CHAPTER 5 – ACTIONS and DAMAGES in CASE OF BREACH

1. Air France v Carrascoso

FACTS:
Carrascoso, a civil engineer, was a first class passenger of Air France on his way to Rome for a
pilgrimage. From Manila to Bangkok, he traveled in ‘first class,’ but at Bangkok, the Manager of
Air France forced him to vacate his seat in favor of a ‘white man’ who had a ‘better right to the
seat.’ Carrascoso filed for moral damages, averring in his complaint the contract of carriage
between Air France and himself. Air France claims that to authorize an award for moral
damages there must be an averment of fraud or bad faith, upon which Carrascoso’s complaint is
silent.

ISSUE:
Whether or not Carrascoso is entitled to award for moral damages

HELD:
The foregoing substantially aver: First, That there was a contract to furnish plaintiff a first class
passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was
breached when petitioner failed to furnish first class transportation at Bangkok; and Third, That
there was bad faith when petitioner’s employee compelled Carrascoso to leave his first class
accommodation berth “after he was already seated” and to take a seat in the tourist class, by
reason of which he suffered inconvenience, embarrassment and humiliation, thereby causing
him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in
moral damages. It is true that there is no specific mention of the term bad faith in the complaint.
But, the inference of bad faith is there; it may be drawn from the facts and circumstances set
forth therein. The contract was averred to establish the relation between the parties. But the
stress of the action is put on wrongful expulsion.

NOTA BENE: Here there is a contract of carriage between the parties and such contract was
breached by Air France when it wrongfully forced Carrascoso to vacate the first class seat which
he paid for. The wrongful expulsion is independent of the breach since even without the
contract, such wrongful expulsion may still make Air France liable for damages. In other words,
the wrongful expulsion is in itself a tort.

2. Air France v Gillego

FACTS:
Respondent Gillego, incumbent Congressman, was invited to participate as one of the speakers o
be held in Budapest, Hungary and Tokyo, Japan. Respondent left Manila on board petitioner Air
France’s aircraft bound for Paris, France. He arrived in Paris for his connecting flight to
Budapest, respondent learned that petitioner had another aircraft bound for Budapest with an
earlier departure time than his scheduled flight. He then went to petitioner’s counter at the
airport and made arrangements for the change in his booking. He was given a corresponding
ticket and boarding pass and also a new baggage claim stub for his checked-in luggage.

However, upon arriving in Budapest, respondent was unable to locate his luggage at the
claiming section. He sought assistance from petitioner’s counter at the airport where petitioner’s
representative verified from their computer that he had indeed a checked-in luggage. He was
advised to just wait for his luggage at his hotel and that petitioner’s representatives would take
charge of delivering the same to him that same day. But said luggage was never delivered by
petitioner’s representatives despite follow-up inquiries by respondent.

Upon his return to the Philippines, respondent’s lawyer immediately wrote petitioner’s Station
Manager complaining about the lost luggage and the resulting damages he suffered while in
Budapest. Respondent claimed that his single luggage contained his personal effects such as
clothes, toiletries, medicines for his hypertension, and the speeches he had prepared, including
the notes and reference materials he needed for the conference. He was thus left with only his
travel documents, pocket money and the clothes he was wearing. Because petitioner’s
representatives in Budapest failed to deliver his luggage despite their assurances and his
repeated follow-ups, respondent was forced to shop for personal items including new clothes and
his medicines. Aside from these unnecessary expenditures of about $1,000, respondent had to
prepare another speech, in which he had difficulty due to lack of data and information.
Respondent thus demanded from the petitioner as compensation for his loss, inconvenience and
moral damages. Petitioner, however, continued to ignore respondent’s repeated follow-ups
regarding his lost luggage. Petitioner filed a complaint for the amounts are excessive and
unreasonable.

ISSUE:
Whether the petitioner is liable for the respondent’s claims

HELD:
Petitioner reiterates that there was no bad faith or negligence on its part and the burden is on
the respondent to prove by clear and convincing evidence that it acted in bad faith. Respondent
in his testimony miserably failed to prove that bad faith, fraud or ill will motivated or caused the
delay of his baggage. This Court will surely agree that mere failure of a carrier to deliver a
passenger’s baggage at the agreed place and time did not ipso facto amount to willful
misconduct as to make it liable for moral and exemplary damages. Petitioner adduced evidence
showing that it exerted diligent, sincere and timely efforts to locate the missing baggage,
eventually leading to its recovery. It attended to respondent’s problem with utmost courtesy,
concern and dispatch. Respondent, moreover, never alleged that petitioner’s employees were at
anytime rude, mistreated him or in anyway showed improper behavior.

The petition is partly meritorious.

A business intended to serve the travelling public primarily, a contract of carriage is imbued
with public interest. The law governing common carriers consequently imposes an exacting
standard. Article 1735 of the Civil Code provides that in case of lost or damaged goods,
common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required by Article 1733. Thus, in an action
based on a breach of contract of carriage, the aggrieved party does not have to prove that the
common carrier was at fault or was negligent. All that he has to prove is the existence of the
contract and the fact of its non-performance by the carrier.

That respondent’s checked-in luggage was not found upon arrival at his destination and was not
returned to him until about two years later is not disputed. The action filed by the respondent is
founded on such breach of the contract of carriage with petitioner who offered no satisfactory
explanation for the unreasonable delay in the delivery of respondent’s baggage. The presumption
of negligence was not overcome by the petitioner and hence its liability for the delay was
sufficiently established. However, upon receipt of the said luggage during the pendency of the
case in the trial court, respondent did not anymore press on his claim for actual or
compensatory damages and neither did he adduce evidence of the actual amount of loss and
damage incurred by such delayed delivery of his luggage. Consequently, the trial court
proceeded to determine only the propriety of his claim for moral and exemplary damages, and
attorney’s fees.

In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. Not
every case of mental anguish, fright or serious anxiety calls for the award of moral damages.
Where in breaching the contract of carriage the airline is not shown to have acted fraudulently
or in bad faith, liability for damages is limited to the natural and probable consequences of the
breach of the obligation which the parties had foreseen or could have reasonably foreseen. In
such a case the liability does not include moral and exemplary damages.

After a careful review, we find that petitioner is liable for moral damages. Petitioner’s station
manager testified that upon receiving the letter-complaint of respondent’s counsel, she
immediately began working on the PIR from their computerized data. Based on her testimony, a
PIR is issued at the airline station upon complaint by a passenger concerning missing baggage.
From the information obtained in the computer-printout, it appears that a PIR was initiated at
petitioner’s Budapest counter. A search telex for the missing luggage was sent out. As shown
in the PIR printout, the information respondent supposedly furnished to petitioner was only his
Philippine address and telephone number, and not the address and contact number of the hotel
where he was billeted at Budapest. According to the witness, PIR usually is printed in two
originals, one is kept by the station manager and the other copy given to the passenger. The
witness further claimed that there was no record or entry in the PIR of any follow-up call made
by the respondent while in Budapest. Respondent, on the other hand, claimed that he was not
given a copy of this PIR and that his repeated telephone calls to inquire about his lost luggage
were ignored.

We hold that the trial and appellate courts did not err in finding that petitioner acted in bad
faith in repeatedly ignoring respondent’s follow-up calls. The alleged entries in the PIR deserve
scant consideration, as these have not been properly identified or authenticated by the airline
station representative in Budapest who initiated and inputed the said entries. Furthermore, this
Court cannot accept the convenient excuse given by petitioner that respondent should be faulted
in allegedly not giving his hotel address and telephone number. It is difficult to believe that
respondent, who had just lost his single luggage containing all his necessities for his stay in a
foreign land and his reference materials for a speaking engagement, would not give an
information so vital such as his hotel address and contact number to the airline counter where
he had promptly and frantically filed his complaint. And even assuming arguendo that his
Philippine address and contact number were the only details respondent had provided for the
PIR, still there was no explanation as to why petitioner never communicated with respondents
concerning his lost baggage long after respondent had already returned to the Philippines.
While the missing luggage was eventually recovered, it was returned to respondent only after the
trial of this case. Petitioner was thus guilty of bad faith in breaching its contract of carriage with
the respondent, which entitles the latter to the award of moral damages.

However, we agree with petitioner that the sum of P1,000,000.00 awarded by the trial court is
excessive and not proportionate to the loss or suffering inflicted on the passenger under the
circumstances. As in Trans World Airlines v. Court of Appeals[35] where this Court after
considering the social standing of the aggrieved passenger who is a lawyer and director of
several companies, the amount of P500,000.00 awarded by the trial court as moral damages was
still reduced to P300,000.00, the moral damages granted to herein respondent should likewise
be adjusted.

The purpose of awarding moral damages is to enable the injured party to obtain means,
diversion or amusement that will serve to alleviate the moral suffering he has undergone by
reason of defendant's culpable action. On the other hand, the aim of awarding exemplary
damages is to deter serious wrongdoings. Article 2216 of theCivil Code provides that assessment
of damages is left to the discretion of the court according to the circumstances of each case. This
discretion is limited by the principle that the amount awarded should not be palpably excessive
as to indicate that it was the result of prejudice or corruption on the part of the trial court.
Simply put, the amount of damages must be fair, reasonable and proportionate to the injury
suffered.
3. Tiu vs. Arriesgado
FACTS:
The cargo truck marked "Condor Hollow Blocks and General Merchandise" bearing plate number
GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio
Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires
exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway
and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.
Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed
the latter to place a spare tire six fathoms away behind the stalled truck to serve as a warning
for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March
16, 1987.

At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio
Te Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion, Compostela,
Cebu. The passenger bus was also bound for Cebu City, and had come from Maya,
Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa
Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places
from the front seat.

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about
25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting the truck.
But it was too late; the bus rammed into the trucks left rear. The impact damaged the right side
of the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered
a fracture in his right colles. His wife, Felisa, was brought to the Danao City Hospital. She was
later transferred to the Southern Island Medical Center where she died shortly thereafter.

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage,
damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the
petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May
27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and
high speed along the national road, and that petitioner Laspiñas did not take precautionary
measures to avoid the accident.

The petitioners, for their part, filed a Third-Party Complaint against the following: respondent
Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the
driver of the truck. They alleged that petitioner Laspiñas was negotiating the uphill climb along
the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It
was further alleged that the truck was parked in a slanted manner, its rear portion almost in the
middle of the highway, and that no early warning device was displayed. Petitioner Laspiñas
promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but
despite his efforts to avoid damage to property and physical injuries on the passengers, the right
side portion of the bus hit the cargo truck’s left rear.

HELD:
The rules which common carriers should observe as to the safety of their passengers are set
forth in the Civil Code, Articles 1733, 1755and 1756. It is undisputed that the respondent and
his wife were not safely transported to the destination agreed upon. In actions for breach of
contract, only the existence of such contract, and the fact that the obligor, in this case the
common carrier, failed to transport his passenger safely to his destination are the matters that
need to be proved. This is because under the said contract of carriage, the petitioners assumed
the express obligation to transport the respondent and his wife to their destination safely and to
observe extraordinary diligence with due regard for all circumstances. Any injury suffered by the
passengers in the course thereof is immediately attributable to the negligence of the carrier.
Upon the happening of the accident, the presumption of negligence at once arises, and it
becomes the duty of a common carrier to prove that he observed extraordinary diligence in the
care of his passengers. It must be stressed that in requiring the highest possible degree of
diligence from common carriers and in creating a presumption of negligence against them, the
law compels them to curb the recklessness of their drivers. While evidence may be submitted to
overcome such presumption of negligence, it must be shown that the carrier observed the
required extraordinary diligence, which means that the carrier must show the utmost diligence
of very cautious persons as far as human care and foresight can provide, or that the accident
was caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed to
conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the
passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus
engaged as a common carrier.

4. Philam General Insurance v Sweet Lines

FACTS:
The vessel SS VISHVA YASH belonging to or operated by SCI Line (Shipping Corp. of India) took
on board 2 consignment of cargoes for shipment from LA to Manila and Davao covered by bills of
lading issued by SCI Line. The cargoes were insured by Tagum Plastics and PHILAMGEN. For
the purpose of transhipment from Manila to Davao, SCI Line made use of M/V Sweet Love
owned and operated by Sweet Lines. The cargoes were comingled with similar cargoes belonging
toEver green Plantation and Stand filco. After the shipments were discharged, it was discovered
that there were damages, losses and shortages on the cargo covered by the bills of lading. From
the total of 7,000bags only 5,820 were delivered to the consignee, leaving a balance of 1,080 to
which Sweet Lines and F.E. Zueelig is answerable to. Philamgen and Tagum Plastics commenced
a suit against Sweet Lines Inc.(SLI), Davao Arastre, SCI Line and FE Zuellig to recover the cost of
damaged shipment. Philamgen: SLI failed to adduce any evidence in support of the ground of
prescription and that the bills of lading said to contain the shortened periods for filing and for
instituting a court action against the carrier were never offered in evidence SLI: it is standard
practice in its operations to issue bills of lading for shipments entrusted to it for carriage and
that it issued bills of lading.

ISSUE:
WON the bills of lading may be considered as evidence though not formally offered?

HELD:
Yes. Although the bills of lading were not offered in evidence, the litigation obviously revolves on
such bills of lading w/c are practically the documents or contracts sued upon, hence they are
inevitably involved and their provisions cannot be disregarded in the determination of the
relative rights of the parties thereto. The bills of lading can be categorized as actionable
documents w/c under the Rules must be properly pleaded either as causes of action or
defenses, and the genuineness and due execution of w/c are deemed admitted unless
specifically denied under oath by the adverse party. Philamgen’s failure to specifically deny the
existence, much less the genuineness and due execution, of the instruments in question
amounts to an admission. Judicial admissions, verbal or written, made by the parties in the
pleadings or in the course of the trial or other proceedings in the same case are conclusive, no
evidence being required to prove the same, and cannot be contradicted unless shown to have
been made through palpable mistake or that no such admission was made. Moreover, when the
due execution and genuineness of an instrument are deemed admitted because of the adverse
party's failure to make a specific verified denial thereof, the instrument need not be presented
formally in evidence for it may be considered an admitted fact.
5. DOLE PHILIPPINES, INC. v MARITIME COMPANY OF THE PHILIPPINES
FACTS:
The cargo subject of the instant case was discharged in Dadiangas unto the custody of the
consignee, Dole Philippines. The corresponding claim for the damages sustained by the cargo
was filed by the plaintiff with the defendant, Maritime Company on May 4, 1972.

On June 11, 1973 the plaintiff filed a complaint in the CFI Manila embodying 3 causes of action
involving 3 separate and different shipments. The third cause of action therein involved the
cargo now subject of this present litigation.

On December 11, 1974, Judge Serafin Cuevas issued an Order dismissing the first two causes of
action. The third cause of action which covered the cargo subject of this case now was likewise
dismissed but without prejudice as it was not covered by the settlement. Because of the
dismissal of the complaint with respect to the third cause of action, DOLE instituted this present
complaint on January 6, 1975.
Maritime filed an answer pleading inter alia the affirmative defense of prescription under the
provisions of the Carriage of Goods by Sea Act. The Trial Court granted the motion, scheduling
the preliminary hearing on April 27, 1977. The record before the Court does not show whether
or not that hearing was held, but under date of May 6, 1977, Maritime filed a formal motion to
dismiss invoking once more the ground of prescription.

The Trial Court, after due consideration, resolved the matter in favor of Maritime and dismissed
the complaint.

ISSUE:
Whether or not Article 1155 of the Civil Code applies in lieu of the COGSA.

HELD:
No. Article 1155 of the Civil Code provides that the prescription of actions is interrupted by the
making of an extrajudicial written demand by the creditor

Section 3, paragraph 6 of the COGSA provides that:

the carrier and the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should
have been delivered; Provided, That, if a notice of loss or damage, either apparent or conceded, is
not given as provided for in this section, that fact shall not affect or prejudice the right of the
shipper to bring suit within one year after the delivery of the goods or the date when the goods
should have been delivered.

Dole argues that since the provisions of the Civil Code are, by express mandate of said Code,
suppletory of deficiencies in the Code of Commerce and special laws in matters governed by the
latter and there being a patent deficiency with respect to the tolling of the prescriptive period
provided for in the Carriage of Goods by Sea Act, prescription under said Act is subject to the
provisions of Article 1155 of the Civil Code on tolling. Since Dole's claim for loss or damage was
filed on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions under the
Carriage of Goods by Sea Act.

These arguments might merit weightier consideration were it not for the fact that the question
has already received a definitive answer, adverse to the position taken by Dole, in The Yek Tong
Lin Fire & Marine Insurance Co., Ltd. vs. American President Lines, Inc.

Dole argues that it was error for the court not to have considered the action of plaintiff-appellant
suspended by the extrajudicial demand which took place, according to defendant's own motion
to dismiss on August 22, 1952.
Court noticed that while plaintiff avoids stating any date when the goods arrived in Manila, it
relies upon the allegation made in the motion to dismiss that a protest was filed on August 22,
1952 — which goes to show that plaintiff-appellant's counsel has not been laying the facts
squarely before the court for the consideration of the merits of the case. We have already decided
that in a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code
of Civil Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett Steamship
Corp., G.R. No. L-5554, May 27, 1953.) We hold that in such a case the general provisions of the
new Civil Code (Art. 1155) cannot be made to apply, as such application would have the effect of
extending the one-year period of prescription fixed in the law. It is desirable that matters
affecting transportation of goods by sea be decided in as short a time as possible; the application
of the provisions of Article 1155 of the new Civil Code would unnecessarily extend the period
and permit delays in the settlement of questions affecting transportation, contrary to the clear
intent and purpose of the law.

Under Dole's theory, when its claim was received by Maritime, the one-year prescriptive period
was interrupted and began to run anew from May 4, 1972, affording Dole another period of one
year counted from that date within which to institute action on its claim for damage.
Unfortunately, Dole let the new period lapse without filing action. It instituted Civil Case No.
91043 only on June 11, 1973, more than one month after that period has expired and its right
of action had prescribed.

6. Maritime Agencies v CA
FACTS:
Transcontinental Fertilizer Company of London chartered from Hongkong the motor vessel
named “Hongkong Island” for the shipment of 8073.35 MT (gross) bagged urea from
Novorossisk, Odessa, USSR, to the Philippines, the parties signing for this purpose a Uniform
General Charter dated 9 August 1979. Of the total shipment, 5,400.04 MT was for the account
of Atlas Fertilizer Company as consignee, 3,400.04 to be discharged in Manila and the remaining
2,000 MT in Cebu. The goods were insured by the consignee with the Union Insurance Society of
Canton, Ltd. for P6,779,214.00 against all risks. Maritime Agencies & Services, Inc. was
appointed as the charterer’s agent and Macondray Company, Inc. as the owner’s agent. The
vessel arrived in Manila on 3 October 1979, and unloaded part of the consignee’s goods, then
proceeded to Cebu on 19 October 1979, to discharge the rest of the cargo. On 31 October 1979,
the consignee filed a formal claim against Maritime, copy furnished Macondray, for the amount
of P87,163.54, representing C & F value of the 1,383 shortlanded bags. On 12 January 1980,
the consignee filed another formal claim, this time against Viva Customs Brokerage, for the
amount of P36,030.23, representing the value of 574 bags of net unrecovered spillage. These
claims having been rejected, the consignee then went to Union, which on demand paid the total
indemnity of P113,123.86 pursuant to the insurance contract.

As subrogee of the consignee, Union then filed on 19 September 1980, a complaint for
reimbursement of this amount, with legal interest and attorney’s fees, against Hongkong Island
Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. On 20 April
1981, the complaint was amended to drop Viva and implead Macondray Company, Inc. as a new
defendant. On 4 January 1984, after trial, the trial court rendered judgment, ordering (a)
Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay Union the sum of
P87,1 63.54 plus 12% interest from 20 April 1981 until the whole amount is fully paid,
P1,000.00 as attorney’s fees and to pay ½ of the costs; and (b) Maritime Agencies & Services,
Inc., to pay Union the sum of P36,030.23, plus 12% interest from 20 April 1981 until the whole
amount is fully paid, P600.00 as attorney’s fees and to pay ½ of the costs.

Maritime Agencies & Services appealed the decision to the Court of Appeals, which rendered a
decision on 28 November 1986, modifying the decision appeal from, finding the charterer
Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services, Inc.
liable for the amount of P87,163.54 plus interest at 12% plus attorney’s fees of P1,000.00.
Hongkong Island Cos. Ltd. represented by Macondray Co., Inc. were accordingly exempted from
any liability. Maritime and Union filed separate motions for reconsideration which were both
denied. Hence, the petitions.

These two cases were consolidated and given due course, the parties being required to submit
simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and
Macondray Company, Inc., although they pointed out that they were not involved in the
petitions. The Supreme Court set aside the decision of the appellate court, and reinstated that of
the trial court as modified; and further holding that the parties shall bear their respective costs.

ISSUE:
Who, in this kind of charter, shall be liable for the cargo

HELD:
There are three general categories of charters, to wit, the demise or "bareboat charter," the time
charter and the voyage charter.
a. A demise involves the transfer of full possession and control of the vessel for the period
covered by the contract, the charterer obtaining the right to use the vessel and carry
whatever cargo it chooses, while manning and supplying the ship as well.
b. A time charter is a contract to use a vessel for a particular period of time, the charterer
obtaining the right to direct the movements of the vessel during the chartering period,
although the owner retains possession and control.
c. A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for
the purpose of transporting goods for the charterer. The voyage charter is a contract of
affreightment and is considered a private carriage.

A voyage charter being a private carriage, the parties may freely contract respecting liability for
damage to the goods and other matters. The basic principle is that "the responsibility for cargo
loss falls on the one who agreed to perform the duty involved" in accordance with the terms of
most voyage charters. This is true in the present cases where the charterer was responsible for
loading, stowage and discharging at the ports visited, while the owner was responsible for the
care of the cargo during the voyage.

Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case
that the vessel was at fault. In the cases at bar, the trial court found that 1,383 bags were
shortlanded, which could only mean that they were damaged or lost on board the vessel before
unloading of the shipment. It is not denied that the entire cargo shipped by the charterer in
Odessa was covered by a clean bill of lading. As the bags were in good order when received in
the vessel, the presumption is that they were damaged or lost during the voyage as a result of
their negligent improper stowage. For this the ship owner should be held liable.

But we do agree that the period for filing the claim is one year, in accordance with the Carriage
of Goods by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65
which, as a special law, prevails over the general provisions of the Civil Code on prescription of
actions. “In any event, the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered; Provided, that if a notice of loss for damage; either
apparent or concealed, is not given as provided for in this section, that fact shall not effect or
prejudice the right of the shipper to bring suit within one year after the delivery of the goods or
the date when the goods should have been delivered.”

The one-year period in the cases at bar should commence on October 20, 1979, when the last
item was delivered to the consignee. Union's complaint was filed against Hongkong on
September 19, 1980, but tardily against Macondray on April 20, 1981. The consequence is
that the action is considered prescribed as far as Macondray is concerned but not against its
principal, which is what matters anyway.

As regards the goods damaged or lost during unloading, the charterer is liable therefor, having
assumed this activity under the charter party "free of expense to the vessel." The difficulty is that
Transcontinental has not been impleaded in these cases and so is beyond our jurisdiction. The
liability imposable upon it cannot be borne by Maritime which, as a mere agent, is not
answerable for injury caused by its principal. It is a well-settled principle that the agent shall be
liable for the act or omission of the principal only if the latter is undisclosed.

Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the
case of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case
is applicable.
In that case, the charterer represented itself on the face of the bill of lading as the carrier. The
vessel owner and the charterer did not stipulate in the Charter party on their separate respective
liabilities for the cargo. The loss/damage to the cargo was sustained while it was still on board
or under the custody of the vessel. As the charterer was itself the carrier, it was made liable for
the acts of the ship captain who was responsible for the cargo while under the custody of the
vessel.

As for the charterer's agent, the evidence showed that it represented the vessel when it took
charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name.
Claims against the vessel for the losses/damages sustained by that cargo were also received and
processed by it. As a result, the charterer's agent was also considered a ship agent and so was
held to be solidarily liable with its principal.

The facts in the cases at bar are different. The charterer did not represent itself as a carrier and
indeed assumed responsibility ability only for the unloading of the cargo, i.e, after the goods
were already outside the custody of the vessel. In supervising the unloading of the cargo and
issuing Daily Operations Report and Statement of Facts indicating and describing the day-to-day
discharge of the cargo, Maritime acted in representation of the charterer and not of the vessel. It
thus cannot be considered a ship agent. As a mere charterer's agent, it cannot be held
solidarily liable with Transcontinental for the losses/damages to the cargo outside the
custody of the vessel. Notably, Transcontinental was disclosed as the charterer's principal
and there is no question that Maritime acted within the scope of its authority.

We affirm the factual findings but must modify the legal conclusions. As previously discussed,
the liability of Macondray can no longer be enforced because the claim against it has prescribed;
and as for Maritime, it cannot be held liable for the acts of its known principal resulting in injury
to Union. The interest must also be reduced to the legal rate of 6%, conformably to our ruling in
Reformina v. Tomol 24 and Article 2209 of the Civil Code, and should commence, not on April
20, 1981, but on September 19, 1980, date of the filing of the original complaint.

7. Bachelor Express vs. CA (GR 85691, 31 July 1990)

FACTS:
On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by Cresencio Rivera,
came from Davao City on its way to Cagayan de Oro City passing Butuan City. While at Tabon-
Tabon, Butuan City, the bus picked up a passenger. About 15 minutes later, a passenger at the
rear portion suddenly stabbed a PC soldier which caused commotion and panic among the
passengers. When the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were
found lying down the road, the former already dead as a result of head injuries and the latter
also suffering from severe injuries which caused her death later. The passenger- assailant
alighted from the bus and ran toward the bushes but was killed by the police.
Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut (Ricardo Beter and Sergia Beter
are the parents of Ornominio while Teofilo Rautraut and Zotera Rautraut are the parents of
Narcisa) filed a complaint for “sum of money” against Bachelor Express, its alleged owner
Samson Yasay, and the driver Rivera. After due trial, the trial court issued an order dated 8
August 1985 dismissing the complaint.
Upon appeal however, the trial court’s decision was reversed and set aside. The appellate
entered a new judgment finding Bachelor Express, Yasay, and Rivera jointly and solidarily liable
to pay the Beters and the Rautraut the amount of P75,000.00 in loss of earnings and support,
moral damages, straight death indemnity and attorney’s fees to the heirs of Ornominio Beter;
and the amount of P45,000.00 for straight death indemnity, moral damages and attorney’s fees
to the heirs of Narcisa Rautraut; with costs against Bachelor Express, et. al. Hence, the petition
for review.

ISSUE:
Whether or not the carrier and its driver are liable for damages arising from acts of third persons
over whom they have no control or supervision.

RULING:
Bachelor Express, in order to overcome the presumption of fault or negligence under the law,
states that the vehicular incident resulting in the death of passengers was caused by force
majeure or caso fortuito over which the common carrier did not have any control.

In a legal sense and in relation to contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of
the debtor to comply with his obligation, must be independent of the human will. (2) It must be
impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it
must be impossible to avoid. (3) The occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner. And (4) the obligor (debtor) must be free from
any participation in the aggravation of the injury resulting to the creditor.

The running amuck of the passenger was the proximate cause of the incident as it triggered off a
commotion and panic resulting in the falling off the bus by passengers Beter and Rautraut
causing them fatal injuries. The sudden act of the passenger who stabbed another passenger in
the bus is within the context of force majeure.

However, in order that a common carrier may be absolved from liability in case of force majeure,
it is not enough that the accident was caused by force majeure. The common carrier must still
prove that it was not negligent in causing the injuries resulting from such accident.

Considering the factual findings of the Court of Appeals-the bus driver did not immediately stop
the bus at the height of the commotion; the bus was speeding from a full stop; the victims fell
from the bus door when it was opened or gave way while the bus was still running; the
conductor panicked and blew his whistle after people had already fallen off the bus; and the bus
was not properly equipped with doors in accordance with law-it is clear that the petitioners have
failed to overcome the presumption of fault and negligence found in the law governing common
carriers.

Also, the petitioners' argument that the petitioners "are not insurers of their passengers"
deserves no merit in view of the failure of the petitioners to prove that the deaths of the two
passengers were exclusively due to force majeure and not to the failure of the petitioners to
observe extraordinary diligence in transporting safely the passengers to their destinations as
warranted by law.
8. Zulueta v Pan-Am
FACTS:
Plaintiff Zulueta, his wife and daughter were passengers aboard defendant’s plane from
Honolulu to Manila. Upon reaching Wake Island the passengers were advised that they could
disembark for a stopover for about30 minutes. Plaintiff went to the toilet at the terminal building
but finding it full walked 200 yards away. Upon returning he told an employee of the defendant
that they almost made him miss the flight because of a defective announcing system. He had a
discussion with either the plan captain or the terminal manager. He was told that they would
open his bags which he refused and he warned them of the consequences. Just the same they
opened his bags and found nothing prohibited. They forced him to go out of the plane and left
him at Wake Island. His wife had to send him money and he was able to leave Wake Island and
return to Manila thru Honolulu and Tokyo after two days. This action was to recover damages
from the defendant.

ISSUE:
WON moral damages may be recovered.

HELD:
“The records amply establish plaintiffs’ right to recover both moral and exemplary damages.
Indeed, the rude and rough reception plaintiff received at the hands of Sitton or Captain Zentner
when the latter met him at the ramp (‘What in the hell do you think you are? Get on that plane’);
the menacing attitude of Zentner or Sitton and the supercilious manner in which he had asked
plaintiff to open his bags (‘open your bag’, and when told that a fourth bag was missing, ‘I don’t
give a damn’); the abusive language and highly scornful reference to plaintiffs as monkeys by
one of PAN AM’s employees (who turning to Mrs. Zulueta remarked, “will you pull these three
monkeys out of here?”); the unfriendly attitude, the ugly stares and unkind remarks to which
plaintiffs were subjected, and their being cordoned by men in uniform as if they were criminals,
while plaintiff was arguing with Sitton; the airline officials’ refusal to allow plaintiff to board the
plane on the pretext that he was hiding a bomb in his luggage and their arbitrary and high-
handed decision to leave him in Wake; Mrs. Zulueta’s having suffered a nervous breakdown for
which she was hospitalized as a result of the embarrassment, insults and humiliations to which
plaintiffs were exposed by the conduct of PAN AM’s employees; Mrs. Zulueta having suffered
shame, humiliation and embarrassment for the treatment received by her parents at the airport
– all these justify an award for moral damages resulting from mental anguish, serious anxiety,
wounded feelings, moral shock, and social humiliation thereby suffered by plaintiffs”. Plaintiffs
were awarded Pesos 500,000.00 and moral damages, Pesos 200,000.00 exemplary damages,
Pesos 75,000.00attorney’s fees and Pesos 5,502.85 actual damages.

9. TRANS WORLD AIRLINES vs. COURT OF APPEALS (G.R. No. 78656, August 30, 1988)
FACTS:
Rogelio A. Vinluan entered into a contract for air carriage for valuable consideration with Japan
Airlines first class from Manila to Tokyo, Moscow, Paris, Hamburg, Zurich, New York, Los
Angeles, Honolulu and back to Manila thru the same airline and other airlines it represents for
which he was issued the corresponding first class tickets for the entire trip.

While in Paris, he went to the office of Trans World Airlines (TWA) at the De Gaulle Airport and
secured therefrom confirmed reservation for first class accommodation on board its Flight No. 41
from New York to San Francisco. The next day Vinluan reconfirmed his reservation for first class
accommodation with its New York office. He was advised that his reservation was confirmed. He
was even requested to indicate his seat preference on said flight.

On departure, Vinluan presented his ticket for check-in at the counter of TWA at JFK
International Airport. He was informed that there was no first class seat available for him on the
flight. He asked for an explanation but TWA employees on duty declined to give any reason.
When he began to protest, one of the TWA employees, a certain Mr. Braam, rudely threatened
him with the words "Don't argue with me, I have a very bad temper." To be able to keep his
schedule, Vinluan was compelled to take the economy seat offered to him and he was issued a
refund application" as he was downgraded from first class to economy class.

Vinluan filed an action for damages against the TWA in the Court of First Instance of Rizal
alleging breach of contract and bad faith.

ISSUE:
Whether there was breach of contract by Transworld Airlines entitling Vinluan to moral and
exemplary damages.

RULING:
Flight No. 41 was to have utilized a Lockheed 1011 with 34 first class seats, but instead, a
smaller Boeing 707 with only 16 first class seats was substituted for use in Flight No. 6041
because of maintenance problems of the aircraft on the day of the flight.

Private respondent had a first class ticket for Flight No. 41 of petitioner from New York to San
Francisco. It was twice confirmed and yet respondent unceremoniously told him that there was
no first class seat available for him and that he had to be downgraded to the economy class. As
he protested, he was arrogantly threatened by one Mr. Braam. Worst still, while he was waiting
for the flight, he saw that several Caucasians who arrived much later were accommodated in
first class seats when the other passengers did not show up.

The discrimination is obvious and the humiliation to which private respondent was subjected is
undeniable. Consequently, the award of moral and exemplary damages by the respondent court
is in order.

Indeed, private respondent had shown that the alleged switch of planes from a Lockheed 1011 to
a smaller Boeing 707 was because there were only 138 confirmed economy class passengers who
could very well be accommodated in the smaller plane and not because of maintenance
problems.

Petitioner sacrificed the comfort of its first class passengers including private respondent
Vinluan for the sake of econonmy. Such inattention and lack of care for the interest of its
passengers who are entitled to its utmost consideration, particularly as to their convenience,
amount to bad faith which entitles the passenger to the award of moral damages. More so in this
case where instead of courteously informing private respondent of his being downgraded under
the circumstances, he was angrily rebuffed by an employee of petitioner.

At the time of this unfortunate incident, the private respondent was a practicing lawyer, a senior
partner of a big law firm in Manila. He was a director of several companies and was active in
civic and social organizations in the Philippines. Considering the circumstances of this case and
the social standing of private respondent in the community, he is entitled to the award of moral
and exemplary damages.

10. SULPICIO LINES, INC. vs. CURSO (615 SCRA 575)

FACTS:
On October 23, 1988, Dr. Curso boarded at the port of Manila the MV Doña Marilyn, an inter-
island vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City.
Unfortunately, the MV Doña Marilyn sank in the afternoon of October 24, 1988 while at sea due
to the inclement sea and weather conditions brought about by Typhoon Unsang. The body of Dr.
Curso was not recovered, along with hundreds of other passengers of the ill-fated vessel. At the
time of his death, Dr. Curso was 48 years old, and employed as a resident physician at the Naval
District Hospital in Naval, Biliran.

The surviving brothers and sisters of Dr. Curso, sued the petitioner in the RTC in Naval, Biliran
to claim damages based on breach of contract of carriage by sea, averring that the petitioner had
acted negligently in transporting Dr. Curso and the other passengers. They prayed for: (a)
compensatory damages; (b) moral damages; (c) exemplary or corrective damages; (d) expenses of
litigation; (e) attorney’s fees; and (f) costs of suit.

The petitioner denied liability, insisting that the sinking of the vessel was due to force majeure
(i.e., Typhoon Unsang), which exempted a common carrier from liability. It averred that the MV
Doña Marilyn was seaworthy in all respects, and was in fact cleared by the Philippine Coast
Guard for the voyage; and that after the accident it conducted intensive search and rescue
operations and extended assistance and aid to the victims and their families.

ISSUE:
ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN A CASE OF BREACH OF
CONTRACT OF CARRIAGE ENTITLED TO AN AWARD OF MORAL DAMAGES AGAINST THE
CARRIER?

RULING:
As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract, unless there is fraud or bad faith. As an exception, moral damages may be
awarded in case of breach of contract of carriage that results in the death of a passenger, in
accordance with Article 1764, in relation to Article 2206 (3), of the Civil Code, which provide:

Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed
and awarded by the court, unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the
recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate
succession, may demand support from the person causing the death, for a period not exceeding
five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of the deceased.

The foregoing legal provisions set forth the persons entitled to moral damages. The omission
from Article 2206 (3) of the brothers and sisters of the deceased passenger reveals the legislative
intent to exclude them from the recovery of moral damages for mental anguish by reason of the
death of the deceased. Inclusio unius est exclusio alterius. The solemn power and duty of the
courts to interpret and apply the law do not include the power to correct the law by reading into
it what is not written therein. Thus, the CA erred in awarding moral damages to the
respondents.

Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the
injured party to obtain the means, diversions, or amusements that will serve to alleviate the
moral suffering he has undergone by reason of the tragic event. According to Villanueva v.
Salvador, the conditions for awarding moral damages are: (a) there must be an injury, whether
physical, mental, or psychological, clearly substantiated by the claimant; (b) there must be a
culpable act or omission factually established; (c) the wrongful act or omission of the defendant
must be the proximate cause of the injury sustained by the claimant; and (d) the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.

Article 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

The parents of the female seduced, abducted, raped or abused referred to in No. 3 of this article,
may also recover moral damages.

The spouse, descendants, ascendants and brothers and sisters may bring the action mentioned
in No. 9 of this article, in the order named. Article 2219 circumscribes the instances in which
moral damages may be awarded. The provision does not include succession in the collateral line
as a source of the right to recover moral damages. The usage of the phrase analogous cases in
the provision means simply that the situation must be held similar to those expressly
enumerated in the law in question following the ejusdem generis rule.

In fine, moral damages may be recovered in an action upon breach of contract of carriage only
when: (a) where death of a passenger results, or (b) it is proved that the carrier was guilty of
fraud and bad faith, even if death does not result. Article 2206 of the Civil Code entitles the
descendants, ascendants, illegitimate children, and surviving spouse of the deceased passenger
to demand moral damages for mental anguish by reason of the death of the deceased.

CHAPTER 6 – GENERAL CONCEPTS (MARITIME)

1. YANGCO vs. LASERNA (73 PHIL 330)

FACTS:
The steamer S.S. Negros, belonging to Teodoro R. Yangco, left the port of Romblon on its retun
trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly advised
and his attention thereto called by the passengers themselves before the vessel set sail. The boat
was overloaded as indicated by the loadline which was 6 to 7 inches below the surface of the
water.

After two hours of sailing, the boat encountered strong winds and rough seas between the
islands of Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were
lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left,
evidently to return to port, but in the manuever, the vessel was caught sidewise by a big wave
which caused it to capsize and sink. Many of the passengers died in the mishap, among them
Casiana Laserna, the daughter of respondent Manuel Laserna. The respondents instituted in the
Court of First Instance of Capiz separate civil actions against petitioner here to recover damages
for the death of the passengers.
After the rendition of the judgment in favor of respondents, petitioner, by a verified pleading,
sought to abandon the vessel to the plaintiffs, together with all its equipments, without prejudice
to his right to appeal. The abandonment having been denied, an appeal was taken to the Court
of Appeals, wherein all the judgmnets were affirmed.

ISSUE:
May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the
negligence of its captain, be properly held liable in damages for the consequent death of its
passengers?

RULING:
The question is controlled by the provisions of article 587 of the Code of Commerce. Said article
reads:
The agent shall also be civilly liable for the indemnities in favor of third persons which arise from
the conduct of the captain in the care of the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight he may have
earned during the voyage.

The provisions accords a shipowner or agent the right of abandonment; and by necessary
implication, his liability is confined to that which he is entitled as of right to abandon — "the
vessel with all her equipments and the freight it may have earned during the voyage." It is true
that the article appears to deal only with the limited liability of shipowners or agents for
damages arising from the misconduct of the captain in the care of the goods which the vessel
carries, but this is a mere deficiency of language and in no way indicates the true extent of such
liability. The consensus of authorities is to the effect that notwithstanding the language of the
aforequoted provision, the benefit of limited liability therein provided for, applies in all cases
wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the
captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco.

A cursory examination will disclose that the principle of limited liability of a shipowner or agent
is provided for in but three articles of the Code of Commerce — article 587 aforequoted and
article 590 and 837. It only remains to be noted that the rule of limited liability provided for in
our Code of Commerce reflects merely, or is but a restatement, imperfect though it is, of the
almost universal principle on the subject. While previously under the civil or common law, the
owner of a vessel was liable to the full amount for damages caused by the misconduct of the
master, by the general maritime law of modern Europe, the liability of the shipowner was
subsequently limited to his interest in the vessel. The rule is designed to promote is the
encouragement of shipbuilding and investment in maritime commerce.

In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way
be held civilly liable at all for injury to or death of passengers arising from the negligence of the
captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction. In arriving at this conclusion,
we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged
in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the
relationship between the petitioner and the passengers who died in the mishap rests on a
contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage,
the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to
the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear
that the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was in
accordance with law of not, is immaterial. The vessel having totally perished, any act of
abandonment would be an idle ceremony.
2. Chua Yek Hong vs. IAC (GR L-74811, 30 September 1988)
FACTS:
Chua Yek Hong is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
Mariano Guno and Dominador Olit are the owners of the vessel, “M/V Luzviminda I,” a common
carrier engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of
Manila. In October 1977, Chua Yek Hong loaded 1,000 sacks of copra, valued at P101,227.40,
on board the vessel “M/V Luzviminda I” for shipment from Puerta Galera, Oriental Mindoro, to
Manila. Said cargo, however, did not reach Manila because somewhere between Cape Santiago
and Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, Chua Yek Hong instituted before the then CFI of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against Guno and Olit. In their
Answer, Guno and Olit averred that even assuming that the alleged cargo was truly loaded
aboard their vessel, their liability had been extinguished by reason of the total loss of said
vessel. On 17 May 1983, the Trial Court rendered its Decision, holding that the preponderance
of evidence militates in favor of Chua Yek Hong and against Guno and Olit by ordering the
latter, jointly and severally, to pay Chua Yek Hong the sum of P101,227.40 representing the
value of the cargo belonging to Chua Yek Hong which was lost while in the custody of Guno and
Olit; P65,550.00 representing miscellaneous expenses of Chua Yek Hong on said lost cargo;
attorney’s fees in the amount of P5,000.00, and to pay the costs of suit.”

On appeal, the Appellate Court ruled to the contrary when it applied Article 587 of the Code of
Commerce and the doctrine in Yangco vs. Laserna (73 Phil. 330 [1941]) and held that Guno’s
and Olit’s liability, as shipowners, for the loss of the cargo is merely co-extensive with their
interest in the vessel such that a total loss thereof results in its extinction. Unsuccessful in his
Motion for Reconsideration of the Decision, Chua Yek Hong filed a petition for review on
certiorari.

ISSUE:
Whether the limited liability under Article 587 of the Code of Commerce applies in the case.

RULING:
Article 587 of the Code of Commerce provides:
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 the equipments
and the freight it may have earned during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner. Pursuant to said provision, therefore, both the ship owner and ship agent are civilly and
directly liable for the indemnities in favor of third persons, which may arise from the conduct of
the captain in the care of goods transported, as well as for the safety of passengers transported.

However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This expresses the
universal principle of limited liability under maritime law. the ship owner's or agent's liability is
merely co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The total
destruction of the vessel extinguishes maritime liens as there is no longer any res to which it
can attach.

To offset against these adverse conditions and to encourage ship building and maritime
commerce, it was deemed necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the ship
owner or agent abandoned the ship, equipment, and freight, his liability was extinguished.
(Abueg vs. San Diego, 77 Phil. 730 [1946]). Without the principle of limited liability, a ship owner
and investor in maritime commerce would run the risk of being ruined by the bad faith or
negligence of his captain, and the apprehension of this would be fatal to the interest of
navigation." Yangco vs. Lasema, supra).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury or
death to a passenger is due either to the fault of the ship owner, or to the concurring negligence
of the ship owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where
the vessel is insured; and (3) in workmen's compensation claims Abueg vs. San Diego, supra). In
this case, there is nothing in the records to show that the loss of the cargo was due to the fault
of the private respondent as shipowners, or to their concurrent negligence with the captain of
the vessel.

The primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of Commerce
and other special laws are applied. Since the Civil Code contains no provisions regulating
liability of ship owners or agents in the event of total loss or destruction of the vessel, it is the
provisions of the Code of Commerce, more particularly Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-
extensive with his interest in the vessel such that a total loss thereof results in its extinction
(Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited liability being
present, the liability of private respondents for the loss of the cargo of copra must be deemed to
have been extinguished. There is no showing that the vessel was insured in this case.

The Supreme Court affirmed the judgment sought to be reviewed; without costs.

3. Heirs OF Amparo Delos Santos v CA

Facts:
Mauricio de los Santos accompanied his common-law wife, Amparo delos Santos, and children,
namely: Romeo, Josie, Hernani (10 years old), Abella (7 years old), Maria Lemia (5 years old) and
Melany (5 months old), to pier 8, North Harbor, Manila, to board the M/V ‘Mindoro’, owned by
Compania Maritima, bound for Aklan. Amparo delos Santos and the aforesaid children brought
all their belongings, including household utensils valued at P1,000.00, with the intention of
living in Aklan permanently. On the other hand, as to spouses Diego Salim and Teresa
Pamatian, Diego brought with him P200 in cash and some belongings, while Teresa brought
some cash and personal belongings worth P250.

Diego boarded the vessel even if he did not have yet a ticket. As to Ruben Reyes, he brought with
him personal belongings and cash in the amount of P2,900. M/V ‘Mindoro’ sailed from pier 8
North Harbor, Manila, at about 6:00 p.m. (should have sailed at 2:00 p.m.) of said day bound for
New Washington, Aklan, with many passengers aboard (about 200). Amparo was not included in
the manifest as she boarded the boat without ticket, but appeared to have purchased one in the
vessel. It appears that said vessel met typhoon ‘Welming’ on the Sibuyan Sea, Aklan causing the
death of many of its passengers, including Amparo delos Santos and her children. Other
drowned victims include spouses Teresa Pamatian and Diego Salim, and also Felix Reyes
Jakusalam. 136 survived the accident, including Ruben Reyes and Eliadora Crisostomo de
Justo. Eliandora was able to board a balsa, while Ruben was able to swim to an island and with
others, rescued later on and brought to the hospital.

A complaint was originally filed on 21 October 1968 and amended on 24 October 1968 by the
heirs of Delos Santos and others as pauper litigants against the Compania Maritima, for
damages due to the death of several passengers as a result of the sinking of the M/V ‘Mindoro’.
The trial court adjudged the case in favor of Compania Maritima, dismissing the case due to lack
of sufficient evidence.

Forthwith, Reyes, and the heirs of the Delos Santos(es), Diego Salim, and Teresa Pamatian
brought an appeal to the Court of Appeals. The appellate court affirmed the decision on appeal.

The Supreme Court reversed the appealed decision, and rendered judgment sentencing
Compania Maritima to pay the following: (1) P30,000.00 as indemnity for death to the heirs of
each of the victims; (2) P10,000.00 as moral damages to the heirs of each of the victims; (3)
P6,805.00 as actual damages divided among the petitioners as follows: heirs of Amparo Delos
Santos and her deceased children, P2,000.00; heirs of Teresa Pamatian, P450.00; heirs of Diego
Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00 as attorney’s fees; and (5) the
costs.

ISSUE:
Maritima's negligence and of the application of Article 587 of the Code of Commerce

HELD:
Under this provision, a shipowner or agent has the right of abandonment; and by necessary
implication, his liability is confined to that which he is entitled as of right to abandon-"the vessel
with all her equipments and the freight it may have earned during the voyage". Notwithstanding
the passage of the New Civil Code, Article 587 of the Code of Commerce is still good law. The
reason lies in the peculiar nature of maritime law which is exclusively real and hypothecary that
operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. As
correctly stated by the appellate court, "(t)his rule is found necessary to offset against the
innumerable hazards and perils of a sea voyage and to encourage shipbuilding and marine
commerce. Contrary to the petitioners' supposition, the limited liability doctrine applies not only
to the goods but also in all cases like death or injury to passengers wherein the shipowner or
agent may properly be held liable for the negligent or illicit acts of the captain. It must be
stressed at this point that Article 587 speaks only of situations where the fault or negligence is
committed solely by the captain. In cases where the shipowner is likewise to be blamed, Article
587 does not apply. Such a situation will be covered by the provisions of the New Civil Code on
Common Carriers. Owing to the nature of their business and for reasons of public policy,
common carriers are tasked to observe extraordinary diligence in the vigilance over the goods
and for the safety of its passengers (Article 1733, New Civil Code). Further, 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 a due regard for all the circumstances (Article 1755,
New Civil Code). Whenever death or injury to a passenger occurs, common carriers are
presumed to have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).
Guided by the above legal provisions, We painstakingly reviewed the records of the case and
found imprints of Maritima's negligence which compel Us to reverse the conclusion of the
appellate court.

Maritima claims that it did not have any information about typhoon 'Welming' until after the
boat was already at sea. Modem technology belie such contention. The Weather Bureau is now
equipped with modern apparatus which enables it to detect any incoming atmospheric
disturbances. In his summary report on tropical cyclone 'Welming' which occurred within the
Philippine Area of Responsibility, Dr. Roman L. Kintanar, Weather Bureau Director, stated that
during the periods of November 15, 1967, the Bureau issued a total of seventeen (17) warnings
or advisories of typhoon 'Welming' to shipping companies. We find it highly improbable that the
Weather Bureau had not yet issued any typhoon bulletin at any time during the day to the
shipping companies. Maritima submitted no convincing evidence to show this omission. It's
evidence showing the Weather Bureau's forecast of November 3, 1967 is not persuasive.
While We agree with the appellate court that the captain was negligent for overloading the ship,
We, however, rule that Maritima shares equally in his negligence. We find that while M/V
Mindoro was already cleared by the Bureau of Customs and the Coast Guard for departure
however, delayed for four hours. Maritima could not account for the delay because it neither
checked from the captain the reasons behind the delay nor sent its representative to inquire into
the cause of such delay. It was due to this interim that the appellate court noted that "(i)ndeed
there is a great probability that unmanifested cargo (such as dump truck, 3 toyota cars, steel
bars, and 6,000 beer cases) and passengers (about 241 more than the authorized 193
passengers) were loaded during the four (4) hour interval". Perchance, a closer supervision could
have prevented the overloading of the ship. Maritima could have directed the ship's captain to
immediately depart in view of the fact that as of 11:07 in the morning of November 2, 1967, the
typhoon had already attained surface winds of about 240 kilometers per hour. As the appellate
court stated, '(v)erily, if it were not for have reached (its) destination and this delay, the vessel
could thereby have avoided the effects of the storm" (Decision, Rollo p. 26). This conclusion was
buttressed by evidence that another ship, M/V Mangaren, an interisland vessel, sailed for New
Washington, Aklan on November 2, 1967, ahead of M/V Mindoro and took the same route as the
latter but it arrived safely.

Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove
that it exercised extraordinary diligence in this case. M/V Mindoro was drydocked for about a
month. Necessary repairs were made on the ship. Life saving equipment and navigational
instruments were installed.
While indeed it is true that all these things were done on the vessel, Maritima, however, could
not present evidence that it specifically installed a radar which could have allowed the vessel to
navigate safely for shelter during a storm.

Storms and typhoons are not strange occurrences. With the impending threat of 'Welming,' an
important device such as the radar could have enabled the ship to pass through the river and to
safety. The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence
coupled with the negligence of the captain as found by the appellate court were the proximate
causes of the sinking of M/V Mindoro.

Hence, Maritima is liable for the deaths and injury of the victims. amount of With the above
finding,

4. ABOITIZ SHIPPING CORPORATION vs. NEW INDIA ASSURANCE COMPANY, LTD. (488
SCRA 563)
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
Hongkong, 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. The vessel sank, but the captain and his crew
were saved.

Petitioner notified the consignee, General Textile, of the total loss of the vessel and all of its
cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent
paid General Textile and was subrogated to the rights of the latter.
Respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian Services
and the latter’s local agent, Zuellig. Respondent alleged that the proximate cause of the loss of
the shipment was the fault or negligence of the master and crew of the vessel, its
unseaworthiness, and the failure of defendants therein to exercise extraordinary diligence in the
transport of the goods. Hence, respondent added, defendants therein breached their contract of
carriage.

Petitioner raised the defense that the ship was seaworthy. It alleged that the sinking of M/V P.
Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also alleged
that in accordance with the real and hypothecary nature of maritime law, the sinking of M/V P.
Aboitiz extinguished its liability on the loss of the cargoes.

ISSUE:
Whether the limited liability under Article 587 of the Code of Commerce applies in the case.

RULING:
In the present case, petitioner has the burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to invoke the limited liability
doctrine. Differently put, to limit its liability to the amount of the insurance proceeds, petitioner
has the burden of proving that the unseaworthiness of its vessel was not due to its fault or
negligence. Considering the evidence presented and the circumstances obtaining in this case, we
find that petitioner failed to discharge this burden. It initially attributed the sinking to the
typhoon and relied on the BMI findings that it was not at fault. However, both the trial and the
appellate courts, in this case, found that the sinking was not due to the typhoon but to its
unseaworthiness. Evidence on record showed that the weather was moderate when the vessel
sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to
be disturbed on appeal, but must be accorded great weight. These findings are conclusive not
only on the parties but on this Court as well.

In contrast, the findings of the BMI are not deemed always binding on the courts. Besides,
exoneration of the vessel’s officers and crew by the BMI merely concerns their respective
administrative liabilities. It does not in any way operate to absolve the common carrier from its
civil liabilities arising from its failure to exercise extraordinary diligence, the determination of
which properly belongs to the courts.

Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited
liability cannot be applied. Therefore, we agree with the appellate court in sustaining the trial
court’s ruling that petitioner is liable for the total value of the lost cargo.

CHAPTER 7 – VESSELS

1. Philippine Refining v. Jarque [G.R. No. 41506. March 25, 1935.]

FACTS:
On varying dates the Philippine Refining Co., Inc., and Francisco Jarque executed three
mortgages, denominated as “chattel mortgage” on the motor vessels Pandan and Zaragoza. The
first two mortgages do not have an appended affidavit of good faith, while the third contains
such. The third mortgage was subscribed by Jarque and MN Brink (in what capacity the latter
signed is not disclosed) and was not registered in the customs house until 17 May 1932, or
within the period of 30 prior to the commencement of insolvency proceedings against Jarque. A
fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and was
entered in the chattel mortgage registry of the register of deeds on 12 May 1932, or again within
the 30-day period before the institution of insolvency proceedings.
A petition was filed with the CFI Cebu on 2 June 1932 in which it was prayed that Francisco
Jarque be declared an insolvent debtor, with the result that an assignment of all the properties
of the insolvent debtor, was executed in favor of Jose Corominas. The petition on the matter of
Jarque’s insolvency was granted. However, the judge declined to order the foreclosure of the
mortgages, but on the contrary sustained the special defenses of fatal defectiveness of the
mortgages.

ISSUE:
Whether the mortgages involve admiralty jurisdiction.

RULING:
Vessels are considered personal property under the civil law. Similarly under the common law,
vessels are personal property although occasionally referred to as a peculiar kind of personal
property. Since the term "personal property" includes vessels, they are subject to mortgage
agreeably to the provisions of the Chattel Mortgage Law. Indeed, it has heretofore been accepted
without discussion that a mortgage on a vessel is in nature a chattel mortgage. The only
difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is
that it is not now necessary for a chattel mortgage of a vessel to be noted n the registry of the
register of deeds, but it is essential that a record of documents affecting the title to a vessel be
entered in the record of the Collector of Customs at the port of entry. Otherwise a mortgage on a
vessel is generally like other chattel mortgages as to its requisites and validity.

The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to
constitute a good chattel mortgage, includes the requirement of an affidavit of good faith
appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a
mortgage as against creditors and subsequent encumbrancers. As a consequence a chattel
mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is
lacking, is unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not constitute
chattel mortgages or at least to gloss over the failure to include the affidavit of good faith made a
requisite for a good chattel mortgage by the Chattel Mortgage Law. Counsel would further have
us disregard article 585 of the Code of Commerce, but no reason is shown for holding this article
not in force. Counsel would further have us revise doctrines heretofore announced in a series of
cases, which it is not desirable to do since those principles were confirmed after due liberation
and constitute a part of the commercial law of the Philippines. And finally counsel would have
us make rulings on points entirely foreign to the issues of the case. As neither the facts nor the
law remains in doubt, the seven assigned errors will be overruled.

The Supreme Court affirmed the judgment, with costs against appellant.

CHAPTER 8 – PERSONS WHO TAKE PART IN MARITIME COMMERCE

1. THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. vs. COURT OF

APPEALS (273 SCRA 262)
FACTS:
Coca-Cola Bottlers Philippines, Inc., loaded on board “MV Asilda,” a vessel owned and operated
by FELMAN, 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from
Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The
shipment was insured with PHILAMGEN.
“MV Asilda” left the port of Zamboanga in fine weather, the following morning the vessel sank in
the waters of Zamboanga del Norte bringing down her entire cargo with her including the subject
7,500 cases of 1-liter Coca-Cola softdrink bottles.

The consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that
sank with “MV Asilda.” Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN
which disclaimed any liability for the loss. Consequently, PHILAMGEN sued the shipowner for
sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of “MV Asilda” and its cargo
were due to the vessel’s unseaworthiness as she was put to sea in an unstable condition. It
further alleged that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port or beach after the
vessel started to list.

ISSUE:
(a) whether “MV Asilda” was seaworthy when it left the port of Zamboanga;
(b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and,
(c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the
shipper had against FELMAN, the shipowner.

RULING:
“MV Asilda” was unseaworthy when it left the port of Zamboanga. Contrary to the ship captain’s
allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on
deck. Several days after “MV Asilda” sank, an estimated 2,500 empty Coca-Cola plastic cases
were recovered near the vicinity of the sinking. Considering that the ship’s hatches were properly
secured, the empty Coca-Cola cases recovered could have come only from the vessel’s deck
cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless
it can be shown that the deck cargo will not interfere with the proper management of the ship.
However, in this case it was established that “MV Asilda” 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. The strong winds and waves encountered
by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to
its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. The
international rule is to the effect that the right of abandonment of vessels, as a legal limitation of
a shipowner’s liability, does not apply to cases where the injury or average was occasioned by
the shipowner’s own fault. It was already established at the outset that the sinking of “MV
Asilda” was due to its unseaworthiness even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer
supervision on the part of the shipowner could have prevented this fatal miscalculation. As
such, FELMAN was equally negligent.

In relation to the question of subrogation, respondent appellate court found “MV Asilda”
unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty
of seaworthiness that rendered the assured not entitled to the payment of is claim under the
policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a
“voluntary payment” and no right of subrogation accrued in its favor. In other words, when
PHILAMGEN paid it did so at its own risk.
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two
things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk
of unseaworthiness is assumed by the insurance company. Thus it can be said that with such
categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship
should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

PHILAMGEN’s action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code
which provides:
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

The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one
who in justice, equity and good conscience ought to pay.[19] 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 softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to

pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

2. Sweet Lines v CA
FACTS:
The respondents, having first class tickets, boarded the M/V Sweet Grace to Catbalogan. The
vessel had some engine problems which led to a change of schedule and they were thus delayed
for a substantial amount of time. Furthermore, the vessel bought the respondents to Tacloban
instead of Catbalogan. This led the respondents to purchase another set of tickets and to ride
another ferryboat going to Catbalogan. The respondents then sued the petitioner carrier for
damages for the breach of contract of carriage.

ISSUE:
Whether or not the petitioner is liable for damages.

HELD:
There was no fortuitous event or force majeure which prevented the vessel from fulfilling its
undertaking of taking private respondents to Catbalogan. In the first place, mechanical defects
in the carrier are not considered a caso fortuito that exempts the carrier from responsibility.

In the second place, even granting arguendo that the engine failure was a fortuitous event, it
accounted only for the delay in departure. When the vessel finally left the port of Cebu on July
10, 1972, there was no longer anyforce majeure that justified by-passing a port of call. The
vessel was completely repaired the following day after it was towed back to Cebu. In fact, after
docking at Tacloban City, it left the next day for Manila to complete its voyage.

The reason for by-passing the port of Catbalogan, as admitted by petitioner's General Manager,
was to enable the vessel to catch up with its schedule for the next week. The record also
discloses that there were 50 passengers for Tacloban compared to 20 passengers for Catbalogan,
so that the Catbalogan phase could be scrapped without too much loss for the company.
 The Court held that the petitioner is liable for damages specifically moral damages because there
was bad faith on its part. The Court found that such bad faith is present based on three
circumstances namely:

1. Petitioner did not give any notice to the respondents as to the change of schedule of the
vessel.
2. The petitioner knew fully that it would take no less than fifteen (15) hours to effect the
repairs of the damaged engine. The petitioner also assured that the vessel will leave within a short
period of time and when the defendants wanted to leave the trip petitioner stated that the “the
vessel is already leaving.”
3. The petitioner did not even offer to refund the tickets and provide for their transportation
from Tacloban to Catbalogan.