TRANSPORTATION LAWS
What is Charter Party?
Charter party is 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.
Responsibility to third persons for goods shipped on board a
vessel follows the vessel's possession and employment; and if
possession is transferred to the charterer by virtue of a demise,
the charterer, and not the owner, is liable as carrier on the
contract of affreightment made by himself or by the master with
third persons, and is answerable for loss, damage or non-
delivery of goods received for transportation. 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 or unloading of the
cargo.
G.R. No. 131166 September 30, 1999
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.
Is the charterer of a sea vessel liable for damages resulting
from a collision between the chartered vessel and a passenger
ship?
When MT Vector left the port of Limay, Bataan, on December
19, 1987 carrying petroleum products of Caltex (Philippines),
Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Doña Paz, killing almost all the
passengers and crew members of both ships, and thus
resulting in one of the country's worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals
decision 1 holding petitioner jointly liable with the operator of
MT Vector for damages when the latter collided with Sulpicio
Lines, Inc.'s passenger ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay,
Bataan, at about 8:00 p.m., enroute to Masbate, loaded with
8,800 barrels of petroleum products shipped by petitioner
RMC-SOL
Caltex. 2 MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, engaged in the
business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. During that particular voyage,
the MT Vector carried on board gasoline and other oil products
owned by Caltex by virtue of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger
ship MV Doña Paz left the port of Tacloban headed for Manila
with a complement of 59 crew members including the master
and his officers, and passengers totaling 1,493 as indicated in
the Coast Guard Clearance. 4 The MV Doña Paz is a
passenger and cargo vessel owned and operated by Sulpicio
Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/
Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a
week.
At about 10:30 p.m. of December 20, 1987, the two vessels
collided in the open sea within the vicinity of Dumali Point
between Marinduque and Oriental Mindoro. All the
crewmembers of MV Doña Paz died, while the two survivors
from MT Vector claimed that they were sleeping at the time of
the incident.1âwphi1.nêt
The MV Doña Paz carried an estimated 4,000 passengers;
many indeed, were not in the passenger manifest. Only 24
survived the tragedy after having been rescued from the
burning waters by vessels that responded to distress calls. 5
Among those who perished were public school teacher
Sebastian Cañezal (47 years old) and his daughter Corazon
Cañezal (11 years old), both unmanifested passengers but
proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case
No. 659-87 after investigation 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. 6
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. (hereafter Sulpicio).
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 improperly manned, ill-equipped, unseaworthy and a
hazard to safe navigation; as a result, it rammed against MV
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 TRANSPORTATION LAWS
Doña Paz in the open sea setting MT Vector's highly
flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision
dismissing, the third party complaint against petitioner. The
dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiffs and against defendant-3rd party plaintiff Sulpicio
Lines, Inc., to wit:
1. For the death of Sebastian E. Cañezal and his 11-year old
daughter Corazon G. Cañezal, including loss of future earnings
of said Sebastian, moral and exemplary damages, attorney's
fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for
want of substantiation and with costs against the 3rd party
plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge 7
On appeal to the Court of Appeals interposed by Sulpicio
Lines, Inc., on April 15, 1997, the Court of Appeal modified the
trial court's ruling and included petitioner Caltex as one of the
those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment
rendered by the Regional Trial Court is hereby MODIFIED as
follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to
pay the heirs of Sebastian E. Cañezal and Corazon Cañezal:
1. Compensatory damages for the death of Sebastian E.
Cañezal and Corazon Cañezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income
of Sebastian E. Cañezal, in the total amount of THREE
HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY
(P306,480.00) PESOS;
RMC-SOL
3. Moral damages in the amount of THREE HUNDRED
THOUSAND PESOS (P300,000.00);
4. Attorney's fees in the concept of actual damages in the
amount of FIFTY THOUSAND PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.),
Inc. are held equally liable under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines, Inc. of the
above-mentioned damages, attorney's fees and costs which
the latter is adjudged to pay plaintiffs, the same to be shared
half by Vector Shipping Co. (being the vessel at fault for the
collision) and the other half by Caltex (Phils.), Inc. (being the
charterer that negligently caused the shipping of combustible
cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIÑO
HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under
Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier
depends not on whether the carrier is public or private, but on
whether the contract of carriage is a bill of lading or equivalent
shipping documents on the one hand, or a charter party or
similar contract on the other. 9
Petitioner and Vector entered into a contract of affreightment,
also known as a voyage charter. 10
A charter party is 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; 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
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goods, on a particular voyage, in consideration of the payment
of freight. 11
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. 12
Under a demise or bareboat charter on the other hand, the
charterer mans the vessel with his own people and becomes,
in effect, the owner for the voyage or service stipulated, subject
to liability for damages caused by negligence.
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. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or
bareboat, (2) time charter, (3) voyage charter. Does a charter
party agreement turn the common carrier into a private one?
We need to answer this question in order to shed light on the
responsibilities of the parties.
In this case, the charter party agreement did not convert the
common carrier into a private carrier. 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, 14 we said:
It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole portion of a
vessel of one or more persons, provided the charter is limited
to the ship only, as in the case of a time-charter or the voyage
charter. 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.
RMC-SOL
Later, we ruled in Coastwise Lighterage Corporation vs. Court
of Appeals: 15
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. 16 MT Vector
fits the definition of a common carrier under Article 1732 of the
Civil Code. In Guzman vs. Court of Appeals, 17 we ruled:
The Civil Code defines "common carriers" in the following
terms:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or
transporting passengers for 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 services 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. We think that Article 1733
deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly
characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a
periodic, occasional rather than regular or scheduled manner,
and even though respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their
goods; that the fee frequently fell below commercial freight
rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to —
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 TRANSPORTATION LAWS
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the
seaworthiness of the ship. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure
of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the
business of common carriers. This business is impressed with
a special public duty. The public must of necessity rely on the
care and skill of common carriers in the vigilance over the
goods and safety of the passengers, especially because with
the modern development of science and invention,
transportation has become more rapid, more complicated and
somehow more hazardous. 19 For these reasons, a passenger
or a shipper of goods is under no obligation to conduct an
inspection of the ship and its crew, the carrier being obliged by
law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for
damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly
combustible fuel cargo aboard an unseaworthy vessel such as
the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of
inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr.
Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector transport
its cargo despite these deficiencies.
RMC-SOL
1. The master of M/T Vector did not posses the required Chief
Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor
Patron, authorized to navigate only in bays and rivers when the
subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to
operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and
lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied
on Articles 20 and 2176 of the Civil Code, which provide:
Art. 20. — Every person who contrary to law, willfully or
negligently causes damage to another, shall indemnify the
latter for the same.
Art. 2176. — Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows
bad faith, the provisions of Article 1171 and 2201 paragraph 2,
shall apply.
If the law does not state the diligence which is to be observed
in the performance, that which is expected of a good father of a
family shall be required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said
that negligence, as commonly understood, is conduct which
naturally or reasonably creates undue risk or harm to others. It
may be the failure to observe that degree of care, precaution,
and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct
of human affairs, would do.
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 TRANSPORTATION LAWS
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." 22 The Civil Code
demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances
of the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, liability
as found by the Court of Appeals is without basis.1âwphi1.nêt
The relationship between the parties in this case is governed
by special laws. Because of the implied warranty of
seaworthiness, 23 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.
Thus, the nature of the obligation of Caltex demands ordinary
diligence like any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had
reasons to believe that MT Vector could legally transport cargo
that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this
portion here containing the entries here under "VESSEL'S
DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21,
1986, and Expires December 7, 1987", Mr. Witness, what
steps did you take regarding the impending expiry of the C.I. or
the Certificate of Inspection No. 1290-85 during the hiring of
MT Vector?
Apolinario Ng: At the time when I extended the Contract, I did
nothing because the tanker has a valid C.I. which will expire on
December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed
and Mr. Abalos, in turn, assured me they will renew the same.
RMC-SOL
Q: What happened after that?
A: On the first week of December, I again made a follow-up
from Mr. Abalos, and said they were going to send me a copy
as soon as possible, sir. 24
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr.
Abalos on the first place, because of our long business
relation, we trust Mr. Abalos and the fact that the vessel was
able to sail indicates that the documents are in order. . . . 25
On cross examination —
Atty. Sarenas: This being the case, and this being an
admission by you, this Certificate of Inspection has expired on
December 7. Did it occur to you not to let the vessel sail on
that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation
Manager assured us that they were able to secure a renewal of
the Certificate of Inspection and that they will in time submit us
a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending
expiry of the Certificate of Inspection in the coastwise license
on December 7, 1987. What was your assurance for the record
that this document was renewed by the MT Vector?
Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time
business partner; secondly, those three years; they were
allowed to sail by the Coast Guard. That are some that make
me believe that they in fact were able to secure the necessary
renewal.
Q: If the Coast Guard clears a vessel to sail, what would that
mean?
Atty. Sarenas: Objection.
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 TRANSPORTATION LAWS
Court: He already answered that in the cross examination to
the effect that if it was allowed, referring to MV Vector, to sail,
where it is loaded and that it was scheduled for a destination
by the Coast Guard, it means that it has Certificate of
Inspection extended as assured to this witness by Restituto
Abalos. That in no case MV Vector will be allowed to sail if the
Certificate of inspection is, indeed, not to be extended. That
was his repeated explanation to the cross-examination. So,
there is no need to clarify the same in the re-direct
examination. 27
Caltex and Vector Shipping Corporation had been doing
business since 1985, or for about two years before the tragic
incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to
presume that the ship was seaworthy as even the Philippine
Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner
liable for damages.
As Vector Shipping Corporation did not appeal from the Court
of Appeals' decision, we limit our ruling to the liability of Caltex
alone. However, we maintain the Court of Appeals' ruling
insofar as Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and
SETS ASIDE the decision of the Court of Appeals in CA-G.R.
CV No. 39626, promulgated on April 15, 1997, insofar as it
held Caltex liable under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines, Inc. the
damages the latter is adjudged to pay plaintiffs-appellees. The
Court AFFIRMS the decision of the Court of Appeals insofar as
it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E.
Cañezal and Corazon Cañezal damages as set forth therein.
Third-party defendant-appellee Vector Shipping Corporation
and Francisco Soriano are held liable to reimburse/indemnify
defendant Sulpicio Lines, Inc. whatever damages, attorneys'
fees and costs the latter is adjudged to pay plaintiffs-appellees
in the case.1âwphi1.nêt
No costs in this instance.
SO ORDERED.
RMC-SOL
Kinds of Charter Party
Charter or charter parties are of two kinds. Charter of demise
or bareboat and contracts of affreightment.
Under the demise or bareboat charter of the vessel, the
charterer will generally be considered as owner for the voyage
or service stipulated. The charterer mans the vessel with his
own people and becomes, in effect, the owner pro hac vice,
subject to liability to others for damages caused by negligence.
To create a demise the owner of a vessel must completely and
exclusively relinquish possession, anything short of such a
complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all.
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL
INSURANCE COMPANY, respondents.
This is a petition for review of a Decision rendered by the Court
of Appeals, dated December 17, 1993, affirming Branch 35 of
the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount
of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
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
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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.
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.
The RTC awarded the amount prayed for by PhilGen. On
Coastwise Lighterage's appeal to the Court of Appeals, the
award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether
or not petitioner Coastwise Lighterage was transformed into a
private carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc.
Corollarily, if it were in fact transformed into a private carrier,
did it exercise the ordinary diligence to which a private carrier
is in turn bound? Second, whether or not the insurer was
subrogated into the rights of the consignee against the carrier,
upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the
Court of Appeals erred in finding that it was a common carrier.
It stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to
Manila and refers to this contract as a "charter agreement". It
then proceeds to cite the case of Home Insurance Company
vs. American Steamship Agencies, Inc.2 wherein this Court
held: ". . . a common carrier undertaking to carry a special
cargo or chartered to a special person only becomes a private
carrier."
Petitioner's reliance on the aforementioned case is misplaced.
In its entirety, the conclusions of the court are as follows:
Accordingly, the charter party contract is one of affreightment
over the whole vessel, rather than a demise. As such, the
liability of the shipowner for acts or negligence of its captain
and crew, would remain in the absence of stipulation.3
RMC-SOL
The distinction between the two kinds of charter parties (i.e.
bareboat or demise and contract of affreightment) is more
clearly set out in the case of Puromines, Inc. vs. Court of
Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the
voyage or service stipulated. The charterer mans the vessel
with his own people and becomes the owner pro hac vice,
subject to liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must completely
and exclusively relinquish possession, command and
navigation thereof to the charterer, anything short of such a
complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all.
On the other hand 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. . . .
Although a charter party may transform a common carrier into
a private one, the same however is not true in a contract of
affreightment on account of the aforementioned distinctions
between the two.
Petitioner admits that the contract it entered into with the
consignee was one of affreightment.5 We agree. 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.
Pursuant therefore to the ruling in the aforecited Puromines
case, 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
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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 transports 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.
The records show that the damage to the barge which carried
the cargo of molasses was caused by its hitting an unknown
sunken object as it was heading for Pier 18. The object turned
out to be a submerged derelict vessel. Petitioner contends that
this navigational hazard was the efficient cause of the accident.
Further it asserts that the fact that the Philippine Coastguard
"has not exerted any effort to prepare a chart to indicate the
location of sunken derelicts within Manila North Harbor to avoid
navigational accidents"6 effectively contributed to the
happening of this mishap. Thus, being unaware of the hidden
danger that lies in its path, it became impossible for the
petitioner to avoid the same. Nothing could have prevented the
event, making it beyond the pale of even the exercise of
extraordinary diligence.
However, petitioner's assertion is belied by the evidence on
record where it appeared that far from having rendered service
with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its
duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9"
admitted that he was not licensed. The Code of Commerce,
which subsidiarily governs common carriers (which are
primarily governed by the provisions of the Civil Code)
provides:
Art. 609. — Captains, masters, or patrons of vessels must be
Filipinos, have legal capacity to contract in accordance with
this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established
by marine and navigation laws, ordinances or regulations, and
must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a
voyage with an unlicensed patron violates this rule. It 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
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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.
On the issue of subrogation, which petitioner contends as
inapplicable in this case, we once more rule against the
petitioner. We have already found petitioner liable for breach of
the contract of carriage it entered into with Pag-asa Sales, Inc.
However, for the damage sustained by the loss of the cargo
which petitioner-carrier was transporting, it was not the carrier
which paid the value thereof to Pag-asa Sales, Inc. but the
latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. 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. . . .
This legal provision containing the equitable principle of
subrogation has been applied in a long line of cases including
Compania Maritima v. Insurance Company of North America;7
Fireman's Fund Insurance Company v. Jamilla & Company,
Inc.,8 and Pan Malayan Insurance Corporation v. Court of
Appeals,9 wherein this Court explained:
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.
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 TRANSPORTATION LAWS
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.
WHEREFORE, premises considered, this petition is DENIED
and the appealed decision affirming the order of Branch 35 of
the Regional Trial Court of Manila for petitioner Coastwise
Lighterage to pay respondent Philippine General Insurance
Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the
date the complaint was filed until fully paid and another sum of
P100,000.00 as attorney's fees and costs"10 is likewise hereby
AFFIRMED
SO ORDERED.
What is Contract of Affreightment?
A contract of affreightment is in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a
contract for a 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. 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, responsibilities of ownership rest on the owner and the
charterer is usually free from liability to third persons in respect
of the ship.
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP
AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA,
respondents.
Does a charter-party1 between a shipowner and a charterer
transform a common carrier into a private one as to negate the
civil law presumption of negligence in case of loss or damage
to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi
International Corporation (MITSUBISHI) of New York, U.S.A.,
9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the
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latter shipped in bulk on 16 June 1974 aboard the cargo vessel
M/V "Sun Plum" owned by private respondent Kyosei Kisen
Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro
Point, San Fernando, La Union, Philippines, as evidenced by
Bill of Lading No. KP-1 signed by the master of the vessel and
issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on
the vessel M/V "Sun Plum" pursuant to the Uniform General
Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3
Riders to the aforesaid charter-party starting from par. 16 to 40
were attached to the pre-printed agreement. Addenda Nos. 1,
2, 3 and 4 to the charter-party were also subsequently entered
into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her
holds4 were all presumably inspected by the charterer's
representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished
by certificate from National Cargo Bureau inspector or
substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's
expense and the vessel to be presented clean for use in bulk
to the satisfaction of the inspector before daytime commences.
(emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired
by and under the supervision of the shipper, the steel hatches
were closed with heavy iron lids, covered with three (3) layers
of tarpaulin, then tied with steel bonds. The hatches remained
closed and tightly sealed throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the
steel pontoon hatches were opened with the use of the
vessel's boom. Petitioner unloaded the cargo from the holds
into its steelbodied dump trucks which were parked alongside
the berth, using metal scoops attached to the ship, pursuant to
the terms and conditions of the charter-partly (which provided
for an F.I.O.S. clause).6 The hatches remained open
throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea was
covered with tarpaulin before it was transported to the
consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass
through a weighing scale where they were individually weighed
for the purpose of ascertaining the net weight of the cargo. The
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 TRANSPORTATION LAWS
port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress.8 The
petitioner's warehouse was made of corrugated galvanized
iron (GI) sheets, with an opening at the front where the dump
trucks entered and unloaded the fertilizer on the warehouse
floor. Tarpaulins and GI sheets were placed in-between and
alongside the trucks to contain spillages of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5
July to 18 July 1974 (except July 12th, 14th and 18th).10 A
private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the
"outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974
revealed a shortage in the cargo of 106.726 M/T and that a
portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974
prepared by PPI which showed that the cargo delivered was
indeed short of 94.839 M/T and about 23 M/T were rendered
unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974
to Soriamont Steamship Agencies (SSA), the resident agent of
the carrier, KKKK, for P245,969.31 representing the cost of the
alleged shortage in the goods shipped and the diminution in
value of that portion said to have been contaminated with dirt.
13
Respondent SSA explained that they were not able to respond
to the consignee's claim for payment because, according to
them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was
denied by them because they "had nothing to do with the
discharge of the shipment." 14 Hence, on 18 July 1975, PPI
filed an action for damages with the Court of First Instance of
Manila. The defendant carrier argued that the strict public
policy governing common carriers does not apply to them
because they have become private carriers by reason of the
provisions of the charter-party. The court a quo however
sustained the claim of the plaintiff against the defendant carrier
for the value of the goods lost or damaged when it ruled thus:
15
. . . Prescinding from the provision of the law that a common
carrier is presumed negligent in case of loss or damage of the
goods it contracts to transport, all that a shipper has to do in a
suit to recover for loss or damage is to show receipt by the
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carrier of the goods and to delivery by it of less than what it
received. After that, the burden of proving that the loss or
damage was due to any of the causes which exempt him from
liability is shipted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted are
deemed valid, and the defendants considered private carriers,
it was still incumbent upon them to prove that the shortage or
contamination sustained by the cargo is attributable to the fault
or negligence on the part of the shipper or consignee in the
loading, stowing, trimming and discharge of the cargo. This
they failed to do. By this omission, coupled with their failure to
destroy the presumption of negligence against them, the
defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower
court and absolved the carrier from liability for the value of the
cargo that was lost or damaged. 16 Relying on the 1968 case
of Home Insurance Co. v. American Steamship Agencies,
Inc.,17 the appellate court ruled that the cargo vessel M/V
"Sun Plum" owned by private respondent KKKK was a private
carrier and not a common carrier by reason of the time
charterer-party. Accordingly, the Civil Code provisions on
common carriers which set forth a presumption of negligence
do not find application in the case at bar. Thus —
. . . In the absence of such presumption, it was incumbent
upon the plaintiff-appellee to adduce sufficient evidence to
prove the negligence of the defendant carrier as alleged in its
complaint. It is an old and well settled rule that if the plaintiff,
upon whom rests the burden of proving his cause of action,
fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove
his exception or defense (Moran, Commentaries on the Rules
of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed
to prove the basis of its cause of action, i.e. the alleged
negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish
defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in
performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review
assailing the decision of the Court of Appeals. Petitioner
theorizes that the Home Insurance case has no bearing on the
present controversy because the issue raised therein is the
validity of a stipulation in the charter-party delimiting the liability
of the shipowner for loss or damage to goods cause by want of
due deligence on its part or that of its manager to make the
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 TRANSPORTATION LAWS
vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code
applies only to common carriers and not to private carriers. 19
Petitioner further argues that since the possession and control
of the vessel remain with the shipowner, absent any stipulation
to the contrary, such shipowner should made liable for the
negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence
against respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence on the
part of the carrier, when he was not even at hand to witness
what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a
common carrier becomes a private carrier by reason of a
charter-party; in the negative, whether the shipowner in the
instant case was able to prove that he had exercised that
degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial
decisions in commercial cases. This being so, we find it fitting
to first define important terms which are relevant to our
discussion.
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; 20 a contract of
affreightment by which the owner of a ship or other vessel lets
the whole or a 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; 21 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. 22 In both cases, the charter-party provides for the
hire of vessel only, either for a determinate period of time or for
a single or consecutive voyage, the shipowner to supply the
ship's stores, pay for the wages of the master and the crew,
and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is
defined in Art. 1732 of the Civil Code. 23 The definition
extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying goods or
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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. 24
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.25 In the case of private carriers, however, the
exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in the 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.26 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.
It is not disputed that respondent carrier, in the ordinary course
of business, operates as a common carrier, transporting goods
indiscriminately for all persons. 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. 27
It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited
to the ship only, as in the case of a time-charter or voyage-
charter. 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
shipowner 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. 28
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 TRANSPORTATION LAWS
Respondent carrier's heavy reliance on the case of Home
Insurance Co. v. American Steamship Agencies, supra, is
misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party
exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter
on common carriers. At any rate, the rule in the United States
that a ship chartered by a single shipper to carry special cargo
is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for
safety in the transportation of passengers and /or carriage of
goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common
carriers.
We quote with approval the observations of Raoul Colinvaux,
the learned barrister-at-law 30 —
As a matter of principle, it is difficult to find a valid distinction
between cases in which a ship is used to convey the goods of
one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her,
the case is different; the shipowner is not then a carrier. But
where her services only are let, the same grounds for imposing
a strict responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative
on board the ship; the same opportunities for fraud or collusion
occur; and the same difficulty in discovering the truth as to
what has taken place arises . . .
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. 31
To our mind, respondent carrier has sufficiently overcome, by
clear and convincing proof, the prima facie presumption of
negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his
deposition taken on 19 April 1977 before the Philippine Consul
and Legal Attache in the Philippine Embassy in Tokyo, Japan,
testified that 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,
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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. 32
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. 33 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. 34
Verily, the presumption of negligence on the part of the
respondent carrier has been efficaciously overcome by the
showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by
respondent appellate court thus —
. . . Be that as it may, contrary to the trial court's finding, the
record of the instant case discloses ample evidence showing
that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of plaintiff-
appellee's own witnesses clearly show absence of negligence
by the defendant carrier; that the hull of the vessel at the time
of the discharge of the cargo was sealed and nobody could
open the same except in the presence of the owner of the
cargo and the representatives of the vessel (TSN, 20 July
1977, p. 14); that the cover of the hatches was made of steel
and it was overlaid with tarpaulins, three layers of tarpaulins
and therefore their contents were protected from the weather
(TSN, 5 April 1978, p. 24); and, that to open these hatches, the
seals would have to be broken, all the seals were found to be
intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).
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 reexamined by the consignee, but
prior to unloading. This is clear from the limitation clause
agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S.,
meaning, that the loading, stowing, trimming and discharge of
the cargo was to be done by the charterer, free from all risk
12
 TRANSPORTATION LAWS
and expense to the carrier. 35 Moreover, 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. 36
Article 1734 of the New Civil Code provides that common
carriers are not responsible for the loss, destruction or
deterioration of the goods if caused by the charterer of the
goods or defects in the packaging or in the containers. The
Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the
transportation by reason of fortuitous event, force majeure, or
the inherent defect of the goods, shall be for the account and
risk of the shipper, and that proof of these accidents is
incumbent upon the carrier. 37 The carrier, nonetheless, shall
be liable for the loss and damage resulting from the preceding
causes if it is proved, as against him, that they arose through
his negligence or by reason of his having failed to take the
precautions which usage has established among careful
persons. 38
Respondent carrier presented a witness who testified on the
characteristics of the fertilizer shipped and the expected risks
of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a
chemical compound consisting mostly of ammonia and carbon
monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However,
during storage, nitrogen and ammonia do not normally
evaporate even on a long voyage, provided that the
temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in
unloading fertilizer in bulk with the use of a clamped shell,
losses due to spillage during such operation amounting to one
percent (1%) against the bill of lading is deemed "normal" or
"tolerable." 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 dissipation of quantities of fertilizer, or its daterioration in
value, is caused either by an extremely high temperature in its
place of storage, or when it comes in contact with water. When
Urea is drenched in water, either fresh or saline, some of its
particles dissolve. But the salvaged portion which is in liquid
form still remains potent and usable although no longer
saleable in its original market value.
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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.
The evidence of respondent carrier also showed that it was
highly improbable for sea water to seep into the vessel's holds
during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly
sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. 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. This
may be gleaned from the testimony of the marine and cargo
surveyor of CSCI who supervised the unloading. He explained
that the 18 M/T of alleged "bar order cargo" as contained in
their report to PPI was just an approximation or estimate made
by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.
The Court notes that it was in the month of July when the
vessel arrived port and unloaded her cargo. It rained from time
to time at the harbor area while the cargo was being
discharged according to the supply officer of PPI, who also
testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the
consignee's warehouse.
Indeed, we agree with respondent carrier that 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 remise
in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed
decision of the Court of Appeals, which reversed the trial court,
is AFFIRMED. Consequently, Civil Case No. 98623 of the then
Court of the First Instance, now Regional Trial Court, of Manila
should be, as it is hereby DISMISSED.
Costs against petitioner.
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 TRANSPORTATION LAWS
SO ORDERED.
Charterer was liable for the damages suffered by an unjust
dismissal of the engineer before the lapse of the contract.
G.R. No. L-51910 August 10, 1989
LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P.
CANDONGO respondents.
In this Petition for Certiorari, petitioner Litonjua Shipping
Company, Inc. ("Lintonjua") seeks to annul and set aside a
decision dated, 31 May 1979 of the National Seamen Board
("NSB") in NSB Case No. 1331-77 affirming the decision dated
17 February 1977 of the NSB hearing officer which adjudged
petitioner Litonjua liable to private respondent for violation of
the latter's contract of employment and which ordered
petitioner to pay damages.
Petitioner Litonjua is the duly appointed local crewing
Managing Office of the Fairwind Shipping Corporation
('Fairwind). The M/V Dufton Bay is an ocean-going vessel of
foreign registry owned by the R.D. Mullion Ship Broking
Agency Ltd. ("Mullion"). On 11 September 1976, while the
Dufton Bay was in the port of Cebu and while under charter by
Fairwind, the vessel's master contracted the services of,
among others, private respondent Gregorio Candongo to serve
as Third Engineer for a period of twelve (12) months with a
monthly wage of US$500.00. This agreement was executed
before the Cebu Area Manning Unit of the NSB. Thereafter,
private respondent boarded the vessel. On 28 December 1976,
before expiration of his contract, private respondent was
required to disembark at Port Kelang, Malaysia, and was
returned to the Philippines on 5 January 1977. The cause of
the discharge was described in his Seaman's Book as 'by
owner's arrange".1
Shortly after returning to the Philippines, private respondent
filed a complaint before public respondent NSB, which
complaint was docketed as NSB-1331-77, for violation of
contract, against Mullion as the shipping company and
petitioner Litonjua as agent of the shipowner and of the
charterer of the vessel.
At the initial hearing, the NSB hearing officer held a conference
with the parties, at which conference petitioner Litonjua was
represented by one of its supercargos, Edmond Cruz. Edmond
Cruz asked, in writing, that the hearing be postponed for a
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month upon the ground that the employee of Litonjua in charge
of the case was out of town. The hearing officer denied this
request and then declared petitioner Litonjua in default. At the
hearing, private respondent testified that when he was
recruited by the Captain of the Dufton Bay, the latter was
accompanied to the NSB Cebu Area Manning Unit by two (2)
supercargos sent by petitioner Litonjua to Cebu, and that the
two (2) supercargos Edmond Cruz and Renato Litonjua
assisted private respondent in the procurement of his National
Investigation and Security Agency (NISA) clearance. Messrs.
Cruz and Litonjua were also present during private
respondent's interview by Captain Ho King Yiu of the Dufton
Bay.
On 17 February 1977, the hearing officer of the NSB rendered
a judgment by default, 2 the dispositive portion of which read:
Wherefore, premises considered, judgment is hereby rendered
ordering the respondents R.D. Mullion Shipbrokers Co., Ltd.,
and Litonjua Shipping Co., Inc., jointly and solidarily to pay the
complainant the sum of four thousand six hundred fifty seven
dollars and sixty three cents ($4,657.63) or its equivalent in the
Phil. currency within 10 days from receipt of the copy of this
Decision the payment of which to be coursed through the then
NSB.
The above conclusion was rationalized in the following terms:
From the evidence on record it clearly appears that there was
no sufficient or valid cause for the respondents to terminate the
services of complainant prior to 17 September 1977, which is
the expiry date of the contract. For this reason the respondents
have violated the conditions of the contract of employment
which is a sufficient justification for this Board to render award
in favor of the complainant of the unpaid salaries due the latter
as damages corresponding to the unexpired portion of the
contract including the accrued leave pay computed on the
basis of five [51 days pay for every month of service based at
$500.00 monthly salary. Complainant's wages account further
show that he has an undrawn wage amounting to US$13.19 to
be paid by the respondents Philippine agency together with his
accrued leave pay. 3
Petitioner Litonjua filed a motion for reconsideration of the
hearing officer's decision; the motion was denied. Petitioner
next filed an "Appeal and/or Motion for Reconsideration of the
Default Judgment dated 9 August 1977" with the central office
of the NSB. NSB then suspended its hearing officer's decision
and lifted the order of default against petitioner Litonjua,
thereby allowing the latter to adduce evidence in its own behalf
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The NSB hearing officer, on 26 April 1978, made the following
findings:
While it appears that in the preparation of the employment
papers of the complainant, what was indicated therein was
R.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (Standard
Format of a Service Agreement) and Exhibit "C" (Affidavit of
Undertaking), as thecompany whom Captain Ho King Yiu, the
Master of the vessel Dufton Bay, was representing to be the
shipowner, the fact remains that at the time of the recruitment
of the complainant, as duly verified by the National Seamen
Board, Cebu Area Manning Unit, the Litonjua Shipping
Company was the authorized agent of the vessel's charterer,
the Fairwind Shipping Corporation, and that in the recruitment
process, the Litonjua Shipping Company through its
supercargos in the persons of Edmund Cruz and Renato
Litonjua, had knowledge thereof and in fact assisted in the
interviews conducted by the Master of the crew applicants as
admitted by Renato Litonjua including the acts of facilitating the
crew's NISA clearances as testified to by complainant.
Moreover, the participation of the Litonjua Shipping
Corporation in the recruitment of complainant, together with the
other crewmembers, in Cebu in September 1976 can be traced
to the contents of the letter of April 5, 1976 by the Fairwind
Shipping Limited, thru its Director David H.L. Wu addressed to
the National Seamen Board, copy of which is on file with
Contracts and Licensing Division, quote:
This is to certify that Messrs. Litonjua Shipping, Inc. is duly
appointed local crewing Managing Office to attend on our Crew
requirements as well as attend to our ship's requirements
when in Philippine ports.
We further authorized Litonjua Shipping Co., Inc. to act as local
representative who can sue and be sued, and to bind and sign
contracts for our behalf. 4
The NSB then lifted the suspension of the hearing officer's 17
February 1977 decision.
Petitioner Litonjua once more moved for reconsideration. On
31 May 1979, public respondent NSB rendered a decision 5
which affirmed its hearing offices decision of 17 February 1977
and which read in part as follows:
It is clear that respondent Litonjua Shipping Co., Inc. is the
authorized Philippine agent of Fairwind Shipping Corporation,
charterer of the vessel 'Dufton Bay, wherein complainant,
served as 3rd Engineer from 17 September until
disembarkation on December 28, 1976. It is also clear from the
complainant's wages account bearing the heading 'Fairwind
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Shipping Corporation', signed by the Master of the vessel that
the Philippine agency referred to herein directed to pay the
said withdrawn wages of $13.19 is no other than Litonjua
Shipping Company, Inc.
From this observation, it can be reasonably inferred that the
master of the vessel acted for and in behalf of Fairwind
Shipping Corporation who had the obligation to pay the salary
of the complainant. It necessarily follows that Fairwind
Shipping Corporation is the employer of said complainant.
Moreover, it had been established by complainant that Litonjua
Shipping Company, Inc., had knowledge of and participated,
through its employee, in the recruitment of herein complainant.
xxx xxx xxx
In view of the foregoing, and pursuant to Art. 3 of the New
Labor Code of the Philippines, which provides that, 'The state
shall afford protection to labor . . .' as well as the provisions of
Art. 4 thereof, that 'all doubts in the implementation and
interpretation of the provisions of the Code, including its
implementing rules and regulations, shall be resolved in favor
of labor', it is our conclusion, that the decision dated February
17, 1977, is based on evidence formally offered and presented
during the hearing and that there was no grave abuse of
discretion committed by the hearing officer in finding
respondent Litonjua Shipping Company, Inc., liable to
complainant. (Emphasis supplied)
In the instant Petition for Certiorari, petitioner Litonjua assails
the decision of public respondent NSB declaring the charterer
Fairwind as employer of private respondent, and for whose
liability petitioner was made responsible, as constituting a
grave abuse of discretion amounting to lack of jurisdiction. The
principal if not the sole issue to be resolved here is whether or
not the charterer Fairwind was properly regarded as the
employer of private respondent Candongo.
Petitioner Litonjua makes two (2) principal submissions in
support of its contention, to wit:
1) As a general rule, admiralty law as embodied in the
Philippine Code of Commerce fastens liability for payment of
the crew's wages upon the ship owner, and not the charterer;
and
2) The evidence of record is grossly inadequate to shift such
liability from the shipowner to the petitioner.6
Petitioner Litonjua contends that the shipowner, not the
charterer, was the employer of private respondent; and that
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 TRANSPORTATION LAWS
liability for damages cannot be imposed upon petitioner which
was a mere agent of the charterer. It is insisted that private
respondent's contract of employment and affidavit of
undertaking clearly showed that the party with whom he had
contracted was none other than Mullion, the shipowner,
represented by the ship's master. 7 Petitioner also argues that
its supercargos merely assisted Captain Ho King Yiu of the
Dufton Bay in being private respondent as Third Engineer.
Petitioner also points to the circumstance that the discharge
and the repatriation of private respondent was specified in his
Seaman's Book as having been "by owner's arrange."
Petitioner Litonjua thus argues that being the agent of the
charterer and not of the shipowner, it accordingly should not
have been held liable on the contract of employment of private
respondent.
We are not persuaded by petitioner's argument. We believe
that there are two (2) grounds upon which petitioner Litonjua
may be held liable to the private respondent on the contract of
employment.
The first basis is the charter party which existed between
Mullion, the shipowner, and Fairwind, the charterer. In modern
maritime law and usage, there are three (3) distinguishable
types of charter parties: (a) the "bareboat" or "demise" charter;
(b) the "time" charter; and (c) the "voyage" or "trip" charter. A
bareboat or demise charter is a demise of a vessel, much as a
lease of an unfurnished house is a demise of real property.
The shipowner turns over possession of his vessel to the
charterer, who then undertakes to provide a crew and victuals
and supplies and fuel for her during the term of the charter.
The shipowner is not normally required by the terms of a
demise charter to provide a crew, and so the charterer gets the
"bare boat", i.e., without a crew. 8 Sometimes, of course, the
demise charter might provide that the shipowner is to furnish a
master and crew to man the vessel under the charterer's
direction, such that the master and crew provided by the
shipowner become the agents and servants or employees of
the charterer, and the charterer (and not the owner) through
the agency of the master, has possession and control of the
vessel during the charter period. A time charter, upon the other
hand, like a demise charter, is a contract for the use of a
vessel for a specified period of time or for the duration of one
or more specified voyages. In this case, however, the owner of
a time-chartered vessel (unlike the owner of a vessel under a
demise or bare-boat charter), retains possession and control
through the master and crew who remain his employees. What
the time charterer acquires is the right to utilize the carrying
capacity and facilities of the vessel and to designate her
destinations during the term of the charter. A voyage charter,
or trip charter, is simply a contract of affreightment, that is, a
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contract for the carriage of goods, from one or more ports of
loading to one or more ports of unloading, on one or on a
series of voyages. In a voyage charter, master and crew
remain in the employ of the owner of the vessel. 9
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. 10 In such case, the Master
of the vessel is the agent of the charterer and not of the
shipowner.11 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.12
It is important to note that petitioner Litonjua did not place into
the record of this case a copy of the charter party covering the
M/V Dufton Bay. We must assume that petitioner Litonjua was
aware of the nature of a bareboat or demise charter and that if
petitioner did not see fit to include in the record a copy of the
charter party, which had been entered into by its principal, it
was because the charter party and the provisions thereof were
not supportive of the position adopted by petitioner Litonjua in
the present case, a position diametrically opposed to the legal
consequence of a bareboat charter.13 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. 14 If private respondent had not agreed to
serve as such Third Engineer, the ship would not have been
able to proceed with its voyage. The equitable consequence of
this benefit to the charterer is, moreover, reinforced by
convergence of other circumstances of which the Court must
take account. There is the circumstance that only the charterer,
through the petitioner, was present in the Philippines.
Secondly, the scope of authority or the responsibility of
petitioner Litonjua was not clearly delimited. Petitioner as
noted, took the position that its commission was limited to
taking care of vessels owned by Fairwind. But the
documentary authorization read into the record of this case
does not make that clear at all. The words "our ships" may well
be read to refer both to vessels registered in the name of
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 TRANSPORTATION LAWS
Fairwind and vessels owned by others but chartered by
Fairwind. Indeed the commercial, operating requirements of a
vessel for crew members and for supplies and provisions have
no relationship to the technical characterization of the vessel
as owned by or as merely chartered by Fairwind. In any case,
it is not clear from the authorization given by Fairwind to
petitioner Litonjua that vessels chartered by Fairwind (and
owned by some other companies) were not to be taken care of
by petitioner Litonjua should such vessels put into a Philippine
port. The statement of account which the Dufton Bay's Master
had signed and which pertained to the salary of private
respondent had referred to a Philippine agency which would
take care of disbursing or paying such account. 'there is no
question that Philippine agency was the Philippine agent of the
charterer Fairwind. Moreover, there is also no question that
petitioner Litonjua did assist the Master of the vessel in
locating and recruiting private respondent as Third Engineer of
the vessel as well as ten (10) other Filipino seamen as crew
members. 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.15
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. Clearly, the private respondent, and the other
Filipino crew members of the vessel, would be defenseless
against a breach of their respective contracts. While wages of
crew members constitute a maritime lien upon the vessel,
private respondent is in no position to enforce that lien. If only
because the vessel, being one of foreign registry and not
ordinarily doing business in the Philippines or making regular
calls on Philippine ports cannot be effectively held to answer
for such claims in a Philippine forum. Upon the other hand, it
seems quite clear that petitioner Litonjua, should it be held
liable to private respondent for the latter's claims, would be
better placed to secure reimbursement from its principal
Fairwind. In turn, Fairwind would be in an indefinitely better
position (than private respondent) to seek and obtain recourse
from Mullion, the foreign shipowner, should Fairwind feel
entitled to reimbursement of the amounts paid to private
respondent through petitioner Litonjua.
We conclude that private respondent was properly regarded as
an employee of the charterer Fairwind and that petitioner
Litonjua may be held to answer to private respondent for the
latter's claims as the agent in the Philippines of Fairwind. We
think this result, which public respondent reached, far from
constituting a grave abuse of discretion, is compelled by
equitable principles and by the demands of substantial justice.
RMC-SOL
To hold otherwise would be to leave private respondent (and
others who may find themselves in his position) without any
effective recourse for the unjust dismissal and for the breach of
his contract of employment.
WHEREFORE, the Petition for certiorari is DISMISSED and
the Decision of the then National Seamen Board dated 31 May
1979 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Effects of Charter on the character of carrier.
Persons that are authorized to make charter.
Code of Commerce
Article 598
The agent can not order a new voyage, nor make contracts for
a new charter, nor insure the vessel, without the authority of
her owner or by virtue of a resolution of the majority of the co-
owners, unless these privileges were granted him in the
certificate of his appointment.
If he should insure the vessel without authority therefor he shall
be secondarily liable for the solvency of the underwriter.
Article 655
Charter parties executed by the captain in the absence of the
agent shall be valid and efficient, even though in executing
them he should have acted in violation of the orders and
instructions of the agent or shipowner; but the latter shall have
a right of action against the captain to recover damages.
Article 679
The charterer of an entire vessel may subcharter the whole or
part thereof for the amounts he may consider most convenient,
without the captain being allowed to refuse to receive on board
the freight delivered by the second charterers, provided the
conditions of the first charter are not changed, and that the
person from whom the vessel is chartered be paid the full price
agreed upon even though the full cargo is not embarked, with
the limitation established in the next article.
Rights and Obligations of the Charter Party
G.R. No. 4395 September 9, 1908
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 TRANSPORTATION LAWS
BEHN, MEYER & CO., LTD., plaintiffs-appellees,
vs.
EL BANCO ESPAÑOL-FILIPINO, defendant-appellant.
Kincaid & Hurd for appellant.
Kinney & Lawrence, and John W. Sleeper for appellees.
WILLARD, J.:
On the 3d of November, 1906, at Hongkong, Sander, Wieler
and Co., as agents for the German steamship Hilary, chartered
her to the interveners, Sin Liong, and Co., of Manila. By the
terms of the charter party, she was to proceed to the port of
Saigon Bay, to load there or at Phu Yen Harbor as many head
of cattle as the steamer could safely, carry, and being loaded,
then to proceed to the port of Manila and so end the voyage.
There is no competent evidence to show when the boat arrived
at Saigon, but being there, she loaded the rice and then
proceeded to Phu Yen Harbor, where she arrived on the 18th
day of November, in the afternoon. The witness, Ullman, was
there at the time, acting as agent for Pujalte and Co., of
Manila. The firm had made a contract with the interveners for
the transportation from Phu Yen Harbor to Manila of 200 head
of cattle. Ullman had been notified of this contract and upon
the arrival of the ship there on the 18th of November, he was
all ready to proceed with the loading. He went on board the
vessel the afternoon of her arrival and told the captain that he
was prepared to load 202 head of cattle. One hundred and fifty
of those were cows and 52 carabaos. The captain told him that
he might load the cows, but that he could not load the
carabaos. The matter was discussed by them until half past 1
in the morning, the captain still refusing to permit the carabaos
to come on board. Ullman then went on shore and early in the
morning went to the town of Sung Cau, where he laid the
matter before the governor, who advise him to procure a notary
and make a protest. He procured the notary and returned with
him to Phu Yen, where she arrived at about 10 o'clock in the
morning. The whether was then very stormy and he did not
succeed in getting on board until half past 1 in the afternoon.
The captain then consented to receive the carabaos on board.
The whether, however, was so bad that they could not be
shipped, and it remained in this condition from that time until
the 27th, when the ship sailed for Manila without the cattle. At
no time during this period was it possible to load them.
When the vessel arrived on the 18th, the whether was fine and
continued so until about 10 o'clock in the morning of the 19th.
During this time the cattle could have been loaded, so far as
the whether was concerned, and some cattle belonging to
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Lichauco were, in fact, taken on board during the time. If the
captain had permitted Ullman, when he first saw him, to load
the carabaos, they could all have been taken on board on the
19th and the vessel could have left that day for Manila.
The above facts in relation to what took place at Phu Yen are
clearly established by the evidence. Why the captain at first
refused to take the carabaos on board does not appear. He
was not a witness in the case. No reason for this refusal
appears anywhere in the record. He, in fact, had at that time on
board some carabaos and there was plenty of room to take all
that Ullman wished to load; in fact the captain afterwards
consented to do so. The refusal aforesaid was not justified and
was a violation of the terms of the charter party and was the
immediate and proximate cause of the failure to bring the cattle
of Pujalte from Phu Yen to Manila.
The captain cabled to the charterers on the 22d of November
stating that he could not ship the cattle on account of bad
weather and asking for instructions as to how long he should
remain. The interveners answered that he should wait to load
the cattle. On the 24th of November, he again cabled the
interveners, stating that he could not wait any longer than the
26th of November; that he had not sufficient water for the cattle
then on board, and that Lopez, who was on board as the agent
of Lichauco, was getting impatient, and that the weather
continued very boisterous. On the 26th of November he made
demand on Ullman for 30 tons of fresh water, saying that
Ullman would not be permitted to ship his cattle unless he
brought with them that amount. Ullman stated that he was
unable to do so, and on the 27th of November the captain
wrote a letter to Ullman telling him that he saw that it was
impossible for him to load the cattle or to bring the water, and
that he would leave that afternoon of Manila, which he did.
The vessel arrived in Manila on the 3rd of December, which
was Sunday. The interveners, the charters, desiring to unload
part of the rice at Iloilo, as soon as the boat arrived made a
contract by cable with Sander, Wieler and Co., in Hongkong,
for a voyage to Iloilo, agreeing to pay therefor 800 Hongkong
dollars. As soon as the boat arrived the captain applied to the
plaintiffs to act his agents and to attend to the business while
here. Before that time that plaintiffs had never acted as the
agents for the steamer.
By the terms of the charter party, the freight for the voyage
from Saigon to Manila, which was 9,250 Hongkong dollars,
was to be paid on or before the delivery of the cargo and cattle
at Manila. The charterers did not desire to make that payment
until the balance of the cargo had been unloaded at Iloilo.
Behn, Meyer and Co. would not allow the vessels to leave for
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Iloilo until the freight and all claims for demurrage had been
paid or secured. Thereupon the charterers deposited P13,000
with the defendant bank, and it wrote the following letter to
Behn, Meyer and Co:
MANILA, December 4, 1906.
Messrs. BEHN, MEYER AND CO., Present.
GENTLEMEN: Our clients, Messrs. Sin Liong and CO., have
advised us that it is to their best interest to completely unload
the steamer Hilary, chartered to you, before paying the amount
of the freight and demurrage, and inasmuch as you have
required them to furnish a guaranty by a bank, we now have
the honor to inform that we guarantee the said Siu Liong and
Co., in the sum of P12,00, during the unloading of the said
steamer; and if upon the completion of the unloading, the price
stipulated in the agreement and the demurrage is not paid by
said parties, this bank binds itself to make such payment.
We will be obliged if you will favor us with your
acknowledgment of this letter, and we remain,
Your obedient servants,
EL BANCO ESPANOL-FILIPINO,
PER EUGENIO DEL SAZ-OROZCO,
Director in charge.
The vessel finished unloading here on the 5th of December
and then went to Iloilo. On the 10th of December, Behn, Meyer
and Co. presented to the charterers, the interveners, an
account amounting to 12,350 Hongkong dollars. The
charterers refused to pay it; application was then made by
Behn, Meyer and Co. to the defendant bank, and it refused to
pay, and thereafter, and on the 5th of March, 1907, this action
was commenced by Behn, Meyer and Co. against the
defendant bank. During the progress thereof, the charterers,
Siu Liong and Co., were permitted, against the objection and
exception of the plaintiffs, to intervene in the action and to join
with the bank in opposing the complaint. In their answer they
denied all of the damages caused to them by the violation on
the part of the captain of the terms of the charter party in
refusing to receive the cattle on board at Phu Yen on the 19th
of November. The amount of the counterclaim exceeded the
claim of the plaintiffs by P13,673.33 and they asked judgments
against the plaintiffs for the amount.
The court below did not sustain the counterclaim and ordered
judgment against the bank and the interveners for the sum of
RMC-SOL
P12,081, with interest and costs. From that judgment the
defendants have appealed.
Passing for the present the questions which are raised relating
to procedure, and coming to the merits of the case, we think it
very clear, as before stated, that the captain violated the terms
of the charter party in refusing on the 18th day of November to
receive on board the carabaos which Ullman then had ready to
embark. The court below in its decision said that the captain
was not at fault in not receiving the carabaos, because by the
terms of the charter party the charters were bound to furnish
water and food for the cattle and when, on the 26th of
November the captain made a demand on Ullman for 30 tons
of water and Ullman refused to furnish it, he was justified in
sailing without the cattle, and that his failure of the charterers
to comply with the terms of charter party in furnishing water.
We do not think that the evidence supports this view of the
case. On the contrary, it clearly appears that if the captain had
agreed to take the carabaos on board when he was first asked
to, he would then left Phu Yen on the 19th in the afternoon.
The evidence shows that the journey from Phu Yen to Manila
is one of about four days, and if he had left on the 19th he
would have had on board plenty of water for his trip to Manila.
Moreover, there was evidence undisputed that, although by the
terms of the charter party the charterers were bound to pay for
the water, yet it was the universal custom for the captain to
furnish the water and discharge the charterers therefor.
The captain having violated the terms of the contract, the next
question is, what damages did the charterers suffer by reason
of his violation? It was proven that they had made a contract
with Pujalte and Co., by the terms of which they had agreed to
transport 200 head of cattle from Phu Yen to Manila in this
boat and were to receive therefor P12 for each cow and P13
for each carabao. Pujalte and Co. had ready for transportation
202 heads of cattle and the testimony was that, although the
contract mentioned 200, yet they had a right thereunder to
transport 200, or 202, or 204. This freight, amounting to
P2,476, the charterers have never received from Phu Yen and
Co., and of course have no claim against them therefor. Their
failure to receive it was directly due and the violation of the
terms of the contract by the captain in his refusal to take the
cattle on board when they were ready to be shipped, and that
violation was the direct and proximate cause of the loss to the
charterers of this P2,476.
It is suggested in the brief of the appellee that Ullman might
have loaded the cows and left the carabaos there. There is
nothing in this suggestion. The testimony shows that Ullman
himself intended to come to the Hilary, and as he very well
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 TRANSPORTATION LAWS
said, he was under no obligation to leave a part of his stock
there. (Gould vs. Grafflin, 62 Fed. Rep., 605.)
The interveners claim damages also for the difference between
the value of their rice on the day on which it arrived and its
value on the day when it would have arrived if the ship had left
Phu Yen on the 19th of November.
As has been stated, the interveners, on the 24th of November,
directed the captain to wait at Phu Yen. For the delay after that
time, the ship was not responsible. There is no evidence to
show what the price of the rice was the day the ship would
have arrived if she had sailed on the 24th. The interveners are
entitled theretofore to recover nothing upon this item for their
claim.
They claim damages also for losses which Pujalte and
Lichauco suffered by reason of delay at Phu Yen. These
losses consisted of the death of the some of the cattle and
their depreciation in value at the time they arrived in Manila.
The interveners have paid nothing to either Lichauco or Pujalte
and Co. an account thereof and neither one of these persons
has commenced any action against the interveners for
damages. Whether the interveners will ever be compelled to
pay anything to them can not now be known. These damages
are, in our opinion, too remote to the subject of an adjudication
of this case. Moreover, as to the greater part of them, namely
the depreciation in the value of the stock, the same can be said
as was said in reference to the claim for the loss upon the rice.
The charterers were possible for the delay from the 24th to the
27th of November, and there is no evidence to fix the value of
the stock or what is condition would have been if the ship
sailed from Phu Yen on the 24th.
The charter party provided for nine lay days during which the
cargo should be taken on board and discharged, and for five
days of demurrage at the rate of 250 Hongkong dollars a day.
The plaintiffs make a claim for demurrage for six days.
We do not think that this claim can be sustained. There is
nothing in the case to show how many lay days were
consumed in taking on cargo at Saigon and the most that we
can assume is that one day was so employed. If the captain
had complied with the contract and loaded the cattle at Phu
Yen when he should have done so, not more than two days
would have been used there. The time employed at Iloilo does
not appear and in no event could that be considered, for that
voyage was the subject of a special contract. So that even if
the delay from the 24th of November to the 27th be charged to
RMC-SOL
the charterers, no more than nine days were consumed, which
was the time by the charter party.
The interveners admitted at the trial that they owed 9,250
Hongkong dollars, the freight to Manila, and 800 dollars, to
freight to Iloilo, and these are the only amounts which, in our
opinion, the plaintiffs are entitled to recover. The evidence
indicates that the contract made by the bank was made after
the contract with reference to the voyage of Iloilo, and we think
that from all the evidence in the case that the bank's contract
covers 800 dollars freight to Iloilo. Reduced to Philippine
money at the rate found by the court below the amounts to
P10,753.50. From that amount should be deducted the P2,476
above-mentioned, leaving a balance of P8,277.50 as the
amount that the plaintiffs are entitled to recover.
Coming to the questions of procedure; the most difficult one is
that raised by the first assignment of error, to the effect that the
plaintiffs are not the real parties in interest in this case, the
claim of the appellants being that the action should have been
brought in the name of the owners of the vessel, and that
Behn, Meyer and Co. were not the real parties in interest, as
that term is used in section 144 of the Code of Civil Procedure.
That section is in part as follows:
Every action must be prosecuted in the name of the real party
in interest. But in a case of assignment of a right of action, an
action by the assignee shall be without prejudice to any set-off
or other defense existing at the time of or before notice of the
assignment; but this last provision shall not apply to a
negotiable promissory note, or a draft or a bill of exchange,
transferred in good faith and upon good consideration before
maturity. And an executor or administrator or legal
representative of a deceased person, or a trustee of an
express trust, or a person expressly authorized by law so to
do, or a lawfully appointed guardian of a person of unsound
mind, or of a minor, may sue or be sued without joining with
him the person for whose benefit the action is prosecuted or
defended.
Otherwise than as provided in this section, all persons having
an interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs.
The matter is further complicated by the title of the case, which
is as follows: "Behn, Meyer and Co., Ltd., in representation of
themselves and of the steamer Hilary, and of Messrs. Sander,
Wieler and Co., owners of said steamer, plaintiffs," and by
allegation in the complaint that the contract made by the
defendant bank on the 4th of December was made with the
20
 TRANSPORTATION LAWS
plaintiffs in their capacity as agents of the steamer and of the
said owners of the same.
If Behn, Meyer and Co. had brought this action upon the
charter party itself to recover the freight therein mentioned, it is
very clear that it could not be maintained. They were not
parties to that contract and had no interest to the only parties
are the defendant bank and Behn, Meyer and Co. The
defendant bank contracted directly with Behn, Meyer and Co.
and no mention is made in the contract of owners of the
streamer.
After considerable hesitation, we have reached the conclusion
that the action can be maintained by Behn, Meyer and Co. in
their own names by virtue of article 246 of the Code of
Commerce, which is as follows:
When the agent transacts business in his own name, it shall
not be necessary for him to state who is the principal and he
shall be directly liable, as if the business were for his own
account, to the persons with whom he transacts the same, said
persons not having any right of action against the principal, nor
the latter against the former, the liabilities of the principal and
of the agent to each other always being reserved.
The evidence shows that Behn, Meyer and Co. were agents of
the capital and that the transaction to which their agency
relates was a mercantile one. Being such agents, they made a
contract in their own names with the defendant bank. It
appears from the testimony of the manager of the bank that he
was not notified and never knew for whom Behn, Meyer and
Co. where acting. The document itself shows that he
contracted with them in their own names and there is no
evidence to show Behn, Meyer and Co. disclosed to the bank
the names of the persons for whom they were acting. The
manager of the bank never saw the charter party and knew
nothing about its contents. The provisions of article 246 of the
Code of Commerce are substantive law and are not repealed
or modified by section 114 of the procedural law above
referred to. (See Castle Brothers, Wolfe and Sanz, vs. Go-
Juno, 7 Phil. Rep., 114; Pastells vs. Hollman, 2 Phil. Rep., 235;
Herranz vs. Ker, 8, Phil. Rep., 162.)
The plaintiffs excepted to the order of the court below
permitting the charterers to intervene in this proceeding, but
they have not appeared from the judgment. In any event, it
seems very clear that, the action being brought against a
surety, the principal debtor would have a right to intervene and
join with the defendant in opposing the claim under the
provisions of section 121 of the Code of Civil Procedure. The
RMC-SOL
principal debtor has a direct, legal interest in defeating the
claim against his surety.
The judgment of the court below is modified, and judgment is
ordered in favor of the plaintiffs and against the defendants for
the sum of P8,277.50, with interest thereon at the rate of 6 per
cent per annum since the eight day of December, 1906, and
for the costs of the First Instance. No costs will be allowed to
either party in this court. So ordered.
The liability of the charterer to the ship-owner in case of
bareboat charterer.
G.R. No. 160088 July 13, 2011
AGUSTIN P. DELA TORRE, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G.
CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE
TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA
TORRE, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 160565
PHILIPPINE TRIGON SHIPYARD CORPORATION and
ROLAND G. DELA TORRE, Petitioners,
vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE
and RAMON "BOY" LARRAZABAL, Respondents.
These consolidated petitions1 for review on certiorari seek to
reverse and set aside the September 30, 2002 Decision2 and
September 18, 2003 Resolution3 of the Court of Appeals (CA)
in CA-G.R. CV No. 36035, affirming in toto the July 10, 1991
Decision4 of the Regional Trial Court, Branch 60, Angeles City
(RTC). The RTC Decision in Civil Case No. 4609, an action for
Sum of Money and Damages, ordered the defendants, jointly
and severally, to pay various damages to the plaintiff.
The Facts:
Respondent Crisostomo G. Concepcion (Concepcion) owned
LCT-Josephine, a vessel registered with the Philippine Coast
Guard. On February 1, 1984, Concepcion entered into a
"Preliminary Agreement"5 with Roland de la Torre (Roland) for
the dry-docking and repairs of the said vessel as well as for its
charter afterwards.6 Under this agreement, Concepcion
agreed that after the dry-docking and repair of LCT-Josephine,
21
 TRANSPORTATION LAWS
it "should" be chartered for ₱ 10,000.00 per month with the
following conditions:
1. The CHARTERER will be the one to pay the insurance
premium of the vessel
2. The vessel will be used once every three (3) months for a
maximum period of two (2) weeks
3. The SECOND PARTY (referring to Concepcion) agreed that
LCT-Josephine should be used by the FIRST PARTY (referring
to Roland) for the maximum period of two (2) years
4. The FIRST PARTY (Roland) will take charge[x] of
maintenance cost of the said vessel. [Underscoring Supplied]
On June 20, 1984, Concepcion and the Philippine Trigon
Shipyard Corporation7 (PTSC), represented by Roland,
entered into a "Contract of Agreement,"8 wherein the latter
would charter LCT-Josephine retroactive to May 1, 1984,
under the following conditions:
a. Chartered amount of the vessel – ₱ 20,000.00 per month
effective May 1, 1984;
j. The owner (Concepcion) shall pay 50% downpayment for the
dry-docking and repair of the vessel and the balance shall be
paid every month in the amount of ₱ 10,000.00, to be
deducted from the rental amount of the vessel;
k. In the event that a THIRD PARTY is interested to purchase
the said vessel, the SECOND PARTY (PTSC/ Roland) has the
option for first priority to purchase the vessel. If the SECOND
PARTY (PTSC/Roland) refuses the offer of the FIRST PARTY
(Concepcion), shall give the SECOND PARTY (PTSC/Roland)
enough time to turn over the vessel so as not to disrupt
previous commitments;
l. That the SECOND PARTY (PTSC/Roland) has the option to
terminate the contract in the event of the SECOND PARTY
(PTSC/Roland) decide to stop operating;
m. The SECOND PARTY (PTSC/Roland) shall give 90 days
notice of such termination of contract;
n. Next x x year of dry-docking and repair of vessel shall be
shouldered by the SECOND PARTY (PTSC/Roland);
(Underscoring Supplied]
On August 1, 1984, PTSC/Roland sub-chartered LCT-
Josephine to Trigon Shipping Lines (TSL), a single
RMC-SOL
proprietorship owned by Roland’s father, Agustin de la Torre
(Agustin).9 The following are the terms and conditions of that
"Contract of Agreement:"10
a. Chartered amount of the vessel ₱ 30,000.00 per month
effective August, 1984;
b. Downpayment of the 50% upon signing of the contract and
the balance every end of the month;
c. Any cost for the additional equipment to be installed on the
vessel will be borne by the FIRST PARTY (PTSC/ Roland) and
the cost of the equipment will be deductible from the monthly
rental of the vessel;
d. In the event the vessel is grounded or other [force majeure]
that will make the vessel non-opera[xx]ble, the rental of the
vessel shall be suspended from the start until the vessel will be
considered operational;
e. The cost for the dry-docking and/or repair of vessel shall not
exceed ₱ 200,000.00, any excess shall be borne by the
SECOND PARTY (TSL/Agustin);
f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder
the maintenance cost for the duration of the usage;
g. All cost for the necessary repair of the vessel shall be on the
account of the SECOND PARTY (TSL/Agustin);
h. That the SECOND PARTY (TSL/Agustin) has the option to
terminate the contract in the event the SECOND PARTY
(TSL/Agustin) decides to stop operating;
j. The FIRST PARTY (PTSC/Roland) will terminate the
services of all vessel’s crew and the SECOND PARTY
(TSL/Agustin) shall have the right to replace and rehire the
crew of the vessel.
k. Insurance premium of the vessel will be divided equally
between the FIRST PARTY (PTSC/Rolando) and the
SECOND PARTY (TSL/ Agustin). [Underscoring supplied]
On November 22, 1984, TSL, this time represented by Roland
per Agustin’s Special Power of Attorney,11 sub-chartered LCT-
Josephine to Ramon Larrazabal (Larrazabal) for the transport
of cargo consisting of sand and gravel to Leyte. The following
were agreed upon in that contract,12 to wit:
1. That the FIRST PARTY (TSL by Roland) agreed that LCT-
Josephine shall be used by the SECOND PARTY (Larrazabal)
22
 TRANSPORTATION LAWS
for and in consideration on the sum of FIVE THOUSAND FIVE
HUNDRED (₱ 5,500.00) PESOS, Philippine currency per day
charter with the following terms and conditions.
2. That the CHARTERER should pay ₱ 2,000.00 as standby
pay even that will made (sic) the vessel non-opera[xx]ble
cause[d] by natur[al] circumstances.
3. That the CHARTERER will supply the consumed crude oil
and lube oil per charter day.
4. That the SECOND PARTY (Larrazabal) is the one
responsible to supervise in loading and unloading of cargo load
on the vessel.
5. That the SECOND PARTY (Larrazabal) shall give one week
notice for such termination of contract.
6. TERMS OF PAYMENTS that the SECOND PARTY
(Larrazabal) agreed to pay 15 days in advance and the
balance should be paid weekly. [Underscoring Supplied]
On November 23, 1984, the LCT-Josephine with its cargo of
sand and gravel arrived at Philpos, Isabel, Leyte. The vessel
was beached near the NDC Wharf. With the vessel’s ramp
already lowered, the unloading of the vessel’s cargo began
with the use of Larrazabal’s payloader. While the payloader
was on the deck of the LCT-Josephine scooping a load of the
cargo, the vessel’s ramp started to move downward, the vessel
tilted and sea water rushed in. Shortly thereafter, LCT-
Josephine sank.13
Concepcion demanded that PTSC/ Roland refloat LCT-
Josephine. The latter assured Concepcion that negotiations
were underway for the refloating of his vessel.14 Unfortunately,
this did not materialize.
For this reason, Concepcion was constrained to institute a
complaint for "Sum of Money and Damages" against PTSC
and Roland before the RTC. PTSC and Roland filed their
answer together with a third-party complaint against Agustin.
Agustin, in turn, filed his answer plus a fourth-party complaint
against Larrazabal. The latter filed his answer and
counterclaim but was subsequently declared in default by the
RTC.15 Eventually, the fourth-party complaint against
Larrazabal was dismissed when the RTC rendered its decision
in favor of Concepcion on July 10, 1991.16 In said RTC
decision, the following observations were written:
The testimonies of Roland de la Torre and Hubart Sungayan
quoted above, show: (1) that the payloader was used to unload
RMC-SOL
the cargo of sand and gravel; (2) that the payloader had to go
inside the vessel and scoop up a load; (3) that the ramp
according to Roland de la Torre, "was not properly put into
peak (sic) such that the front line will touch the bottom,
particularly will touch the sea x x x"; (4) that "the tires (of the
payloader) will be submerged to (sic) the sea"; (5) that
according to Sungayan "the ramp of the vessel was moving
down"; (6) that the payloader had to be maneuvered by its
operator who dumped the load at the side of the vessel; (7)
that the dumping of the load changed the stability of the vessel
and tilted it to the starboard side; and (8) that the tilting caused
the sliding of the cargo toward that side and opened the
manhole through which seawater rushed in.17
Hubart Sungayan, who was the chiefmate of LCT-Josephine
and under the employ of TSL/Agustin, also admitted at the trial
that it was TSL/Agustin, through its crew, who was in-charge of
LCT-Josephine’s operations although the responsibility of
loading and unloading the cargo was under Larrazabal. Thus,
the RTC declared that the "efficient cause of the sinking of the
LCT-JOSEPHINE was the improper lowering or positioning of
the ramp," which was well within the charge or responsibility of
the captain and crew of the vessel.18 The fallo of the RTC
Decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered as follows:
1. The defendants, Philippine Trigon Shipping Corporation and
Roland de la Torre, and the third-party defendant, Agustin de
la Torre, shall pay the plaintiff, jointly and severally, the sum of
EIGHT HUNDRED FORTY-ONE THOUSAND THREE
HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX
CENTAVOS (₱ 841,386.86) as the value of the LCT
JOSEPHINE with interest thereon at the legal rate of 6% per
annum from the date of demand, that is from March 14, 1985,
the date when counsel for the defendant Philippine Trigon
Shipyard Corporation answered the demand of the plaintiff,
until fully paid;
2. The defendants, Philippine Trigon Shipyard Corporation and
Roland de la Torre, shall pay to the plaintiff the sum of NINETY
THOUSAND PESOS (₱ 90,000.00) as unpaid rentals for the
period from May 1, 1984, to November, 1984, and the sum of
ONE HUNDRED SEVENTY THOUSAND PESOS (₱
170,000.00) as lost rentals from December, 1984, to April 30,
1986, with interest on both amounts at the rate of 6% per
annum also from demand on March 14, 1985, until fully paid;
3. The defendants and the third-party defendant shall likewise
pay to the plaintiff jointly and severally the sum of TWENTY-
23
 TRANSPORTATION LAWS
FIVE THOUSAND PESOS (₱ 25,000.00) as professional fee
of plaintiff’s counsel plus FIVE HUNDRED PESOS (₱ 500.00)
per appearance of said counsel in connection with actual trial
of this case, the number of such appearances to be
determined from the records of this case;
4. The defendants’ counterclaim for the unpaid balance of
plaintiff’s obligation for the dry-docking and repair of the vessel
LCT JOSEPHINE in the amount of TWENTY-FOUR
THOUSAND THREE HUNDRED FOUR PESOS AND
THIRTY-FIVE CENTAVOS (₱ 24,304.35), being valid, shall be
deducted from the unpaid rentals, with interest on the said
unpaid balance at the rate of 6% per annum from the date of
the filing of the counter-claim on March 31, 1986;
5. The counter-claim of the defendants in all other respects, for
lack of merit, is hereby DISMISSED;
6. The fourth-party complaint against the fourth-party
defendant, Ramon Larrazabal, being without basis, is likewise
DISMISSED; and
7. The defendants and third-party defendant shall pay the
costs.
SO ORDERED.19
Agustin, PTSC and Roland went to the CA on appeal. The
appellate court, in agreement with the findings of the RTC,
affirmed its decision in toto.
Still not in conformity with the CA findings against them,
Agustin, PTSC and Roland came to this Court through these
petitions for review. In G.R. No. 160088, petitioner Agustin
raises the following issues:
AGUSTIN’S STATEMENT OF THE ISSUES
I submit the following issues:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
PROXIMATE CAUSE OF THE SINKING OF LCT JOSEPHINE
IS THE NEGLIGENCE OF THE PETITIONER (Agustin) AND
THE RESPONDENTS TRIGON (PTSC) AND DE LA TORRE
(Roland).
II
THE COURT OF APPEALS ERRED IN NOT HOLDING
RESPONDENT RAMON LARRAZABAL AS SOLELY LIABLE
FOR THE LOSS AND SINKING OF LCT JOSEPHINE.
RMC-SOL
III
THE TRIAL COURT AND THE COURT OF APPEALS
GRAVELY ERRED IN TAKING JUDICIAL NOTICE OF THE
CHARACTERISTICS OF THE LCT JOSEPHINE AND
PAYLOADER WITHOUT INFORMING THE PARTIES OF
THEIR INTENTION.
IV
THE COURT OF APPEALS ERRED IN HOLDING
PETITIONER DIRECTLY AND SOLIDARILY LIABLE WITH
THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE
THE FACT THAT SUCH KIND OF LIABILITY IS NOT DULY
ALLEGED IN THE COMPLAINT OF RESPONDENT
CONCEPCION AND NOT ONE OF THE ISSUES TRIED BY
THE PARTIES.
V
THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER IS LIABLE BASED ON CULPA
CONTRACTUAL.
VI
THE COURT OF APPEALS ERRED IN NOT EXCULPATING
PETITIONER FROM LIABILITY BASED ON THE LIMITED
LIABILITY RULE.
VII
THE COURT OF APPEALS ERRED IN NOT APPLYING THE
PROVISIONS OF THE CODE OF COMMERCE ON THE
LIABILITY OF THE SHIP CAPTAIN.20
On the other hand, in G.R. No. 160565, PTSC and Roland
PTSC and ROLAND’S STATEMENT OF THE ISSUES
I.
DID THE HONORABLE COURT OF APPEALS ERRxx IN
APPLYING THE PROVISIONS OF THE CIVIL CODE OF THE
PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE,
QUASI-DELICT AND DAMAGES INSTEAD OF THE
PROVISIONS OF THE CODE OF COMMERCE ON
MARITIME COMMERCE IN ADJUDGING PETITIONERS
LIABLE TO PRIVATE RESPONDENT CONCEPCION.
24
 TRANSPORTATION LAWS
II.
DID THE HONORABLE COURT OF APPEALS ERRxx IN
UPHOLDING THE FINDINGS OF FACT OF THE TRIAL
COURT.
III.
DID THE HONORABLE COURT OF APPEALS COMMITxx
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR IN EXCESS OF ITS JURISDICTION IN APPRECIATING
THE FACTS OF THE CASE.
IV.
DID THE HONORABLE COURT OF APPEALS, IN
ADJUDGING PETITIONERS JOINTLY AND SEVERALLY
LIABLE WITH RESPONDENT AGUSTIN DE LA TORRE,
ERRxx WHEN IT MADE FINDINGS OF FACT AND
CONCLUSIONS OF LAW WHICH ARE BEYOND THE
ISSUES SET FORTH AND CONTEMPLATED IN THE
ORIGINAL PLEADINGS OF THE PARTIES.21
From the foregoing, the issues raised in the two petitions can
be categorized as: (1) those referring to the factual milieu of
the case; (2) those concerning the applicability of the Code of
Commerce, more specifically, the Limited Liability Rule; and (3)
the question on the solidary liability of the petitioners.
As regards the issues requiring a review of the factual findings
of the trial court, the Court finds no compelling reason to
deviate from the rule that findings of fact of a trial judge,
especially when affirmed by the appellate court, are binding
before this Court.22 The CA, in reviewing the findings of the
RTC, made these observations:
We are not persuaded that the trial Court finding should be set
aside. The Court a quo sifted through the records and arrived
at the fact that clearly, there was improper lowering or
positioning of the ramp, which was not at "peak," according to
de la Torre and "moving down" according to Sungayan when
the payloader entered and scooped up a load of sand and
gravel. Because of this, the payloader was in danger of being
lost (‘submerged’) and caused Larrazabal to order the operator
to go back into the vessel, according to de la Torre’s version,
or back off to the shore, per Sungayan. Whichever it was, the
fact remains that the ramp was unsteady (moving) and
compelled action to save the payloader from submerging,
especially because of the conformation of the sea and the
shore. x x x.
RMC-SOL
xxx
The contract executed on June 20, 1984, between plaintiff-
appellee and defendants-appellants showed that the services
of the crew of the owner of the vessel were terminated. This
allowed the charterer, defendants-appellants, to employ their
own. The sub-charter contract between defendants-appellants
Philippine Trigon Shipyard Corp. and third-party defendant-
appellant Trigon Shipping Lines showed similar provision
where the crew of Philippine Trigon had to be terminated or
rehired by Trigon Shipping Lines. As to the agreement with
fourth-party Larrazabal, it is silent on who would hire the crew
of the vessel. Clearly, the crew manning the vessel when it
sunk belonged to third-party defendant-appellant. Hubart
Sungayan, the acting Chief Mate, testified that he was hired by
Agustin de la Torre, who in turn admitted to hiring the crew.
The actions of fourth-party defendant, Larrazabal and his
payloader operator did not include the operation of docking
where the problem arose.23 [Underscoring supplied]
Similarly, the Court has examined the records at hand and
completely agree with the CA that the factual findings of the
RTC are in order.
With respect to petitioners’ position that the Limited Liability
Rule under the Code of Commerce should be applied to them,
the argument is misplaced. The said rule has been explained
to be that of the real and hypothecary doctrine in maritime law
where the shipowner or ship agent’s liability is held as merely
co-extensive with his interest in the vessel such that a total
loss thereof results in its extinction.24 In this jurisdiction, this
rule is provided in three articles of the Code of Commerce.
These are:
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 the vessel shall be civilly liable in
the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the
abandonment, before a notary, of the part of the vessel
belonging to him.
25
 TRANSPORTATION LAWS
---
Art. 837. The civil liability incurred by shipowners in the case
prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and freightage
served during the voyage.
Article 837 specifically applies to cases involving collision
which is a necessary consequence of the right to abandon the
vessel given to the shipowner or ship agent under the first
provision – Article 587. Similarly, Article 590 is a reiteration of
Article 587, only this time the situation is that the vessel is co-
owned by several persons.25 Obviously, the forerunner of the
Limited Liability Rule under the Code of Commerce is Article
587. Now, the latter is quite clear on which indemnities may be
confined or restricted to the value of the vessel pursuant to the
said Rule, and these are 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." Thus, what
is contemplated is the liability to third persons who may have
dealt with the shipowner, the agent or even the charterer in
case of demise or bareboat charter.
The only person who could avail of this is the shipowner,
Concepcion. He is the very person whom the Limited Liability
Rule has been conceived to protect. The petitioners cannot
invoke this as a defense. In Yangco v. Laserna,26 this Court,
through Justice Moran, wrote:
The policy which the rule is designed to promote is the
encouragement of shipbuilding and investment in maritime
commerce.
x x x.
‘Grotius, in his law of War and Peace, says that men would be
deterred from investing in ships if they thereby incurred the
apprehension of being rendered liable to an indefinite amount
by the acts of the master, x x x.’27
Later, in the case of Monarch Insurance Co., Inc. v. CA,28 this
Court, this time through Justice Sabino R. De Leon, Jr., again
explained:
‘No vessel, no liability,’ expresses in a nutshell the limited
liability rule. The shipowner’s or agent’s liability is merely
coextensive with his interest in the vessel such that a total loss
thereof results in its extinction. The total destruction of the
vessel extinguishes maritime liens because there is no longer
any res to which it can attach. This doctrine is based on the
RMC-SOL
real and hypothecary nature of maritime law which has its
origin in the prevailing conditions of the maritime trade and sea
voyages during the medieval ages, attended by innumerable
hazards and perils. To offset against these adverse conditions
and to encourage shipbuilding and maritime commerce, it was
deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any.29
In view of the foregoing, Concepcion as the real shipowner is
the one who is supposed to be supported and encouraged to
pursue maritime commerce. Thus, it would be absurd to apply
the Limited Liability Rule against him who, in the first place,
should be the one benefitting from the said rule. In
distinguishing the rights between the charterer and the
shipowner, the case of Yueng Sheng Exchange and Trading
Co. v. Urrutia & Co.30 is most enlightening. In that case, no
less than Chief Justice Arellano wrote:
The whole ground of this assignment of errors rests on the
proposition advanced by the appellant company that ‘the
charterer of a vessel, under the conditions stipulated in the
charter party in question, is the owner pro hac vice of the ship
and takes upon himself the responsibilities of the owner.’
xxx
If G. Urrutia & Co., by virtue of the above-mentioned contract,
became the agents of the Cebu, then they must respond for
the damages claimed, because the owner and the agent are
civilly responsible for the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers
or rights of an agent. They could not represent the ownership
of the vessel, nor could they, in their own name and in such
capacity, take judicial or extrajudicial steps in all that relates to
commerce; thus if the Cebu were attached, they would have no
legal capacity to proceed to secure its release; speaking
generally, not even the fines could or ought to be paid by them,
unless such fines were occasioned by their orders. x x x.
The contract executed by Smith, Bell & Co., as agents for the
Cebu, and G. Urrutia & Co., as charterers of the vessel, did not
put the latter in the place of the former, nor make them agents
of the owner or owners of the vessel. With relation to those
agents, they retained opposing rights derived from the charter
party of the vessel, and at no time could they be regarded by
the third parties, or by the authorities, or by the courts, as
being in the place of the owners or the agents in matters
relating to the responsibilities pertaining to the ownership and
possession of the vessel. x x x.31
26
 TRANSPORTATION LAWS
In Yueng Sheng, it was further stressed that the charterer does
not completely and absolutely step into the shoes of the
shipowner or even the ship agent because there remains
conflicting rights between the former and the real shipowner as
derived from their charter agreement. The Court again quotes
Chief Justice Arellano:
Their (the charterer’s) possession was, therefore, the uncertain
title of lease, not a possession of the owner, such as is that of
the agent, who is fully subrogated to the place of the owner in
regard to the dominion, possession, free administration, and
navigation of the vessel.32
Therefore, even if the contract is for a bareboat or demise
charter where possession, free administration and even
navigation are temporarily surrendered to the charterer,
dominion over the vessel remains with the shipowner. Ergo,
the charterer or the sub-charterer, whose rights cannot rise
above that of the former, can never set up the Limited Liability
Rule against the very owner of the vessel. Borrowing the words
of Chief Justice Artemio V. Panganiban, "Indeed, where the
reason for the rule ceases, the rule itself does not apply."33
The Court now comes to the issue of the liability of the
charterer and the sub-charterer.
In the present case, the charterer and the sub-charterer
through their respective contracts of agreement/charter parties,
obtained the use and service of the entire LCT-Josephine. The
vessel was likewise manned by the charterer and later by the
sub-charterer’s people. With the complete and exclusive
relinquishment of possession, command and navigation of the
vessel, the charterer and later the sub-charterer became the
vessel’s owner pro hac vice. Now, and in the absence of any
showing that the vessel or any part thereof was commercially
offered for use to the public, the above agreements/charter
parties are that of a private carriage where the rights of the
contracting parties are primarily defined and governed by the
stipulations in their contract.34
Although certain statutory rights and obligations of charter
parties are found in the Code of Commerce, these provisions
as correctly pointed out by the RTC, are not applicable in the
present case. Indeed, none of the provisions found in the Code
of Commerce deals with the specific rights and obligations
between the real shipowner and the charterer obtaining in this
case. Necessarily, the Court looks to the New Civil Code to
supply the deficiency.35 Thus, the RTC and the CA were both
correct in applying the statutory provisions of the New Civil
RMC-SOL
Code in order to define the respective rights and obligations of
the opposing parties.
Thus, Roland, who, in his personal capacity, entered into the
Preliminary Agreement with Concepcion for the dry-docking
and repair of LCT-Josephine, is liable under Article 118936 of
the New Civil Code. There is no denying that the vessel was
not returned to Concepcion after the repairs because of the
provision in the Preliminary Agreement that the same "should"
be used by Roland for the first two years. Before the vessel
could be returned, it was lost due to the negligence of Agustin
to whom Roland chose to sub-charter or sublet the vessel.
PTSC is liable to Concepcion under Articles 166537 and
166738 of the New Civil Code. As the charterer or lessee
under the Contract of Agreement dated June 20, 1984, PTSC
was contract-bound to return the thing leased and it was liable
for the deterioration or loss of the same.
Agustin, on the other hand, who was the sub-charterer or sub-
lessee of LCT-Josephine, is liable under Article 1651 of the
New Civil Code.39 Although he was never privy to the contract
between PTSC and Concepcion, he remained bound to
preserve the chartered vessel for the latter. Despite his non-
inclusion in the complaint of Concepcion, it was deemed
amended so as to include him because, despite or in the
absence of that formality of amending the complaint to include
him, he still had his day in court40 as he was in fact impleaded
as a third-party defendant by his own son, Roland – the very
same person who represented him in the Contract of
Agreement with Larrazabal.1avvphi1
(S)ince the purpose of formally impleading a party is to assure
him a day in court, once the protective mantle of due process
of law has in fact been accorded a litigant, whatever the
imperfection in form, the real litigant may be held liable as a
party.41
In any case, all three petitioners are liable under Article 1170 of
the New Civil Code.42 The necessity of insuring the LCT-
Josephine, regardless of who will share in the payment of the
premium, is very clear under the Preliminary Agreement and
the subsequent Contracts of Agreement dated June 20, 1984
and August 1, 1984, respectively. The August 17, 1984 letter of
Concepcion’s representative, Rogelio L. Martinez, addressed
to Roland in his capacity as the president of PTSC inquiring
about the insurance of the LCT-Josephine as well as
reiterating the importance of insuring the said vessel is quite
telling.
August 17, 1984
27
 TRANSPORTATION LAWS

not to exceed one-fifth of the total crew. If in foreign ports the

Mr. Roland de la Torre captain should not find a sufficient number of Spanish * sailors,
President he may make up the crew with foreigners, with the consent of
Phil. Trigon Shipyard Corp. the consul or marine authorities.
Cebu City
The agreements which the captain may make with the
Dear Sir: members of the crew and others who go to make up the
complement of the vessels, to which reference is made in
In connection with your chartering of LCT JOSEPHINE Article 612, must be reduced to writing in the account book
effect[ive] May 1, 1984, I wish to inquire regarding the without the intervention of a notary public or clerk, signed by
insurance of said vessel to wit: the parties thereto, and vised by the marine authority if they
are executed in Spanish * territory, or by the consuls or
1. Name of Insurance Company consular agents of Spain * if executed abroad, stating therein
all the obligations which each one contracts and all the rights
2. Policy No. they acquire, said authorities taking care that these obligations
and rights are recorded in a concise and clear manner, which
3. Amount of Premiums will not give rise to doubts or claims.

4. Duration of coverage already paid The captain shall take care to read to them the articles of this
Code, which concern them, stating that they were read in the
Please send a Xerox copy of policy to the undersigned as soon said document.
as possible.
If the book includes the requisites prescribed in Article 612,
In no case shall LCT JOSEPHINE sail without any insurance and there should not appear any signs of alterations in its
coverage. clauses, it shall be admitted as evidence in questions which
may arise between the captain and the crew with regard to the
Hoping for your (prompt) action on this regard. agreements contained therein and the amounts paid on
account of the same.
Truly yours,
Every member of the crew may request a copy of the captain,
(sgd)ROGELIO L. MARTINEZ signed by the latter, of the agreement and of the liquidation of
Owner’s representative43 his wages, as they appear in the book.

Clearly, the petitioners, to whom the possession of LCT Article 635

Josephine had been entrusted as early as the time when it was
dry-docked for repairs, were obliged to insure the same.
Unfortunately, they failed to do so in clear contravention of
their respective agreements. Certainly, they should now all
answer for the loss of the vessel.
WHEREFORE, the petitions are DENIED.
SO ORDERED.
Crew or Sailors of the Vessel
Article 634
The captain may make up his crew with the number he may
consider advisable, and in the absence of Spanish * sailors he
may ship foreigners residing in the country, the number thereof
A sailor who has been contracted to serve on a vessel can not
rescind his contract nor fail to comply therewith except by
reason of a legitimate impediment which may have occurred.
Neither can he pass from the service of one vessel to another
without obtaining the written consent of the vessel on which he
may be.
If, without obtaining said permission, the sailor who has signed
for one vessel should sign for another one, the second contract
shall be void, and the captain may choose between forcing him
to fulfill the service to which he first bound himself or look for a
person to substitute him at his expense.

RMC-SOL 28
 TRANSPORTATION LAWS
Said sailor shall furthermore lose the wages earned on his first
contract to the benefit of the vessel for which he may have
signed.
A captain who, knowing that a sailor is in the service of another
vessel, should have made a new agreement with him, without
having requested the permission referred to in the foregoing
paragraphs, shall be personally liable to the captain of the
vessel to which the sailor first belonged for that part of the
indemnity, referred to in the third paragraph of this article,
which the sailor could not pay.
Article 636
Should a fixed period for which a sailor has signed not be
stated, he can not be discharged until the end of the return
voyage to the port where he enrolled.
Article 637
Neither can the captain discharge a sailor during the time of his
contract except for sufficient cause, the following being
considered as such:
The perpetration of a crime which disturbs order on the vessel.
Repeated offenses of insubordination, against discipline, or
against the fulfillment of the service.
Repeated incapacity or negligence in the fulfillment of the
service to be rendered.
Habitual drunkenness.
Any occurrence which incapacitates the sailor to carry out the
work under his charge, with the exception of the provisions
contained in Article 644.
Desertion.
The captain may, however, before setting out on a voyage and
without giving any reason whatsoever, refuse to permit a sailor
he may have engaged from going on board and may leave him
on land, in which case he will be obliged to pay him his wages
as if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the
captain should have acted for reasons of prudence and in the
interest of the safety and good service of the former. Should
this not be the case, it shall be paid by the captain personally.
RMC-SOL
After the vessel has sailed, and during the voyage and until the
conclusion thereof, the captain can not abandon any member
of his crew on land or on the sea, unless, by reason of being
guilty of some crime, his imprisonment and delivery to the
competent authority is proper in the first port touched, which
will be obligatory on the captain.
Effects if the captain or the crew is discharged during the
voyage.
Article 604
If the captain or any other member of the crew should be
discharged during the voyage, they shall receive their salary
until the return to the place where the contract was made,
unless there are good reasons for the discharge, all in
accordance with Articles 636 et seq. of this Code.
Discharge during a contract of a definite period of the voyage.
Article 605
If the contracts of the captain and members of the crew with
the agent should be for a definite period or voyage, they can
not be discharged until the fulfillment of their contracts, except
for reasons of insubordination in serious matters, robbery,
theft, habitual drunkenness, and damage caused to the vessel
or to its cargo by malice or manifest or proven negligence.
G.R. No. L-8431 October 30, 1958
MADRIGAL SHIPPING COMPANY, INC., petitioner,
vs.
JESUS G. OGILVIE, SALVADOR ORTILE, MIGUEL M.
FERMIN, ANTONIO C. MILITAR and THE COURT OF
APPEALS, respondents.
Jesus G. Ogilvie, Salvador Ortile, Miguel M. Fermin and
Antonio C. Militar brought an action in the Court of First
Instance of Manila to collect from the Madrigal Shipping
Company, Inc., the aggregate sum of P12,104.50 for salaries
and subsistence from 19 March to 30 September 1948 (Civil
No. 8446, Annex A). The defendant moved for the dismissal of
the complaint on the ground of lack of jurisdiction over the
subject matter of the action (Annex B). The Court denied the
motion and directed the defendant to answer the complaint
within ten days from receipt of a copy of the order (Annex C).
As the defendant failed to answer the complaint as directed,
upon motion of the plaintiffs (Annex D) the Court declared it in
default and set the case for hearing on 30 September 1949
29
 TRANSPORTATION LAWS
(Annex E). The defendant filed a motion to set aside the order
of default (Annex F) which was denied (Annex I). A motion for
reconsideration of the previous order (Annex J) was likewise
denied (Annex K). The defendant filed a petition for a writ of
certiorari with preliminary injunction in this Court to annul and
set aside the order of default, which was dismissed for the
reason that appeal was the proper remedy (Annex L).1 The
trial court then proceed to hear the plaintiffs' evidence and after
the hearing it rendered judgment dismissing the plaintiffs'
complaint upon the sole ground that the plaintiffs failed to
prove that the defendant is a corporation duly organized and
existing under the laws of the Philippines. A motion was filed
praying that plaintiffs be allowed to submit evidence to prove
that the defendant is a duly organized and existing corporation
under the laws of the Philippines (Annex O), which was
granted (Annex P). After hearing the additional evidence
presented by the plaintiffs showing that the defendant is an
organized and existing juridical entity under the laws of the
Philippines, the trial court dismissed the complaint on the
ground that the evidence was not new but forgotten (Annex Q).
The plaintiffs appealed to the Court of Appeals. The judgment
appealed from was reversed and the defendant was ordered to
pay Jesus G. Ogilvie the sum of P3,226.50 and Salvador
Ortile, Miguel M. Fermin and Antonio C. Militar the sum of
P2,934 each. The defendant has brought the case to this Court
by way of certiorari to have the judgment of the Court of
Appeals reviewed.
The respondents herein, appellants in the Court of Appeals,
did not furnish the herein petitioner, defendant in the court of
first instance, with a copy of their brief in the Court of Appeals
for the reason that as the petitioner had been declared in
default by the trial court it had lost its standing in court and
hence was not entitled to service of appellants' brief on appeal.
In a special division of five justices of the Court of Appeals, a
majority of four and one dissenting upheld the respondents
contention that the case was deemed submitted and ready for
disposition or judgment, and proceeded to determine the case
on appeal without the petitioner's brief, a view now assailed by
the petitioner who claims that it had been deprived of its day in
court.
In Lim To Co vs. Go Fay, 80 Phil. 166, interpreting section 9,
Rule 27, which provides:
No service of papers shall be necessary on a party in default
except when he files a motion to set aside the order of default,
in which event he is entitled to notice of all further proceedings,
this Court held that "a defendant in default is not entitled to
notice of the proceedings until the final termination of the case,
RMC-SOL
and therefore he has no right to be heard or file brief or
memoranda on appeal."2
A defendant in default loses his standing in or is considered
out of Court, and consequently can not appear in court; adduce
evidence; and be heard, and for that reason he is not entitled
to notice. If he is not entitled to notice of the proceedings in the
case and to be heard, he can not appeal from the judgment
rendered by the court on the merits, because he can not file a
notice of appeal, and file an appeal bond and the record on
appeal, for approval by the court. The only exception provided
by law is when the defendant in default files a motion to set
aside the order of default on the grounds stated in Rule 38 "in
which event he is entitled to notice of all further proceedings."
That a defendant in default can not be heard in the suit, not
only in the trial court but also in the final hearing, that is, on
appeal which is part of the proceedings in a suit, is the ruling
laid down for guidance of courts and practitioners by this Court
in the case of Velez vs. Ramos, 40 Phil., 787, . . . . (Lim To Co
vs. Go Fay, supra, p. 169.)
And the remedy available to a party who was declared in
default to regain his standing in court and be entitled once
more to notice of the proceedings is to move for the setting
aside of the order of default under section 2, Rule 38 and to
appeal therefrom if denied.3
Counsel argue that an order of default being interlocutory, the
petitioner could not appeal therefrom. True, but from a denial
of a motion to set aside an order of default, as the petitioner's
"urgent motion to set aside order of default" (Annex F), which
may be deemed to fall under section 2, Rule 38, the petitioner
could have appealed. Instead of taking an appeal from such
denial, the petitioner chose to bring the matter to this Court by
petition for a writ of certiorari with a prayer for a writ of
preliminary injunction which was correctly dismissed for the
remedy was an appeal from the order denying the motion to
set aside the order of default entered against the petitioner
because of mistake or excusable neglect. Not having appealed
from the order denying the motion to set aside the order of
default under section 2, Rule 38, the order of default remained
in force with all the consequences that the party against whom
it had been entered must suffer. One of them is the loss of the
right to be served with the brief of the herein respondents,
appellants in the Court of Appeals.
Turning now to the merits of the case, the Court of Appeals
found that the services of Jesus G. Ogilvie, Salvador Ortile,
Antonio C. Militar and Miguel M. Fermin were engaged by
Manuel Mascuñana, master or captain employed by the
petitioner Madrigal Shipping Company, Inc., to man and fetch
30
 TRANSPORTATION LAWS
the vessel "S.S. Bridge" from Sasebu, Japan, as evidenced by
a contract executed on 24 December 1947 in Manila (Exhibit
A), the pertinent provision of which is as follows:
(a) The several persons whose names are hereto subscribed,
and whose descriptions are contained herein, engaged as
seamen, hereby agree to serve on board the S.S. Bridge of
which M. MASCUÑANA is master, in the several capacities
expressed against their respective names, on a voyage from
THE CREW WILL ENPLANE FROM MANILA TO JAPAN. IN
JAPAN THE CREW WILL MAN THE SHIP TO MANILA. THIS
CONTRACT EXPIRES ON THE ARRIVAL OF THIS BOAT AT
THE PORT OF MANILA. EXTENSION OF THIS CONTRACT
IS VALID ONLY WHEN SIGNED BY THE OFFICIAL
SKIPPER.
On 7 January 1948, another contract of similar terms and
conditions was executed in Manila before the Consul General
of the Republic of Panama (Exhibit A-1) for the reason that the
S.S. Bridge was registered under the laws of that Republic.
Pursuant thereto the respondents were flown to Sasebu,
Japan, and they manned the vessel out of the port of Sasebu.
On 16 March 1948, when the vessel reached Hongkong, the
respondents were dismissed and replaced by a crew of
Chinese nationality. The respondents were flown back to
Manila and paid their respective salaries up to the date of their
dismissal. The total sum of P12,104.50 which the respondents
seek to collect represents salaries and subsistence allowance
from 17 March 1948 to 30 September 1948 when the vessel
arrived in the port of Manila.
In its motion to dismiss the complaint the petitioner invoked
and relied solely upon lack of jurisdiction of the court over the
subject matter of the action and did not deny ownership of the
S.S. Bridge nor disavow the authority of Manuel Mascuñana,
its captain, to engage the services of the respondents. More, in
the answer of the petitioner (Annex H) attached to its "urgent
motion to set aside order of default" (Annex F), the averments
under its special defenses substantially admit the allegations of
the respondents' complaint. The termination of the services of
the respondents as members of the crew was not due to their
fault. Upon the ship's arrival in Hongkong it was found that
repairs had to be made on her before she could proceed on
her voyage to Manila. A motion to dismiss an action must
include all the grounds available at the time of its filing, and all
grounds not so included are deemed waived, except lack of
jurisdiction over the subject matter.4 In the same motion to
dismiss the complaint the petitioner, defendant in the court of
first instance, alleged that "On the date of the execution of the
service contract between the plaintiff and the defendant
(January 7, 1948), the subject vessel was in Sasebu, Japan, . .
RMC-SOL
.," thereby implying that the petitioner in truth and in fact
contracted the service of the respondents, plaintiffs in the court
of first instance, to man its vessel. Furthermore, Moises J.
Lopez, manager of the defendant shipping company, testified
that he recalled having contracted the services of several
persons to form a crew to man the S.S. Bridge belonging to the
petitioner. How could the latter now disclaim ownership of the
S.S. Bridge and the authority of Manuel Mascuñana, its
captain, to engage the services of the respondents?
Granting that the petitioner may not be sued for lack of juridical
personality, as held by the trial court, and pressed by its
counsel in this Court, it is now estopped from denying the
existence of such personality to evade responsibility on the
contract it had entered into, because it has taken advantage of
the respondents' services and has profited thereby. Moreover,
the trial court committed an error when it refused to take into
account the evidence presented by the respondents to prove
that the petitioner was a corporation duly organized and
existing under the laws of the Philippines, the documents
showing that fact having been reconstituted only after the first
hearing of the case, upon the sole ground that it was not new
but forgotten evidence. Such ground could be relied upon to
deny a motion for new trial, but not after the motion had been
granted, for official or public documents presented to show or
prove the juridical personality or entity of a party to an action
not known or available at the first hearing could not be ignored.
The trial court could not close its eyes to reality.
Again, granting that it was not the Madrigal Shipping Company,
Inc., that owned the S.S. Bridge but the Madrigal & Company,
a corporation with a juridical personality distinct from the
former, yet as the former was the subsidiary of the latter, and
that the former was a business conduit of the latter, as found
by the Court of Appeals, the fiction of corporate existence may
be disregarded and the real party ordered to pay the
respondents their just due.
The services of the respondents were engaged by the
petitioner to man its vessel for a determinate time or voyage,
with an express stipulation that "this contract expires on the
arrival of this boat at the port of Manila." Article 605 of the
Code of Commerce provides:
If the contracts of the captain and members of the crew with
the ship agent should he for a definite period or voyage, they
may not be discharged until after the fulfillment of their
contracts except by reason of insubordination in serious
matters, robbery, theft, habitual drunkenness, or damage
caused to the vessel or its cargo through malice or manifest or
proven negligence.
31
 TRANSPORTATION LAWS
Not having been discharged for any of the causes enumerated
in the foregoing article, the respondents are entitled to the
amounts they respectively seek to collect from the petitioner.
The petition is denied, with costs against the petitioner.
G.R. No. L-50734-37 February 20, 1981
WALLEM PHILIPPINES SHIPPING, INC., petitioner,
vs.
THE HON. MINISTER OF LABOR, in his capacity as Chairman
of the National Seamen Board Proper, JAIME CAUNCA,
ANTONIO CABRERA, EFREN GARCIA, JOSE OJEDA and
RODOLFO PAGWAGAN, respondents.
Petition for certiorari with preliminary injunction with prayer that
the Orders dated December 19, 1977 and April 3, 1979 of the
National Seamen Board (NSB) be declared null and void.
Private respondents were hired by petitioner sometime in May
1975 to work as seamen for a period of ten months on board
the M/V Woermann Sanaga, a Dutch vessel owned and
operated by petitioner's European principals. While their
employment contracts were still in force, private respondents
were dismissed by their employer, petitioner herein, and were
discharged from the ship on charges that they instigated the
International Transport Federation (ITF) to demand the
application of worldwide ITF seamen's rates to their crew.
Private respondents were repatriated to the Philippines on
October 27, 1975 and upon their arrival in Manila, they
instituted a complaint against petitioner for illegal dismissal and
recovery of wages and other benefits corresponding to the five
months' unexpired period of their shipboard employment
contract.
In support of their complaint, private respondents submitted a
Joint Affidavit 1 stating the circumstances surrounding their
employment and subsequent repatriation to the Philippines,
material averments of which are herein below reproduced:
JOINTAFFIDAVIT
xxx xxx xxx
5. That aside from our basic monthly salary we are entitled to
two (2) months vacation leave, daily subsistence allowance of
US$8.14 each, daily food allowance of US$2.50. as well as
overtime pay which we failed to receive because our
Shipboard Employment Contract was illegally terminated;
RMC-SOL
6. That while we were in Rotterdam, on or about July 9, 1975,
representative of the ITF boarded our vessel and talked with
the Ship's Captain;
7. That the following day, the representatives of the ITF
returned and was followed by Mr. M.S.K. Ogle who is the
Company's Administrative Manager, again went to see the
Captain;
8. That at around 7:00 in the evening all the crew members
were called in the Mess Hall where the ITF representatives
informed us that they have just entered into a "Special
Agreement" with the Wallem Shipping Management, Ltd.,
represented by Mr. M.S.K. Ogle, Administrative Manager,
wherein new salary rates was agreed upon and that we were
going to be paid our salary differentials in view of the new
rates;
9. That in the same meeting, Mr. M.S.K. Ogle also spoke
where he told that a Special Agreement has been signed and
that we will be receiving new pay rate and enjoined us to work
hard and be good boys;
10. That the same evening we received our salary differentials
based on the new rates negotiated for us by the ITF.
11. That while we were in the Port Dubai, Saudi Arabia, we
were not receiving our pay, since the Ship's Captain refused to
implement the world-wide rates and insisted on paying us the
Far East Rate;
12. That the Port Dubai is one that is within the Worldwide
rates sphere.
13. That on October 22, 1975, Mr. Greg Nacional Operation
Manager of respondent corporation, arrived in Dubai Saudi
Arabia and boarded our ship;
14. That on October 23, 1975, Mr. Nacional called all the crew
members, including us to a meeting at the Mess Hall and there
he explained that the Company cannot accept the worldwide
rate. The Special Agreement signed by Mr. Ogle in behalf of
the Company is nothing but a scrap of paper. Mr. Jaime
Caunca then asked Mr. Nacional, in view of what he was
saying, whether the Company will honor the Special
Agreement and Mr. Nacional answered "Yes". That we must
accept the Far East Rates which was put to a vote. Only two
voted for accepting the Far East Rates;
15. That immediately thereafter Mr. Nacional left us;
32
 TRANSPORTATION LAWS
16. That same evening, Mr. Nacional returned and threatened
that he has received a cable from the Home Office that if we do
not accept the Far East Rate, our services will be terminated
and there will be a change in crew;
17. That when Mr. Nacional left, we talked amongst ourselves
and decided to accept the Far East Rates;
18. That in the meeting that evening because of the threat we
informed Mr. Nacional we were accepting the Far East Rate
and he made us sign a document to that effect;
19. That we the complainants with the exception of Leopoldo
Mamaril and Efren Garcia, were not able to sign as we were at
the time on work schedules, and Mr. Nacional did not bother
anymore if we signed or not;
20. That after the meeting Mr. Nacional cabled the Home
Office, informing them that we the complainants with the
exception of Messrs. Mamaril and Garcia were not accepting
the Far East Rates;
21. That in the meeting of October 25, 1975, Mr. Nacional
signed a document whereby he promised to give no priority of
first preference in "boarding a vessel and that we are not
blacklisted";
22. That in spite of our having accepted the Far East Rate, our
services were terminated and advised us that there was a
change in crew;
23. That on October 27, 1975, which was our scheduled flight
home, nobody attended us, not even our clearance for our
group travel and consequently we were not able to board the
plane, forcing us to sleep on the floor at the airport in the
evening of October 27, 1975;
24. That the following day we went back to the hotel in Dubai
which was a two hours ride from the airport, where we were to
await another flight for home via Air France;
25. That we were finally able to leave for home on November
2, 1975 arriving here on the 3rd of November;
26. That we paid for all excess baggages;
27. That Mr. Nacional left us stranded, since he went ahead on
October 27, 1975;
28. That immediately upon arriving in Manila, we went to
respondent Company and saw Mr. Nacional, who informed us
RMC-SOL
that we were not blacklisted, however, Mr. Mckenzie,
Administrative Manager did inform us that we were all
blacklisted;
29. That we were asking from the respondent Company our
leave pay, which they refused to give, if we did not agree to a
US$100.00 deduction;
30. That with the exception of Messrs. Jaime Caunca Amado
Manansala and Antonio Cabrera, we received our leave pay
with the US$100.00 deduction;
31. That in view of the written promise of Mr. Nacional in Dubai
last October 23, 1975 to give us priority and preference in
boarding a vessel and that we were not blacklisted we have on
several occasions approached him regarding his promise,
which up to the present he has refused to honor.
xxx xxx xxx
Answering the complaint, petitioner countered that when the
vessel was in London, private respondents together with the
other crew insisted on worldwide ITF rate as per special
agreement; that said employees threatened the ship authorities
that unless they agreed to the increased wages the vessel
would not be able to leave port or would have been picketed
and/or boycotted and declared a hot ship by the ITF; that the
Master of the ship was left with no alternative but to agree; that
upon the vessel's arrival at the Asian port of Dubai on October
22, 1975, a representative of petitioner went on board the ship
and requested the crew together with private respondents to
desist from insisting worldwide ITF rate and instead accept the
Far East rate; that said respondents refused to accept Far East
ITF rates while the rest of the Filipino crew members accepted
the Far East rates; that private respondents were replaced at
the expense of petitioner and it was prayed that respondents
be required to comply with their obligations under the contract
by requiring them to pay their repatriation expenses and all
other incidental expenses incurred by the master and crew of
the vessel.
After the hearing on the merits, the hearing Officer of the
Secretariat rendered a decision 2 on March 14, 1977 finding
private respondents to have violated their contract of
employment when they accepted salary rates different from
their contract verified and approved by the National Seamen
Board. As to the issue raised by private respondents that the
original contract has been novated, it was held that:
xxx xxx xxx
33
 TRANSPORTATION LAWS
For novation to be a valid defense, it is a legal requirement that
all parties to the contract should give their consent. In the
instant case only the complainants and respondents gave their
consent. The National Seamen Board had no participation in
the alleged novation of the previously approved employment
contract. It would have been different if the consent of the
National Seamen Board was first secured before the alleged
novation of the approved contract was undertaken, hence, the
defense of novation is not in order.
xxx xxx xxx
The Hearing Officer likewise rules that petitioner violated the
contract when its representative signed the Special Agreement
and he signed the same at his own risk and must bear the
consequence of such act, and since both parties are in
paridelicto, complaint and counterclaim were dismissed for lack
of merit but petitioner was ordered to pay respondents Caunca
and Cabrera their respective leave pay for the period that they
have served M/V Woermann Sanaga plus attorney's fees.
Private respondents filed a motion for reconsideration with the
Board which modified the decision of the Secretariat in an
Order 3 of December 19, 1977 and ruled that petitioner is liable
for breach of contract when it ordered the dismissal of private
respondents and their subsequent repatriation before the
expiration of their respective employment contracts. The
Chairman of the Board stressed that "where the contract is for
a definite period, the captain and the crew members may not
be discharged until after the contract shall have been
performed" citing the case of Madrigal Shipping Co., Inc. vs.
Ogilvie, et al. (104 Phil. 748). He directed petitioner to pay
private respondents the unexpired portion of their contracts
and their leave pay, less the amount they received as
differentials by virtue of the special agreements entered in
Rotterdam, and ten percent of the total amounts recovered as
attorney's fees.
Petitioner sought clarification and reconsideration of the said
order and asked for a confrontation with private respondents to
determine the specific adjudications to be made. A series of
conferences were conducted by the Board. It was claimed by
petitioner that it did not have in its possession the records
necessary to determine the exact amount of the judgment
since the records were in the sole custody of the captain of the
ship and demanded that private respondents produce the
needed records. On this score, counsel for respondents
manifested that to require the master of the ship to produce the
records would result to undue delay in the disposition of the
case to the detriment of his clients, some of whom are still
unemployed.
RMC-SOL
Under the circumstances, the Board was left with no alternative
but to issue an Order dated April 3, 1979 4 fixing the amount
due private respondents at their three (3) months' salary
equivalent without qualifications or deduction. Hence,the
instant petition before Us alleging grave abuse of discretion on
the part of the respondent official as Chairman of the Board, in
issuing said order which allegedly nullified the findings of the
Secretariat and premised adjudication on imaginary conditions
which were never taken up with full evidence in the course of
hearing on the merits.
The whole controversy is centered around the liability of
petitioner when it ordered the dismissal of herein private
respondents before the expiration of their respective
employment contracts.
In its Order of December 19, 1977 5 the Board, thru its
Chairman, Minister Blas F. Ople, held that there is no showing
that the seamen conspired with the ITF in coercing the ship
authorities to grant salary increases, and the Special
Agreement was signed only by petitioner and the ITF without
any participation from the respondents who, accordingly, may
not be charged as they were, by the Secretariat, with violation
of their employment contract. The Board likewise stressed that
the crew members may not be discharged until after the
expiration of the contract which is for a definite period, and
where the crew members are discharged without just cause
before the contract shall have been performed, they shall be
entitled to collect from the owner or agent of the vessel their
unpaid salaries for the period they were engaged to render the
services, applying the case of Madrigal Shipping Co., Inc. vs.
Jesus Ogilivie et al. 6
The findings and conclusion of the Board should be sustained.
As already intimated above, there is no logic in the statement
made by the Secretariat's Hearing Officer that the private
respondents are liable for breach of their employment
contracts for accepting salaries higher than their contracted
rates. Said respondents are not signatories to the Special
Agreement, nor was there any showing that they instigated the
execution thereof. Respondents should not be blamed for
accepting higher salaries since it is but human for them to grab
every opportunity which would improve their working conditions
and earning capacity. It is a basic right of all workingmen to
seek greater benefits not only for themselves but for their
families as well, and this can be achieved through collective
bargaining or with the assistance of trade unions. The
Constitution itself guarantees the promotion of social welfare
and protection to labor. It is therefore the Hearing Officer that
gravely erred in disallowing the payment of the unexpired
portion of the seamen's respective contracts of employment.
34
 TRANSPORTATION LAWS
Petitioner claims that the dismissal of private respondents was
justified because the latter threatened the ship authorities in
acceeding to their demands, and this constitutes serious
misconduct as contemplated by the Labor Code. This
contention is not well-taken. The records fail to establish
clearly the commission of any threat. But even if there had
been such a threat, respondents' behavior should not be
censured because it is but natural for them to employ some
means of pressing their demands for petitioner, who refused to
abide with the terms of the Special Agreement, to honor and
respect the same. They were only acting in the exercise of
their rights, and to deprive them of their freedom of expression
is contrary to law and public policy. There is no serious
misconduct to speak of in the case at bar which would justify
respondents' dismissal just because of their firmness in their
demand for the fulfillment by petitioner of its obligation it
entered into without any coercion, specially on the part of
private respondents.
On the other hand, it is petitioner who is guilty of breach of
contract when they dismissed the respondents without just
cause and prior to the expiration of the employment contracts.
As the records clearly show, petitioner voluntarily entered into
the Special Agreement with ITF and by virtue thereof the crew
men were actually given their salary differentials in view of the
new rates. It cannot be said that it was because of
respondents' fault that petitioner made a sudden turn-about
and refused to honor the special agreement.
In brief, We declare petitioner guilty of breach of contract and
should therefore be made to comply with the directives
contained in the disputed Orders of December 19, 1977 and
April 3, 1979.
WHEREFORE, premises considered, the decision dated
March 14, 1977 of the Hearing Officer is SET ASIDE and the
Orders dated December 19, 1977 and April 3, 1979 of the
National Seamen Board are AFFIRMED in toto. This decision
is immediately executory. Without costs. SO ORDERED.
Valid grounds for dismissal of the captain and his crew.
Article 636
Should a fixed period for which a sailor has signed not be
stated, he can not be discharged until the end of the return
voyage to the port where he enrolled.
Article 637
RMC-SOL
Neither can the captain discharge a sailor during the time of his
contract except for sufficient cause, the following being
considered as such:
The perpetration of a crime which disturbs order on the vessel.
Repeated offenses of insubordination, against discipline, or
against the fulfillment of the service.
Repeated incapacity or negligence in the fulfillment of the
service to be rendered.
Habitual drunkenness.
Any occurrence which incapacitates the sailor to carry out the
work under his charge, with the exception of the provisions
contained in Article 644.
Desertion.
The captain may, however, before setting out on a voyage and
without giving any reason whatsoever, refuse to permit a sailor
he may have engaged from going on board and may leave him
on land, in which case he will be obliged to pay him his wages
as if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the
captain should have acted for reasons of prudence and in the
interest of the safety and good service of the former. Should
this not be the case, it shall be paid by the captain personally.
After the vessel has sailed, and during the voyage and until the
conclusion thereof, the captain can not abandon any member
of his crew on land or on the sea, unless, by reason of being
guilty of some crime, his imprisonment and delivery to the
competent authority is proper in the first port touched, which
will be obligatory on the captain.
Limited Liability Rule
The Doctrine of Limited Liability, also known as the "no vessel,
no liability doctrine," states that the liability of the shipowner is
restricted to only the shipowner's interest in the vessel. In the
case of a total loss, the liability of the shipowner ends. In the
case of the vessel's total destruction, all maritime liens also
end.
Limited liability is put in place as a way to protect the personal
interests of an investor from any wrongdoing of a corporation.
However, it is possible for the investor to lose what they have
35
 TRANSPORTATION LAWS
invested in the corporation. Limited liability for a shipowner
extends to the following:
 Appurtenances.
 Equipment.
 Freightage.
 Insurance proceeds.
Advantages and Disadvantages of Limited Liability
Limited liability is a legal precedent that was pivotal to the
modern corporation and stock markets. By instituting limited
liability, entrepreneurs were given the ability to use small
investments from a large pool of corporate shareholders, rather
than just a few wealthy partners.
In partnerships, the partners are each responsible for any
wrongdoing. This is removed with limited liability. Shareholders
have the confidence to invest knowing they will only lose what
they put in, nothing more. With the introduction of limited
liability, the economy boomed from a new way to source
investment capital.
A major disadvantage of limited liability is the problem of who
is deemed responsible in the case of wrongdoing. When
limited liability is in place, the blame is hard to place based on
the corporate structure. This is especially true when corporate
subsidiaries are not held to the highest standards and perform
risky tasks like oil drilling. Parent corporations use lawyers to
legally protect themselves and the assets of their subsidiaries.
Exceptions to the Doctrine of Limited Liability
Typically, the shipowner's liability is limited to what they are
entitled to abandon the vessel. This includes all equipment and
freight that was collected on the trip. If the freight was lost, this
can be sufficient for the shipowner's discharge. However, there
are exceptions to consider when reviewing the doctrine of
limited liability:
 Repairs and provisioning of the vessel that took place
before losing the vessel.
 Any insurance proceeds. Any proceeds will go to the
claimant if the vessel is insured.
 Workmen's Compensation (also called Employees'
Compensation) cases.
 If the shipowner is found to be guilty of negligence or
fraud.
 Private carrier.
 If the voyage was not maritime in character.
G.R. No. 92735 June 8, 2000
RMC-SOL
MONARCH INSURANCE CO., INC., TABACALERA
INSURANCE CO., INC and Hon. Judge AMANTE PURISIMA,
petitioners,
vs.
COURT OF APPEALS and ABOITIZ SHIPPING
CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 94867
ALLIED GUARANTEE INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24
and ABOITIZ SHIPPING CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 95578
EQUITABLE INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, Former First Division Composed of
Hon. Justices RODOLFO NOCON, PEDRO RAMIREZ, and
JESUS ELBINIAS and ABOITIZ SHIPPING CORPORATION,
respondents.
Before us are three consolidated petitions. G.R. No. 92735 is a
petition for review filed under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated March 29,
1990 in CA-G.R. SP. Case No. 17427 which set aside the writ
of execution issued by the lower court for the full
indemnification of the claims of the petitioners, Monarch
Insurance Company (hereafter "Monarch") and Tabacalera
Insurance Company, Incorporated (hereafter "Tabacalera")
against private respondent, Aboitiz Shipping Corporation
(hereafter "Aboitiz") on the ground that the latter is entitled to
the benefit of the limited liability rule in maritime law; G.R. No.
94867 is a petition for certiorari under Rule 65 of the Rules of
Court to annul and set aside the decision of the Court of
Appeals dated August 15, 1990 in CA-G.R. SP No. 20844
which ordered the lower court to stay the execution of the
judgment in favor of the petitioner, Allied Guarantee Insurance
Company (hereafter "Allied") against Aboitiz insofar as it
impairs the rights of the other claimants to their pro-rata share
in the insurance proceeds from the sinking of the M/V P.
Aboitiz, in accordance with the rule on limited liability; and G.R.
No. 95578 is a petition for review under Rule 45 of the Rules of
Court seeking a reversal of the decision of the Court of
Appeals dated August 24, 1990 and its resolution dated
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 TRANSPORTATION LAWS
October 4, 1990 in C.A. G.R. Civil Case No. 15071 which
modified the judgment of the lower court's award of actual
damages to petitioner Equitable Insurance Corporation
(hereafter "Equitable") to its pro-rata share in the insurance
proceeds from the sinking of the M/V P. Aboitiz.
All cases arose from the loss of cargoes of various shippers
when the M/V P. Aboitiz, a common carrier owned and
operated by Aboitiz, sank on her voyage from Hong Kong to
Manila on October 31, 1980. Seeking indemnification for the
loss of their cargoes, the shippers, their successors-in-interest,
and the cargo insurers such as the instant petitioners filed
separate suits against Aboitiz before the Regional Trial Courts.
The claims numbered one hundred and ten (110) for the total
amount of P41,230,115.00 which is almost thrice the amount of
the insurance proceeds of P14,500,000.00 plus earned freight
of 500,000.00 according to Aboitiz. To this day, some of these
claims, including those of herein petitioners, have not yet been
settled.
G.R. No. 92735.
Monarch and Tabacalera are insurance carriers of lost
cargoes. They indemnified the shippers and were
consequently subrogated to their rights, interests and actions
against Aboitiz, the cargo carrier. 1 Because Aboitiz refused to
compensate Monarch, it filed two complaints against Aboitiz,
docketed as Civil Cases Nos. 82-2767 and 82-2770. For its
part, Tabacalera also filed two complaints against the same
defendant, docketed as Civil Cases Nos. 82-2768 and 82-
2769. As these four (4) cases had common causes of action,
they were consolidated and jointly tried. 2
In Civil Case No. 82-2767 where Monarch also named
Malaysian International Shipping Corporation and Litonja
Merchant Shipping Agency as Aboitiz's co-defendants,
Monarch sough recovery of P29,719.88 representing the value
of three (3) pallets of glass tubing that sank with the M/V P.
Aboitiz, plus attorney's fees of not less than P5,000.00,
litigation expenses, interest at the legal rate on all these
amounts, and the cost of suit. 3 Civil Case. No. 82-2770 was a
complaint filed by Monarch against Aboitiz and co-defendants
Compagnie Maritime des Chargeurs Reunis and F.E. Zuellig
(M), Inc. for the recovery of P39,597.00 representing the value
of the one case motor vehicle parts which was lost when the
M/V P. Aboitiz sank on her way to Manila, plus Attorney's fees
of not less than P10,000.00 and cost of suit. 4
Tabacalera sought against Franco Belgian Services, F.E.
Zuellig and Aboitiz in Civil Case No. 82-2768 the recovery of
P284,218.00 corresponding to the value of nine (9) cases of
RMC-SOL
Renault spare parts, P213,207.00 for the value of twenty-five
(25) cases of door closers and P42,254.00 representing the
value of eighteen (18) cases of plastic spangle, plus attorney's
fees of not less than P50,000.00 and cost of suit. 5 In Civil
Case No. 82-2769, Tabacalera claimed from Hong Kong Island
Shipping Co., Ltd., Citadel Lines and Aboitiz indemnification in
the amount of P75,058.00 for the value of four (4) cartons of
motor vehicle parts foundered with the M/V P. Aboitiz, plus
attorney's fees of not less than P20,000.00 and cost of suit. 6
In its answer with counterclaim, Aboitiz rejected responsibility
for the claims on the ground that the sinking of its cargo vessel
was due to force majeure or an act of God. 7 Aboitiz was
subsequently declared as in default for its failure to appear
during the pre-trial. Its counsel fried a motion to set aside the
order of default with notice of his withdrawal as such counsel.
Before the motion could be acted upon, Judge Bienvenido
Ejercjto, the presiding judge of the trial court, was promoted to
the then intermediate Appellate Court. The cases were thus re-
raffled to Branch VII of the RTC of Manila presided by Judge
Amante P. Purisima, the co-petitioner in G.R. No. 92735.
Without resolving the pending motion to set aside the order of
default, the trial court set the cases for hearing. However, since
Aboitiz had repeatedly failed to appear in court, the trial court
denied the said motion and allowed Monarch and Tabacalera
to present evidence ex-parte. 8
Monarch and Tabacalera proffered in evidence the survey of
Perfect Lambert, a surveyor commissioned to investigate the
possible cause of the sinking of the cargo vessel. The survey
established that on her voyage to Manila from Hong Kong, the
vessel did not encounter weather so inclement that Aboitiz
would be exculpated from liability for losses. In his note of
protest, the master of M/V P. Aboitiz described the wind force
encountered by the vessel as from ten (10) to fifteen (15)
knots, a weather condition classified as typical and moderate in
the South China Sea at that particular time of the year. The
survey added that the seaworthiness of the vessel was in
question especially because the breaches of the hull and the
serious flooding of two (2) cargo holds occurred simultaneously
in "seasonal weather." 9
In due course, the trial court rendered judgment against Aboitiz
but the complaint against all the other defendants was
dismissed. Aboitiz was held liable for the following: (a) in Civil
Case No. 82-2767, P29,719.88 with legal interest from the
filing of the complaint until fully paid plus attorney's fees of
P30,000.00 and cost of suit; (b) in Civil Case No. 82-2768,
P539,679.00 with legal interest of 12% per annum from date of
filing of the complaint until fully paid, plus attorney's fees of
P30,000.00, litigation expenses and cost of suit; (c) in Civil
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 TRANSPORTATION LAWS
Case No. 82-2769, P75,058.00 with legal interest of 12% per
annum from date of filing of the complaint until-fully paid, plus
P5,000.00 attorney's fees, litigation expenses and cost of suit,
and (d) in Civil Case No. 82-2770, P39,579.66 with legal
interest of 12% per annum from date of filing of the complaint
until fully paid, plus attorney's fees of P5,000.00, litigation
expenses and cost of suit.
Aboitiz filed a motion for reconsideration of the decision and/or
for new trial to lift the order of default. The court denied the
motion on August 27, 1986. 10 Aboitiz appealed to the Court of
Appeals but the appeal was dismissed for its failure to file
appellant's brief. It subsequently filed an urgent motion for
reconsideration of the dismissal with prayer for the admission
of its attached appellant's brief. The appellate court denied that
motion for lack of merit in a Resolution dated July 8, 1988. 11
Aboitiz thus filed a petition for review before this Court.
Docketed as G.R. No. 84158, the petition was denied in the
Resolution of October 10, 1988 for being filed out of time.
Aboitiz's motion for the reconsideration of said Resolution was
similarly denied. 12 Entry of judgment was made in the case.
13
Consequently, Monarch and Tabacalera moved for execution
of judgment. The trial court granted the motion on April 4, 1989
14 and issued separate writs of execution. However, on April
12, 1989, Aboitiz, invoking the real and hypothecary nature of
liability in maritime law, filed an urgent motion to quash the
writs of execution. 15 According to Aboitiz, since its liability is
limited to the value of the vessel which was insufficient to
satisfy the aggregate claims of all 110 claimants, to indemnify
Monarch and Tabacalera ahead of the other claimants would
be prejudicial to the latter. Monarch and Tabacalera opposed
the motion to quash. 16
On April 17, 1989, before the motion to quash could be heard,
the sheriff levied upon five (5) heavy equipment owned by
Aboitiz for the public auction sale. At said sale, Monarch was
the highest bidder for one (1) unit FL-151 Fork Lift (big) and
one (1) unit FL-25 Fork Lift (small). Tabacalera was also the
highest bidder for one (1) unit TCH TL-251 Hyster Container
Lifter, one (1) unit Hyster Top Lifter (out of order), and one (1)
unit ER-353 Crane. The corresponding certificates of sale 17
were issued to Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to
quash, Aboitiz filed a supplement to its motion, to add the fact
that an auction sale had taken place. On April 19, 1989, Judge
Purisima issued an order denying the motion to quash but
freezing execution proceedings for ten (10) days to give Aboitiz
RMC-SOL
time to secure a restraining order from a higher court. 18
Execution was scheduled to resume to fully satisfy the
judgment when the grace period shall have lapsed without
such restraining order having been obtained by Aboitiz.
Aboitiz filed with the Court of Appeals a petition for certiorari
and prohibition with prayer for preliminary injunction and/or
temporary restraining order under CA-G.R. No. SP-17427. 19
On March 29, 1990, the appellate court rendered a Decision
the dispositive portion of which reads:
WHEREFORE, the writ of certiorari is hereby granted,
annulling the subject writs of execution, auction sale,
certificates of sale, and the assailed orders of respondent
Judge dated April 4 and April 19, 1989 insofar as the money
value of those properties of Aboitiz, levied on execution and
sold at public auction, has exceeded the pro-rata shares of
Monarch and Tabacalera in the insurance proceeds of Aboitiz
in relation to the pro-rata shares of the 106 other claimants.
The writ of prohibition is also granted to enjoin respondent
Judge, Monarch and Tabacalera from proceeding further with
execution of the judgments in question insofar as the execution
would satisfy the claims of Monarch and Tabacalera in excess
of their pro-rata shares and in effect reduce the balance of the
proceeds for distribution to the other claimants to their
prejudice.
The question of whether or how much of the claims of Monarch
and Tabacalera against the insurance proceeds has already
been settled through the writ of execution and auction sale in
question, being factual issues, shall be threshed out before
respondent judge.
The writ of preliminary injunction issued in favor of Aboitiz,
having served its purpose, is hereby lifted. No pronouncement
as to costs.
SO ORDERED. 20
Hence, the instant petition for review on certiorari where
petitioners Monarch, Tabacalera and Judge Purisima raise the
following assignment of errors:
1. The appellate court grievously erred in re-opening the
Purisima decisions, already final and executory, on the alleged
ground that the issue of real and hypothecary liability had not
been previously resolved by Purisima, the appellate court, and
this Hon. Supreme Court;
38
 TRANSPORTATION LAWS
2. The appellate court erred when it resolved that Aboitiz is
entitled to the limited real and hypothecary liability of a ship
owner, considering the facts on record and the law on the
matter.
3. The appellate court erred when it concluded that Aboitiz
does not have to present evidence to prove its entitlement to
the limited real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz
Shipping Corporation v. CA and Allied Guaranty Insurance Co.,
Inc. (G.R. No. 88159), decided by this Honorable Supreme
Court as early as November 13, 1989, considering that said
case, now factual and executory, is in pari materia with the
instant case.
5. The appellate court erred in not concluding that irrespective
of whether Aboitiz is entitled to limited hypothecary liability or
not, there are enough funds to satisfy all the claimants.
6. The appellate court erred when it concluded that Aboitiz had
made an "abandonment" as envisioned by Art. 587 of the Code
of Commerce.
7. The appellate court erred when it concluded that other
claimants would suffer if Tabacalera and Monarch would be
fully paid.
8. The appellate court erred in concluding that certiorari was
the proper remedy for Aboitiz. 21
G.R. NOS. 94867 & 95578
Allied as insurer-subrogee of consignee Peak Plastic and
Metal Products Limited, filed a complaint against Aboitiz for the
recovery of P278,536.50 representing the value of 676 bags of
PVC compound and 10 bags of ABS plastic lost on board the
M/V P. Aboitiz, with legal interest from the date of filing of the
complaint, plus attorney's fees, exemplary damages and costs.
22 Docketed as Civil Case No. 138643, the case was heard
before the Regional Trial Court of Manila, Branch XXIV,
presided by Judge Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of
consignee-assured Axel Manufacturing Corporation, filed an
amended complaint against Franco Belgian Services, F.E.
Zuellig, Inc. and Aboitiz for the recovery of P194,794.85
representing the value of 76 drums of synthetic organic tanning
substances and 1,000 kilograms of optical bleaching agents
which were also lost on board the M/V P. Aboitiz, with legal
interest from the date of filing of the complaint, plus 25%
RMC-SOL
attorney's fees, exemplary damages, litigation expenses and
costs of suit.23 Docketed as Civil Case No. 138396, the
complaint was assigned to the Regional Trial Court of Manila,
Branch VIII.
In its answer with counterclaim in the two cases, Aboitiz
disclaimed responsibility for the amounts being recovered,
alleging that the loss was due to a fortuitous event or an act of
God. It prayed for the dismissal of the cases and the payment
of attorney's fees, litigation expenses plus costs of suit. It
similarly relied on the defenses of force mejeure,
seaworthiness of the vessel and exercise of due diligence in
the carriage of goods as regards the cross-claim of its co-
defendants. 24
In support of its position, Aboitiz presented the testimonies of
Capt. Gerry N. Racines, master mariner of the M/V P. Aboitiz,
and Justo C. Iglesias, a meteorologist of the Philippine
Atmospheric Geophysical and Astronomical Services
Administration (PAGASA). The gist of the testimony of Capt.
Racines in the two cases follows:
The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in
the evening of October 29, 1980 after securing a departure
clearance from the Hong Kong Port Authority. The departure
was delayed for two hours because he (Capt. Racines) was
observing the direction of the storm that crossed the Bicol
Region. He proceeded with the voyage only after being
informed that the storm had abated. At about 8:00 o'clock in
the morning of October 30, 1980, after more than twelve (12)
hours of navigation, the vessel suddenly encountered rough
seas with waves about fifteen to twenty-five feet high. He
ordered his chief engineer to check the cargo holds. The latter
found that sea water had entered cargo hold Nos. 1 and 2. He
immediately directed that water be pumped out by means of
the vessel's bilge pump, a device capable of ejecting 180
gallons of water per minute. They were initially successful in
pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines
received a report from his chief engineer that the water level in
the cargo holds was rapidly rising. He altered the vessel's
course and veered towards the northern tip of Luzon to prevent
the vessel from being continuously pummeled by the waves.
Despite diligent efforts of the officers and crew, however, the
vessel, which was approximately 250 miles away from the eye
of the storm, began to list on starboard side at 27 degrees.
Capt. Racines and his crew were not able to make as much
headway as they wanted because by 12:00 noon of the same
day, the cargo holds were already flooded with sea water that
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 TRANSPORTATION LAWS
rose from three to twelve feet, disabling the bilge pump from
containing the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31,
1980 at latitude 18 degrees North, longitude 170 degrees East
in the South China Sea in between Hong Kong, the Philippines
and Taiwan with the nearest land being the northern tip of
Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos
Norte. Responding to the captain's distress call, the M/V
Kapuas (Capuas) manned by Capt. Virgilio Gonzales rescued
the officers and crew of the ill-fated M/V P. Aboitiz and brought
them to Waileen, Taiwan where Capt. Racines lodged his
marine protest dated November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness
of Aboitiz, testified in both cases that during the inclusive dates
of October 28-31, 1980, a stormy weather condition prevailed
within the Philippine area of responsibility, particularly along
the sea route from Hong Kong to Manila, because of tropical
depression "Yoning." 25 PAGASA issued weather bulletins
from October 28-30, 1980 while the storm was still within
Philippine territory. No domestic bulletins were issued the
following day when the storm which hit Eastern Samar,
Southern Quezon and Southern Tagalog provinces, had made
its exit to the South China Sea through Bataan.
Allied and Equitable refuted the allegation that the M/V P.
Aboitiz and its cargo were lost due to force majeure, relying
mainly on the marine protest filed by Capt. Racines as well as
on the Beaufort Scale of Wind. In his marine protest under
oath, Capt. Racines affirmed that the wind force an October
29-30, 1980 was only ten (10) to fifteen (15) knots. Under the
Beaufort Scale of Wind, said wind velocity falls under scale No.
4 that describes the sea condition as "moderate breeze," and
"small waves becoming longer, fairly frequent white horses."
26
To fortify its position, Equitable presented Rogelio T. Barboza
who testified that as claims supervisor and processor of
Equitable, he recommended payment to Axel Manufacturing
Corporation as evidenced by the cash voucher, return check
and subrogation receipt. Barboza also presented a letter of
demand to Aboitiz which, however, the latter ignored. 27
On April 24, 1984, the trial court rendered a decision that
disposed of Civil Case No. 138643 as follows:
WHEREFORE, judgment is hereby rendered ordering
defendant Aboitiz Shipping Company to pay plaintiff Allied
Guarantee Insurance Company, Inc. the sum of P278,536.50,
with legal interest thereon from March 10, 1981, then date of
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the filing of the complaint, until fully paid, plus P30,000.00 as
attorney's fees, with costs of suit.
SO ORDERED. 28
A similar decision was arrived at in Civil Case No. 138396, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, this Court hereby
renders judgment in favor of plaintiff and against defendant
Aboitiz Shipping Corporation, to pay the sum of P194,794.85
with legal rate of interest thereon from February 27, 1981 until
fully paid; attorney's fees of twenty-five (25%) percent of the
total claim, plus litigation expenses and costs of litigation.
SO ORDERED. 29
In Civil Case No. 138643, Aboitiz appealed to the Court of
Appeals under CA-G.R. CV No. 04121. On March 23, 1987,
the Court of Appeals affirmed the decision of the lower court. A
motion for reconsideration of the said decision was likewise
denied by the Court of Appeals on May 3, 1989. Aggrieved,
Aboitiz then filed a petition for review with this Court docketed
as G.R. No. 88159 which was denied for lack merit. Entry of
judgment was made and the lower court's decision in Civil
Case No. 138643 became final and executory. Allied prayed
for the issuance of a writ of execution in the lower court which
was granted by the latter on April 4, 1990. To stay the
execution of the judgment of the lower court, Aboitiz filed a
petition for certiorari and prohibition with preliminary injunction
with the Court of Appeals docketed as CA-G.R. SP No. 20844.
30 On August 15, 1990, the Court of Appeals rendered the
assailed decision, the dispositive portion of which reads as
follows.
WHEREFORE, the challenged order of the respondent Judge
dated April 4, 1990 granting the execution is hereby set aside.
The respondent Judge is further ordered to stay the execution
of the judgment insofar as it impairs the rights of the 100 other
claimants to the insurance proceeds including the rights of the
petitioner to pay more than the value of the vessel or the
insurance proceeds and to desist from executing the judgment
insofar as it prejudices the pro-rata share of all claimants to the
insurance proceeds. No pronouncement as to costs.
SO ORDERED. 31
Hence, Allied filed the instant petition for certiorari, mandamus
and injunction with preliminary injunction and/or restraining
order before this Court alleging the following assignment of
errors:
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1. Respondent Court of Appeals gravely erred in staying the
immediate execution of the judgment of the lower court as it
has no authority nor jurisdiction to directly or indirectly alter,
modify, amend, reverse or invalidate a final judgment as
affirmed by the Honorable Supreme Court in G.R. No. 88159.
2. Respondent Court of Appeals with grave abuse of discretion
amounting to lack or excess of jurisdiction, brushed aside the
doctrine in G.R. No. 88159 which is now the law of the case
and observance of time honored principles of stare decisis, res
adjudicata and estoppel by judgment.
3. Real and hypothecary rule under Articles 587, 590 and 837
of the Code of Commerce which is the basis of the questioned
decision (Annex "C" hereof) is without application in the face of
the facts found by the lower court, sustained by the Court of
Appeals in CA-G.R. No. 04121 and affirmed in toto by the
Supreme Court in G.R. No. 88159.
4. Certiorari as a special remedy is unavailing for private
respondent as there was no grave abuse of discretion nor lack
or excess of jurisdiction for Judge Mabunay to issue the order
of April 4, 1990 which was in accord with law and
jurisprudence, nor were there intervening facts and/or
supervening events that will justify respondent court to issue a
writ of certiorari or a restraining order on a final and executory
judgment of the Honorable Supreme Court. 32
From the decision of the trial court in Civil Case No. 138396
that favored Equitable, Aboitiz likewise appealed to the Court
of Appeals through CA-G.R. CV No. 15071. On August 24,
1990, the Court of Appeals rendered the Decision quoting
extensively its Decision in CA-G.R. No. SP-17427 (now G.R.
No. 92735) and disposing of the appeal as follows:
WHEREFORE, we hereby affirm the trial court's awards of
actual damages, attorney's fees and litigation expenses, with
the exception of legal interest, in favor of plaintiff-appellee
Equitable Insurance Corporation as subrogee of the consignee
for the loss of its shipment aboard the M/V "P. Aboitiz" and
against defendant-appellant Aboitiz Shipping Corporation.
However, the amount and payment of those awards shall be
subject to a determination of the pro-rata share of said
appellee in relation to the pro-rata shares of the 109 other
claimants, which determination shall be made by the trial court.
This case is therefore hereby ordered remanded to the trial
court which shall reopen the case and receive evidence to
determine appellee's pro-rata share as aforesaid. No
pronouncement as to costs.
RMC-SOL
SO ORDERED. 33
On September 12, 1990, Equitable moved to reconsider the
Court of Appeals' Decision. The Court of Appeals denied the
motion for reconsideration on October 4, 1990. 34
Consequently, Equitable filed with this Court a petition for
review alleging the following assignment of errors:
1. Respondent Court of Appeals, with grave abuse of
discretion amounting to lack or excess of jurisdiction,
erroneously brushed aside the doctrine in G.R. No. 88159
which is now the law of the case as held in G.R. No. 89757
involving the same and identical set of facts and cause of
action relative to the sinking of the M/V "P. Aboitiz" and
observance of the time honored principles of stare decisis, and
estoppel by judgment.
2. Real and hypothecary rule under Articles 587, 590 and 837
of the Code of Commerce which is the basis of the assailed
decision and resolution is without application in the face of the
facts found by the trial court which conforms to the conclusion
and finding of facts arrived at in a similar and identical case
involving the same incident and parties similarly situated in
G.R. No. 88159 already declared as the "law of the case" in a
subsequent decision of this Honorable Court in G.R. No. 89757
promulgated on August 6, 1990.
3. Respondent Court of Appeals gravely erred in concluding
that limited liability rule applies in case of loss of cargoes when
the law itself does not distinguish; fault of the shipowner or
privity thereto constitutes one of the exceptions to the
application of limited liability under Article 587, 590 and 837 of
the Code of Commerce, Civil Code provisions on common
carriers for breach of contract of carriage prevails. 35
These three petitions in G.R. Nos. 92735, 94867 and 95578
were consolidated in the Resolution of August 5, 1991 on the
ground that the petitioners "have identical causes of action
against the same respondent and similar reliefs are prayed
for." 36
The threshold issue in these consolidated petitions is the
applicability of the limited liability rule in maritime law in favor of
Aboitiz in order to stay the execution of the judgments for full
indemnification of the losses suffered by the petitioners as a
result of the sinking of the M/V P. Aboitiz. Before we can
address this issue, however, there are procedural matters that
need to be threshed out.
First. At the outset, the Court takes note of the fact that in G.R.
No. 92735, Judge Amante Purisima, whose decision in the
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Regional Trial Court is sought to be upheld, is named as a co-
petitioner. In Calderon v. Solicitor General, 37 where the
petitioner in the special civil action of certiorari and mandamus
was also the judge whose order was being assailed, the Court
held that said judge had no standing to file the petition because
he was merely a nominal or formal party-respondent under
Section 5 of Rule 65 of the Rules of Court. He should not
appear as a party seeking the reversal of a decision that is
unfavorable to the action taken by him. The Court there said:
Judge Calderon should be-reminded of the well-known
doctrine that a judge should detach himself from cases where
his decision is appealed to a higher court for review. The
raison d'etre for such doctrine is the fact that a judge is not an
active combatant in such proceeding and must leave the
opposing parties to contend their individual positions and for
the appellate court to decide the issues without his active
participation. By filing this case, petitioner in a way ceased to
be judicial and has become adversarial instead. 38
While the petition in G.R. No. 92735 does not expressly show
whether or not Judge Purisima himself is personally interested
in the disposition of this petition or he was just inadvertently
named as petitioner by the real parties in interest, the fact that
Judge Purisima is named as petitioner has not escaped this
Court's notice. Judges and litigants should be reminded of the
basic rule that courts or individual judges are not supposed to
be interested "combatants" in any litigation they resolve.
Second. The petitioners contend that the inapplicability of the
limited liability rule to Aboitiz has already been decided on by
no less than this Court in G.R. No. 88159 as early as
November 13, 1989 which was subsequently declared as "law
of the case" in G.R. No. 89757 on August 6, 1990. Herein
petitioners cite the aforementioned cases in support of their
theory that the limited liability rule based on the real and
hypothecary nature of maritime law has no application in the
cases at bar.
The existence of what petitioners insist is already the "law of
the case" on the matter of limited liability is at best illusory.
Petitioners are either deliberately misleading this Court or
profoundly confused. As elucidated in the case of Aboitiz
Shipping Corporation vs. General Accident Fire and Life
Assurance Corporation, 39
An examination of the November 13, 1989 Resolution in G.R.
No. 88159 (pp. 280-282, Rollo) shows that the same settles
two principal matters, first of which is that the doctrine of
primary administrative jurisdiction is not applicable therein; and
second is that a limitation of liability in said case would render
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inefficacious the extraordinary diligence required by law of
common carriers.
It should be pointed out, however, that the limited liability
discussed in said case is not the same one now in issue at bar,
but an altogether different aspect. The limited liability settled in
G.R. No. 88159 is that which attaches to cargo by virtue of
stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section
8 of the Bill of Lading and which limited the carrier's liability to
US$500.00 for the cargo whose value was therein sought to be
recovered. Said resolution did not tackle the matter of the
Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and
which is the principal bone of contention in this case. While the
matters threshed out in G.R. No. 88159, particularly those
dealing with the issues on primary administrative jurisdiction
and the package liability limitation provided in the Bill of Lading
are now settled and should no longer be touched, the instant
case raises a completely different issue. 40
Third. Petitioners asseverate that the judgments of the lower
courts, already final and executory, cannot be directly or
indirectly altered, modified, amended, reversed or invalidated.
The rule that once a decision becomes final and executory, it is
the ministerial duty of the court to order its execution, is not an
absolute one: We have allowed the suspension of execution in
cases of special and exceptional nature when it becomes
imperative in the higher interest of justice. 41 The unjust and
inequitable effects upon various other claimants against Aboitiz
should we allow the execution of judgments for the full
indemnification of petitioners' claims impel us to uphold the
stay of execution as ordered by the respondent Court of
Appeals. We reiterate our pronouncement in Aboitiz Shipping
Corporation vs. General Accident Fire and Life Assurance
Corporation on this very same issue.
This brings us to the primary question herein which is whether
or not respondent court erred in granting execution of the full
judgment award in Civil Case No. 14425 (G.R. No. 89757),
thus effectively denying the application of the limited liability
enunciated under the appropriate articles of the Code of
Commerce. . . . . Collaterally, determination of the question of
whether execution of judgments which have become final and
executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always
been consistent in its stand that the very purpose for its
existence is to see the accomplishment of the ends of justice.
Consistent with this view, a number of decisions have
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originated herefrom, the tenor of which is that no procedural
consideration is sancrosanct if such shall result in the
subverting of justice. The right to execution after finality of a
decision is certainly no exception to this. Thus, in Cabrias v.
Adil (135 SCRA 355 [1885]), this Court ruled that:
xxx xxx xxx
. . . every court having jurisdiction to render a particular
judgment has inherent power to enforce it, and to exercise
equitable control over such enforcement. The court has
authority to inquire whether its judgment has been executed,
and will remove obstructions to the enforcement thereof. Such
authority extends not only to such orders and such writs as
may be necessary to prevent an improper enforcement of the
judgment. If a judgment is sought to be perverted and made a
medium of consummating a wrong the court on proper
application can prevent it. 42
Fourth. Petitioners in G.R. No. 92735 ever that it was error for
the respondent Court of Appeals to allow Aboitiz the benefit of
the limited liability rule despite its failure to present evidence to
prove its entitlement thereto in the court below. Petitioners
Monarch and Tabacalera remind this Court that from the
inception of G.R. No. 92735 in the lower court and all the way
to the Supreme Court, Aboitiz had not presented an iota of
evidence to exculpate itself from the charge of negligence for
the simple reason that it was declared as in default. 43
It is true that for having been declared in default, Aboitiz was
precluded from presenting evidence to prove its defenses in
the court a quo. We cannot, however, agree with petitioners
that this circumstance prevents the respondent Court of
Appeals from taking cognizance of Aboitiz' defenses on
appeal.
It should be noted that Aboitiz was declared as in default not
for its failure to file an answer but for its absence during pre-
trial and the trial proper. In Aboitiz' answer with counterclaim, it
claimed that the sinking of the M/V P. Aboitiz was due to an act
of God or unforeseen event and that the said ship had been
seaworthy and fit for the voyage. Aboitiz also alleged that it
exercised the due diligence required by law, and that
considering the real and hypothecary nature of maritime trade,
the sinking justified the extinguishment of its liability for the lost
shipment. 44
A judgment of default does not imply a waiver of rights except
that of being heard and presenting evidence in defendant's
favor. It does not imply admission by the defendant of the facts
and causes of action of the plaintiff, because the codal section
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45 requires the latter to adduce evidence in support of his
allegations as an indispensable condition before final judgment
could be given in his favor. Nor could it be interpreted as an
admission by the defendant that the plaintiff's causes of action
find support in the law or that the latter is entitled to the relief
prayed for. 46 This is especially true with respect to a
defendant who had filed his answer but had been subsequently
declared in default for failing to appear at the trial since he has
had an opportunity to traverse, via his answer, the material
averments contained in the complaint. Such defendant has a
better standing than a defendant who has neither answered
nor appeared at trial. 47 The former should be allowed to
reiterate all affirmative defenses pleaded in his answer before
the Court of Appeals. Likewise, the Court of Appeals may
review the correctness of the evaluation of the plaintiffs
evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue
of its entitlement to the limited liability rule for the first time on
appeal thus, the respondent Court of Appeals may properly
rule on the same.
However, whether or not the respondent Court of Appeals
erred in finding, upon review, that Aboitiz is entitled to the
benefit of the limited liability rule is an altogether different
matter which shall be discussed below.1awphi1
Rule on Limited Liability. The petitioners assert in common that
the vessel M/V P. Aboitiz did not sink by reason of force
majeure but because of its unseaworthiness and the
concurrent fault and/or negligence of Aboitiz, the captain and
its crew, thereby barring Aboitiz from availing of the benefit of
the limited liability rule.
The principle of limited liability is enunciated in the following
provisions of the Code of Commerce:
Art. 587. The shipagent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the
conduct of the captain in the care of goods which he loaded on
the vessel; but he may exempt himself therefrom by
abandoning the vessel with all the equipments and the freight it
may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the
proportion of their interests in the common fund for the results
of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from his liability by the
abandonment, before a notary, of the part of the vessel
belonging to him.
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Art. 837. The civil liability incurred by shipowners in the case
prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and the
freightage served during the voyage.
Art. 837 appeals the principle of limited liability in cases of
collision hence, Arts. 587 and 590 embody the universal
principle of limited liability in all cases. In Yangco v. Laserna,
48 this Court elucidated on the import of Art. 587 as follows:
The provision accords a shipowner or agent the right of
abandonment; and by necessary implication, his liability is
confined to that which he is entitled as of right to abandon-"the
vessel with all her equipments and the freight it may have
earned during the voyage." It is true that the article appears to
deal only with the limited liability of the shipowners or agents
for damages arising from the misconduct of the captain in the
care of the goods which the vessel carries, but this is a mere
deficiency of language and in no way indicates the true extent
of such liability. The consensus of authorities is to the effect
that notwithstanding the language of the aforequoted provision,
the benefit of limited liability therein provided for, applies in all
cases wherein the shipowner or agent may properly be held
liable for the negligent or illicit acts of the captain. 49
"No vessel, no liability," expresses in a nutshell the limited
liability rule. The shipowner's or agent's liability is merely co-
extensive with his interest in the vessel such that a total loss
thereof results in its extinction. The total destruction of the
vessel extinguishes maritime liens because there is no longer
any res to which it can attach. 50 This doctrine is based on the
real and hypothecary nature of maritime law which has its
origin in the prevailing conditions of the maritime trade and sea
voyages during the medieval ages, attended by innumerable
hazards and perils. To offset against these adverse conditions
and to encourage shipbuilding and maritime commerce, it was
deemed necessary to confine the liability of the owner or agent
arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any. 51
Contrary to the petitioners' theory that the limited liability rule
has been rendered obsolete by the advances in modern
technology which considerably lessen the risks involved in
maritime trade, this Court continues to apply the said rule in
appropriate cases. This is not to say, however, that the limited
liability rule is without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the
shipowner, or to the concurring negligence of the shipowner
and the captain; 52 (2) where the vessel is insured; and (3) in
workmen's compensation claims. 53
RMC-SOL
We have categorically stated that Article 587 speaks only of
situations where the fault or negligence is committed solely by
the captain. In cases where the ship owner is likewise to be
blamed, Article 587 does not apply. Such a situation will be
covered by the provisions of the Civil Code on common
carriers. 54
A finding that a fortuitous event was the sole cause of the loss
of the M/V P. Aboitiz would absolve Aboitiz from any and all
liability pursuant to Article 1734(1) of the Civil Code which
provides in part that common carriers are responsible for the
loss, destruction, or deterioration of the goods they carry,
unless the same is due to flood, storm, earthquake, lightning,
or other natural disaster or calamity. On the other hand, a
finding that the M/V P. Aboitiz sank by reason of fault and/or
negligence of Aboitiz, the ship captain and crew of the M/V P.
Aboitiz would render inapplicable the rule on limited liability.
These issues are therefore ultimately questions of fact which
have been subject of conflicting determinations by the trial
courts, the Court of Appeals and even this Court.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735),
after receiving Monarch's and Tabacalera's evidence, the trial
court found that the complete loss of the shipment on board
the M/V P. Aboitiz when it sank was neither due to a fortuitous
event nor a storm or natural cause. For Aboitiz' failure to
present controverting evidence, the trial court also upheld
petitioners' allegation that the M/V P. Aboitiz was unseaworthy.
55 However, on appeal, respondent Court of Appeals
exculpated Aboitiz from fault or negligence and ruled that:
. . ., even if she (M/V P. Aboitiz) was found to be unseaworthy,
this fault (distinguished from civil liability) cannot be laid on the
shipowner's door. Such fault was directly attributable to the
captain. This is so, because under Art. 612 of the Code of
Commerce, among the inherent duties of a captain, are to
examine the vessel before sailing and to comply with the laws
on navigation. 56
and that:
. . . although the shipowner may be held civilly liable for the
captain's fault . . . having abandoned the vessel in question,
even if the vessel was unseaworthy due to the captain's fault,
Aboitiz is still entitled to the benefit under the rule of limited
liability accorded to shipowners by the Code of Commerce. 57
Civil Case No. 138396 (now G.R. No. 95578) was similarly
resolved by the trial court, which found that the sinking of the
M/V P. Aboitiz was not due to an act of God or force majeure.
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It added that the evidence presented by the petitioner
Equitable demonstrated the negligence of Aboitiz Shipping
Corporation in the management and operation of its, vessel
M/V P. Aboitiz. 58
However, Aboitiz' appeal was favorably acted upon by the
respondent Court of Appeals which reiterated its ruling in G.R.
No. 92735 that the unseaworthiness of the M/V P. Aboitiz was
not a fault directly attributable to Aboitiz but to the captain, and
that Aboitiz is entitled to the benefit of the limited liability rule
for having abandoned its ship. 59
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the
trial court held that the M/V P. Aboitiz was not lost due to a
fortuitous event or force majeure, and that Aboitiz had failed to
satisfactorily establish that it had observed extraordinary
diligence in the vigilance over the goods transported by it. 60
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled
against Aboitiz and found that the sinking of the vessel was
due to its unseaworthiness and the failure of its crew and
master to exercise extraordinary diligence. 61 Subsequently,
however, Aboitiz' petition before the Court of Appeals,
docketed as CA-G.R. SP No. 20844 (now G.R. No. 94867) to
annul and set aside the order of execution issued by the lower
court was resolved in favor of Aboitiz. The Court of Appeals
brushed aside the issue of Aboitiz' negligence and/or fault and
proceeded to allow the application of the limited liability rule "to
accomplish the aims of justice." 62 It elaborated thus: "To
execute the judgment in this case would prejudice the
substantial right of other claimants who have filed suits to claim
their cargoes that was lost in the vessel that sank and also
against the petitioner to be ordered to pay more than what the
law requires." 63
It should be pointed out that the issue of whether or not the
M/V P. Aboitiz sank by reason of force majeure is not a novel
one for that question has already been the subject of
conflicting pronouncements by the Supreme Court. In Aboitiz
Shipping Corporation v. Court of Appeals, 64 this Court
approved the findings of the trial court and the appellate court
that the sinking of the M/V P. Aboitiz was not due to the waves
caused by tropical storm "Yoning" but due to the fault and
negligence of Aboitiz, its master and crew. 65 On the other
hand, in the later case of Country Bankers Insurance
Corporation v. Court of Appeals, 66 this Court issued a
Resolution on August 28, 1991 denying the petition for review
on the ground that the Court of Appeals committed no
reversible error, thereby affirming and adopting as its own, the
findings of the Court of Appeals that force majeure had caused
the M/V P. Aboitiz to founder.
RMC-SOL
In view of these conflicting pronouncements, we find that now
is the opportune time to settle once and for all the issue or
whether or not force mejeure had indeed caused the M/V P.
Aboitiz to sink. After reviewing the records of the instant cases,
we categorically state that by the facts on record, the M/V P.
Aboitiz did not go under water because of the storm "Yoning."
It is true that as testified by Justo Iglesias, meteorologist of
Pag-Asa, during the inclusive dates of October 28-31, 1980, a
stormy weather condition prevailed within the Philippine area of
responsibility, particularly along the sea route from Hong Kong
to Manila, because of tropical depression "Yoning". 67 But
even Aboitiz' own evidence in the form of the marine protest
filed by Captain Racines affirmed that the wind force when the
M/V P. Aboitiz foundered on October 31, 1980 was only ten
(10) to fifteen (15) knots which, under the Beaufort Scale or
Wind, falls within scale No. 4 that describes the wind velocity
as "moderate breeze," and characterizes the waves as
"small . . . becoming longer, fairly frequent white horses." 68
Captain Racines also testified in open court that the ill-fated
M/V P. Aboitiz was two hundred (200) miles away from storm
"Yoning" when it sank. 69
The issue of negligence on the part of Aboitiz, and the captain
and crew of the M/V P. Aboitiz has also been subject of
conflicting rulings by this Court. In G.R. No. 100373, Country
Bankers Insurance Corporation v. Court of Appeals, this Court
found no error in the findings of the Court of Appeals that the
M/V P. Aboitiz sank by reason of force majeure, and that there
was no negligence on the part of its officers and crew. In direct
contradiction is this Court's categorical declaration in Aboitiz
Shipping Corporation v. Court of Appeals," 70 to wit:
The trial court and the appellate court found that the sinking of
the M/V P. Aboitiz was not due to the waves caused by tropical
storm "Yoning" but due to the fault and negligence of
petitioner, its master and crew. The court reproduces with
approval said findings . . . . 71
However, in the subsequent case of Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd., 72 this Court exculpated Aboitiz from fault
and/or negligence while holding that the unseaworthiness of
the M/V P. Aboitiz was only attributable to the negligence of its
captain and crew. Thus,
On this point, it should be stressed that unseaworthiness is not
a fault that can be laid squarely on petitioner's lap, absent a
factual basis for such conclusion. The unseaworthiness found
in some cases where the same has been ruled to exist is
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directly attributable to the vessel's crew and captain, more so
on the part of the latter since Article 612 of the Code of
Commerce provides that among the inherent duties of a
captain is to examine a vessel before sailing and to comply
with the laws of navigation. Such a construction would also put
matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain
and crew of the vessel was not sustained for lack of basis, the
finding therein contained to the effect that the vessel was
seaworthy deserves merit. Despite appearances, it is not
totally incompatible with the findings of the trial court and the
Court of Appeals, whose finding of "unseaworthiness" clearly
did not pertain to the structural condition of the vessel which is
the basis of the 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. 73
It therefore becomes incumbent upon this Court to answer with
finality the nagging question of whether or not it was the
concurrent fault and/or negligence of Aboitiz and the captain
and crew of the ill-fated vessel that had caused it to go under
water.
Guided by our previous pronouncements and illuminated by
the evidence now on record, we reiterate our findings in Aboitiz
Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd. 74 , that the unseaworthiness of
the M/V P. Aboitiz had caused it to founder. We, however, take
exception to the pronouncement therein that said
unseaworthiness could not be attributed to the ship owner but
only to the negligent acts of the captain and crew of the M/V P.
Aboitiz. On the matter of Aboitiz' negligence, we adhere to our
ruling in Aboitiz Shipping Corporation v. Court of Appeals, 75
that found Aboitiz, and the captain and crew of the M/V P.
Aboitiz to have been concurrently negligent.
During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R.
No. 92735), petitioners Monarch and Tabacalera presented a
survey from Perfect Lambert, a surveyor based in Hong Kong
that conducted an investigation on the possible cause of the
sinking of the vessel. The said survey established that the
cause of the sinking of the vessel was the leakage of water into
the M/V P. Aboitiz which probably started in the forward part of
the No. 1 hull, although no explanation was proffered as to why
the No. 2 hull was likewise flooded. Perfect Lambert surmised
that the flooding was due to a leakage in the shell plating or a
defect in the water tight bulk head between the Nos. 1 and 2
holds which allowed the water entering hull No. 1 to pass
through hull No. 2. The surveyor concluded that whatever the
cause of the leakage of water into these hulls, the
seaworthiness of the vessel was definitely in question because
RMC-SOL
the breaches of the hulls and serious flooding of the two cargo
holds occurred simultaneously in seasonal weather. 76
We agree with the uniform finding of the lower courts that
Aboitiz had failed to prove that it observed the extraordinary
diligence required of it as a common carrier. We therefore
reiterate our pronouncement in Aboitiz Corporation v. Court of
Appeals 77 on the issue of Aboitiz' liability in the sinking of its
vessel, to wit:
In accordance with Article 1732 of the Civil Code, the
defendant common carrier from the nature of its business and
for reasons of public policy, is bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of
the passengers transported by it according to all circumstances
of the case. While the goods are in the possession of the
carrier, it is but fair that it exercise extraordinary diligence in
protecting them from loss or damage, and if loss occurs, the
law presumes that it was due to the carrier's fault or
negligence; that is necessary to protect the interest of the
shipper which is at the mercy of the carrier . . . In the case at
bar, the defendant failed to prove hat the loss of the subject
cargo was not due to its fault or negligence. 78
The failure of Aboitiz to present sufficient evidence to
exculpate itself from fault and/or negligence in the sinking of its
vessel in the face of the foregoing expert testimony constrains
us to hold that Aboitiz was concurrently at fault and/or
negligent with the ship captain and crew of the M/V P. Aboitiz.
This is in accordance with the rule that in cases involving the
limited liability of shipowners, the initial burden of proof of
negligence or unseaworthiness rests on the claimants.
However, once the vessel owner or any party asserts the right
to limit its liability, the burden of proof as to lack of privity or
knowledge on its part with respect to the matter of negligence
or unseaworthiness is shifted to it. 79 This burden, Aboitiz had
unfortunately failed to discharge. That Aboitiz failed to
discharge the burden of proving that the unseaworthiness of its
vessel was not due to its fault and/or negligence should not
however mean that the limited liability rule will not be applied to
the present cases. The peculiar circumstances here demand
that there should be no strict adherence to procedural rules on
evidence lest the just claims of shippers/insurers be frustrated.
The rule on limited liability should be applied in accordance
with the latest ruling in Aboitiz Shipping Corporation v. General
Accident Fire and Life Assurance Corporation, Ltd., 80
promulgated on January 21, 1993, that claimants be treated as
"creditors in an insolvent corporation whose assets are not
enough to satisfy the totality of claims against it." 81 To do so,
the Court set out in that case the procedural guidelines:
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In the instant case, there is, therefore, a need to collate all
claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of
having completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even these
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.
xxx xxx xxx
In fairness to the claimants and as a matter of equity, the total
proceeds of the insurance and pending freightage should now
be deposited in trust. Moreover, petitioner should institute the
necessary limitation and distribution action before the proper
admiralty court within 15 days from finality of this decision, and
thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the
same pending final resolution of all incidents, for final pro-
rating and settlement thereof. 82 (Emphasis supplied.)
There is no record that Aboitiz. has instituted such action or
that it has deposited in trust the insurance proceeds and
freightage earned. The pendency of the instant cases before
the Court is not a reason for Aboitiz to disregard the
aforementioned order of the Court. In fact, had Aboitiz
complied therewith, even these cases could have been
terminated earlier. We are inclined to believe that instead of
filing the suit as directed by this Court, Aboitiz tolerated the
situation of several claimants waiting to gel hold of its
insurance proceeds, which, if correctly handled must have
multiplied in amount by now. By its failure to abide by the order
of this Court, it had caused more damage to the claimants over
and above that which they have endured as a direct
consequence of the sinking of the M/V P. Aboitiz. It was
obvious that from among the many cases filed against it over
the years, Aboitiz was waiting for a judgment that might prove
favorable to it, in blatant violation of the basic provisions of the
Civil Code on abuse of rights.
Well aware of the 110 claimants against it, Aboitiz preferred to
litigate the claims singly rather than exert effort towards the
consolidation of all claims. Consequently, courts have arrived
at conflicting decisions while claimants waited over the years
for a resolution of any of the cases that would lead to the
eventual resolution of the rest. Aboitiz failed to give the
RMC-SOL
claimants their due and to observe honesty and good faith in
the exercise of its rights. 83
Aboitiz' blatant disregard of the order of this Court in Aboitiz
Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd. 84 cannot be anything but, willful
on its part. An act is considered willful if it is done with
knowledge of its injurious effect; it is not required that the act
be done purposely to produce the injury. 85 Aboitiz is well
aware that by not instituting the said suit, it caused the delay in
the resolution of all claims against it. Having willfully caused
loss or injury to the petitioners in a manner that is contrary to
morals, good customs or public policy, Aboitiz is liable for
damages to the latter. 86
Thus, for its contumacious act of defying the order of this Court
to file the appropriate action to consolidate all claims for
settlement, Aboitiz must be held liable for moral damages
which may be awarded in appropriate cases under the Chapter
on human relations of the Civil Code (Articles 19 to 36). 87
On account of Aboitiz' refusal to satisfy petitioners' claims in
accordance with the directive of the Court in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd., it acted in gross and evident bad faith.
Accordingly, pursuant to Article 2208 of the Civil Code, 88
petitioners should be granted attorney's fees.
WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and
95578 are DENIED. The decisions of the Court of Appeals in
CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R. SP
No. 20844 dated August 15, 1990, and CA-G.R. CV No. 15071
dated August 24, 1990 are AFFIRMED with the
MODIFICATION that respondent Aboitiz Shipping Corporation
is ordered to pay each of the respective petitioners the
amounts of P100,000.00 as moral damages and P50,000.00
as attorney's fees, and treble the cost of suit.
Respondent Aboitiz Shipping Corporation is further directed to
comply with the Order promulgated by this Court on January
21, 1993 in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd., G.R. No. 100446,
January 21, 1993, to (a) institute the necessary limitation and
distribution action before the proper Regional Trial Court,
acting as admiralty court, within fifteen (15) days from the
finality of this decision, and (b) thereafter to deposit with the
said court the insurance proceeds from the loss of the vessel,
M/V P. Aboitiz, and the freightage earned in order to safeguard
the same pending final resolution of all incidents relative to the
final pro-rating thereof and to the settlement of all
claims.1âwphi1.nêt
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 TRANSPORTATION LAWS
SO ORDERED.
Dela Torre vs CA | GR No. 160088 July 13, 2011
(see the case under the liability of the charterer to the
shipowner in case of bareboat charter)
G.R. No. 100446 January 21, 1993
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD., respondent.
This refers to a petition for review which seeks to annul and set
aside the decision of the Court of Appeals dated June 21,
1991, in CA G.R. SP No. 24918. The appellate court dismissed
the petition for certiorari filed by herein petitioner, Aboitiz
Shipping Corporation, questioning the Order of April 30, 1991
issued by the Regional Trial Court of the National Capital
Judicial Region (Manila, Branch IV) in its Civil Case No.
144425 granting private respondent's prayer for execution for
the full amount of the judgment award. The trial court in so
doing swept aside petitioner's opposition which was grounded
on the real and hypothecary nature of petitioner's liability as
ship owner. The application of this established principle of
maritime law would necessarily result in a probable reduction
of the amount to be recovered by private respondent, since it
would have to share with a number of other parties similarly
situated in the insurance proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under
Philippine laws and engaged in the business of maritime trade
as a carrier. As such, it owned and operated the ill-fated "M/V
P. ABOITIZ," a common carrier which sank on a voyage from
Hongkong to the Philippines on October 31, 1980. Private
respondent General Accident Fire and Life Assurance
Corporation, Ltd. (GAFLAC), on the other hand, is a foreign
insurance company pursuing its remedies as a subrogee of
several cargo consignees whose respective cargo sank with
the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of
suits for recovery of lost cargo either by the shippers, their
successor-in-interest, or the cargo insurers like GAFLAC as
subrogees. The sinking was initially investigated by the Board
of Marine Inquiry (BMI Case No. 466, December 26, 1984),
which found that such sinking was due to force majeure and
that subject vessel, at the time of the sinking was seaworthy.
RMC-SOL
This administrative finding notwithstanding, the trial court in
said Civil Case No. 144425 found against the carrier on the
basis that the loss subject matter therein did not occur as a
result of force majeure. Thus, in said case, plaintiff GAFLAC
was allowed to prove, and. was later awarded, its claim. This
decision in favor of GAFLAC was elevated all the way up to
this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188
SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel,
encountering rough sailing. The attempted execution of the
judgment award in said case in the amount of P1,072,611.20
plus legal interest has given rise to the instant petition.
On the other hand, other cases have resulted in findings
upholding the conclusion of the BMI that the vessel was
seaworthy at the time of the sinking, and that such sinking was
due to force majeure. One such ruling was likewise elevated to
this Court in G.R. No. 100373, Country Bankers Insurance
Corporation v. Court of Appeals, et al., August 28, 1991 and
was sustained. Part of the task resting upon this Court,
therefore, is to reconcile the resulting apparent contrary
findings in cases originating out of a single set of facts.
It is in this factual milieu that the instant petition seeks a
pronouncement as to the applicability of the doctrine of limited
liability on the totality of the claims vis a vis the losses brought
about by the sinking of the vessel M/V P. ABOITIZ, as based
on the real and hypothecary nature of maritime law. This is an
issue which begs to be resolved considering that a number of
suits alleged in the petition number about 110 (p. 10 and pp.
175 to 183, Rollo) still pend and whose resolution shall well-
nigh result in more confusion than presently attends the instant
case.
In support of the instant petition, the following arguments are
submitted by the petitioner:
1. The Limited Liability Rule warrants immediate stay of
execution of judgment to prevent impairment of other creditors'
shares;
2. The finding of unseaworthiness of a vessel is not necessarily
attributable to the shipowner; and
3 The principle of "Law of the Case" is not applicable to the
present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing
contentions, arguing that:
1. There is no limited liability to speak of or applicable real and
hypothecary rule under Article 587, 590, and 837 of the Code
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of Commerce in the face of the facts found by the lower court
(Civil Case No. 144425), upheld by the Appellate Court (CA
G.R. No. 10609), and affirmed in toto by the Supreme Court in
G.R. No. 89757 which cited G.R. No. 88159 as the Law of the
Case; and
2. Under the doctrine of the Law of the Case, cases involving
the same incident, parties similarly situated and the same
issues litigated should be decided in conformity therewith
following the maxim stare decisis et non quieta movere. (pp.
225 to 279, Rollo.)
Before proceeding to the main bone of contention, it is
important to determine first whether or not the Resolution of
this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs.
The Honorable Court of Appeals and Allied Guaranty
Insurance Company, Inc., dated November 13, 1989 effectively
bars and precludes the instant petition as argued by
respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R.
No. 88159 (pp. 280 to 282, Rollo) shows that the same settles
two principal matters, first of which is that the doctrine of
primary administrative jurisdiction is not applicable therein; and
second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of
common carriers.
It should be pointed out, however, that the limited liability
discussed in said case is not the same one now in issue at bar,
but an altogether different aspect. The limited liability settled in
G.R. No. 88159 is that which attaches to cargo by virtue of
stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section
8 of the Bill of Lading and which limited the carrier's liability to
US$500.00 for the cargo whose value was therein sought to be
recovered. Said resolution did not tackle the matter of the
Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and
which is the principal bone of contention in this case. While the
matters threshed out in G.R. No. 88159, particularly those
dealing with the issues on primary administrative jurisdiction
and the package liability limitation provided in the Bill of Lading
are now settled and should no longer be touched, the instant
case raises a completely different issue. It appears, therefore,
that the resolution in G.R. 88159 adverted to has no bearing
other than factual to the instant case.
This brings us to the primary question herein which is whether
or not respondent court erred in granting execution of the full
judgment award in Civil Case No. 14425 (G.R. No. 89757),
RMC-SOL
thus effectively denying the application of the limited liability
enunciated under the appropriate articles of the Code of
Commerce. The articles may be ancient, but they are timeless
and have remained to be good law. Collaterally, determination
of the question of whether execution of judgments which have
become final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always
been consistent in its stand that the very purpose for its
existence is to see to the accomplishment of the ends of
justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural
consideration is sacrosanct if such shall result in the subverting
of substantial justice. The right to an execution after finality of a
decision is certainly no exception to this. Thus, in Cabrias v.
Adil (135 SCRA 355 [1985]), this Court ruled that:
. . . It is a truism that every court has the power "to control, in
the furtherance of justice, the conduct of its ministerial officers,
and of all other persons in any manner connected with a case
before it, in every manner appertaining thereto. It has also
been said that:
. . . every court having jurisdiction to render a particular
judgment has inherent power to enforce it, and to exercise
equitable control over such enforcement. The court has
authority to inquire whether its judgment has been executed,
and will remove obstructions to the enforcement thereof. Such
authority extends not only to such orders and such writs as
may be necessary to carry out the judgment into effect and
render it binding and operative, but also to such orders and
such writs as may be necessary to prevent an improper
enforcement of the judgment. If a judgment is sought to be
perverted and made a medium of consummating a wrong the
court on proper application can prevent it. (at p. 359)
and again in the case of Lipana v. Development Bank of Rizal
(154 SCRA 257 [1987]), this Court found that:
The rule that once a decision becomes final and executory, it is
the ministerial duty of the court to order its execution, admits of
certain exceptions as in cases of special and exceptional
nature where it becomes the imperative in the higher interest of
justice to direct the suspension of its execution (Vecine v.
Geronimo, 59 OG 579); whenever it is necessary to
accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or
when certain facts and circumstances transpired after the
judgment became final which would render the execution of the
judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)
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We now come to the determination of the principal issue as to
whether the Limited Liability Rule arising out of the real and
hypothecary nature of maritime law should apply in this and
related cases. We rule in the affirmative.
In deciding the instant case below, the Court of Appeals took
refuge in this Court's decision in G.R. No. 89757 upholding
private respondent's claims in that particular case, which the
Court of Appeals took to mean that this Court has "considered,
passed upon and resolved Aboitiz's contention that all claims
for the losses should first be determined before GAFLAC's
judgment may be satisfied," and that such ruling "in effect
necessarily negated the application of the limited liability
principle" (p. 175, Rollo). Such conclusion is not accurate. The
decision in G.R. No. 89757 considered only the circumstances
peculiar to that particular case, and was not meant to traverse
the larger picture herein brought to fore, the circumstances of
which heretofore were not relevant. We must stress that the
matter of the Limited Liability Rule as discussed was never in
issue in all prior cases, including those before the RTCs and
the Court of Appeals. As discussed earlier, the "limited liability"
in issue before the trial courts referred to the package limitation
clauses in the bills of lading and not the limited liability doctrine
arising from the real and hypothecary nature of maritime trade.
The latter rule was never made a matter of defense in any of
the cases a quo, as properly it could not have been made so
since it was not relevant in said cases. The only time it could
come into play is when any of the cases involving the mishap
were to be executed, as in this case. Then, and only then,
could the matter have been raised, as it has now been brought
before the Court.
The real and hypothecary nature of maritime law simply means
that the liability of the carrier in connection with losses related
to maritime contracts is confined to the vessel, which is
hypothecated for such obligations or which stands as the
guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest
years when such trade was replete with innumerable and
unknown hazards since vessels had to go through largely
uncharted waters to ply their trade. It was designed to offset
such adverse conditions and to encourage people and entities
to venture into maritime commerce despite the risks and the
prohibitive cost of shipbuilding. Thus, the liability of the vessel
owner and agent arising from the operation of such vessel
were confined to the vessel itself, its equipment, freight, and
insurance, if any, which limitation served to induce capitalists
into effectively wagering their resources against the
consideration of the large profits attainable in the trade.
RMC-SOL
It might be noteworthy to add in passing that despite the
modernization of the shipping industry and the development of
high-technology safety devices designed to reduce the risks
therein, the limitation has not only persisted, but is even
practically absolute in well-developed maritime countries such
as the United States and England where it covers almost all
maritime casualties. Philippine maritime law is of Anglo-
American extraction, and is governed by adherence to both
international maritime conventions and generally accepted
practices relative to maritime trade and travel. This is
highlighted by the following excerpts on the limited liability of
vessel owners and/or agents;
Sec. 183. The liability of the owner of any vessel, whether
American or foreign, for any embezzlement, loss, or
destruction by any person of any person or any property,
goods, or merchandise shipped or put on board such vessel, or
for any loss, damage, or forfeiture, done, occasioned, or
incurred, without the privity or knowledge of such owner or
owners shall not exceed the amount or value of the interest of
such owner in such vessel, and her freight then pending.
(Section 183 of the US Federal Limitation of Liability Act).
—and—
1. The owner of a sea-going ship may limit his liability in
accordance with Article 3 of this Convention in respect of
claims arising, from any of the following occurrences, unless
the occurrence giving rise to the claim resulted from the actual
fault or privity of the owner;
(a) loss of life of, or personal injury to, any person being carried
in the ship, and loss of, or damage to, any property on board
the ship.
(b) loss of life of, or personal injury to, any other person,
whether on land or on water, loss of or damage to any other
property or infringement of any rights caused by the act,
neglect or default the owner is responsible for, or any person
not on board the ship for whose act, neglect or default the
owner is responsible: Provided, however, that in regard to the
act, neglect or default of this last class of person, the owner
shall only be entitled to limit his liability when the act, neglect or
default is one which occurs in the navigation or the
management of the ship or in the loading, carriage or
discharge of its cargo or in the embarkation, carriage or
disembarkation of its passengers.
(c) any obligation or liability imposed by any law relating to the
removal of wreck and arising from or in connection with the
raising, removal or destruction of any ship which is sunk,
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stranded or abandoned (including anything which may be on
board such ship) and any obligation or liability arising out of
damage caused to harbor works, basins and navigable
waterways. (Section 1, Article I of the Brussels International
Convention of 1957)
In this jurisdiction, on the other hand, its application has been
well-nigh constricted by the very statute from which it
originates. The Limited Liability Rule in the Philippines is taken
up in Book III of the Code of Commerce, particularly in Articles
587, 590, and 837, hereunder quoted in toto:
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. (Emphasis supplied)
Taken together with related articles, the foregoing cover only
liability for injuries to third parties (Art. 587), acts of the captain
(Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the
application of such limited liability rule, which is a matter of
near absolute application in other jurisdictions, so lightly as to
merely "imply" its inapplicability, because as could be seen, the
reasons for its being are still apparently much in existence and
highly regarded.
We now come to its applicability in the instant case. In the few
instances when the matter was considered by this Court, we
have been consistent in this jurisdiction in holding that the only
time the Limited Liability Rule does not apply is when there is
an actual finding of negligence on the part of the vessel owner
or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila
Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs
of Amparo delos Santos v. Court of Appeals, 186 SCRA 649
RMC-SOL
[1967]). The pivotal question, thus, is whether there is a finding
of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in
Civil Case No. 144425 (pp. 27-33, Rollo) as well as the entirety
of the records in the instant case will show that there has been
no actual finding of negligence on the part of petitioner. In its
Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the
vessel M/V "Aboitiz" and its cargo were not lost due to
fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No.
89757 (pp. 71-86, Rollo) affirming the decision of the Court of
Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since
both decisions did not make any new and additional finding of
fact. Both merely affirmed the factual findings of the trial court,
adding that the cause of the sinking of the vessel was because
of unseaworthiness due to the failure of the crew and the
master to exercise extraordinary diligence. Indeed, there
appears to have been no evidence presented sufficient to form
a conclusion that petitioner shipowner itself was negligent, and
no tribunal, including this Court will add or subtract to such
evidence to justify a conclusion to the contrary.
The qualified nature of the meaning of "unseaworthiness,"
under the peculiar circumstances of this case is underscored
by the fact that in the Country Banker's case, supra, arising
from the same sinking, the Court sustained the decision of the
Court of Appeals that the sinking of the M/V P. Aboitiz was due
to force majeure.
On this point, it should be stressed that unseaworthiness is not
a fault that can be laid squarely on petitioner's lap, absent a
factual basis for such a conclusion. The unseaworthiness
found in some cases where the same has been ruled to exist is
directly attributable to the vessel's crew and captain, more so
on the part of the latter since Article 612 of the Code of
Commerce provides that among the inherent duties of a
captain is to examine a vessel before sailing and to comply
with the laws of navigation. Such a construction would also put
matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain
and crew of the vessel was not sustained for lack of basis, the
finding therein contained to the effect that the vessel was
seaworthy deserves merit. Despite appearances, it is not
totally incompatible with the findings of the trial court and the
Court of Appeals, whose finding of "unseaworthiness" clearly
did not pertain to the structural condition of the vessel which is
the basis of the BMI's findings, but to the condition it was in at
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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.
More to the point, the rights of parties to claim against an agent
or owner of a vessel may be compared to those of creditors
against an insolvent corporation whose assets are not enough
to satisfy the totality of claims as against it. While each
individual creditor may, and in fact shall, be allowed to prove
the actual amounts of their respective claims, this does not
mean that they shall all be allowed to recover fully thus
favoring those who filed and proved their claims sooner to the
prejudice of those who come later. In such an instance, such
creditors too would not also be able to gain access to the
assets of the individual shareholders, but must limit their
recovery to what is left in the name of the corporation. Thus, in
the case of Lipana v. Development Bank of Rizal earlier cited,
We held that:
In the instant case, the stay of execution of judgment is
warranted by the fact that the respondent bank was placed
under receivership. To execute the judgment would unduly
deplete the assets of respondent bank to the obvious prejudice
of other depositors and creditors, since, as aptly stated in
Central Bank v. Morfe (63 SCRA 114), after the Monetary
Board has declared that a bank is insolvent and has ordered it
to cease operations, the Board becomes the trustee of its
assets for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or preference over
another by an attachment, execution or otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel,
the claimants or creditors are limited in their recovery to the
remaining value of accessible assets. In the case of an
insolvent corporation, these are the residual assets of the
corporation left over from its operations. In the case of a lost
vessel, these are the insurance proceeds and pending
freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all
claims preparatory to their satisfaction from the insurance
RMC-SOL
proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of
having filed or completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even those
already final and executory, must be stayed pending
completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously
settled, either completely or pro-rata should the insurance
proceeds and freightage be not enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court
with a list of all pending cases (pp. 175 to 183, Rollo), together
with the corresponding claims and the pro-rated share of each.
We likewise note that some of these cases are still with the
Court of Appeals, and some still with the trial courts and which
probably are still undergoing trial. It would not, therefore, be
entirely correct to preclude the trial courts from making their
own findings of fact in those cases and deciding the same by
allotting shares for these claims, some of which, after all, might
not prevail, depending on the evidence presented in each. We,
therefore, rule that the pro-rated share of each claim can only
be found after all the cases shall have been decided.
In fairness to the claimants, and as a matter of equity, the total
proceeds of the insurance and pending freightage should now
be deposited in trust. Moreover, petitioner should institute the
necessary limitation and distribution action before the proper
admiralty court within 15 days from the finality of this decision,
and thereafter deposit with it the proceeds from the insurance
company and pending freightage in order to safeguard the
same pending final resolution of all incidents, for final pro-
rating and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the
Orders of the Regional Trial Court of Manila, Branch IV dated
April 30, 1991 and the Court of Appeals dated June 21, 1991
are hereby set aside. The trial court is hereby directed to desist
from proceeding with the execution of the judgment rendered
in Civil Case No. 144425 pending determination of the totality
of claims recoverable from the petitioner as the owner of the
M/V P. Aboitiz. Petitioner is directed to institute the necessary
action and to deposit the proceeds of the insurance of subject
vessel as above-described within fifteen (15) days from finality
of this decision. The temporary restraining order issued in this
case dated August 7, 1991 is hereby made permanent.
SO ORDERED.
Note: Compare and contrast ‘Monarch’ with ‘Aboitiz”.
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 TRANSPORTATION LAWS
What is abandonment?
Abandonment is the act by which a thing is voluntarily
renounced.
 There is no real intention to abandon a property when, as
in the case of a shipwreck or a fire, things are thrown into
the sea or upon the highway. - U.S. vs. Rey, 8 Phil 504
 The physical relinquishment of a thing plus a clear
intention not to reclaim or re-assume ownership or
enjoyment thereof. - Yu vs. De Lara, L-16084, November
30, 1962; 6 SCRA 787
 The actual, absolute and irrevocable desertion of one's
right or property. - Teodoro vs. Macaraeg, L-20700,
February 27, 1969; 27 SCRA 19
 The relinquishment or surrender of rights or property by
one person to another. - Phil-Asia Tobacco Corporation
vs. Arciaga, SP-01360, August 2, 1973.
 The act of giving up, forsaking or deserting. - Bautista vs.
Castillo, SP-05944, June 19, 1978.
 The act of forsaking completely or giving up absolutely,
with no intent to resume against one's right or interest over
a thing or right. - Cordero vs. Aldeano, 14226-CAR,
February 28, 1983.
The surrender, relinquishment, disclaimer or cession of
property rights.
The voluntary relinquishment of all right, title, claim and
possession, with the intention of not reclaiming it.
The giving up of a thing absolutely, without reference to any
particular thing or purpose.
The voluntary relinquishment of possession of a thing by its
owner with the intention of terminating his ownership, but
without vesting it in any other person.
 The relinquishing of all title, possession, or claim, or a
virtual, intentional throwing away of property. - Heirs of
Ramon Cabrera vs. Cebu Country Club, Inc., CV-06194,
December 11, 1968.
RMC-SOL
The total physical absence from a given place, either
voluntarily or planned. - David v. San Agustin, 65410-R,
November 4, 1980.
Elements of Abandonment
1. Act- abandonment must be done actually, through physical
manifestations and not merely verbal or mental.
2. Intention- the intention to abandon must be present. It must
be voluntary and not forced.
G.R. No. L-47447-47449 October 29, 1941
TEODORO R. YANGCO, ETC., petitioner,
vs.
MANUEL LASERNA, ET AL., respondents.
At about one o'clock in the afternoon of May 26, 1927, the
steamer S.S. Negros, belonging to petitioner here, 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. Baggage, trunks and
other equipments were heaped on the upper deck, the hold
being packed to capacity. In addition, the vessel carried thirty
sacks of crushed marble and about one hundred sacks of
copra and some lumber. The passengers, numbering about
180, were overcrowded, the vessel's capacity being limited to
only 123 passengers. 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
being Antolin Aldaña and his son Victorioso, husband and son,
respectively, of Emilia Bienvenida who, together with her other
children and a brother-in-law, are respondents in G.R. No.
47447; Casiana Laserna, the daughter of respondents Manuel
Laserna and P.A. de Laserna in G.R. 47448; and Genaro
Basaña, son of Filomeno Basaña, respondent in G.R. No.
47449. These 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
aforementioned. The court awarded the heirs of Antolin and
Victorioso Aldana the sum of P2,000; the heirs of Casiana
53
 TRANSPORTATION LAWS
Laserna, P590; and those of Genaro Basana, also P590. After
the rendition of the judgment to this effcet, petitioner, by a
verified pleading, sought to abandon th evessel to the plainitffs
in the three cases, 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 except that which sums was
increased to P4,000. Petitioner, now deceased, appealed and
is here represented by his legal representative.
Brushing aside the incidental issues, the fundamental question
here raised is: 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? We are of the opinion and so hold
that this 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, commenting on said article,
said:
La letra del Codigo, en el articulo 587, presenta una gravisima
cuestion. El derecho de abandono, si se atiende a lo escrito,
solo se refiere a las indemnizaciones a que dierQe lugar la
conducta del Capitan en la custodia de los efectos que cargo
en el buque.
¿Es ese el espiritu del legislador? No; ¿habra derecho de
abandono en las responsabilidades nacidas de obligaciones
contraidas por el Capitan y de otros actos de este? Lo
RMC-SOL
reputamos evidente y, para fortalecer nuestra opinion, basta
copiar el siguiente parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en
los intereses del comercio maritimo, que quedaran mas
asegurados ofreciendo a todo el que contrata con el naviero o
Capitan del buque, la garantia real del mismo, cualesquiera
que sean las facultades o atribuciones de que se hallen
investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a ed.,
pags. 483-484.)
A cursory examination will disclose that the principle of liomited
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. Article 590 merely reiterates the
principle embodied in article 587, applies the same principle in
cases of collision, and it has been observed that said article is
but "a necessary consequences of the right to abandon the
vessel given to the shipowner in article 587 of the Code, and it
is one of the many superfluities contained in the Code."
(Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping
Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only
articles 587 and 590 are the provisions conatined in our Code
of Commerce on the matter, and the framers of said code had
intended those provisions to embody the universal principle of
limited liability in all cases. Thus, in the "Exposicon de Motivos"
of the Code of Commerce, we read:
The present code (1829) does not determine the juridical
status of the agent where such agent is not himself the owner
of the vessel. This omission is supplied by the proposed code,
which provides in accordance with the principles of maritime
law that by agent it is to be understood the person intrusted
with the provisioning of the vessel, or the one who represents
her in the port in which she happens to be. This person is the
only one who represents the vessel — that is to say, the only
one who represents the interests of the owner of the vessel.
This provision has therefore cleared the doubt which existed as
to the extent of the liability, both of the agent and of the owner
of the vessel. Such liability is limited by the proposed code to
the value of the vessel and other things appertaining thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286),
we have expressed ourselves in such a comprehensive
manner as to leave no room for doubt on the applicability of
our ratio decidendi not only to cases of collision but also to
those of shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and
lawful obligations of the captain and the liability which he incurs
on account of any unlawful act committed by him. In the first
54
 TRANSPORTATION LAWS
case, the lawful acts and obligations of the captain beneficial to
the vessel may be enforced as against the agent for the reason
that such obligations arise from te the contract of agency
(provided, however, that the captain does not exceed his
authority), while as to any liability incurred by the captain
through his unlawful acts, the ship agent is simply subsidiarily
civilly liable. This liability of the agent is limited to the vessel
and it does not extend further. For this reason the Code of
Commerce makes the agent liable to the extent of the value of
the vessel, as the codes of the principal maritime nations
provide with the vessel, and not individually. Such is also the
spirit of our Code.
The spirit of our code s accurately set forth in a treatise on
maritime law, from which we deem proper to quote the
following as the basis of this decision:lawphil.net
"That which distinguishes the maritime from the civil law and
even from the mercantile law in general is the real and
hypothecary nature of the former, and the many securities of a
real nature that maritime customs from time immemorial, the
laws, the codes, and the later jurisprudence, have provided for
the protection of the various and conflicting interests which are
ventured and risked in maritime expeditions, such as the
interests of the vessel and of the agent, those of the owners of
the cargo and consignees, those who salvage the ship, those
who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a
constructor as to repairs made to the vessel.
"As evidence of this real nature of the maritime law we have
(1) the limitation of the liability of the agents to the actual value
of the vessel and the freight money, and (2) the right to retain
the cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a
personal action against the debtor or person liable. It will be
observed that these rights are correlative, and naturally so,
because if the agent can exempt himself from liability by
abandoning the vessel and freight money, thus avoiding the
possibility of risking his whole fortune in the business, it is also
just that his maritime creditor may for any reason attach the
vessel itself to secure his claim without waiting for a settlement
of his rights by a final judgment, even to the prejudice of a third
person.
"This repeals the civil law to such an extent that, in certain
cases, where the mortgaged property is lost no personal action
lies against the owner or agent of the vessel. For instance,
where the vessel is lost the sailors and members of the crew
cannot recover their wages; in case of collision, the liability of
the agent is limited as aforesaid, and in case of shipwreck,
RMC-SOL
those who loan their money on the vessel and cargo lose all
their rights and cannot claim reimbursement under the law.
"There are two reasons why it is impossible to do away with
these privileges, to wit: (1) The risk to which the thing is
exposed, and (2) the real nature of the maritime law,
exclusively real, according to which the liability of the parties is
limited to a thing which is at the mercy of the waves. If the
agent is only liable with the vessel and freight money and both
may be lost through the accidents of navigation it is only just
that the maritime creditor have some means to obviating this
precarious nature of his rights by detaining the ship, his only
security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and
which a purchaser of the same would be obliged to respect
and recognize are — in addition to those existing in favor of the
State by virtue of the privileges which are granted to it by all
the laws — pilot, tonnate, and port dues and other similar
charges, the wages of the crew earned during the last voyage
as provided in article 646 of the Code of Commerce, salvage
dues under article 842, the indemnification due to the captain
of the vessel in case his contract is terminated on account of
the voluntary sale of the ship and the insolvency of the owner
as provided in article 608, and all other liabilities arising from
collisions under articles 837 and 838."
We are shared in this conclusion by the eminent commentators
on the subject. Agustin Vicente y Gella, asserting, in his
"Introduccion al Derecho Mercantil Comparado" 1929 (pages
374-375), the like principle of limited liability of shipowners or
agent in cases of accidents, collisions, shipwrecks, etc., said:
De las responsabilities que pueden resultar como
consequencia del comercio maritimo, y no solo por hechos
propios sino tambien por las que se ocasionen por los del
capitan y la tripulacion, responde frente a tercero el naviero
que representa el buque; pero el derecho maritimo es sobre
todo tradicional y siguiendo un viejo principio de la Edad Media
la responsabilidad del naviero se organiza de un modo
especifico y particularisimo que no encuentra similar en el
derecho general de las obligaciones.
Una forma corrientisima de verificarse el comercio maritimo
durante la epoca medieval, era prestar un propietario su navio
para que cargase en el mercancias determinada persona, y se
hiciese a la mar, yendo al frente de la expedicion un patron del
buque, que llegado al puerto de destino se encargaba de
venderlas y retornaba al de salida despues de adquirir en
aquel otros efectos que igualmente revendia a su regreso,
verificado lo cual los beneficios de la expedicion se repartian
55
 TRANSPORTATION LAWS
entre el dueño del buque, el cargador y el capitan y tripulantes
en la proporcion estipulada. El derecho maritimo empezo a
considerar la asociacion asi formada como una verdadera
sociedad mercantil, de responsabilidad limitada, y de acuerdo
con los principios que gobiernan aquella en los casos de
accidentes, abordajes, naufragios, etc., se resolvia que el
dueño del buque perdia la nave, el cargador las mercancias
embarcadas y el capitan y la tripulacion su trabajo, sin que en
ningun caso el tercer acreedor pudiese reclamar mayor
cantidad de ninguno de ellos, porque su responsabilidad
quedaba limitada a lo que cada uno aporto a la sociedad.
Recogidas estas ideas en el derecho comercial de tiempos
posteriores, la responsabilidad del naviero se edifico sobre
aquellos principios, y derogando la norma general civil de que
del cumplimiento de sus obligaciones responde el deudor con
todos sus bienes presentes y futuros, la responsabilidad
maritima se considero siempre limitada ipso jure al patrimonio
de mar. Y este es el origen de la regla trascendental de
derecho maritimo segun la cual el naviero se libera de toda
responsabilidad abandonando el buque y el flete a favor de los
acreedores.
From the Enciclopedia Juridica Española, Vol. 23, p. 347, we
read:
Ahora bien: ¿hasta donde se extiende esta responsabilidad del
naviero? ¿sobre que bienes pueden los acreedores
resarcirse? Esta es otra especialidad del Derecho maritimo; en
el Derecho comun la responsabilidad es limitada; tambien lo
era en el antiguo Derecho maritimo romano; es daba la actio
exercitoria contra el exercitor navis sin ninguna restriccion,
pero en la Edad Media una idea nueva se introdujo en los usos
maritimos. Las cargas resultantes de las expediciones
maritimas se consideraron limitadas por los propietarios de las
naves a los valores comprometidos por ellos en cada
expedicion; se separo ficticiamente el patrimonio de los
navieros en dos partes que todavia se designan de una
manera bastante exacta; fortuna de tierra y fortuna de mar o
flotante; y se admitio la teoria de que esta era la que respondia
solo de las deudas provinientes de los actos del capitan o de
la tripulacion, es decir, que el conjunto del patrimonio del
naviero escaparia a estas cargas desde el momento en que
abandonara la nave y los fletes a los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia,
Vol. 1, p. 38, observes:
La responsabilidad del naviero, en el caso expuesto, se funda
en el principio de derecho comun de ser responsable todo el
que pone al frente de un establecimiento a una persona, de los
daños o perjuicios que ocasionare esta desempeñando su
RMC-SOL
cometido, y en que estando facultado el naviero para la
eleccion de capitan de la nave, viene a tener indirectamente
culpa en la negligencia o actos de este que o casionaron
daños o perjuicios, puesto que no se aseguro de su pericia o
buena fe. Limitase, sin embargo, la responsabilidad del
naviero a la perdida de la nave, sus aparejos, y fletes
devengados durante el viaje; porque no pudiendo vigilar de un
modo directo e inmediato la conducta del capitan, hubiera sido
duro hacerla extensiva a todos sus bienes que podria
comprometer el capitan con sus faltas o delitos.
The views of these learned commentators, including those of
Estasen (Derecho Mercantil, Vol. 4, 259) and Supino (Derecho
Mercantil, pp. 463-464), leave nothing to be desired and
nothing to be doubted on the principle. 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. (Norwich & N. Y. Trans. Co.
v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation
was placed by the British Parliament upon the liability of
Englosh shipowners through a series of statutes beginning in
1734 with the Act of 7 George II, chapter 15. The legislatures
of Massachusetts and Maine followed suit in 1818 and 1821,
and finally, Congress enacted the Limited Liability Act of March
3, 1851, embodying most of the provisions contained in the
British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283
of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U.
S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. — The
liability of the owner of any vessel, for any embezzlement, loss,
or destruction, by any person, of any property, goods, or
merchandise, shipped or put on board of such vessel, or for
any loss, damage, or injury by collision, or for any act, matter
or thing, loss, damage, or forfeiture, done, occasioned, or
incurred without the privity, or knowledge of such owner or
owners, shall in no case exceed the amount or value of the
interest of such owner in such vessel, and her freight then
pending.
The policy which the rule is designed to promote is the
encouragement of shipbuilding and investment in maritime
commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra;
The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in
that spirit that the American courts construed the Limited
Liability Act of Congress whereby the immunities of the Act
56
 TRANSPORTATION LAWS
were applied to claims not only for lost goods but also for
injuries and "loss of life of passengers, whether arising under
the general law of admiralty, or under Federal or State
statutes." (The City of Columbus, 22 Fed. 460; The Longfellow,
104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32
Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed.
836.) The Supreme Court of the United States in Norwich & N.
Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-
590, accounting for the history of the principle, clinches our
exposition of the supporting authorities:
The history of the limitation of liability of shipowners is matter
of common knowledge. The learned opinion of Judge Ware in
the case of The Rebecca, 1 Ware, 187-194, leaves little to be
desired on the subject. He shows that it originated in the
maritime law of modern Europe; that whilst the civil, as well as
the common law, made the owner responsible to the whole
extent of damage caused by the wrongful act or negligence of
the matter or crew, the maritime law only made then liable (if
personally free from blame) to the amount of their interest in
the ship. So that, if they surrendered the ship, they were
discharged.
Grotius, in his law of War and Peace, says that men would be
deterred from investing in ships if they thereby incurred the
apprehension of being rendered liable to an indefinite amount
by the acts of the master and, therefore, in Holland, they had
never observed the Roman Law on that subject, but had a
regulation that the ship owners should be bound no farther
than the value of their ship and freight. His words are: Navis et
eorum quae in navi sunt," "the ship and goods therein." But he
is speaking of the owner's interest; and this, as to the cargo, is
the freight thereon, and in that sense he is understood by the
commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p.
276; Book II, c. XI, sec. XIII. The maritime law, as codified in
the celebrated French Ordonance de la Marine, in 1681,
expressed the rule thus: 'The proprietors of vessels shall be
responsible for the acts of the master, but they shall be
discharged by abandoning the ship and freight.' Valin, in his
commentary on this passage, lib. 2, tit. 8, art. 2, after
specifying certain engagements of the master which are
binding on the owners, without any limit of responsibility, such
as contracts for the benefit of the vessel, made during the
voyage (except contracts of bottomry) says: "With these
exceptions it is just that the owner should not be bound for the
acts of the master, except to the amount of the ship and
freight. Otherwise he 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 interests of navigation. It is quite
sufficient that he be exposed to the loss of his ship and of the
freight, to make it his interest, independently of any goods he
RMC-SOL
may have on board to select a reliable captain." Pardessus
says: 'The owner is bound civilly for all delinquencies
committed by the captain within the scope of his authority, but
he may discharge himself therefrom by abandoning the ship
and freight; and, if they are lost, it suffices for his discharge, to
surrender all claims in respect of the ship and its freight," such
as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.
The same general doctrine is laid down by many other writers
on maritime law. So that it is evident that, by this law, the
owner's liability was coextensive with his interest in the vessel
and its freight, and ceased by his abandonment and surrender
of these to the parties sustaining loss.
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 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.
Judgement is reversed and petitioner is hereby absolved of all
the complaints, without costs.
57