Port Services, Inc., for
eventual delivery to the consignee-assured. However, upon
delivery of the shipment to Mayleen Paper, Inc., it was found that
122 bales had either been damaged or lost.

Mayleen Paper, Inc. then duly demanded indemnification from

respondent National Marine Corporation for the aforesaid
damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded.

As the shipment was insured with petitioner, Mayleen Paper,

Inc. sought recovery from the former. Upon demand and
submission of proper documentation, American Home Assurance
paid Mayleen Paper, Inc. for the damages/losses suffered by the
shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought

suit against respondent for the recovery by filing a complaint for
recovery of sum of money. Respondent, National Marine
Corporation, filed a motion to dismiss stating that American Home
Assurance Company had no cause of action based on Article 848
of the Code of Commerce.

On the other hand, petitioner countered that Article 848 does

not apply as it refers to averages and that a particular average
presupposes that the loss or damages is due to an inherent defect
of the goods, an accident of the sea, or a force majeure or the
negligence of the crew of the carrier, while claims for damages
due to the negligence of the common carrier are governed by the
Civil Code provisions on Common Carriers.
ISSUE:

Whether or not the applicable rule is the Code of Commerce

or a Civil Code.

HELD:

This issue has been resolved by this Court in National

Development Co. v. C.A. (164 SCRA 593 [1988]; citingEastern
Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it
was held that "the law of the country to which the goods are to be
transported persons the liability of the common carrier in case of
their loss, destruction or deterioration." (Article 1753, Civil Code).
Thus, for cargoes transported to the Philippines as in the case at
bar, the liability of the carrier is governed primarily by the Civil
Code and in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of
Commerce and by special laws.

But more importantly, the Court ruled that common carriers

cannot limit their liability for injury or loss of goods where such
injury or loss was caused by its own negligence. Otherwise stated,
the law on averages under the Code of Commerce cannot be
applied in determining liability where there is negligence.

On the other hand, Article 1734 of the Civil Code provides

that common carriers are responsible for loss, destruction or
deterioration of the goods, unless due to any of the causes
enumerated therein. It is obvious that the case at bar does not fall
under any of the exceptions. Thus, American Home Assurance
Company is entitled to reimbursement of what it paid to Mayleen
Paper, Inc. as insurer.
 PHILIPPINE HOME ASSURANCE CORPORATION, petitioner,
vs. COURT OF APPEALS and EASTERN SHIPPING LINES,
INC., respondents.

G.R. No. 106999. June 20, 1996

Facts:

Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern

Explorer in Kobe, Japan, the following shipment for carriage to
Manila and Cebu, freight pre-paid and in good order and
condition, viz: (a) two (2) boxes internal combustion engine parts,
consigned to William Lines, Inc. under Bill of Lading No. 042283;
(b) ten (10) metric tons (334 bags) ammonium chloride, consigned
to Orca's Company under Bill of Lading No. KCE-12; (c) two
hundred (200) bags Glue 300, consigned to Pan Oriental Match
Company under Bill of Lading No. KCE-8; and (d) garments,
consigned to Ding Velayo under Bills of Lading Nos. KMA-73 and
KMA-74.

While the vessel was off Okinawa, Japan, a small flame was
detected on the acetylene cylinder located in the accommodation
area near the engine room on the main deck level. As the crew
was trying to extinguish the fire, the acetylene cylinder suddenly
exploded sending a flash of flame throughout the accommodation
area, thus causing death and severe injuries to the crew and
instantly setting fire to the whole superstructure of the
vessel. The incident forced the master and the crew to abandon
the ship.

Thereafter, SS Eastern Explorer was found to be a constructive

total loss and its voyage was declared abandoned.

Several hours later, a tugboat under the control of Fukuda

Salvage Co. arrived near the vessel and commenced to tow the
vessel for the port of Naha, Japan.

Fire fighting operations were again conducted at the said

port. After the fire was extinguished, the cargoes which were
saved were loaded to another vessel for delivery to their original
ports of destination. ESLI charged port. After the fire was
extinguished, the cargoes which were saved were loaded to
another vessel for delivery to their original ports of
destination. ESLI charged the consignees several amounts
corresponding to additional freight and salvage charges, as
follows: (a) for the goods covered by Bill of Lading No. 042283,
ESLI charged the consignee the sum of P1,927.65, representing
salvage charges assessed against the goods; (b) for the goods
covered by Bill of Lading No. KCE-12, ESLI charged the consignee
the sum of P2,980.64 for additional freight and P826.14 for salvage
charges against the goods; (c) for the goods covered by Bill of
Lading No. KCE-8, ESLI charged the consignee the sum of
P3,292.26 for additional freight and P4,130.68 for salvage charges
against the goods; and (d) for the goods under Bills of Lading Nos.
KMA-73 and KMA-74, ESLI charged the consignee the sum of
P8,337.06 for salvage charges against the goods.

The charges were all paid by Philippine Home Assurance

Corporation (PHAC) under protest for and in behalf of the
consignees.

The trial court ruled in favor of ESLI. Upon appeal, the CA

affirmed the ruling of the lower court.

Issues:

1. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH

APPROVAL THE TRIAL COURT'S FINDINGS THAT THE
BURNING OF THE SS "EASTERN EXPLORER," RENDERING IT
A CONSTRUCTIVE TOTAL LOSS, IS A NATURAL DISASTER
OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN,
DESPITE EXISTING JURISPRUDENCE TO THE CONTRARY.
2. THE RESPONDENT COURT ARBITRARILY RULED THAT THE
BURNING OF THE SS "EASTERN EXPLORER" WAS NOT THE
FAULT AND NEGLIGENCE OF RESPONDENT EASTERN
SHIPPING LINES
3. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE
TRIAL COURT'S RULING THAT PETITIONER WAS LIABLE TO
RESPONDENT CARRIER FOR ADDITIONAL FREIGHT AND
SALVAGE CHARGES.

Ruling:

In the case at bar, it is not disputed that a small flame was

detected on the acetylene cylinder and that by reason thereof, the
same exploded despite efforts to extinguish the fire. Neither is
there any doubt that the acetylene cylinder, obviously fully loaded,
was stored in the accommodation area near the engine room and
not in a storage area considerably far, and in a safe distance, from
the engine room. Moreover, there was no showing, and none was
alleged by the parties, that the fire was caused by a natural
disaster or calamity not attributable to human agency. On the
contrary, there is strong evidence indicating that the acetylene
cylinder caught fire because of the fault and negligence of
respondent ESLI, its captain and its crew.

First, the acetylene cylinder which was fully loaded should not
have been stored in the accommodation area near the engine room
where the heat generated therefrom could cause the acetylene
cylinder to explode by reason of spontaneous
combustion.Respondent ESLI should have easily foreseen that the
acetylene cylinder, containing highly inflammable material, was in
a real danger of exploding because it was stored in close proximity
to the engine room.

Second, respondent ESLI should have known that by storing

the acetylene cylinder in the accommodation area supposed to be
reserved for passengers, it unnecessarily exposed its passengers
to grave danger and injury. Curious passengers, ignorant of the
danger the tank might have on humans and property, could have
handled the same or could have lighted and smoke cigarettes
while repairing in the accommodation area.

Third, the fact that the acetylene cylinder was checked, tested
and examined and subsequently certified as having complied with
the safety measures and standards by qualified experts before it
was loaded in the vessel only shows to a great extent that
negligence was present in the handling of the acetylene cylinder
after it was loaded and while it was on board the ship. Indeed, had
the respondent and its agents not been negligent in storing the
acetylene cylinder near the engine room, then that same would
not have leaked and exploded during the voyage.

Verily, there is no merit in the finding of the trial court to which

respondent court erroneously agreed that the fire was not fault or
negligence of respondent but a natural disaster or calamity. The
records are simply wanting in this regard.

The Statement of Facts and the Marine Note of Protest issued

by Captain Tiburcio A. Licaylicay, we find the same impressed with
merit because said documents are hearsay evidence. Capt.
Licaylicay, Master of S.S. Eastern Explorer who issued the said
documents, was not presented in court to testify to the truth of
the facts he stated therein; instead, respondent ESLI presented
Junpei Maeda, its Branch Manager in Tokyo and Yokohama, Japan,
who evidently had no personal knowledge of the facts stated in
the documents at issue. It is clear from Section 36, Rule 130 of the
Rules of Court that any evidence, whether oral or documentary, is
hearsay if its probative value is not based on the personal
knowledge of the witness but on the knowledge of some other
person not on the witness stand. Consequently, hearsay evidence,
whether objected to or not, has no probative value unless the
proponent can show that the evidence falls within the exceptions
to the hearsay evidence rule. It is excluded because the party
against whom it is presented is deprived of his right and
opportunity to cross-examine the persons to whom the statements
or writings are attributed.

On the issue of whether or not respondent court committed an

error in concluding that the expenses incurred in saving the cargo
are considered general average, we rule in the affirmative. As a
rule, general or gross averages include all damages and expenses
which are deliberately caused in order to save the vessel, its
cargo, or both at the same time, from a real and known risk. While
the instant case may technically fall within the purview of the said
provision, the formalities prescribed under Article 813 and 814 of
the Code of Commerce in order to incur the expenses and cause
the damage corresponding to gross average were not complied
with. Consequently, respondent ESLI's claim for contribution from
the consignees of the cargo at the time of the occurrence of the
average turns to naught.

Presiding from the foregoing premises, it indubitably follows

that the cargo consignees cannot be made liable to respondent
carrier for additional freight and salvage charges. Consequently,
respondent carrier must refund to herein petitioner the amount it
paid under protest for additional freight and salvage charges in
behalf of the consignee.
 FAR EASTERN SHIPPING COMPANY vs.

COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY

G.R. No. 130068; October 1, 1998

FACTS:

M/V PAVLODAR, owned and operated by the Far Eastern

Shipping Company (FESC), arrived at the Port of Manila and was
assigned Berth 4 of the Manila International Port, as its berthing
space. Gavino, who was assigned by the Appellant Manila Pilots'
Association to conduct the docking maneuvers for the safe
berthing, boarded the vessel at the quarantine anchorage and
stationed himself in the bridge, with the master of the vessel,
Victor Kavankov, beside him. After a briefing of Gavino by
Kavankov of the particulars of the vessel and its cargo, the vessel
lifted anchor from the quarantine anchorage and proceeded to the
Manila International Port. The sea was calm and the wind was
ideal for docking maneuvers. When the vessel reached the
landmark, one-half mile from the pier, Gavino ordered the engine
stopped. When the vessel was already about 2,000 feet from the
pier, Gavino ordered the anchor dropped. Kavankov relayed the
orders to the crew of the vessel on the bow. The left anchor, with
two (2) shackles, were dropped. However, the anchor did not take
hold as expected. The speed of the vessel did not slacken. A
commotion ensued between the crew members. After Gavino
noticed that the anchor did not take hold, he ordered the engines
half-astern. Abellana, who was then on the pier apron, noticed that
the vessel was approaching the pier fast. Kavankov likewise
noticed that the anchor did not take hold. Gavino thereafter gave
the "full-astern" code. Before the right anchor and additional
shackles could be dropped, the bow of the vessel rammed into the
apron of the pier causing considerable damage to the pier as well
as the vessel.

ISSUES:

(1) Is the pilot of a commercial vessel, under compulsory pilotage,

solely liable for the damage caused by the vessel to the pier, at
the port of destination, for his negligence?

(2) Would the owner of the vessel be liable likewise if the damage
is caused by the concurrent negligence of the master of the vessel
and the pilot under a compulsory pilotage?
RULING:

(1) Generally speaking, the pilot supersedes the master for

the time being in the command and navigation of the ship, and his
orders must be obeyed in all matters connected with her
navigation. He becomes the master pro hac vice and should give
all directions as to speed, course, stopping and reversing
anchoring, towing and the like. And when a licensed pilot is
employed in a place where pilotage is compulsory, it is his duty to
insist on having effective control of the vessel, or to decline to act
as pilot. Under certain systems of foreign law, the pilot does not
take entire charge of the vessel, but is deemed merely the adviser
of the master, who retains command and control of the navigation
even in localities where pilotage is compulsory. It is quite common
for states and localities to provide for compulsory pilotage, and
safety laws have been enacted requiring vessels approaching
their ports, with certain exceptions, to take on board pilots duly
licensed under local law. The purpose of these laws is to create a
body of seamen thoroughly acquainted with the harbor, to pilot
vessels seeking to enter or depart, and thus protect life and
property from the dangers of navigation. Upon assuming such
office as compulsory pilot, Capt. Gavino is held to the universally
accepted high standards of care and diligence required of a pilot,
whereby he assumes to have skill and knowledge in respect to
navigation in the particular waters over which his license extends
superior to and more to be trusted than that of the master. He is
not held to the highest possible degree of skill and care, but must
have and exercise the ordinary skill and care demanded by the
circumstances, and usually shown by an expert in his profession.
Under extraordinary circumstances, a pilot must exercise
extraordinary care. In this case, Capt. Gavino failed to measure up
to such strict standard of care and diligence required of pilots in
the performance of their duties. As pilot, he should have made sure
that his directions were promptly and strictly followed.

(2) The negligence on the part of Capt. Gavino is evident; but

Capt. Kabancov is no less responsible for the allision. The master
is still in command of the vessel notwithstanding the presence of
a pilot. A perusal of Capt. Kabankov's testimony makes it apparent
that he was remiss in the discharge of his duties as master of the
ship, leaving the entire docking procedure up to the pilot, instead
of maintaining watchful vigilance over this risky maneuver. The
owners of a vessel are not personally liable for the negligent acts
of a compulsory pilot, but by admiralty law, the fault or negligence
of a compulsory pilot is imputable to the vessel and it may be held
liable therefor in rem. Where, however, by the provisions of the
statute the pilot is compulsory only in the sense that his fee must
be paid, and is not in compulsory charge of the vessel, there is no
exemption from liability. Even though the pilot is compulsory, if his
negligence was not the sole cause of the injury, but the negligence
of the master or crew contributed thereto, the owners are liable.
But the liability of the ship in rem does not release the pilot from
the consequences of his own negligence. The master is not
entirely absolved of responsibility with respect to navigation when
a compulsory pilot is in charge. Except insofar as their liability is
limited or exempted by statute, the vessel or her owners are liable
for all damages caused by the negligence or other wrongs of the
owners or those in charge of the vessel. As a general rule, the
owners or those in possession and control of a vessel and the
vessel are liable for all natural and proximate damages caused to
persons or property by reason of her negligent management or
navigation.
 Luzon Stevedoring Corporation vs. Court of Appeals

(156 SCRA 169)

Facts:

MV Fernando Escano (a passenger ship) owned by Escano,

had a maritime collision with the tanker CAVITE owned by LSCO
and, as a result the passenger ship sunk. An action was filed by
Escano against Luzon Stevedoring Corp. The trial court held that
LSCO Cavite was to blame for the collision and held that the claim
of Luzon, stating that its liability should be limited under Article
837 of the Code of Commerce, has not been established. The Court
of Appeals affirmed the trial court. The SC also affirmed the CA.
Having two motions for reconsideration, the Supreme Court gave
course to the petition.

Issue:

Whether or not it is necessary for the owner to abandon the

vessel in order to claim limited liability under Article 837 of the
Code of Commerce.

Held:

Yes, abandonment is necessary to claim the limited liability

wherein it shall be limited to the value of the vessel with all the
appurtenances and freightage earned in the voyage. However, if
the injury was due to the ship owner’s fault, the ship owner may
not avail of his right to avail of limited liability by abandoning the
vessel.

Ship owner or agent’s real nature of the liability is embodied

in the Code of Commerce. Articles 587, 590 and 837 are intended
to limit the liability of the ship owner, provided that the owner or
agent abandons the vessel. Although Article 837 does not
specifically provide that in case of collision there should be
abandonment, to enjoy such limited liability, said article is a mere
amplification of the provisions of Articles 587 and 590 which
makes it a mere superfluity.
 The exception to Article 837 is when the vessel is totally lost
in which case there is no vessel to abandon, thus abandonment is
not required. Because of such loss, the liability of the owner or
agent is extinguished. However, they are still personally liable for
claims under the Workmen’s Compensation Act and for repairs on
the vessel prior to its loss.

In case of illegal or tortious acts of the captain, the liability

of the owner and agent is subsidiary. In such cases, the owner or
agent may avail of Article 837 by abandoning the vessel. But if the
injury is caused by the owner’s fault as where he engages the
services of an inexperienced captain or engineer, he cannot avail
of the provisions of Article 837 by abandoning the vessel. He is
personally liable for such damages. Since the petitioner did not
abandon the vessel, he cannot invoke the benefit of Article 837 to
limit his liability to the value of the vessel, all appurtenances and
freightage earned during the voyage.
 MANILA STEAMSHIP CO., INC. vs. INSA
ABDULHAMAN and LIM HONG TO

[G.R. No. L-9534, September 29, 1956.]

Facts:

From 7:00 to 8:00 o'clock in the evening of May 4, 1948, the M/L
"Consuelo V", laden with cargoes and passengers left the port of
Zamboanga City bound for Siokon. She was then towing a kumpit,
named "Sta. Maria Bay". The weather was good and fair. Among
her passengers were the plaintiff Insa Abdulhaman, his wife
Carimla Mora and their five children.On that same night the M/S
"Bowline Knot" was navigating from Maribojoc towards
Zamboanga.

Between 9:30 to 10:00 in the evening the dark clouds bloated

with rain began to fall and the gushing strong wind began to blow
steadily harder, lashing the waves into a choppy and roaring sea.
Such weather lasted for about an hour and then it became fair
although it was showering and the visibility was good enough.
When some of the passengers of the M/L "Consuelo V" were then
sleeping and some were lying down awake, all of a sudden they
felt the shocking collision of the M/L "Consuelo V" and a big
motorship, which later on was identified as the M/V "Bowline
Knot".

Because the M/L "Consuelo V" capsized, her crew and

passengers, before realizing what had happened, found
themselves swimming and floating on the crest of the waves and
as a result of which nine (9) passengers were dead and missing
and all the cargoes carried on said boat, including those of the
plaintiff. Before the collision, none of the passengers were warned
or informed of the impending danger as the collision was so
sudden and unexpected. All those rescued at sea were brought by
the M/V "Bowline Knot" to Zamboanga City.

In the Court of First Instance of Zamboanga, Insa Abdulhaman

filed a case against the Manila Steamship Co., owner of the M/S
"Bowline Knot", and Lim Hong To, owner of the M/L "Consuelo V",
to recover damages for the death of his (plaintiff's) five children
and loss of personal properties on board the M/L "Consuelo V" as
a result of a maritime collision between said vessel and the M/S
"Bowline Knot".

On appeal, the Court of Appeals affirmed the findings of the

Board of Marine Inquiry, that the commanding officer of the
colliding vessels had both been negligent in operating their
respective vessels which resulted to the collision. It held that the
owners of both vessels are solidarily liable to plaintiff for the
damages caused to him by the collision, under Article 827 of the
Code of Commerce; but exempted defendant Lim Hong To from
liability by reason of the sinking and total loss of his vessel, the
M/L "Consuelo V", while the other defendant, the Manila Steamship
Co., owner of the M/S "Bowline Knot", was ordered to pay all of
plaintiff's damages.

Issues:

1. Whether or not petitioner Manila Steamship Co. is exempt

from any liability to plaintiff under Article 1903 of the Civil Code
because it had exercised the diligence of a good father of a family
in the selection of its employees, at the time of the collision.

2. Whether or not respondent Lim Hong To should be exempted

from liability due to the total loss of his own vessel.

Ruling:

1. The defense is untenable. While it is true that plaintiff's

action against petitioner is based on a tort or quasi-delict, the tort
in question is not a civil tort under the Civil Code but a maritime
tort resulting in a collision at sea, governed by Articles 826-939 of
the Code of Commerce. Under Article 827 of the Code of
Commerce, in case of collision between two vessels imputable to
both of them, each vessel shall suffer her own damage and both
shall be solidarily liable for the damages occasioned to their
cargoes. The characteristic language of the law in making the
"vessels" solidarily liable for the damages due to the maritime
collision emphasizes the direct nature of the responsibilities on
account of the collision incurred by the shipowner under maritime
law, as distinguished from the civil law and mercantile law in
general. This direct responsibility is recognized in Article 618 of
the Code of Commerce under which the captain shall be civilly
liable to the ship agent, and the latter is the one liable to third
persons.

It is a general principle, well established in maritime law and

custom, that shipowners and ship agents are civilly liable for the
acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587); so that injured
parties may immediately look for reimbursement to the owner of
the ship, it being universally recognized that the ship master or
captain is primarily the representative of the owner (Standard Oil
Co. vs. Lopez Castelo, 42 Phil. 256, 260). This direct liability,
moderated and limited by the owner's right of abandonment of the
vessel and earned freight (Article 587), has been declared to exist,
not only in case of breached contracts, but also in cases of
tortious negligence.

The case of Walter S. Smith & Co. vs. Cadwallader Gibson

Lumber Co., 55 Phil. 517, invoked by petitioner, is not the point.
Said case treated of a civil tort, in that the vessel of the defendant,
allegedly negligently managed by its captain in the course of its
maneuvers to moor at plaintiff's wharf, struck the same and
partially demolished it, causing damage to plaintiff. Because the
tort allegedly committed was civil, the provisions of Article 1903
of the Civil Code were correctly applied. The present case, on the
other hand, involves tortious conduct resulting in a maritime
collision; hence, the liability of the shipowner is, as already stated,
governed by the provisions of the Code of Commerce and not by
the Civil Code.

2. Court of Appeals was in error in declaring the respondent Lim

Hong To, owner of the M/L "Consuelo V", exempt from liability to
the original plaintiff, Abdulhaman, in view of the total loss of his
own vessel, that sank as a result of the collision.

It is to be noted that both the master and the engineer of the

motor launch "Consuelo V" were not duly licensed as such. In
applying for permission to operate, despite the lack of properly
trained and experienced, crew, respondent Lim Hong To gave as a
reason "that the income derived from the vessel is insufficient to
pay licensed officers who demand high salaries", and expressly
declared: "That in case of any accident, damage or loss, I shall
assume full risk and responsibility for all the consequences
thereof."

His permit to operate, in fact, stipulated "that in case of any

accident, damage or loss, the registered owner thereof shall
assume full risk and responsibility for all the consequences
thereof, and that said vessel shall be held answerable for any
negligence, disregard or violation of any of the conditions herein
imposed and for any consequence arising from such negligence,
disregard or violations."

By operating with an unlicensed master, Lim Hong To

deliberately increased the risk to which the passengers and
shippers of cargo aboard the "Consuelo V" would be subjected. In
his desire to reap greater benefits in the maritime trade, Lim Hong
To willfully augmented the dangers and hazards to his vessel's
unwary passengers, who would normally assume that the launch
officers possessed the necessary skill and experience to evade
the perils of the sea. Hence, the liability of said respondent can
not be the identical to that of a shipowner who bears in mind the
safety of the passengers and cargo by employing duly licensed
officers.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 the average
is due to shipowner's own fault.
 THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-
appellant,

vs.THE INSULAR MARITIME CO., defendant-appellee.

G.R. No. L-21495 March 18, 1924

Facts:

The Government of the Philippine Islands seeks by this

action to recover from The Insular Maritime Company the sum of
P30,437.91 for repairs made by the Bureau of Commerce and
Industry on the motor ship Insular. The Insular Maritime Company
became the owner of one vessel only, the Insular, valued at
P150,000. On October 29, 1919, The Insular Maritime Company
asked the Bureau of Commerce and Industry to perform certain
repairs on the Insular. The Government consented and terminated
said repairs on November 29 of the same year. Subsequent
thereto, on April 15, 1920, the Insular suffered a total loss by fire.
The bill prepared by the chief accountant of the Bureau of
Commerce and Industry for work done on the motor ship Insular in
the amount of P30,437.91, was dated July 31, 1920. Collection of
the claim was attempted pursuant to formal demand made by the
Acting Insular Auditor of date April 30, 1921. It will thus be noted,
as was emphasized by the defense and by His Honor, the trial
judge, that no steps were taken by the Government to secure
payment for the repairs until after the loss of the vessel Insular.
The trial judge further found in effect, as a legal conclusion, that
the loss of the vessel Insular extinguished the obligation. The
Attorney-General challenges the correctness of this view.

Issue:

1)Whether or not the obligation of Insular Maritime Company to

pay the Bureau of Commerce and Industry for the repairs done has
extinguished.

Ruling:

No. The obligation to pay on the part of Insular Maritime

Company still exists.
 The decision of the trial judge was predicated on his
understanding of the provisions of article 591 of the Code of
Commerce in relation with other articles of the same Code, and
with the decision of this court in the case of Philippine Shipping
Co. vs. Garcia Vergara ([1906], 6 Phil., 281). As to the applicability
of article 591 of the Code of Commerce, there is nothing in the
language to denote that the liability of the owners of a vessel is
wiped out by the loss of that vessel. As to the applicability of the
decision in the case of Philippine Shipping Co. vs. Garcia Vergara,
supra, the facts are not the same. There, the owners and agents
of a vessel causing the loss of another vessel by collision were
held "not liable beyond the vessel itself causing the collision," but
were "not required to pay such indemnification for the reason that
the obligation thus incurred has been extinguished on account of
the loss of the thing bound for the payment thereof." Here; there
is a contractual relation which remains unaffected by the loss of
the thing concerned in the contract and which is governed
principally by the provisions of the Civil Code.

The rights and liabilities of owners of ships are in many

respects essentially the same as in the case of other owners of
things. As a general rule, the owners of a vessel and the vessel
itself are liable for necessary repairs. Naturally the total
destruction of the vessel extinguishes a maritime lien, as there is
no longer any res to which it can attach. But the total destruction
of the vessel does not affect the liability of the owners for repairs
on the vessel completed before its loss. The trial court was
accordingly right in its exposition of the fact but not in its
application of the law. Judgment must therefore be as it is hereby
reversed, and in lieu of the judgment appealed from, another shall
be entered here in favor of the plaintiff and against the defendant
for the sum of P30,437.91 with legal interest from July 20, 1921,
when the complaint was presented, until payment. Without special
findings as to costs in either instance, it is so ordered.
 PEDRO VASQUEZ V. COURT OF APPEALS 138 SCRA 553 (1985)

FACTS:

MV Pioneer Cebu left the port of Manila and bounded for

Cebu. Its officers were aware of the upcoming typhoon Klaring
that is already building up somewhere in Mindanao. There being
no typhoon signals on their route, they proceeded with their
voyage. When they reached the island of Romblon, the captain
decided not to seek shelter since the weather was still good. They
continued their journey until the vessel reached the island of
Tanguingui, while passing through the island the weather
suddenly changed and heavy rains fell. Fearing that they might hit
Chocolate island due to zero visibility, the captain ordered to
reverse course the vessel so that they could weather out the
typhoon by facing the strong winds and waves. Unfortunately, the
vessel struck a reef near Malapascua Island, it sustained a leak
and eventually sank.

The parents of the passengers who were lost due to that

incident filed an action against Filipinas Pioneer Lines for
damages. The defendant pleaded force majeure but the Trial Court
ruled in favor of the plaintiff.

On appeal to the Court of Appeals, it reversed the decision

of the lower stating that the incident was a force majeure and
absolved the defendants from liability.

ISSUE:

Whether or not Filipinas Pioneer Lines is liable for damages

and presumed to be at fault for the death of its passenger?

HELD:

The Supreme Court held the Filipinas Pioneer Lines failed to

observe that extraordinary diligence required of them by law for
the safety of the passengers transported by them with due regard
for all necessary circumstance and unnecessarily exposed the
vessel to tragic mishap.

Despite knowledge of the fact that there was a typhoon, they

still proceeded with their voyage relying only on the forecast that
the typhoon would weaken upon crossing the island of Samar. The
defense of caso fortuito is untenable.
 To constitute caso fortuito to exempt a person from liability
it necessary that the event must be independent from human will,
the occurrence must render it impossible for the debtor to fulfill
his obligation in a normal manner, the obligor must be free from
any participation or aggravation to the injury of the creditor.
Filipina Pioneer Lines failed to overcome that presumption of fault
or negligence that arises in cases of death or injuries to
passengers.
 Dionisia Abueg Et. Al vs. Bartolome San Diego

G.R. No. L-773 December 17, 1946 (77 Phil 32)

Facts:

The M/S San Diego II and the M/S Bartolome, while engaged
in fishing operations around Mindoro Island on Oct. 1, 1941 were
caught by a typhoon as a consequence of which they were sunk
and totally lost. Amado Nuñez, Victoriano Salvacion and Francisco
Oching while acting in their capacities perished in the shipwreck.

Counsel for the appellant cite article 587 of the Code of

Commerce which provides that if the vessel together with all her
tackle and freight money earned during the voyage are abandoned,
the agent's liability to third persons for tortious acts of the captain
in the care of the goods which the ship carried is extinguished;
article 837 of the same code which provides that in cases of
collision, the ship owners' liability is limited to the value of the
vessel with all her equipment and freight earned during the voyage
(Philippine Shipping company vs. Garcia, 6 Phil., 281), and article
643 of the same Code which provides that if the vessel and freight
are totally lost, the agent's liability for wages of the crew is
extinguished. From these premises counsel draw the conclusion
that appellant's liability, as owner of the two motor ships lost or
sunk as a result of the typhoon that lashed the island of Mindoro
on October 1, 1941, was extinguished.

Issue:

Whether the liability of the shipowner is extinguished by the

total loss of the ship?

Held:

The provisions of the Code of Commerce invoked by

appellant have no room in the application of the Workmen's
Compensation Act which seeks to improve, and aims at the
amelioration of, the condition of laborers and employees. It is not
the liability for the damage or loss of the cargo or injury to, or
death of, a passenger by or through the misconduct of the captain
or master of the ship; nor the liability for the loss of the ship as
result of collision; nor the responsibility for wages of the crew, but
a liability created by a statute to compensate employees and
laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the
heirs and dependents and laborers and employees in the event of
death caused by their employment. Such compensation has
nothing to do with the provisions of the Code of Commerce
regarding maritime commerce. It is an item in the cost of
production which must be included in the budget of any well-
managed industry.

It has been repeatedly stated that the Workmen's

Compensation Act was enacted to abrogate the common law and
our Civil Code upon culpable acts and omissions, and that the
employer need not be guilty of neglect or fault, in order that
responsibility may attach to him and that shipowner was liable to
pay compensation provided for in the Workmen's Compensation
Act, notwithstanding the fact that the motorboat was totally lost.
 Lintojua Shipping Company Inc VS National Seaman Board and
Gregorio P. Candongo, 176 SCRA 189 (1989)

FACTS

Petitioner is the duly appointed local crewing managing

office of the Fairwind Shipping Corporation.

On September 11, 1976 M/V Dufton Bay an ocean-going

vessel of foreign registry owned by the R.D. Mullion ship broking
agency under charter by Fairwind, while in the port of Cebu
contracted the services (among others) of Gregorio Candongo as
Third Engineer for 12 months with a monthly wage of US$500.00.
The agreement was executed before the Cebu Area Manning Unit
of the NSB, after which respondent boarded the vessel.

On December 28, 1976 before the expiration of contract,

respondent was required to disembark at Port Kilang, Malaysia.
Describe in his seaman’s handbook is the reason “by owner’s
arrange.”

Condongo filed a complaint against Mullion (Shipping

company) for violation of contract and against Litonjua as agent
of shipowner.

On February 1977, NSB rendered a judgment by default for

failure of petitioners to appear during the initial hearing, rendering
the same to pay Candongo because there was no sufficient or valid
cause for the respondents to terminate the service of the
complainant.

Litonjua’s defense:

Contends that the shipowner, nor the charterer, was the

employer of private respondent; and that liability for damages
cannot be imposed upon petitioner which was a mere agent of the
charterer.

ISSUE(S)
 Whether or not Litonjua may be held liable to the private
respondent on the contract of employment?

RULING

YES.

The first basis is the charter party which existed between

Mullion, the shipowner, and Fairwind, the charterer.

It is well settled that in a demise or bare boat charter, the

charterer is treated as owner pro hac vice of the vessel, the
charterer assuming in large measure the customary rights and
liabilities of the shipowner in relation to third persons who have
dealt with him or with the vessel. In such case, the Master of the
vessel is the agent of the charterer and not of the shipowner. The
charterer or owner pro hac vice, and not the general owner of the
vessel, is held liable for the expenses of the voyage including the
wages of the seamen

Treating Fairwind as owner pro hac vice, petitioner Litonjua

having failed to show that it was not such, we believe and so hold
that petitioner Litonjua, as Philippine agent of the charterer, may
be held liable on the contract of employment between the ship
captain and the private respondent.

There is a second and ethically more compelling basis for

holding petitioner Litonjua liable on the contract of employment of
private respondent. The charterer of the vessel, Fairwind, clearly
benefitted from the employment of private respondent as Third
Engineer of the Dufton Bay, along with the ten (10) other Filipino
crewmembers recruited by Captain Ho in Cebu at the same
occasion.

In so doing, petitioner Litonjua certainly in effect

represented that it was taking care of the crewing and other
requirements of a vessel chartered by its principal, Fairwind.
 Last, but certainly not least, there is the circumstance that
extreme hardship would result for the private respondent if
petitioner Litonjua, as Philippine agent of the charterer, is not held
liable to private respondent upon the contract of employment.
 G.R. No. L-49407

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE &
SURETY CORPORATION, respondents-appellees.

No. L-49469

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE &
SURETY CORPORATION, respondents- appellees.

FACTS:

In accordance with a memorandum agreement entered into

between defendants NDC and MCP on September 13, 1962,
defendant NDC as the first preferred mortgagee of three ocean
going vessels including one with the name 'Dona Nati' appointed
defendant MCP as its agent to manage and operate said vessel for
and in its behalf and account.

On February 28, 1964, the E. Philipp Corporation of New York

loaded on board the vessel "Dona Nati" at San Francisco,
California, a total of 1,200 bales of American raw cotton consigned
to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the
Pan Asiatic Commercial Company, Inc., who represents Riverside
Mills Corporation. Also loaded on the same vessel at Tokyo, Japan,
were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the
order of Manila Banking Corporation consisting of 200 cartons of
sodium lauryl sulfate and 10 cases of aluminum foil. En route to
Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on
April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS
Yasushima Maru' as a result of which 550 bales of aforesaid cargo
of American raw cotton were lost and/or destroyed, of which 535
bales as damaged were landed and sold on the authority of the
General Average Surveyor for Yen 6,045,-500 and 15 bales were
not landed and deemed lost.

The damaged and lost cargoes was worth P344,977.86 which

amount, the plaintiff as insurer, paid to the Riverside Mills
Corporation as holder of the negotiable bills of lading duly
endorsed.

Also considered totally lost were the aforesaid shipment of

Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila
Banking Corporation, Manila, acting for Guilcon, Manila. The total
loss was P19,938.00 which the plaintiff as insurer paid to Guilcon
as holder of the duly endorsed bill of lading.

Thus, the plaintiff had paid as insurer, the total amount of

P364,915.86 to the consignees or their successors-in-interest, for
the said lost or damaged cargoes.

Hence, plaintiff filed this complaint to recover said amount

from the defendants-NDC and MCP as owner and ship agent
respectively, of the said 'Dofia Nati' vessel.

The trial court rendered a decision ordering the defendants

MCP and NDC to pay jointly and solidarity to DISC the sum of
P364,915.86 plus the legal rate of interest to be computed from
the filing of the complaint on April 22, 1965, until fully paid and
attorney's fees of P10,000.00. Likewise, in said decision, the trial
court granted MCP's crossclaim against NDC.

The Court of Appeals affirmed in toto the decision of the trial

court.

NDC's argument is to the effect that the Carriage of Goods

by Sea Act should apply to the case at bar and not the Civil Code
or the Code of Commerce. Under Section 4 (2) of said Act, the
carrier is not responsible for the loss or damage resulting from the
"act, neglect or default of the master, mariner, pilot or the
servants of the carrier in the navigation or in the management of
the ship." Thus, NDC insists that based on the findings of the trial
court which were adopted by the Court of Appeals, both pilots of
the colliding vessels were at fault and negligent, NDC would have
been relieved of liability under the Carriage of Goods by Sea Act.
Instead, Article 287 of the Code of Commerce was applied and
both NDC and MCP were ordered to reimburse the insurance
company for the amount the latter paid to the consignee as earlier
stated.
 MCP contends that it cannot be liable solidarity with NDC
because it is merely the manager and operator of the vessel Dona
Nati not a ship agent. As the general managing agent, according
to MCP, it can only be liable if it acted in excess of its authority.

ISSUES:

1. Whether or not the Carriage of Goods by Sea Act should

apply to the case at bar and not the Civil Code or the Code of
Commerce.

2. Whether or not petitioner Maritime Company of the

Philippines is a ship agent or naviero of Dona Nati and is solidarily
liable with NDC for loss of or damages to cargoes.

RULING:

First Issue

This issue has already been laid to rest by this Court of

Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987])
where it was held under similar circumstance "that the law of the
country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or
deterioration" (Article 1753, Civil Code). Thus, the rule was
specifically laid down that for cargoes transported from Japan to
the Philippines, the liability of the carrier is governed primarily by
the Civil Code and in all matters not regulated by said Code, the
rights and obligations of common carrier shall be governed by the
Code of commerce and by laws (Article 1766, Civil Code). Hence,
the Carriage of Goods by Sea Act, a special law, is merely
suppletory to the provision of the Civil Code.

In the case at bar, it has been established that the goods in

question are transported from San Francisco, California and
Tokyo, Japan to the Philippines and that they were lost or due to
a collision which was found to have been caused by the negligence
or fault of both captains of the colliding vessels. Under the above
ruling, it is evident that the laws of the Philippines will apply, and
it is immaterial that the collision actually occurred in foreign
waters, such as Ise Bay, Japan.

There is, therefore, no room for NDC's interpretation that the

Code of Commerce should apply only to domestic trade and not to
foreign trade. Aside from the fact that the Carriage of Goods by
Sea Act (Com. Act No. 65) does not specifically provide for the
subject of collision, said Act in no uncertain terms, restricts its
application "to all contracts for the carriage of goods by sea to
and from Philippine ports in foreign trade."

Second Issue

As found by the trial court and the appellate court, the

Memorandum Agreement shows that NDC appointed MCP as
Agent, a term broad enough to include the concept of Ship-agent
in Maritime Law. In fact, MCP was even conferred all the powers
of the owner of the vessel, including the power to contract in the
name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40).
Consequently, under the circumstances, MCP cannot escape
liability.

It is well settled that both the owner and agent of the

offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281
[1906]); that in case of collision, both the owner and the agent are
civilly responsible for the acts of the captain (Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586
of the Code of Commerce; Standard Oil Co. of New York v. Lopez
Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the
liability of the naviero in the sense of charterer or agent, is not
expressly provided in Article 826 of the Code of Commerce, it is
clearly deducible from the general doctrine of jurisprudence under
the Civil Code but more specially as regards contractual
obligations in Article 586 of the Code of Commerce. Moreover, the
Court held that both the owner and agent ( Naviero) should be
declared jointly and severally liable, since the obligation which is
the subject of the action had its origin in a tortious act and did not
arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45
Phil. 423 [1923]). Consequently, the agent, even though he may not
be the owner of the vessel, is liable to the shippers and owners of
the cargo transported by it, for losses and damages occasioned to
such cargo, without prejudice, however, to his rights against the
owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al.
11 Phil. 276 [1908]).
 Overseas Factors Inc. vs. South Sea Shipping (GR L-12138, 27
February 1962)

Facts:

On 3 and 9 September 1954 the National Rice and Corn

Corporation (NARIC) and the Overseas Factors, Inc. Overseas
Factor (Seller), entered into a contract to supply 5,000 Metric tons
of Kangni rice with National Rice and Corn Corp (Purchaser). The
two entered into an agreement that the shipment shall be
imported from Pakistan aboard a ship owned by South Sea
Shipping (Carrier). A co financier of Seller entered into a surety
bond agreement with an Insurance company owned by the carrier
to guarantee the payment by the charterers from HK of the losses
that may arise, in favor of the Carrier. On 25 November 1954 the
SS Ocean Trader sailed from Karachi, Pakistan and arrived in
Manila on 18 December 1954. The captain and crew members of
the SS Ocean Trader refused to unload the cargo of rice unless the
balance of the freight and other charges due were paid by the
charterers. An action was brought on 29 December 1954 in the
Court of First Instance of Manila praying the Court to direct the
captain and the crew of SS Ocean Trader to convert the amount in
rupees paid by Overseas Factors and Carlos in Karachi, Pakistan,
into British sterling pounds, computed at the legal rate of
exchange as allowed by the Government of Pakistan; to deliver to
Overseas Factors and Carlos the bills of lading of the cargo of rice;
to permit the unloading by Overseas Factors and Carlos of the
cargo of rice from the SS Ocean Trader pending trial of the case;
to desist or refrain from interfering with such unloading upon the
filing of an additional surety bond, if necessary, in an amount that
the Court may fix to answer for damages that South Sea Shipping.
Upon arrival of the goods in Manila, the Carrier refused to unload
the rice unless the balance of the freight and other charges were
paid. The Carrier was paid in rupees, but it wanted to be paid in
British sterling or pesos. This resulted to a delay of 8 days, and
demurrage. A complaint was filed against the Carrier to accept the
payment and to allow unloading of the cargo. The Carrier lost and
appealed.

Issue:

Whether or not the Carrier had a right to hold the cargo?

Ruling:

Carrier's lien exists if freight was not paid. The fact that the
freight was already included in the purchase price of the goods
paid by the purchaser to the appellees (Seller), did not free the
cargo from the carrier's lien as provided for in Article 665 of the
Code of Commerce, if the freight has not yet been fully paid by the
Charter-Seller. The appellant shipping company is entitled to
collect from the appellees four running days on demurrage for
detention. Computed at the rate of exchange prevailing in January
1955, the appellant shipping company should be paid by the
appellees the sum of P6, 720, Philippine currency. The demurrage
for the remaining detention of four days and 17 hours and other
charges claimed by the appellant shipping company are subject to
arbitration in London pursuant to clause No. 20 of the charter
party.

Moreover, under clause No. 8 of the charter party, provides:

"Owners shall have a lien on the cargo for freight, dead freight,
demurrage, and damages for detention. Charterers shall remain
responsible for dead freight and demurrage (including damages for
detention), incurred at the port of loading. Charterers shall also
remain responsible for freight and demurrage (including damages
for detention) incurred at port of discharge, but to such extent as
the Owners have been unable to obtain payment thereof by
exercising the lien on the cargo.

The contention that the omission of this clause in the letter

dated 30 October 1954 where the principal terms and conditions
of the charter party were enumerated by Yeung, the shipowners'
representative, and confirmed by Diokno, the charterer's
representative, and that in lieu thereof a clause requiring the
charter to file a performance bond in favor of the shipowners,
amounted to a waiver of the shipowners, or carrier's lien on the
cargo is untenable.
 E. E. ELSER, INC., vs. COURT OF APPEALS

96 PHIL. 264 (1955)

FACTS:

Around December 1945, the goods specified in the Bill of

Lading were shipped on the 'S.S. Sea Hydra,' of Isthmian
Steamship Company, from New York to Manila, and were received
by the consignee 'Udharam Bazar and Co.', except one case of
vanishing cream valued at P159.78. 'Udaharam Bazar and Co.'
claimed for indemnity of the loss from the insurer, 'Atlantic Mutual
Insurance Co.', and was paid by the latter's agent 'E. E. Elser Inc.'
the amount involved, that is, P159.78.

The lower Court said that petitioners have already lost their
right to press their claim against respondent because of their
failure to serve notice thereof upon the carrier within 30 days after
receipt of the notice of loss or damage as required by clause 18 of
the bill of lading which was issued concerning the shipment of the
merchandise which had allegedly disappeared. In this respect, the
court said that, "appellant unwittingly admitted that they were
late in claiming the indemnity for the loss of the case of the
vanishing cream as their written claim was made on April 25, 1946,
or more than 30 days after they had been fully aware of said loss,"
and because of this failure, the Court said the action of petitioners
should, and must, fall. Petitioners now contend that this finding is
erroneous in the light of the provisions of the Carriage of Goods by
Sea Act of 1936, which apply to this case, the same having been
made an integral part of the covenants agreed upon in the bill of
lading.

ISSUE(S):

1. Whether it is clause 18 of the bill of lading or the Carriage of

Goods by Sea Act that would prevail?

2. Whether or not the Carriage of Goods by Sea Act as adopted

by our government is only applicable "to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign
trade," and, therefore, it does not apply to the shipment in question
since the shipment was made in December 1945 and arrived in
Manila in February, 1946 and at that time the Philippines was still
a territory or possession of the United States and, therefore it may
be said that the trade then between the Philippines and the United
States was not a "foreign trade".?

RULING :

1. COGSA prevails. A carrier can only be discharged from

liability in respect of loss or damage if the suit is not brought
within one year after the delivery of the goods or the date when
the goods should have been delivered, and that, even if a notice of
loss or damage is not given as required, "that fact shall not affect
or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods." In other words, regardless of
whether the notice of loss or damage has been given, the shipper
can still bring an action to recover said loss or damage within one
year after the delivery of the goods, and, as we have stated above,
this is contrary to the provisions of clause 18 of the bill of lading.

That clause 18 must of necessity yield to the provisions of

the Carriage of Goods by Sea Act in view of the proviso contained
in the same Act which says: "any clause, covenant, or agreement
in a contract of carriage relieving the carrier or the ship from
liability for loss or damage to or in connection with the goods . . .
or lessening such liability otherwise than as provided in this Act,
shall be null and void and of no effect.”

This means that a carrier cannot limit its liability in a manner

contrary to what is provided for in said act and so clause 18 of the
bill of lading must of necessity be null and void.

2. COGSA is applicable, notwithstanding. Granting arguendo

that the Philippines was a territory or possession of the United
States for the purposes of said Act and that the trade between the
Philippines and the United States before the advent of
independence was not foreign trade or can only be considered in
a domestic sense, still we are of the opinion that the Carriage of
Goods by Sea Act of 1936 may have application to the present
case it appearing that the parties have expressly agreed to make
and incorporate the provisions of said Act as integral part of their
contract of carriage. This is an exception to the rule regarding the
applicability of said Act.
 Thus, it would appear clear that the action of petitioners has
not yet lapsed or prescribed, it appearing that the present action
was brought within one year after the delivery of the shipment in
question.
 Magsaysay, Inc. v. AGAM 96 PHIL 504, 1955

Facts:

The SS "San Antonio", a vessel owned and operated by

plaintiff.

On October 10, the vessel reached Aparri and after a day’s

stopover in that port, weighed anchor to proceed to Basco.

But while still in port, it ran aground at the mouth of the Cagayan
River, and, attempts to refloat it under its own power having failed,
plaintiff had it refloated by the Luzon Stevedoring Co. at an agreed
compensation.

Once afloat, the vessel returned to Manila to refuel and then

proceeded to Basco, the port of destination. There the cargoes
were delivered to their respective owners or consignees, who,
with the exception of defendant, made a deposit or signed a bond
to answer for their contribution to the average.

On the theory that the expenses incurred in floating the

vessel constitute general average to which both ship and cargo
should contribute, plaintiff brought the present action in the Court
of First Instance of Manila to make defendant pay his contribution.

Issue:

WON the defendant is liable of contribution to the expenses

incurred in floating the vessel on the theory that it was general
average.

Ruling:

No. The Code of Commerce gives the following requisites for

general average:

a) First, there must be a common danger; b) Second, that for the

common safety part of the vessel or of the cargo or both is
sacrificed deliberately; c) Third, that from the expenses or
damages caused follows the successful saving of the vessel and
cargo; and d) Fourth, that the expenses or damages should have
been incurred or inflicted after taking proper legal steps and
authority.
 With respect to the first requisite, the evidence does not
disclose that the expenses sought to be recovered from defendant
were incurred to save vessel and cargo from a common danger.
The vessel ran aground in fine weather inside the port at the mouth
of a river, a place described as "very shallow."

As to the second requisite, it need only repeat that the

expenses in question were not incurred for the common safety of
vessel and cargo, since they, or at least the cargo, were not in
imminent peril. The cargo could, without need of expensive
salvage operation, have been unloaded by the owners if they had
been required to do so.

With respect to the third requisite, the salvage operation, it

is true, was a success. But as the sacrifice was for the benefit of
the vessel — to enable it to proceed to destination — and not for
the purpose of saving the cargo, the cargo owners are not in law
bound to contribute to the expenses.

The final requisite has not been proved, for it does not appear
that the expenses here in question were incurred after following
the procedure laid down in articles 813 et seq.

In conclusion, we find that plaintiff has not made out a case for
general average, with the result that its claim for contribution
against the defendant cannot be granted.
 C.B Williams vs Teodoro R.Yangco
G.R.No. L-8325, March 10, 1914

Facts:

The steamer Subic, owned by the defendant, collided with

the lunch Euclid owned by the plaintiff, in the Bay of Manila at an
early hour on the morning of January 9, 1911, and the Euclid sank
five minutes thereafter. This action was brought to recover the
value of the Euclid.

The court below held from the evidence submitted that

the Euclid was worth at a fair valuation P10, 000; that both
vessels were responsible for the collision; and that the loss should
be divided equally between the respective owners, P5,000 to be
paid the plaintiff by the defendant, and P5,000 to be borne by
the plaintiff himself. From this judgment both defendant and
plaintiff appealed.

Issue:

Whether or not plaintiff should not be held liable on account

of doctrine of last clear chance, the defendant having the last
opportunity to avoid the collision.

Held:

The Court declared that Doctrine of last clear chance is

inapplicable for marine collision since the rule of liability in this
type of maritime accidents is now laid down in Article 827 of the
Code of Commerce which states, “if both vessels may be blamed
for collision, each one shall be liable for its own damages and both
shall be jointly responsible for the loss and damage suffered by
their cargoes.”

Under the rule, the evidence disclosing that both vessel

were blameworthy, the owners can neither successfully maintain
an action against the other for the loss or injury of vessel.
 HONORIO M. BARRIOS, plaintiff-appellant, vs. CARLOS A. GO
THONG & COMPANY, defendant-appellee.

G.R. No. L-17192 March 30, 1963

Facts:

The plaintiff, Honorio M. Barrios was, on May 1 and 2, 1958,

captain and/or master of the MV Henry I of the William Lines
Incorporated, of Cebu City. At about 8:00 o'clock on the evening of
May 1, 1958, plaintiff in his capacity as such captain and/or master
of the aforesaid MV Henry I, received or otherwise intercepted an
S.O.S. or distress signal by blinkers from the MV Don Alfredo,
owned and/or operated by the defendant Carlos A. Go Thong &
Company. Acting on and/or answering the S.O.S. call, the plaintiff
Honorio M. Barrios, also in his capacity as captain and/or master
of the MV Henry I, altered the course of said vessel, and steered
and headed towards the beckoning MV Don Alfredo, which plaintiff
found to be in trouble, due to engine failure and the loss of her
propeller. With the consent and knowledge of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the vessel to be
tied to, or well-secured and connected with two lines and in that
manner, position and situation, MV Henry I had the MV Don Alfredo
in tow and proceeded towards the direction of Dumaguete City.

Plaintiff concluded that they established an impending sea

peril from which salvage of a ship worth more than P100,000.00,
plus life and cargo was done. The defendant insisted that what
merely happened was only mere towage from which plaintiff
cannot claim any compensation or remuneration independently of
the shipping company that owned the vessel commanded by him.

From the decision of the Court of First Instance of Manila

dismissing with costs his case against defendant Carlos A. Go
Thong & Co., plaintiff Honorio M. Barrios, interposed the present
appeal.

Issue:

Whether or not MV Don Alfredo can be considered a proper

subject of salvage in accordance with the Salvage Law.

Ruling:

No. MV Don Alfredo is not considered a derelict and not a

proper subject of salvage in accordance with the Salvage Law.
 In harmony with the Salvage Law, a ship which is lost or
abandoned at sea is considered a derelict and, therefore, proper
subject of salvage. A ship in a desperate condition, where persons
on board are incapable, by reason of their mental and physical
condition, of doing anything for their own safety, is a quasi-derelict
and may, likewise, be the proper subject of salvage.

It can thus be said that the MV Don Alfredo was not in a

perilous condition wherein the members of its crew would be
incapable of doing anything to save passengers and cargo, and,
for this reason, it cannot be duly considered as a quasi-derelict;
hence, it was not the proper subject of salvage, and the Salvage
Law, Act No. 2616, is not applicable.
 DOMINGO ANG, vs. AMERICAN STEAMSHIP AGENCIES, INC.

G.R. No. L-25047 & G.R. No. L-25050. March 18, 1967

FACTS:

These are two cases separately appealed to the Court of

Appeals and certified to Us by said Court. Since both appeals
involve the same parties and issue, they are decided together
herein.

Yau Yue Commercial Bank, Ltd. of Hongkong (Yau Yue)

agreed to sell one boat containing used U.S. Military Surplus to
Davao Merchandising Corp. for the sum of $8,820.27.

Yau Yue also agreed to sell 42 cases of Hiranos Automatic

Cop Change for Cotton Loom for Calieo (Automatic Cop Change) to
one Herminio Teves for the sum of $18,246.65.

Said agreements were both subject to the following terms

and arrangements: (a) the purchase price should be covered by a
bank draft for the corresponding amount which should be paid by
the purchaser in exchange for the delivery of the corresponding
bill of lading to be deposited with a local bank, the Hongkong &
Shanghai Bank of Manila; (b) upon arrival of the articles in Manila
the purchaser would be notified and would have to pay the amount
called for in the corresponding demand draft, after which the bill
of lading would be delivered to said purchaser; and (c) the
purchaser would present said bill of lading to the carrier's agent,
American Steamship Agencies, Inc., which would then issue the
corresponding "Permit To Deliver Imported Articles" to be
presented to the Bureau of Customs to obtain the release of the
articles.

The American Steamship Agencies, Inc. is the agent in the

Philippines, which is the carrier of the articles, under a shipping
agreement, Bill of Lading No. NM-1, dated February 17, 1961,
consigned "to order of the shipper", with Herminio G. Teves as the
party to be notified of the arrival of said articles, and Bill of Lading
No. YM-3, dated June 3, 1961, consigned "to the order of Yau Yue
Commercial Bank, Ltd. of Hongkong", with Davao Merchandising
Corporation as the party to be notified of the arrival of said boat.

The bills of lading were indorsed to the order of Yau Yue and
delivered to it by the respective shippers. Upon receipt thereof,
Yau Yue drew demand drafts together with the bills of lading
against Teves and Davao Merchandising Corp., through the
Hongkong & Shanghai Bank.

The shipment for Teves arrived in Manila on March 2, 1961;

that of Davao Merchandising Corp., arrived on June 10, 1961.
Accordingly, Hongkong & Shanghai Bank notified Teves and the
Davao Merchandising Corporation, the "notify parties" under the
bills of lading, of the arrival of the goods and requested payment
of the demand drafts representing the purchase prices of the
articles. The Davao Merchandising Corp. and Teves, however, did
not pay the respective drafts, prompting the bank in both cases to
make the corresponding protests. The bank likewise returned the
bills of lading and demand drafts to Yau Yue which indorsed both
bills of lading to Domingo Ang.

Teves and Davao Merchandising Corporation, however, were

able to obtain bank guaranties in favor of the American Steamship
Agencies, Inc., as carriers' agent, to the effect that they would
surrender the original and negotiable bills of lading duly indorsed
by Yau Yue. And on the strength of said guaranties, Davao
Merchandising Corp. and Teves each succeeded in securing a
"Permit To Deliver Imported Articles" from the carriers' agent,
which they presented to the Bureau of Customs. In turn the latter
released to them the articles covered by the bills of lading.

After being informed by the American Steamship Agencies

that the articles covered by the respective bills of lading were
already delivered by them to the Davao Merchandising Corp. and
to Teves, Domingo Ang filed claims with the carriers' agent for the
cost of said articles, interests and damages. The American
Steamship Agencies, Inc., however, refused payment.

Domingo Ang thereafter filed separate complaints in the Court of

First Instance of Manila against the American Steamship
Agencies, Inc., for having allegedly wrongfully delivered and/or
converted the goods covered by the bills of lading belonging to
plaintiff Ang, to the damage and prejudice of the latter. The suit
as to the Teves shipment was filed on October 30, 1963; that
referring to the Davao Merchandising Corp.'s shipment was filed
on November 14, 1963.

Subsequently, defendant filed motions to dismiss upon the

ground that plaintiff's causes of action have prescribed under the
Carriage of Goods by Sea Act (Commonwealth Act No. 65), more
particularly section 3(6), paragraph 4, which provides:

"In any event, the carrier and the ship shall be discharged from all
liability in respect to loss or damage unless suit is brought within
one year after delivery of the goods or the date when the goods
should have been delivered."
 It argued that the cargoes should have been delivered to the
person entitled to the delivery thereof, i.e., plaintiff, on March 2,
1961 (Teves shipment) and June 10, 1961 (Davao Merchandising
Corp. shipment), the respective dates of the vessels' arrival in
Manila, and that even allowing a reasonable time (even one month)
after such arrivals within which to make delivery, still, the actions
commenced on October 30, 1963 and November 14, 1963,
respectively, were filed beyond the prescribed period of one year.

ISSUE:

Whether or not the plaintiff-appellant's causes of action

prescribe under Section 3(6), paragraph 4 of the Carriage of Goods
by Sea Act?

RULING:

The point has already been resolved by this Court in a case

involving the same parties and parallel facts to those herein
involved. In Domingo Ang v. American Steamship Agencies, Inc.,
G.R. No. L-22491, Jan. 27, 1967, We held that the one-year
prescriptive period under Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act does not apply to cases of misdelivery or
conversion. For convenience, We quote the ruling therein:

"The provision of law involved in this case speaks of 'loss or

damage'. That there was no damage caused to the goods which
were delivered intact to Herminio G. Teves who did not file any
notice of damage, is admitted by both parties in this case. What
is to be resolved - in order to determine the applicability of the
prescriptive period of one year to the case at bar - is whether or
not there was 'loss' of the goods subject matter of the complaint.

"Nowhere is 'loss' defined in the Carriage of Goods by Sea Act.

Therefore, recourse must be had to the Civil Code which provides
in Article 18 thereof that, 'In matters which are governed by the
Code of Commerce and special laws, their deficiency shall be
supplied by the provisions of this Code.'

"Article 1189 of the Civil Code defines the word 'loss' in

cases where conditions have been imposed with the intention of
suspending the efficacy of an obligation to give. The contract of
carriage under consideration entered into by and between
American Steamship Agencies, Inc. and the Yau Yue (which later
on endorsed the bill of lading covering the shipment to plaintiff
herein Domingo Ang), is one involving an obligation to give or to
deliver the goods 'to the order of shipper', that is, upon the
presentation and surrender of the bill of lading. This being so, said
article can be applied to the present controversy, more speci-
fically paragraph 2 thereof which provides that,' . . . it is
understood that a thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered.'

"As defined in the Civil Code and as applied to Section 3(6),

paragraph 4 of the Carriage of Goods by Sea Act, 'loss'
contemplates merely a situation where no delivery at all was made
by the shipper of the goods because the same had perished, gone
out of commerce, or disappeared in such a way that their exis-
tence is unknown or they cannot be recovered. It does not include
a situation where there was indeed delivery - but delivery to the
wrong person, or a misdelivery, as alleged in the complaint in this
case.

x x x x x

"The point that matters here is that the situation is either

delivery or misdelivery, but not nondelivery. Thus, the goods were
either rightly delivered or misdelivered, but they were not lost.
There being no loss or damage to the goods, the afore-quoted
provision of the Carriage of Goods by Sea Act stating that 'In any
event, the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have
been delivered,' does not apply. The reason is not difficult to see.
Said one-year period of limitation is designed to meet the
exigencies of maritime hazards. In a case where the goods
shipped were neither lost nor damaged in transit but were, on the
contrary, delivered in port to someone who claimed to be entitled
thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by
maritime perils does not obtain.

"It follows that for suits predicated not upon loss or damage
but on alleged misdelivery (or conversion) of the goods, the
applicable rule on prescription is that found in the Civil Code,
namely, either ten years for breach of a written contract or four
years for quasi-delict (Arts. 1144 [1], 1146, Civil Code). x x x"

The goods covered by the two shipments subject matter of these

appealed cases were also delivered to the notify parties, Davao
Merchandising Corporation and Herminio Teves, despite the
latter's inability to present the proper bills of lading and without
the knowledge and consent of plaintiff-appellant Domingo Ang to
whom were endorsed said bills of lading. There is therefore like-
wise misdelivery, not nondelivery. Finally, the recipients of said
goods did not file any complaint with defendant regarding any
damage to the same. No loss nor damage is therefore involved in
these cases. And thus the prescriptive period under Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act does not apply.
The applicable prescriptive period is that found in the Civil Code,
namely, either ten years for breach of a written contract or four
years for quasi-delict (Arts. 1144[1] and 1146). Since the
complaints in these appealed cases were filed two years and five
months (as to Davao Merchandising Corp. shipment) and 2 years
and 8 months (as to Teves shipment), from the arrival of the two
shipments, it is clear that the causes of action have not yet pres-
cribed.

WHEREFORE, the orders appealed from dismissing plaintiff's

complaints in these two cases on the ground of prescription are
hereby reversed and set aside; let said cases be remanded to the
respective court a quo for further proceedings.
 THE AMERICAN INSURANCE COMPANY, plaintiff-appellant,
vs.
COMPAÑIA MARITIMA, ET AL., defendants., G.R. No. L-
24515 November 18, 1967

FACTS:

On August 11, 1962, a certain cargo insured with plaintiff

corporation was shipped in New York, U.S. aboard "M/S
TOREADOR", of which the general agent in the Philippines is
appellee Macondray & Co., Inc. (hereinafter referred to as
Macondray). The final port of call of the " M/S TOREADOR" was
Manila, the carrier, in accepting the cargo at the point of shipment,
agreed to transship the same, after its discharge in Manila, aboard
an inter-island vessel to its destination in Cebu.

When the consignee took delivery of the shipment it was

found to be short of two (2) pieces of tractor parts. Plaintiff paid
the insured value of the lost merchandise to the consignee, thus,
it now seeks recovery of the amount it paid from the carrier.

On December 23, 1964 Macondray moved to dismiss the

complaint against it on the ground that plaintiff's action had
already prescribed under the provisions of the Carriage of Goods
by Sea Act1 which provides in section 3 (6):

In any event, the carrier and the ship shall be discharged

from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the
date when the goods shall have been delivered: . . .

Plaintiff avers that the one-year prescriptive period provided

for in the Carriage of Goods by Sea Act does not apply in this case,
that the cargo in question was transshipment cargo; that the
discharge thereof in Manila terminated the obligation of
Macondray as carrier; and that its obligation to transship the cargo
to Cebu was merely that of a "forwarding agent" of the shipper

ISSUES:
 Whether or not the provision of the Carrier of Goods Sea Act
with regard to the prescriptive period applies in this case although
the shipment from Manila to Cebu was merely a through a
forwarding agent of the shipper.

RULING:

Yes, the prescriptive period still applies.

We do not see that the use of the term "forwarding agent of

the shipper" is decisive of the issue. According to paragraph 4 of
the amended complaint the cargo was loaded on board the "M/S
TOREADOR" in New York, "freight prepaid to Cebu City . . .
pursuant to the bill of lading No. 13."

In other words, the action is based on the contract of

carriage up to the final port of destination, which was Cebu City,
for which the corresponding freight had been prepaid. The
following provisions of the bill of lading are the ones directly in
point:

1. This bill of lading shall have effect subject to the

provisions of the Carriage of Goods by Sea Act of the United
States of America, approved April 16, 1936, which shall be
deemed to be incorporated herein and nothing herein
contained shall be deemed a surrender by the Carrier of any
of its rights or immunities or an increase of any of its
responsibilities or liabilities under said Act. The provisions
stated in said Act (except as may be otherwise specifically
provided herein) shall govern before the goods are loaded on
and after they are discharged from the ship and throughout
the entire time the goods are in the custody of the Carrier. .
..
19. In any event the Carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the
date when the goods should have been delivered. . . .
 The transshipment of the cargo from Manila to Cebu was not
a separate transaction from that originally entered into by
Macondray, as general agent for the "M/S TOREADOR". It was part
of Macondray's obligation under the contract of carriage and the
fact that the transshipment was made via an inter-island vessel
did not operate to remove the transaction from the operation of
the Carriage of Goods by Sea Act. WHEREFORE, the order
appealed from is hereby affirmed, with costs.
Compilation of
Case Digests in
Admiralty Law

Submitted by:
Section B

Submitted on:
February 3, 2018
 ELECTIVE ADMIRALTY ASSIGNED CASES

ANDAYA 1. DELA TORRE V. COURT OF APPEALS

653 SCRA 714 (2011)

ANGOT 2. MONARCH INSURANCE V. COURT OF APPEALS

333 SCRA 71 (2000)

BAGUIO 3. ABOITIZ SHIPPING CORP. V. COURT OF APPEALS

569 SCRA 294 (2008)

BATOMALAQUE 4. ABOITIZ SHIPPING V. GENERAL

ACCIDENT FIRE AND LIFE ASSURANCE 217
SCRA 359 (1993)

BONITA 5. ICTSI V. PRUDENTIAL GUARANTEE

320 SCRA 244 (1999)

CADAMPOG 6. CRESCENT PETROLEUM V. M/V LOK MAHESHWARI

474 SCRA 623 (2005)

CAÑARES 7. ABOITIZ SHIPPING V. NEW INDIA ASSURANCE CO.

531 SCRA 134 (2007)

CAÑETE 8. ABOITIZ SHIPPING V. NEW INDIA ASSURANCE

COMPANY 488 SCRA 563 (2006)

CASTILLO 9. CENTRAL SHIPPING CO. V. INSURANCE CO. OF N.A.

437 SCRA 511 (2004)

CAYABYAB 10. NEGROS NAVIGATION V. COURT OF APPEALS

281 SCRA 534 (1997)
CERVANTES 11. PHILAMGEN V. COURT OF APPEALS
273 SCRA 262 (1997)

CHAVEZ 12. ALLIED BANKING CORP/ CHENG YONG

472 SCRA 101 (2005)

COMIQUE 13. CRUZ V. SUN HOLDINGS, INC.

622 SCRA 389 (2010)

DELIGERO 14. LOADSTAR SHIPPING V. COURT OF APPEALS

315 SCRA 339 (1999)

EJAN 15. CALTEX (PHILIPPINES) V. SULPICIO LINES, INC.

315 SCRA 709 (1999)

GOMEZ 16. SAN MIGUEL CORP. V. HEIRS OF INGUITO

384 SCRA 87 (2002)

GUIRHEM 17. PNB V. COURT OF APPEALS

337 SCRA 381 (2000)

JAYO 18. POLIAND INDUSTRIAL LTD. V. NDC

467 SCRA 500 (2005)

LIRASAN 19. NEGROS NAVIGATION CO. V. COURT OF APPEALS

573 SCRA 434 (2008)

LOUCA 20. OUANO V. COURT OF APPEALS

211 SCRA 740 (1992)

MACABENTA 21. NATIONAL UNION FIRE V. STOLT-NIELSEN

PHILIPPINES 184 SCRA 682 (1990)
MARTINEZ 22. NFA V. COURT OF APPEALS
311 SCRA 700 (1999)

MELECIO 23. KENG HUA PAPER PRODUCTS V. COURT OF

APPEALS 286 SCRA 257 (1998)

OPALLA 24. NATIONAL STEEL CORPORATION V. COURT OF

APPEALS 283 SCRA 45 (1997)

PEREZ 25. PLANTERS PRODUCTS V. COURT OF APPEALS

226 SCRA 476 (1993)

RODRIGUEZ 26. LEA MER INDUSTRIES V. MALAYAN

INSURANCE 471 SCRA 698 (2005)

ROSOLADA 27. COASTWISE LIGHTERAGE V. COURT OF

APPEALS 245 SCRA 796 (1995)

SATINITIGAN 28. MACONDRAY AND CO., INC. V. PROVIDENT

INSURANCE CORP. 445 SCRA 644 (2004)

SAURA 29. LIGHTERAGE CORP. V. COURT OF APPEALS 245

SCRA 796 (1995)

SOGUILON 30. PHILIPPINES FIRST INSURANCE CO. V.

WALLEM PHILS. SHIPPING 582 SCRA 457 (2009)

TORREGOSA 31. INTER-ORIENT MARITIME ENTERPRISES V.

NLRC 235 SCRA 2678 (1994)

TUICO 32. SADAGNOT V. REINIER PACIFIC INT’L. SHIPPING,

INC. 529 SCRA 413 (2007)
TURGA 33. TRANS-ASIA SHIPPING LINES V. COURT OF
APPEALS 254 SCRA 260 (1996)

URSAL 34. SINGA SHIP MANAGEMENT PHILS. V. NLRC

276 SCRA 201 (1997)

VILLAROJO 35. AMERICAN HOME ASSURANCE V. COURT OF

APPEALS 208 SCRA 343 (1992)

YNTIG 36. PHILIPPINE HOME ASSURANCE V. COURT OF

APPEALS 257 SCRA 468 (1998)

ANDAYA 37. SULPICIO LINES V. COURT OF APPEALS

305 SCRA 478 (1999)

ANGOT 38. FAR EASTERN SHIPPING V. COURT OF APPEALS

297 SCRA 30 (1998)

BAGUIO 39. LUZON STEVEDORING CORP. V. COURT OF

APPEALS 156 SCRA 169 (1987)

BATOMALAQUE 40. MANILA STEAMSHIP V. ABDULHAMAN

100 PHIL. 32 (1956)

BONITA 41. GOVERNMENT V. INSULAR MARITIME CO.

45 PHIL. 805 (1924)

CAÑARES 42. PEDRO VASQUEZ V. COURT OF APPEALS

138 SCRA 553 (1985)
CAÑETE 43. ABUEG V. SAN DIEGO 77 PHIL. 32 (1948)

CASTILLO 44. LITONJUA SHIPPING V. NATIONAL SEAMAN

BOARD 176 SCRA 189 (1989)

CAYABYAB 45. NDC V. COURT OF APPEALS

164 SCRA 593 (1988)

CERVANTES 46. OVERSEAS FACTORS V. SOUTHEAST

FACTORS 4 SCRA 400 (1962)

CHAVEZ 47. ELSER AND CO. V. COURT OF APPEALS

96 PHIL. 264 (1955)

COMIQUE 48. MAGSAYSAY, INC. V. AGAM

96 PHIL. 504 (1955)

DELIGERO 49. WILLIAMS V. YANGCO

27 PHIL. 68 (1914)

EJAN 50. BARRIOS V. GO THONG

7 SCRA 535 (1963)

YBIERNAS 51. DOMINGO ANG V. AMERICAN

STEAMSHIP AGENCIES, INC. G.R. NOS. L-20547
AND L-25050 MARCH 18, 1967

RITAGA 52. THE AMERICAN INSURANCE COMPANY

V. COMPANIA MARITIMA, ET AL. G.R. NO. L-
24515 MARCH 18, 1967
NOTE:

1. THERE WERE PEOPLE WHO DIGESTED 2 CASES.

2. IN THE LIST, THOSE NAMES THAT ARE HIGH-LIGHTED ARE

THE NAMES OF THOSE PERSONS WHO FAILED TO SUBMIT THEIR
CASE DIGESTS.