BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V.

and
JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners, vs.
PHILIPPINE FIRST INSURANCE CO., INC
THIRD DIVISION
[G.R. No. 143133. June 5, 2002]
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT
SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent.
DECISION
PANGANIBAN, J.:
Facts:
CMC Trading A.G. shipped on board the MN ‘Anangel Sky’ at Hamburg, Germany 242 coils of various
Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading
Corporation. On July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the subsequent
days, discharged the subject cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No.
154974. Finding the four (4) coils in their damaged state to be unfit for the intended purpose, the
consignee Philippine Steel Trading Corporation declared the same as total loss.
Despite receipt of a formal demand, Phil. First insurance refused to submit to the consignee’s claim.
Consequently, Belgian Overseas paid the consignee P506,086.50, and was subrogated to the latter’s
rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted this
complaint for recovery of the amount paid by them, to the consignee as insured.
Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or
loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils,
danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the
shipper of the goods or their representatives. In addition thereto, defendants-appellees argued that their
liability, if there be any, should not exceed the limitations of liability provided for in the bill of lading and
other pertinent laws. Finally, defendants-appellees averred that, in any event, they exercised due
diligence and foresight required by law to prevent any damage/loss to said shipment.”
Issue: Whether or not petitioners have overcome the presumption of negligence of a common carrier
Held:
No.
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on
the basis of the lone testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods
and the passengers they transport. Thus, common carriers are required to render service with the
greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristics of
the goods tendered for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires.” The extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for transportation by the carrier until they are
delivered, actually or constructively, to the consignee or to the person who has a right to receive them.
Owing to this high degree of diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the
goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving
that they observed such diligence.
However, the presumption of fault or negligence will not arise if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the
public enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the
goods; (4) the character of the goods or defects in the packing or the container; or (5) an order or act of
competent public authority. This is a closed list. If the cause of destruction, loss or deterioration is other
than the enumerated circumstances, then the carrier is liable therefor.
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against
the carrier. If no adequate explanation is given as to how the deterioration, the loss or the destruction of
the goods happened, the transporter shall be held responsible.
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar
by a review of the records and more so by the evidence adduced by respondent

True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading;
however, there is no showing that petitioners exercised due diligence to forestall or lessen the
loss.36 Having been in the service for several years, the master of the vessel should have known at
the outset that metal envelopes in the said state would eventually deteriorate when not properly
stored while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils
and of the proper way of transporting them, the master of the vessel and his crew should have
undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these
measures was taken.38 Having failed to discharge the burden of proving that they have exercised the
extraordinary diligence required by law, petitioners cannot escape liability for the damage to the four
coils.39

In their attempt to escape liability, petitioners further contend that they are exempted from liability
under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and
slightly dented" printed on the Bill of Lading as evidence that the character of the goods or defect in
the packing or the containers was the proximate cause of the damage. We are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the four coils
was due to the condition noted on the Bill of Lading. 40 The aforecited exception refers to cases when
goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods
in transport, defects in packages in which they are shipped, or the natural propensities of
animals.41 None of these is present in the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew or was apparent
upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition. 42 Thus, petitioners have not successfully proven
the application of any of the aforecited exceptions in the present case. 43

Southern Lines v. CA (G.R. No. L-16629)

Facts:

The City of Iloilo requisitioned for rice from the National Rice and Corn Corporation
(NARIC) in Manila. NARIC, pursuant to the order, shipped 1,726 sacks of rice
consigned to the City of Iloilo on board the SS “General Wright” belonging to the
Southern Lines, Inc.

The City of Iloilo received the shipment and paid the total charged amount. However, it
was discovered in the bill of lading that there was shortage equivalent to 41 sacks of
rice. The City of Iloilo filed a complaint against NARIC and the Southern Lines, Inc. for
the recovery of the amount representing the value of the shortage of the shipment of
rice. The lower court absolved NARIC, but held Southern Lines, Inc. liable to pay the
shortage. CA affirmed the trial court’s decision, hence, this petition.

Issues:

(1) W/N Southern Lines is liable for the loss or shortage of the rice shipped;

(2) W/N the action was filed on time.

Ruling:

Article 361 of the Code of Commerce provides: .

ART. 361. — The merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated.

As a consequence, all the losses and deteriorations which the goods may suffer during the
transportation by reason of fortuitous event, force majeure, or the inherent nature and defect
of the goods, shall be for the account and risk of the shipper.1äwphï1.ñët

Proof of these accidents is incumbent upon the carrier.

Article 362 of the same Code provides: .

ART. 362. — Nevertheless, the carrier shall be liable for the losses and damages resulting
from the causes mentioned in the preceding article 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 his establisbed among careful persons, unless the shipper has committed fraud in the
bill of lading, representing the goods to be of a kind or quality different from what they really
were.

If, notwithstanding the precautions referred to in this article, the goods transported run the
risk of being lost, on account of their nature or by reason of unavoidable accident, there
being no time for their owners to dispose of them, the carrier may proceed to sell them,
placing them for this purpose at the disposal of the judicial authority or of the officials
designated by special provisions.

(1) YES. Under the provisions of Article 361, the defendant-carrier in order to free itself
from liability was only obliged to prove that the damages suffered by the goods were “by
virtue of the nature or defect of the articles.” Under the provisions of Article 362, the
plaintiff, in order to hold the defendant liable, was obliged to prove that the damages to
the goods by virtue of their nature, occurred on account of its negligence or because the
defendant did not take the precaution adopted by careful persons.
The contention is untenable, for, if the fact of improper packing is known to the carrier or
his servants, or apparent upon ordinary observation, but it accepts the goods
notwithstanding such condition, it is not relieved of liability for loss or injury resulting
therefrom. Petitioner itself frankly admitted that the strings that tied the bags of rice were
broken; some bags were with holes and plenty of rice were spilled inside the hull of the
boat, and that the personnel of the boat collected no less than 26 sacks of rice which
they had distributed among themselves. This finding, which is binding upon this Court,
shows that the shortage resulted from the negligence of petitioner.

(2) YES. Respondent filed the present action, within a reasonable time after the short
delivery in the shipment of the rice was made. It should be recalled that the present
action is one for the refund of the amount paid in excess, and not for damages or the
recovery of the shortage; for admittedly the respondent had paid the entire value of the
1726 sacks of rice, subject to subsequent adjustment, as to shortages or losses. The bill
of lading does not at all limit the time for filing an action for the refund of money paid in
excess.

Compania Maritima vs Court of Appeals and Vicente Concepcion

G.R. No. L-31379, August 29, 1988

164 SCRA 685

FACTS:

Vicente Concepcion, a contractor, had his construction equipment shipped from Manila to Cagayan de
Oro. His equipment were loaded aboard MV Cebu, a vessel owned by Compania Maritima. During
unloading, the payloader fell and was damaged. The carrier had the payloader weighed in Manila and
found that it weighed 7.5 tons not 2.5 tons as declared in the Bill of Lading. Concepcion demanded a
replacement of the payloader but to no avail. The shipper denied the claim for damages.

ISSUE:

Whether or not the furnishing of an inaccurate weight of 2.5 tons was the proximate and only cause of
the damage on the payloader.

RULING:

NO. The furnishing of an inaccurate weight of 2.5 tons is only a contributory circumstance to the
damaged cause. It mitigates the liability making the recoverable amount reduced to 80%. The standard
diligence required for the carrier in handling the goods is EXTRAORDINARY. The carrier failed to establish
that it exercised the necessary diligence when they did not check the equipment and accepted the bill of
lading on its face value. Moreover, they did not use the jumbo lifter (20-25 tons capacity) but the 5-ton
capacity lifting apparatus to lift and unload a visibly heavy cargo like a payloader. The crew were careless
in ascertaining the weight of heavy cargoes. The extraordinary diligence requires common carriers to
render service with the greatest skill and foresight and “to use all reasonable means to ascertain the
nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.

The principal issue in the instant case is whether or not the act of private respondent Vicente E.
Concepcion in furnishing petitioner Compañia Maritima with an inaccurate weight of 2.5 tons instead of
the payloader's actual weight of 7.5 tons was the proximate and only cause of the damage on the Oliver
Payloader OC-12 when it fell while being unloaded by petitioner's crew, as would absolutely exempt
petitioner from liability for damages under paragraph 3 of Article 1734 of the Civil Code, which provides:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

xxx xxx xxx

(3) Act or omission of the shipper or owner of the goods.

Petitioner claims absolute exemption under this provision upon the reasoning that private respondent's
act of furnishing it with an inaccurate weight of the payloader constitutes misrepresentation within the
meaning of "act or omission of the shipper or owner of the goods" under the above- quoted article. It
likewise faults the respondent Court of Appeals for reversing the decision of the trial court
notwithstanding that said appellate court also found that by representing the weight of the payloader to
be only 2.5 tons, private respondent had led petitioner's officer to believe that the same was within the
5 tons capacity of the heel block of Hatch No. 2. Petitioner would thus insist that the proximate and only
cause of the damage to the payloader was private respondent's alleged misrepresentation of the weight
of the machinery in question; hence, any resultant damage to it must be borne by private respondent
Vicente E. Concepcion.

The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are presumed to
have been at fault or to have acted negligently in case the goods transported by them are lost,
destroyed or had deteriorated. To overcome the presumption of liability for the loss, destruction or
deterioration of the goods under Article 1735, the common carriers must prove that they observed
extraordinary diligence as required in Article 1733 of the Civil Code. The responsibility of observing
extraordinary diligence in the vigilance over the goods is further expressed in Article 1734 of the same
Code, the article invoked by petitioner to avoid liability for damages.
CASE DIGEST (Transportation Law): TABACALERA vs. NORTH FRONT SHIPPING SERVICES

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW ZEALAND
INSURANCE CO., LTD. vs. NORTH FRONT SHIPPING SERVICES, INC., and COURT OF APPEALS

[G.R. No. 119197. May 16, 1997]

FACTS:

Petitioners are insurers of a shipment of sacks of corn grains consigned to Republic Flour Mills
Corporation in Manila. The cargo was shipped by North Front Shipping Services, Inc. The consignee was
advised of its arrival but the unloading was delayed for six days for unknown reason, and the
merchandise was already moldy, rancid and deteriorating.

The moisture content and the wetting was due to contact with salt water but the mold growth was only
incipient and not sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growth could still be arrested by drying. However, Republic Flour rejected the entire cargo which
therefore forced the petitioners to pay the former.

Now, as subrogees, they lodged a complaint for damages against respondents claiming that the loss was
exclusively attributable to the fault and negligence of the carrier. The Marine Cargo Adjusters hired by
the insurance companies conducted a survey and found cracks in the bodega of the barge and heavy
concentration of molds on the tarpaulins and wooden boards. They did not notice any seals in the
hatches. The tarpaulins were not brand new as there were patches on them, contrary to the claim of
North Front Shipping Services, Inc., thus making it possible for water to seep in. They also discovered
that the bulkhead of the barge was rusty.

The trial court dismissed the complaint and ruled that the contract entered into between North Front
Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement. As such,
only ordinary diligence in the care of goods was required. On the other hand, the Court of Appeals ruled
that as a common carrier required to observe a higher degree of diligence North Front 777 satisfactorily
complied with all the requirements hence was issued a Permit to Sail after proper inspection.

ISSUE:

Whether or not a charter-party agreement between P and R requires extraordinary diligence.

HELD:

Yes. The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills
Corporation did not in any way convert the common carrier into a private carrier.

xxx

North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo and
offers its services indiscriminately to the public. It is without doubt a common carrier. As such it is
required to observe extraordinary diligence in its vigilance over the goods it transports. When goods
placed in its care are lost or damaged, the carrier is presumed to have been at fault or to have acted
negligently. North Front Shipping Services, Inc., therefore has the burden of proving that it observed
extraordinary diligence in order to avoid responsibility for the lost cargo.

However, we cannot attribute the destruction, loss or deterioration of the cargo solely to the carrier. We
find the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was seasonably
notified of the arrival of the barge but did not immediately start the unloading operations. No
explanation was proffered by the consignee as to why there was a delay of six (6) days. Had the
unloading been commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold growth was only at
its incipient stage and could still be arrested by drying. The corn grains were not yet toxic or unfit for
consumption.

G.R. No. 92501 March 6, 1992

PHILIPPINE AIR LINES, petitioner,

vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.

GRIÑO-AQUINO, J.:

This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals affirming the
decision of the Regional Trial Court of Pasay City which awarded P72,766.02 as damages and
attorney's fees to private respondent Isidro Co for the loss of his checked-in baggage as a
passenger of petitioner airline.

The findings of the trial court, which were adopted by the appellate court, are:

"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his wife and
son, arrived at the Manila International Airport aboard defendant airline's PAL Flight
 No. 107 from San Francisco, California, U.S.A. Soon after his embarking (sic),
plaintiff proceeded to the baggage retrieval area to claim his checks in his
possession. Plaintiff found eight of his luggage, but despite diligent search, he failed
to locate ninth luggage, with claim check number 729113 which is the one in
question in this case.

"Plaintiff then immediately notified defendant company through its employee, Willy
Guevarra, who was then in charge of the PAL claim counter at the airport. Willy
Guevarra, who testified during the trial court on April 11, 1986, filled up the printed
form known as a Property Irregularity Report (Exh. "A"), acknowledging one of the
plaintiff's luggages to be missing (Exh. "A-1"), and signed after asking plaintiff himself
to sign the same document (Exh. "A-2"). In accordance with this procedure in cases
of this nature, Willy Guevarra asked plaintiff to surrender to him the nine claim
checks corresponding to the nine luggages, i.e., including the one that was missing.

The incontestable evidence further shows that plaintiff lost luggage was a Samsonite
suitcase measuring about 62 inches in length, worth about US$200.00 and
containing various personal effects purchased by plaintiff and his wife during their
stay in the United States and similar other items sent by their friends abroad to be
given as presents to relatives in the Philippines. Plaintiff's invoices evidencing their
purchases show their missing personal effects to be worth US$1,243.01, in addition
to the presents entrusted to them by their friends which plaintiffs testified to be worth
about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17"; tsn, p. 4, July 11, 1985;
pp. 5-14, March 7, 1986).

Plaintiff on several occasions unrelentingly called at defendant's office in order to

pursue his complaint about his missing luggage but no avail. Thus, on April 15, 1985,
plaintiff through his lawyer wrote a demand letter to defendant company though
Rebecca V. Santos, its manager, Central Baggage Services (Exhs. "B" & "B-1"). On
April 17, 1985, Rebecca Santos replied to the demand letter (Exh. "B")
acknowledging "that to date we have been unable to locate your client's (plaintiff's)
baggage despite our careful search" and requesting plaintiff's counsel to "please
extend to him our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however, defendants
never found plaintiff's missing luggage or paid its corresponding value.
Consequently, on May 3, 1985, plaintiff filed his present complaint against said
defendants. (pp. 38-40, Rollo.)

Co sued the airline for damages. The Regional Trial Court of Pasay City found the defendant airline
(now petitioner) liable, and rendered judgment on June 3, 1986, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered sentencing defendant Philippine

Airlines, Inc. to pay plaintiff Isidro Co:

1) P42,766.02 by way of actual damages;

2) P20,000.00 by way of exemplary damages;

3) P10,000.00 as attorney's fees;

all in addition to the costs of the suit.

 "Defendants' counterclaim is hereby dismissed for lack of merit."

(p. 40, Rollo.)

On appeal, the Court of Appeals affirmed in toto the trial court's award.

In his petition for review of the Court of Appeal's decision, petitioner alleges that the appellate court
erred:

1. in affirming the conclusion of the trial court that the petitioner's retrieval baggage
report was a fabrication;

2. in not applying the limit of liability under the Warsaw Convention which limits the
liability of an air carrier of loss, delay or damage to checked-in baggage to US$20.00
based on weight; and

3. in awarding private respondent Isidro Co actual and exemplary damages,

attorney's fees, and costs.

The first and third assignments of error raise purely factual issues which are not reviewable by this
Court (Sec. 2, Rule 45, Rules of Court). The Court reviews only questions of law which must be
distinctly set forth in the petition. (Hodges vs. People, 68 Phil. 178.) The probative value of
petitioner's retrieval report was passed upon by the Regional Trial Court of Pasay City, whose
finding was affirmed by the Court of Appeals as follows:

In this respect, it is further argued that appellee should produce his claim tag if he
had not surrendered it because there was no baggage received. It appeared,
however, that appellee surrendered all the nine claim checks corresponding to the
nine luggages, including the one that was missing, to the PAL officer after
accomplishing the Property, Irregularity Report. Therefore, it could not be possible for
appellee to produce the same in court. It is now for appellant airlines to produce the
veracity of their Baggage Retrieval Report by corroborating evidence other than
testimonies of their employees. Such document is within the control of appellant and
necessarily requires other corroborative evidence. Since there is no compelling
reason to reverse the factual findings of the lower court, this Court resolves not to
disturb the same. (p. 41, Rollo.)

Whether or not the lost luggage was ever retrieved by the passenger, and whether or not the actual
and exemplary damages awarded by the court to him are reasonable, are factual issues which we
may not pass upon in the absence of special circumstances requiring a review of the evidence.

In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC 164 SCRA
268), the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of
baggage without any improper conduct on the part of the officials or employees of the airline, or
other special injury sustained by the passengers. The petitioner therein did not declare a higher
value for his luggage, much less did he pay an additional transportation charge.

Petitioner contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00
based on weight as private respondent Co did not declare the contents of his baggage nor pay
traditional charges before the flight (p. 3, tsn, July 18, 1985).
We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132
SCRA 529), this Court ruled:

The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the
New Civil Code. In all matters not regulated by said Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by Special
Laws.

The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which
provide:

Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article if the goods are lost, destroyed or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in article 1733.

Art. 1753. The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.

Since the passenger's destination in this case was the Philippines, Philippine law governs the liability
of the carrier for the loss of the passenger's luggage.

In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the
private respondent's evidence, proving that the carrier's negligence was the proximate cause of the
loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail itself
out of having to pay Co's claim.

The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw
Convention.

Title: Pan-Am v. Rapadas

Topic: Passenger’s Baggage

Docket: G.R. No. 60673 May 19, 1992

Facts:
Respondent is standing in line for a flight from Manila to Guam. He was ordered by petitioner’s
baggage control agent to deposit his Samsonite attache case. He protested, contending that other
passengers were permitted to hand carry bulkier objects. After several attempts of evading, he
acceded to the order. He then gave his attache case to his brother who happened to be around and
who checked it in for him, but without declaring its contents or the value of its contents. He was
given a Baggage claim tag.

Upon arriving in Manila on the same date, Rapadas claimed and was given all his checked-in
baggages except the attache case. Hence, respondent, after several failed settlements with
petitioner, filed a case.

Petitioner-defendant PAN AM acknowledged responsibility for the loss of the attache case but
asserted that the claim was subject to the “Notice of Baggage Liability Limitations” allegedly attached
to and forming part of the passenger ticket. The petitioner argued that the same notice was also
conspicuously posted in its offices for the guidance of the passengers.

The petitioner maintains that its liability for the lost baggage of respondent Rapadas was limited to
$160.00 since the latter did not declare a higher value for his baggage and did not pay the
corresponding additional charges.

The private respondent, on the other hand, insists that he is entitled to as much damages as those
awarded by the court and affirmed by the respondent appellate court (>$45,000)

Issue: Whether or not the petitioner’s liability maybe limited

Held: Yes.

The Warsaw convention governs – a notice to the effect that, if the passenger’s journey involves an
ultimate destination or stop in a country other than the country of departure, the Warsaw Convention
may be applicable and that the Convention governs and in most cases limits the liability of carriers
for death or personal injury and in respect of loss of or damage to baggage.

Contracts of adhesion – not an excuse to annul. In the face of facts and circumstances showing they
should be ignored because of their basically one sided nature, the Court does not hesitate to rule out
blind adherence to their terms.

The passenger, upon contracting with the airline and receiving the plane ticket, was expected to be
vigilant insofar as his luggage is concerned. If the passenger fails to adduce evidence to overcome
the stipulations, he cannot avoid the application of the liability limitations.

The arguments of the petitioner do not belie the fact that it was indeed accountable for the loss of
the attache case. What the petitioner is concerned about is whether or not the notice, which it did not
fail to state in the plane ticket and which it deemed to have been read and accepted by the private
respondent.

The alleged lack of enough time for him to make a declaration of a higher value and to pay the
corresponding supplementary charges cannot justify his failure to comply with the requirement that
will exclude the application of limited liability. Had he not wavered in his decision to register his
luggage, he could have had enough time to disclose the true worth of the articles in it and to pay the
extra charges or remove them from the checked-in-luggage.

Doctrine:

The reasons behind stipulations on liability limitations arise from the difficulty, if not impossibility, of
establishing with a clear preponderance of evidence the contents of a lost valise or suitcase. Unless
the contents are declared, it will always be the word of a passenger against that of the airline.

If the loss of life or property is caused by the gross negligence or arbitrary acts of the airline or the
contents of the lost luggage are proved by satisfactory evidence other than the self-serving
declarations of one party, the Court will not hesitate to disregard the fine print in a contract of
adhesion. Otherwise, we are constrained to rule that we have to enforce the contract as it is the only
reasonable basis to arrive at a just award.

The Warsaw Convention, as amended, specifically provides that it is applicable to international carriage which it defines in Article 1, par. 2
as follows:

(2) For the purposes of this Convention, the expression "international carriage" means any carriage in which, according
to the agreement between the parties, the place of departure and the place of destination, whether or not there be a
breach in the carriage or a transhipment, are situated either within the territories of two High Contracting Parties or
within the territory of a single High Contracting Party if there is an agreed stopping place within the territory of another
State, even if that State is not a High Contracting Party. Carriage between two points within the territory of a single
High Contracting Party without an agreed stopping place within the territory of another State is not international
carriage for the purposes of this Convention. ("High Contracting Party" refers to a state which has ratified or adhered to
the Convention, or which has not effectively denounced the Convention [Article 40A(l)]).

Nowhere in the Warsaw Convention, as amended, is such a detailed notice of baggage liability limitations required. Nevertheless, it should
become a common, safe and practical custom among air carriers to indicate beforehand the precise sums equivalent to those fixed by Article
22 (2) of the Convention.

The Convention governs the availment of the liability limitations where the baggage check is combined with or incorporated in the passenger
ticket which complies with the provisions of Article 3, par. l (c). (Article 4, par. 2) In the case at bar, the baggage check is combined with the
passenger ticket in one document of carriage. The passenger ticket complies with Article 3, par. l (c) which provides:

(l) In respect of the carriage of passengers a ticket shall be delivered containing:

(a) . . .

(b) . . .

(c) a notice to the effect that, if the passenger's journey involves an ultimate destination or stop in
a country other than the country of departure, the Warsaw Convention may be applicable and
that the Convention governs and in most cases limits the liability of carriers for death or personal
injury and in respect of loss of or damage to baggage.
We have held in the case of Ong Yiu v. Court of Appeals, supra, and reiterated in a similar case where herein petitioner was also sued for
damages, Pan American World Airways v. Intermediate Appellate Court (164 SCRA 268 [1988]) that:

It (plane ticket) is what is known as a contract of "adhesion", in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. (Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, January 31, 1951, p. 49) And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E.
2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed
valuation does not offend against the policy of the law forbidding one from contracting against his own negligenc

G.R. No. 101538 June 23, 1992

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal
guardian, Augusto Benedicto Santos vs. NORTHWEST ORIENT AIRLINES
and CA
FACTS: The petitioner is a minor and a resident of the Philippines. Private
respondent Northwest Orient Airlines (NOA) is a foreign corporation with
principal office in Minnesota, U.S.A. and licensed to do business and maintain
a branch office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket
in San Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo
and back. The scheduled departure date from Tokyo was December 20, 1986.
No date was specified for his return to San Francisco.
On December 19, 1986, the petitioner checked in at the NOA counter in the
San Francisco airport for his scheduled departure to Manila. Despite a
previous confirmation and re-confirmation, he was informed that he had no
reservation for his flight from Tokyo to Manila. He therefore had to be wait-
listed.

On March 12, 1987, the petitioner sued NOA for damages in the RTC of
Makati. On April 13, 1987, NOA moved to dismiss the complaint on the
ground of lack of jurisdiction, citing Article 28(1) of the Warsaw Convention,
reading as follows:

Art. 28. (1) An action for damage must be brought at the option of the plaintiff,
in the territory of one of the High Contracting Parties, either before the court
of the domicile of the carrier or of his principal place of business, or where he
has a place of business through which the contract has been made, or before
the court at the place of destination.

The private respondent contended that the Philippines was not its domicile
nor was this its principal place of business. Neither was the petitioner’s ticket
issued in this country nor was his destination Manila but San Francisco in the
United States.
Lower court granted the dismissal, CA affirmed.
ISSUE: WON the Philippines has jurisdiction over the case. (Issue raised by
the party is WON the provision of the Warsaw convention was constitutional)
HELD: No jurisdiction (the provision is constitutional)
The Convention is a treaty commitment voluntarily assumed by the Philippine
government and, as such, has the force and effect of law in this country. The
petitioner’s allegations are not convincing enough to overcome this
presumption. Apparently, the Convention considered the four places
designated in Article 28 the most convenient forums for the litigation of any
claim that may arise between the airline and its passenger, as distinguished
from all other places.

NOTES:
WON Warsaw convention applies.
Convention applies to all international transportation of persons performed by
aircraft for hire. Whether the transportation is “international” is determined
by the contract of the parties, which in the case of passengers is the ticket.
When the contract of carriage provides for the transportation of the passenger
between certain designated terminals “within the territories of two High
Contracting Parties,” the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passenger.

WON MNL or SFO was the destination.

The place of destination, within the meaning of the Warsaw Convention, is
determined by the terms of the contract of carriage or, specifically in this case,
the ticket between the passenger and the carrier. Examination of the
petitioner’s ticket shows that his ultimate destination is San Francisco.
Although the date of the return flight was left open, the contract of carriage
between the parties indicates that NOA was bound to transport the petitioner
to San Francisco from Manila. Manila should therefore be considered merely
an agreed stopping place and not the destination.

WON Northwest has domicile in the Philippines

Notably, the domicile of the carrier is only one of the places where the
complaint is allowed to be filed under Article 28(1). By specifying the three
other places, to wit, the principal place of business of the carrier, its place of
business where the contract was made, and the place of destination, the article
clearly meant that these three other places were not comprehended in the
term “domicile.”
G.R. No. L-31150 July 22, 1975 KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V.,
otherwise known as KLM ROYAL DUTCH AIRLINES,petitioner, vs. THE HONORABLE
COURT OF APPEALS, CONSUELO T. MENDOZA and RUFINO T. MENDOZA,
respondents.

Facts:

Sometime in March 1965 the respondents approached Tirso Reyes, manager of a branch of the
Philippine Travel Bureau, a travel agency, for consultations about a world tour which they were
intending to make with their daughter and a niece. Reyes submitted to them, after preliminary
discussions, a tentative itinerary which prescribed a trip of thirty-five legs; the respondents
would fly on different airlines. Three segments of the trip, the longest, would be via KLM. The
respondents expressed a desire to visit Lourdes, France, and discussed with Reyes two alternate
routes, namely, Paris to Lourdes and Barcelona to Lourdes. The respondents decided on the
Barcelona Lourdes route with knowledge that only one airline, Aer Lingus, serviced it. After
about two weeks, the respondents approved the itinerary prepared for them, and asked Reyes to
make the necessary plane reservations. Reyes went to the KLM, for which the respondents had
expressed preference. The KLM thereafter secured seat reservations for the respondents and their
two companions from the carriers which would ferry them throughout their trip, with the
exception of Aer Lingus. When the respondents left the Philippines (without their young wards
who had enplaned much earlier), they were issued KLM tickets for their entire trip. However,
their coupon for the Aer Lingus portion (Flight 861 for June 22, 1965) was marked "RQ" which
meant "on request". After sightseeing in American and European cities (they were in the
meantime joined by their two young companions), the respondents arrived in Frankfurt,
Germany. They went to a KLM office there and obtained a confirmation from Aer Lingus of seat
reservations on flight 861. After meandering in London, Paris and Lisbon, the foursome finally
took wing to Barcelona for their trip to Lourdes, France. In the afternoon of June 22, 1965 the
respondents with their wards went to the Barcelona airport to take their plane which arrived at
4:00 o'clock. At the airport, the manager of Aer Lingus directed the respondents to check in.
They did so as instructed and were accepted for passage. However, although their daughter and
niece were allowed to take the plane, the respondents were offloaded on orders of the Aer Lingus
manager who brusquely shoved them aside with the aid of a policeman and who shouted at them,
"Conos! Ignorantes Filipinos!" Mrs. Mendoza later called up the manager of Aer Lingus and
requested that they provide her and her husband means to get to Lourdes, but the request was
denied. On March 17, 1966 the respondents, referring to KLM as the principal of Aer Lingus,
filed a complaint for damages with the Court of First Instance of Manila arising from breach of
contract of carriage and for the humiliating treatment received by them at the hands of the Aer
Lingus manager in Barcelona. After due hearing, the trial court awarded damages to the
respondents as follows: $43.35 or its peso equivalent as actual damages, P10,000 as moral
damages, P5,000 as exemplary damages, and P5,000 as attorney's fees, and expenses of
litigation. Hence, this petition.

Issue: Whether or not KLM should be held liable for damage

Held:
The argument that the KLM should not be held accountable for the tortious conduct of Aer
Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's
liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court
of Appeals that condition was printed in letters so small that one would have to use a magnifying
glass to read the words. Under the circumstances, it would be unfair and inequitable to charge the
respondents with automatic knowledge or notice of the said condition so as to preclude any
doubt that it was fairly and freely agreed upon by the respondents when they accepted the
passage tickets issued to them by the KLM. As the airline which issued those tickets with the
knowledge that the respondents would be flown on the various legs of their journey by different
air carriers, the KLM was chargeable with the duty and responsibility of specifically informing
the respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the
respondents read them before they accepted their passage tickets. A thorough search of the
record, however, inexplicably fails to show that any effort was exerted by the KLM officials or
employees to discharge in a proper manner this responsibility to the respondents. The
respondents, under that assurance of the internationally prestigious KLM, naturally had the right
to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the
KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry
out the respondents' scheduled itinerary previously and mutually agreed upon between the
parties. The breach of that guarantee was aggravated by the discourteous and highly arbitrary
conduct of an official of the Aer Lingus which the KLM had engaged to transport the
respondents on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord
with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for
the protection of a contracting party who occupies an inferior position with respect to the other
contracting party, that the KLM should be held responsible for the abuse, injury and
embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer Lingus.

1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of which
took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its
manager there, refused to transport the respondents to their planned and contracted destination.

2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus
because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for
damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals
that condition was printed in letters so small that one would have to use a magnifying glass to read
the words. Under the circumstances, it would be unfair and inequitable to charge the respondents
with automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly
and freely agreed upon by the respondents when they accepted the passage tickets issued to them
by the KLM. As the airline which issued those tickets with the knowledge that the respondents would
be flown on the various legs of their journey by different air carriers, the KLM was chargeable with
the duty and responsibility of specifically informing the respondents of conditions prescribed in their
tickets or, in the very least, to ascertain that the respondents read them before they accepted their
passage tickets. A thorough search of the record, however, inexplicably fails to show that any effort
was exerted by the KLM officials or employees to discharge in a proper manner this responsibility to
the respondents. Consequently, we hold that the respondents cannot be bound by the provision in
question by which KLM unilaterally assumed the role of a mere ticket-issuing agent for other airlines
and limited its liability only to untoward occurrences on its own lines.
3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the
respondents provide that the carriage to be performed thereunder by several successive carriers "is
to be regarded as a single operation," which is diametrically incompatible with the theory of the KLM
that the respondents entered into a series of independent contracts with the carriers which took them
on the various segments of their trip. This position of KLM we reject. The respondents dealt
exclusively with the KLM which issued them tickets for their entire trip and which in effect guaranteed
to them that they would have sure space in Aer Lingus flight 861. The respondents, under that
assurance of the internationally prestigious KLM, naturally had the right to expect that their tickets
would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and in effect
guaranteed the performance of its principal engagement to carry out the respondents' scheduled
itinerary previously and mutually agreed upon between the parties.

4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of
an official of the Aer Lingus which the KLM had engaged to transport the respondents on the
Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting
party who occupies an inferior position with respect to the other contracting party, that the KLM
should be held responsible for the abuse, injury and embarrassment suffered by the respondents at
the hands of a supercilious boor of the Aer Lingus.

Title: British Airways v. CA

Topic: Passenger’s Baggage
Docket: G.R. No. 121824. January 29, 1998

Facts:

 Herein private respondent Mahtani boarded BA to visit his relatives in

India. Since BA had no direct flights from Manila to Bombay, Mahtani had
to take a flight to Hongkong via PAL, and upon arrival in Hongkong he had
to take a connecting flight to Bombay on board BA.
 Unfortunately, when Mahtani arrived in Bombay he discovered that his
luggage was missing and that upon inquiry from the BA representatives,
he was told that the same might have been diverted to London. After
patiently waiting for his luggage for one week, BA finally advised him to file
a claim by accomplishing the Property Irregularity Report
 In BA’s defense, he alleges that the non-transfer was due to PAL’s late
arrival in HK hence, no time to make the transfer. In effect, Mahtani has no
cause of action against him while instituting a third party complaint to PAL.
 The RTC dismissed the third party complaint while it made BA liable to
Mahtani. The CA affirmed the same.

Issue: Whether or not the third party complaint should be dismissed

Held: No.

 The contract of air transportation in this case pursuant to the ticket issued
by appellant to plaintiff-appellee was exclusively between the plaintiff
 Mahtani and defendant-appellant BA. When plaintiff boarded the PAL
plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. Since the instant petition was based on
breach of contract of carriage, Mahtani can only sue BA alone, and not
PAL, since the latter was not a party to the contract.
 The rule that carriage by plane although performed by successive carriers
is regarded as a single operation and that the carrier issuing the
passengers ticket is considered the principal party and the other carrier
merely subcontractors or agent, is a settled issue. In the instant case, the
contractual relationship between BA and PAL is one of agency, the former
being the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.
 In the instant case, the contractual relationship between BA and PAL is
one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent. However, this is not
to say that PAL is relieved from any liability due to any of its negligent
acts.

Doctrine:

Carriage by plane although performed by successive carriers is regarded as a single

operation and that the carrier issuing the passengers ticket is considered the principal
party and the other carrier merely subcontractors or agent

A carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent
acts or omission in the performance of its duties for the purpose of ultimately
determining who was primarily at fault as between them.

Title: Japan Airlines v CA

Topic: Obligations of the parties, Assumption of Risk
Docket: G.R. No. 118664

Facts:

 Private respondents Agana, Francisco and Miranda were bound for Manila
in petitioner’s plane. As part of their incentive, they were given an
overnight stopover at Japan, all expenses paid. However, when they were
bound to return to Manila, the flight was cancelled indefinitely due to the
Mt. Pinatubo eruption
 For 2 days, the airline defrayed their expenses. However, since NAIA was
closed indefinitely, the airline decided that they will not defray the
expenses anymore. The repondents then stayed there for 5 days in their
own expense. They then filed an action due to its failure to provide the
said services they personally spent for.
Issue: Whether JAL, as a common carrier has the obligation to shoulder the hotel and
meal expenses of its stranded passengers until they have reached their final
destination, even if the delay were caused by “force majeure.”

Held: No.

 There is no question that when a party is unable to fulfill his obligation

because of “force majeure,” the general rule is that he cannot be held
liable for damages for non-performance.
 Corollarily, when JAL was prevented from resuming its flight to Manila due
to the effects of Mt. Pinatubo eruption, whatever losses or damages in the
form of hotel and meal expenses the stranded passengers incurred,
cannot be charged to JAL.
 Furthermore, it has been held that airline passengers must take such
risks incident to the mode of travel. In this regard, adverse weather
conditions or extreme climatic changes are some of the perils
involved in air travel, the consequences of which the passenger
must assume or expect. After all, common carriers are not the insurer of
all risks.

Title: Tan v. Northwest

Topic: Passenger’s Baggage
Docket: G.R. No. 135802. March 3, 2000

Facts:

 Petitioner boarded respondent’s airline from USA bound to the Philippines.

Upon their arrival, they discovered that their baggage were missing and
were informed that it might still be in Tokyo, Japan. After 2 days, they
were able to recover the same but the contents were destroyed/spoiled.
 The RTC rendered in favor of petitioners. The CA affirmed but deleted the
award of moral and exemplary damages

Issue: Whether respondent is liable for moral and exemplary damages for willful
misconduct and breach of the contract of air carriage

Held: No.

 The award for such damage requires that the defendant acted in willful
misconduct. For willful misconduct to exist there must be a showing that
the acts complained of were impelled by an intention to violate the law,
or were in persistent disregard of one’s rights. While it is admitted that
respondent failed to deliver petitioner’s luggage on time. However, there
was no showing of malice in such failure. By its concern for
 safety, respondent had to ship the baggage in another flight with
same date of arrival
 Hence, no bad faith – Bad faith does not simply connnote bad judgment or
negligence, it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of known duty through some
motive or interest or ill-will that partakes of the nature of fraud

Doctrine: Where in breaching the contract of carriage the defendant airline is not
shown to have acted fraudulently or in bad faith, liability for damages is limited to
the natural and probable consequences of the breach of obligation which the
parties had foreseen or could have reasonably foreseen. In that case, such liability
does not include moral and exemplary damages

CARLOS SINGSON, Petitioner, -versus OF APPEALS and CATHAY PACIFIC AIRWAYS, INC., Respondents.
G.R. No. 119995, FIRST DIVISION, November 18, 1997, BELLOSILLO, J.:

A contract of air carriage is a peculiar one. Imbued with public interest, common carriers are required by
law to carry passengers safely as far as human care and foresight can provide, using the utmost diligence
of a very cautious person, with due regard for all the circumstances. A contract to transport passengers
is quite different in kind and degree from any other contractual relation. And this because its business is
mainly with the traveling public. It invites people to avail of the comforts and advantages it offers. The
contract of carriage, therefore, generates a relation attended with a public duty. Failure of the carrier to
observe this high degree of care and extraordinary diligence renders it liable for any damage that may
be sustained by its passengers. CATHAY undoubtedly committed a breach of contract when it refused to
confirm petitioner’s flight reservation back to the Philippines on account of his missing flight coupon. In
fact, the contract of carriage in the instant case was already partially executed as the carrier complied
with its obligation to transport the passenger to his destination, i.e., Los Angeles. Only the performance
of the other half of the contract — which was to transport the passenger back to the Philippines — was
left to be done.

FACTS

Carlos Singson and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd. (CATHAY
two (2) open-dated, identically routed, round trip plane tickets for the purpose of spending their
vacation in the United States. Each ticket consisted of six (6) flight coupons corresponding to this
itinerary: flight coupon no. 1 — Manila to Hongkong; flight coupon no. 2 — Hongkong to San Francisco;
flight coupon no. 3 — San Francisco to Los Angeles; flight coupon no. 4 — Los Angeles back to San
Francisco; flight coupon no. 5 — San Francisco to Hongkong; and, finally, flight coupon no. 6 —
Hongkong to Manila. The procedure was that at the start of each leg of the trip a flight coupon
corresponding to the particular sector of the travel would be removed from the ticket booklet so that at
the end of the trip no more coupon would be left in the ticket booklet. Singson and Tiongson left Manila
on board CATHAY’s Flight No. 902. They arrived safely in Los Angeles and after staying there for about
three (3) weeks they decided to return to the Philippines. They arranged for their return flight and chose
1 July 1988 for their departure. While Tiongson easily got a booking for the flight, SINGSON was not as
lucky. It was discovered that his ticket booklet did not have flight coupon no. 5 corresponding to the San
Francisco-Hongkong leg of the trip. Instead, what was in his ticket was flight coupon no. 3 — San
Francisco to Los Angeles — which was supposed to have been used and removed from the ticket
booklet. It was not until 6 July 1988 that CATHAY was finally able to arrange for his return flight to
Manila. Singson then commenced an action for damages against CATHAY before the Regional Trial Court
of Vigan, Ilocos Sur. CATHAY denied the allegations and averred that since petitioner was holding an
"open dated" ticket, which meant that he was not booked on a specific flight on a particular date, there
was no contract of carriage yet existing such that CATHAY’s refusal to immediately book him could not
be construed as breach of contract of carriage. The trial court rendered a decision in favor of petitioner
herein holding that CATHAY was guilty of gross negligence amounting to malice and bad faith. On appeal
by CATHAY, the Court of Appeals reversed the trial court’s finding that there was gross negligence
amounting to bad faith or fraud and, accordingly, modified its judgment by deleting the awards for
moral and exemplary damages, and the attorney’s fees as well.

ISSUE Whether a breach of contract was committed by CATHAY when it failed to confirm the booking of
petitioner for its 1 July 1988 flight. (YES)

RULING

CATHAY undoubtedly committed a breach of contract when it refused to confirm petitioner’s flight
reservation back to the Philippines on account of his missing flight coupon. Its contention that there was
no contract of carriage that was breached because petitioner’s ticket was open-dated is untenable. To
begin with, the round trip ticket issued by the carrier to the passenger was in itself a complete written
contract by and between the carrier and the passenger. It had all the elements of a complete written
contract, to wit: (a) the consent of the contracting parties manifested by the fact that the passenger
agreed to be transported by the carrier to and from Los Angeles via San Francisco and Hongkong back to
the Philippines, and the carrier’s acceptance to bring him to his destination and then back home; (b)
cause or consideration, which was the fare paid by the passenger as stated in his ticket; and, (c) object,
which was the transportation of the passenger from the place of departure to the place of destination
and back, which are also stated in his ticket. 6 In fact, the contract of carriage in the instant case was
already partially executed as the carrier complied with its obligation to transport the passenger to his
destination, i.e., Los Angeles. Only the performance of the other half of the contract — which was to
transport the passenger back to the Philippines — was left to be done. Clearly therefore petitioner was
not a mere "chance passenger with no superior right to be boarded on a specific flight," as erroneously
claimed by CATHAY and sustained by the appellate court. Interestingly, it appears that CATHAY was
responsible for the loss of the ticket. One of two (2) things may be surmised from the circumstances of
this case: first, US Air (CATHAY’s agent) had mistakenly detached the San Francisco-Hongkong flight
coupon thinking that it was the San Francisco-Los Angeles portion; or, second, petitioner’s booklet of
tickets did not from issuance include a San Francisco-Hongkong flight coupon. In either case, the loss of
the coupon was attributable to the negligence of CATHAY’s agents and was the proximate cause of the
nonconfirmation of petitioner’s return flight on 1 July 1988. It virtually prevented petitioner from
demanding the fulfillment of the carrier’s obligations under the contract. Had CATHAY’s agents been
diligent in double checking the coupons they were supposed to detach from the passengers’ tickets,
there would have been no reason for CATHAY not to confirm petitioner’s booking as exemplified in the
case of his cousin and flight companion Tiongson whose ticket booklet was found to be in order. Hence,
to hold that no contractual breach was committed by CATHAY and totally absolve it from any liability
would in effect put a premium on the negligence of its agents, contrary to the policy of the law requiring
common carriers to exercise extraordinary diligence.

LUFTHANSA GERMAN AIRLINES, petitioner, vs. COURT OF APPEALS and TIRSO V. ANTIPORDA, SR.,
respondents. G.R. No. 83612 November 24, 1994 THIRD DIVISION ROMERO, J.

Although the contract of carriage was to be performed by several air carriers, the same is to be treated
as a single operation conducted by Lufthansa because Antiporda dealt exclusively with it which issued
him a Lufthansa ticket for the entire trip. By issuing a confirmed ticket, Lufthansa in effect guaranteed
Antiporda a sure seat with Air Kenya.

FACTS

Tirso V. Antiporda, Sr. was, contracted by Sycip, Gorres, Velayo & Co. (SGV) to be the institutional
financial specialist for the agricultural credit institution project of the Investment and Development Bank
of Malawi in Africa. For the engagement, Antiporda would be provided one round-trip economy ticket
from Manila to Blantyre and back with a maximum travel time of four days per round-trip. On
September 17, 1984, Lufthansa, through SGV, issued the ticket for Antiporda's confirmed flights to
Malawi, Africa. The ticket particularized his itinerary: Manila -BombayNairobi- Lilongwe - Blantyre. Thus,
on September 25, 1984, Antiporda took the Lufthansa flight to Singapore from where he proceeded to
Bombay on board the same airline. He arrived in Bombay ascheduled and waited at the transit area of
the airport for his connecting flight to Nairobi which was, per schedule given him by Lufthansa, to leave
Bombay. Lufthansa, informed Antiporda that his seat in Air Kenya Flight 203 to Nairobi had been given
to a very important person of Bombay who was attending a religious function in Nairobi. Antiporda
protested but Air Kenya Flight 203 left for Nairobi without him on board. Stranded in Bombay, Antiporda
was booked for Nairobi via Addis Ababa only on September 27, 1984. He finally arrived in Blantyre at
9:00 o'clock in the evening of September 28, 1984, more than a couple of days late for his appointment
with people from the institution he was to work with in Malawi. Consequently, ,Antiporda's counsel
wrote the general manager of Lufthansa in Manila demanding P1,000,000 in damages for the airline's
"malicious, wanton, disregard of the contract of carriage." Apparently getting no positive action from
Lufthansa, on January 21, 1985, Antiporda filed with the RTC of Quezon City a complaint against
Lufthansa. Lufthansa argued that it cannot be held liable for the acts committed by Air Kenya on the
basis of the following: (a) it merely acted as a ticket-issuing agent in behalf of Air Kenya; consequently
the contract of carriage entered into is between respondent Antiporda and Air Kenya, to the exclusion
of petitioner Lufthansa; (b) under sections (1) and (2) Article 30 of the Warsaw Convention, an airline
carrier is liable only to untoward occurrences on its own line; (c) the award of moral and exemplary
damages in addition to attorney's fees by the trial court is without basis in fact and in law.

ISSUE

Was there a breach of obligation by the defendant in failing to transport the plaintiff from Manila to
Blantyre, Malawi, Africa?
RULING

This case is one of a contract of carriage. And the ticket issued by the defendant to the plaintiff is the
written agreement between the parties herein. From the ticket, therefore, it is indubitably clear that it
was the duty and responsibility of the defendant Lufthansa to transport the plaintiff from Manila to
Blantyre, on a trip of five legs. SC rejected Lufthansa's theory that from the time another carrier was
engaged to transport Antiporda on another segment of his trip, it merely acted as a ticket-issuing agent
in behalf of said carrier. Although the contract of carriage was to be performed by several air carriers,
the same is to be treated as a single operation conducted by Lufthansa because Antiporda dealt
exclusively with it which issued him a Lufthansa ticket for the entire trip. By issuing a confirmed ticket,
Lufthansa in effect guaranteed Antiporda a sure seat with Air Kenya. Private respondent Antiporda,
maintained the Court of Appeals, had the right to expect that his ticket would be honored by Air Kenya
which, in the legal sense, Lufthansa had endorsed and, in effect, guaranteed the performance of its
principal engagement to carry out his five-leg trip. Lufthansa cannot claim that its liability thereon
ceased at Bombay Airport and thence, shifted to the various carriers that assumed the actual task of
transporting said private respondent. The appellate court also ruled that Lufthansa cannot rely on
Sections (1) and (2), Article 30 of the Warsaw Convention because the provisions thereof are not
applicable under the circumstances of the case. Sections (1) and (2), Article 30 of the Warsaw
Convention provide: (1) In the case of transportation to be performed by various successive carriers and
falling within the definition set out in the third paragraph of Article I, each carrier who accepts
passengers, baggage, or goods shall be subject to the rules set out in the convention, and shall be
deemed to be one of the contracting parties to the contract of transportation insofar as the contract
deals with that part of the transportation which is performed under his supervision. (2) In the case of
transportation of this nature, the passenger or his representative can take action only against the carrier
who performed the transportation during which the accident or the delay occurred, save in the case
where, by express agreement, the first carrier has assumed liability for the whole journey. Antiporda's
cause of action is not premised on the occurrence of an accident or delay as contemplated under
Section 2 of said Article but on Air Kenya's refusal to transport him in order to accommodate another.
The provision does not contemplate the instance of "bumping-off" but merely of simple delay,it cannot
provide a handy excuse for Lufthansa as to exculpate it from any liability to Antiporda. In justifying its
award of moral and exemplary damages, the lower court emphasized that the breach of contract was
"aggravated by the discourteous and highly arbitrary conduct of an official of petitioner Lufthansa in
Bombay." . . . . Bumped off from his connecting flight to Nairobi and stranded in the Bombay Airport for
32 hours, not even Lufthansa office in Bombay, after learning plaintiff's being stranded in Bombay and
his accommodation problem, provided any relief to plaintiff's sordid situation. It was a pathetic sight
that he, tasked to perform consultancy work in a World Bank found himself stranded in a foreign land
where nobody was expected to help him in his predicament except the defendant, who displayed utter
lack of concern of its obligation to the plaintiff and left plaintiff alone in his misery at the Bombay
airport.

American Airlines vs. Court of Appeals G.R. Nos. 116044-45,

March 9, 2000
Thursday, January 29, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Commercial Law
FACTS: Private Respondent purchased from Singapore Airlines in Manila
conjunction tickets for Manila-Singapore-Athens-Larnaca-Rome-Turin-Zurich-
Geneva-Copenhagen-New York. In Geneva, private respondent decided to go
straight to New York and in the absence of a direct flight in his conjunction
ticket for a one-way from Geneva-New York from the petitioner airline.
Petitioner issued its own ticket to the private respondent in Geneva and claimed
the value of the unused portion of the conjunction ticket from the IATA 2
clearing house in Geneva. In 1989, petitioner filed an action for damages before
the RTC of Cebu for the alleged mental anguish and embarrassment he suffered
from at the Geneva airport when petitioner’s security officers prevented him
from boarding the plane, detained him for about an hour and allowed him to
board the place only after all the other passengers have boarded.

ISSUE: Does RTC of Cebu have jurisdiction to take cognizance of the

action for damages filed by private respondent against petitioner in view of Art
28 (1) of the Warsaw Convention?

HELD: Yes. The Warsaw Convention to which the Philippines is a party

and which has the force and effect of the law in this country applies to all
international transportation of persons, baggage or goods performed by an
airline gratuitously or for hire. Article 28(1) of the Warsaw Convention provides:
An action for damages must be brought at the option of the plaintiff, in the
territory of one of the High Contracting Parties, either before the court of the
domicile of the carrier of his principal place of business or where he has a place
of business through which the contract has been made, or before the court at
the place of destination.

The contract of carriage between the private respondent and Singapore Airlines
although performed by different carriers under a series of airline tickets,
including that issued by petitioner, constitutes a single operation. Members of
the IATA are under a general pool partnership agreement wherein they act as
agent of each other in the issuance of tickets to contracted passengers to boost
ticket sales worldwide at the same time provides passengers easy access to
airlines which are otherwise inaccessible in some parts of the world. Thus, when
the petitioner accepted the unused portion of the conjunction tickets, entered it
in the IATA clearing house and undertook to transport the private respondent
over the route covered by the unused portion of the conjunction tickets, it
tacitly recognized its commitment under the IATA pool arrangement to act as
agent of the principal contracting airlines, Singapore Airlines, as to the segment
of the trip the petitioner agreed to undertake. As thus, the petitioner thereby
assumed the obligation to take the place of the carrier originally designated in
the original conjunction ticket.

The third option of the plaintiff under Art 28 (1) of the Warsaw Convention e.g.,
to sue in the place of business of the carrier where the contract was made , is
Manila, and Philippine courts are clothed with jurisdiction to try this case. While
the case is filed in Cebu and not in Manila the issue of venue is no longer an
issue as the petitioner is deemed to have waived it when it presented evidence
before the trial court.
MAPA v. CA G.R. No. 122308; July 8, 1997 Contract of International Transportation CASE: Sps.
Mapa entered into a contract of air transportation with TWA evidenced by tickets purchased in
Thailand (place of destination: Chicago, USA). Domicile of TWA (carrier) and its place of business
are Kansas, Missouri, USA. Mrs. Purita Mapa and their daughter left Manila on board PAL flight for
Los Angeles. Upon arrival at LA, they stayed their until they left for New York. They deported for
Boston, taking a connecting flight on TWAs carrier from JFK Airport, NY, to Bostons Logan Airport,
checking in seven (7) pieces of luggage at the TWA counter in the JFK Airport. After they had
presented their confirmed TWA tickets at TWAs ticket counter, they were issued their boarding
passes. However, due to an error in the boarding gate (as they were wrongly instructed by TWA
personnel), they were not able to board the plane. Upon arriving in Boston, they proceeded to the
carousel to claim their baggages and found only three out of the seven they checked in. They
immediately reported the loss of their 4 baggages to the TWA Baggage Office at Logan Airport.
Despite repeated demands, they were still unable to recover the lost baggages so, Sps Mapa and
their daughter then filed with RTC-QC, a complaint for damages. TWA countered raising, as special
and affirmative defense, lack of jurisdiction of PH courts over the action for damages in that pursuant
to Article 28(1) of the Warsaw Convention, the action could only be brought either in Bangkok where
the contract was entered into, or in Boston which was the place of destination, or in Kansas City
which is the carrier's domicile and principal place of business. RTC dismissed the case for lack of
JD. The issue in this case is whether or not the contracts of transportation between Purita and
Carmina Mapa and TWA were contracts of international transportation under the Warsaw
Convention. SC ruled that it is not a contract of international transportation under Warsaw
Convention. The contracts of transportation in this case are evidenced by the two TWA tickets both
purchased and issued in Bangkok, Thailand. On the basis alone of the provisions therein, it is
obvious that the place of departure and the place of destination are all in the territory of the United
States, or of a single High Contracting Party. The contracts, therefore, cannot come within the
purview of the first category of international transportation. Neither can it Transportation Law Case
Digests | Atty. Norianne Tan | 2016 Lim Miranda Rivera Santos Yogue be under the second category
since there was NO agreed stopping place within a territory subject to the sovereignty, mandate, or
authority of another power. (please full ratio for better understanding. Juicecolored, ang jirap
isumarize neto talaga).

FACTS: Sps. Mapa entered into contract of air transportation with TWA as evidenced by TWA
tickets purchased in Bangkok, Thailand. Said TWA tickets are for Los Angeles-New York-Boston-St.
Louis-Chicago. o Domicile of carrier TWA and its principal place of business is Kansas City,
Missouri, USA. The place of destination is Chicago, USA. Mrs. Purita Mapa and Carmina (Sps
Mapas dughter) left Manila on board PAL flight No. 104 for Los Angeles. Carmina was to commence
schooling at Boston University and thus was accompanied by Purita to assist her in settling down at
the University. They arrived in Los Angeles on the same date and stayed there until they left for New
York City. Purita and Carmina arrived at the John F. Kennedy (JFK) Airport, New York, on TWA
Flight No. 904. They departed for Boston, taking a connecting flight on TWAs carrier from JFK
Airport, NY, to Boston Logan Airport, checking in seven (7) pieces of luggage at the TWA counter in
the JFK Airport. TWA baggage receipts were issued therefor. After they had presented their
confirmed TWA tickets (with departure at 3 pm) at TWAs ticket counter, they were issued their
boarding passes and were instructed to proceed to gate 35 for boarding. However, upon plaintiffs
inquiry, they were informed that they were at the wrong gate (gate 1 dapat). At gate 1, they were told
that their flight had just departed. They were able to board in the next plane. Upon arriving in Boston,
they proceeded to the carousel to claim their baggages and found only three out of the seven they
checked in. They immediately reported the loss of their 4 baggages to TWA. Plaintiffs received a
letter from TWA apologizing for TWAs failure to locate the missing luggage and requesting plaintiffs
to accomplish a passenger property questionnaire to facilitate a further intensive and computerized
search for the lost luggage. Plaintiffs duly accomplished the passenger property questionnaire. TWA
was still unable to locate the missing baggages. Despite demands by Sps. Mapa, TWA failed and
refused to indemnify and redress plaintiffs for the grave injury and damages they have suffered. Sps
Mapa and their daughter then filed with RTC-QC, a complaint for damages. TWA filed its Answer
raising, as special and affirmative defense, lack of jurisdiction of Philippine courts over the action for
damages in that pursuant to Article 28(1) of the Warsaw Convention, the action could only be
brought either in Bangkok where the contract was entered into, or in Boston which was the place of
destination, or in Kansas City which is the carrier's domicile and principal place of business. TC
issued an Order dismissing the case for lack of jurisdiction in light of Article 28(1) of the Warsaw
Convention. TC held that page 2 of Passenger Property Questionnaire accomplished by plaintiffs
under the heading "Your Complete Itinerary" shows that the TWA tickets issued to the plaintiffs form
part of the contract of transportation to be performed from Manila to the United States. Since the
Philippines and the United States are parties to the convention, plaintiffs' contracts of transportation
come within the meaning of International Transportation. Sps. Mapa appealed to CA, contending
that: o RTC erred in not holding that it has jurisdiction over the instant case and that the Warsaw
Convention is inapplicable because the contracts they had with TWA did not involve an international
transportation; and o Their cause of action could be based on brach of contract of air carriage
founded on Arts. 1733-1735, 1755, and 1756 of the New Civil Code governing common carriers or
Art. 2176 of the same code governing torts/quasi-delict. CA affirmed RTC.
ISSUE: 1. whether the contracts of transportation between Purita and Carmina Mapa and TWA were
contracts of international transportation under the Warsaw Convention. NO! HENCE, WARSAW
CONVENTION IS NOT APPLICABLE

PHILIPPINE AIRLINES, INC., petitioner, vs. HON. ADRIANO SAVILLO, Presiding Judge of RTC Branch 30 ,
Iloilo City, and SIMPLICIO GRIÑO, respondents. G.R. No. 149547, July 4, 2008, THIRD DIVISION CHICO-
NAZARIO, J. Article 19 of the Warsaw Convention provides for the liability on the part of a carrier for
“damages occasioned by delay in the transportation by air of passengers, baggage or goods.” Article 24
excludes other remedies by further providing that “(1) in the other cases covered by Articles 18 and 19,
any action for damages, however founded, can only be brought subject to the conditions and limits set
out in the convention.” Therefore, a claim covered by the Warsaw Convention can no longer be
recovered under local law, if the statute of limitations of two years has already lapsed. Nevertheless, the
Court notes that jurisprudence in the Philippines and the United States also recognizes that the Warsaw
Convention does not “exclusively regulate” the relationship between passenger and carrier on an
international flight. The Court finds that the present case is substantially similar to cases in which the
damages sought were considered to be outside the coverage of the Warsaw Convention.

FACTS: Grino, who was about to participate in a golf tournament in Jakarta, purchased tickets from PAL
with the following points of passage: Manila-Singapore-Jakarta-Singapore-Manila. PAL: Manila to
Singapore Singapore Airlines: Singapore to Jakarta 3 October 1993: In Singapore, however, Singapore
Airlines rejected the tickets of Grino and his group because they were NOT endorsed by PAL – Grino
tried to contact PAL’s airport office, but it was closed. Eventually, Grino, et al had to purchase tickets
from another airline. Because of the ordeal, Grino got sick and was unable to participate in the golf
tournament.

15 August 1997: When PAL and Singapore Airlines both disowned liability and instead blamed the other
– Grino filed a complaint for damages against PAL, seeking compensation for moral damages. PAL: filed
a Motion to Dismiss – arguing that the complaint was barred by prescription under the Warsaw
Convention. (Art. 29: 2 year prescriptive period) PAL had received the demand letter on 25 January 1994
– more than 3 years prior to the filing of the complaint. RTC: DENIED the MtD – NCC and other pertinent
laws of the Philippines – NOT the Warsaw Convention – was applicable. CA: DISMISSED the petition for
certiorari filed by PAL – held that Art. 1144 of the NCC (10 year prescriptive period) was applicable.

ISSUE 1. Was the complaint barred?

RULING 1. NO. The 2 year prescriptive period under the Warsaw Convention does NOT apply – instead,
what applies is the 4 year prescriptive period under the NCC (for actions based on torts). The Warsaw
Convention applies to "all international transportation of persons, baggage or goods performed by any
aircraft for hire" – its cardinal purpose is to provide uniformity of rules governing claims arising from
international air travel, thus, it precludes a passenger from maintaining an action for personal injury
damages under local law when his or her claim does not satisfy the conditions of liability under the
Convention. The Warsaw Convention applies to "all international transportation of persons, baggage or
goods performed by any aircraft for hire" – its cardinal purpose is to provide uniformity of rules
governing claims arising from international air travel, thus, it precludes a passenger from maintaining an
action for personal injury damages under local law when his or her claim does not satisfy the conditions
of liability under the Convention. Article 19 of the Warsaw Convention provides for the liability on the
part of a carrier for “damages occasioned by delay in the transportation by air of passengers, baggage or
goods.” Article 24 excludes other remedies by further providing that “(1) in the other cases covered by
Articles 18 and 19, any action for damages, however founded, can only be brought subject to the
conditions and limits set out in the convention.” Therefore, a claim covered by the Warsaw Convention
can no longer be recovered under local law, if the statute of limitations of two years has already lapsed.
Nevertheless, the Court notes that jurisprudence in the Philippines and the United States also recognizes
that the Warsaw Convention does not “exclusively regulate” the relationship between passenger and
carrier on an international flight. The Court finds that the present case is substantially similar to cases in
which the damages sought were considered to be outside the coverage of the Warsaw Convention. In
United Airlines v. Uy, the Court Distinguished between the (1) damage to the passenger’s baggage and
(2) the humiliation he suffered at the hands of the airline’s employees. The first cause of action was
covered by the Warsaw Convention which prescribes in two years, while the second was covered by the
provisions of the Civil Code on torts, which prescribes in four years. Had the present case merely
constituted of claims incidental to the airline’s delay in transporting their passengers, Grino’s Complaint
would have been time-barred under Article 29 of the Warsaw Convention. In this case, Grino’s
complaint alleged that both PAL and Singapore Airlines were guilty of gross negligence, which resulted in
his being subjected to "humiliation, embarrassment, mental anguish, serious anxiety, fear and distress."
The emotional harm suffered by the private respondent as a result of having been unreasonably and
unjustly prevented from boarding the plane SHOULD BE DISTINGUISHED FROM the actual damages
which resulted from the same incident. Under NCC (Torts): emotional harm gives rise to compensation
where gross negligence or malice is proven. Singapore Airlines allegedly barred Grino from boarding the
Singapore Airlines flight because PAL allegedly failed to endorse the tickets of private respondent and
his companions, despite PAL's assurances to respondent that Singapore Airlines had already confirmed
their passage. An action based on these allegations will not fall under the Warsaw Convention, since the
purported negligence on the part of PAL did not occur during the performance of the contract of
carriage but days before the scheduled flight – THUS, the 2 year prescriptive period under the Warsaw
Convention does NOT apply. Covered by NCC provisions on Tort: applicable prescriptive period is 4 years
(Art. 1146). NOTE: Had the present case merely consisted of claims incidental to the airlines' delay in
transporting their passengers, the private respondent's Complaint would have been time-barred under
Article 29 of the Warsaw Convention.

United Airlines vs. Uy

 on 7:36 AM  in Civil Law, Private International Law 
 0

G.R. No. 127768, Nov. 19, 1999

INTERNATIONAL LAW: Applicability of the Warsaw Convention: the Convention's
provisions do not regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some particular or exceptional
type of damage. Neither may the Convention be invoked to justify the disregard of some
extraordinary sort of damage resulting to a passenger and preclude recovery therefor
beyond the limits set by said Convention. Likewise, we have held that the Convention
does not preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for violating the rights
of its passengers under the contract of carriage, especially if willful misconduct on the
part of the carrier's employees is found or established

FACTS:

October 13, 1989 – Respondent Willie Uy is a passenger of petitioner United Airlines,

bound from San Francisco to Manila. While in San Francisco, it was found that one
piece of his luggage was over the maximum weight allowance of 70 kg. per bag. A
United Airlines employee rebuked him and in a loud voice, in front of the milling crowd,
ordered him to repack his things accordingly. Wishing not to create a scene, Willie did
as asked. Unfortunately, his luggage was still overweight so the airline billed him
overweight charges. Willie offered to pay the charges with a Miscellaneous Charge
Order (MCO) or an airline pre-paid credit but the same employee, and an airline
supervisor, refused to honor it, contending that there were discrepancies in the figures.
Thus, Willie was forced to pay the charges with his American Express credit card. Upon
arrival in Manila, Willie discovered that one of his bags had been slashed and its
contents, amounting to US$5,310.00, stolen.

October 16, 1989 – he sent his first letter of demand to United Airlines. The airline did
not refute Willie’s allegations and mailed a check representing payment of his loss
based on the maximum liability of US$9.70 per pound. Willie, thinking the amount to be
grossly inadequate to compensate him for his losses as well as for the indignities he
was subjected to, sent two more letters to petitioner airline, one dated January 4, 1990
and the other dated October 28, 1991, demanding out-of-court settlement of
P1,000,000.00.

June 9, 1992 – Willie filed a complaint for damages before the Philippine courts. He had
two causes of action: (1) the shabby and humiliating treatment he received from
petitioner’s employees at the San Francisco Airport which caused him extreme
embarrassment and social humiliation; and (2) the slashing of his luggage and the loss
of personal effects amounting to US$5,310.00.

For its part, United Airlines moved to dismiss the complaint on the ground that it was
filed out of time. Under Art. 29 of the Warsaw Convention, the right to damages shall be
extinguished if an action is not brought within 2 years. However, the second paragraph
of the said provision stated that the method of calculating the period of limitation shall
be determined by the law of the court to which the case is submitted. It is Willie’s
position that our rules on interruption of prescriptive period should apply. When he sent
his letters of demand, the 2-year period was tolled, giving him ample time to file his
complaint.

The trial court ordered the dismissal of the case, holding that Art. 29(2) refers not to the
local forum’s rules in interrupting the prescriptive period but only to the rules of
determining the time in which the action was deemed commenced (meaning “filed”).
Willie filed his motion for reconsideration of the order of dismissal only on the 14th day.
The trial court denied his motion and 2 days later Willie filed his notice of appeal. United
Airlines this time contended that the notice of appeal was filed beyond the 15-day
reglementary period and should therefore be dismissed. The CA, however, took
cognizance of the case in the interest of justice and ruled in favour of respondent.
Hence, this petition for certiorari.

ISSUE: Whether or not the action for damages is barred by the lapse of the 2-year
prescriptive period under Art. 29 of the Warsaw Convention

HELD:

Supreme Court held that although the 2-year prescriptive period under the Warsaw
Convention has lapsed, it did not preclude the application of other pertinent provisions
of the Civil Code. Thus, the action for damages could still be filed based on tort which
can be filed within 4 years from the time cause of action accrued. As for the action
pertaining to the loss of the contents of the luggage, while it was well within the bounds
of the Warsaw Convention, the Supreme Court found that there was an exception to the
applicability of the 2-year prescriptive period – that is when the airline employed
delaying tactics and gave the passenger the run-around.

Applicability of the Warsaw Convention: Courts have discretion whether to apply them
or not

Within our jurisdiction we have held that the Warsaw Convention can be applied, or
ignored, depending on the peculiar facts presented by each case. Thus, we have ruled
that the Convention's provisions do not regulate or exclude liability for other breaches of
contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. Neither may the Convention be invoked to
justify the disregard of some extraordinary sort of damage resulting to a passenger and
preclude recovery therefor beyond the limits set by said Convention. Likewise, we have
held that the Convention does not preclude the operation of the Civil Code and other
pertinent laws. It does not regulate, much less exempt, the carrier from liability for
damages for violating the rights of its passengers under the contract of carriage,
especially if willful misconduct on the part of the carrier's employees is found or
established.

Respondent's complaint reveals that he is suing on two (2) causes of action:  (a) the
shabby and humiliating treatment he received from petitioner's employees at the San
Francisco Airport which caused him extreme embarrassment and social humiliation;
and, (b) the slashing of his luggage and the loss of his personal effects amounting to US
$5,310.00.

While his second cause of action - an action for damages arising from theft or damage
to property or goods - is well within the bounds of the Warsaw Convention, his first
cause of action -an action for damages arising from the misconduct of the airline
employees and the violation of respondent's rights as passenger - clearly is not.

Action for damages arising from the misconduct of the airline employees and the
violation of the respondent’s rights as passengers is covered under the Civil Code

Consequently, insofar as the first cause of action is concerned, respondent's failure to

file his complaint within the two (2)-year limitation of the Warsaw Convention does not
bar his action since petitioner airline may still be held liable for breach of other
provisions of the Civil Code which prescribe a different period or procedure for
instituting the action, specifically, Art. 1146 thereof which prescribes four (4) years for
filing an action based on torts.

Exception to the Application of the 2-year prescriptive period: When airline employed
delaying tactics

As for respondent's second cause of action, indeed the travaux preparatories of the
Warsaw Convention reveal that the delegates thereto intended the two (2)-year
limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject to
the various tolling provisions of the laws of the forum.  This therefore forecloses the
application of our own rules on interruption of prescriptive periods.  Article 29, par. (2),
was intended only to let local laws determine whether an action had been commenced
within the two (2)-year period, and within our jurisdiction an action shall be deemed
commenced upon the filing of a complaint.  Since it is indisputable that respondent filed
the present action beyond the two (2)-year time frame his second cause of action must
be barred.  Nonetheless, it cannot be doubted that respondent exerted efforts to
immediately convey his loss to petitioner, even employed the services of two (2) lawyers
to follow up his claims, and that the filing of the action itself was delayed because of
petitioner's evasion.

Verily, respondent filed his complaint more than two (2) years later, beyond the period
of limitation prescribed by the Warsaw Convention for filing a claim for damages. 
However, it is obvious that respondent was forestalled from immediately filing an action
because petitioner airline gave him the runaround, answering his letters but not giving in
to his demands.  True, respondent should have already filed an action at the first
instance when his claims were denied by petitioner but the same could only be due to
his desire to make an out-of-court settlement for which he cannot be faulted.  Hence,
despite the express mandate of Art. 29 of the Warsaw Convention that an action for
damages should be filed within two (2) years from the arrival at the place of destination,
such rule shall not be applied in the instant case because of the delaying tactics
employed by petitioner airline itself.  Thus, private respondent's second cause of action
cannot be considered as time-barred under Art. 29 of the Warsaw Convention.

WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting
aside the appealed order of the trial court granting the motion to dismiss the complaint,
as well as its Resolution denying reconsideration, is AFFIRMED.  Let the records of the
case be remanded to the court of origin for further proceedings taking its bearings from
this disquisition.

SABENA BELGIAN WORLD AIRLINES

V CA

26 FEB
G.R. No. 104685 | March 14, 1996 | J. VITUG
 
Doctrine:
– Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reasons of
public policy, common carriers are bound to observe extraordinary diligence in the vigilance
over the goods transported by them.
– Art. 1735 establishes the presumption that if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they had observed extraordinary diligence as required in Article 1733.
– The Warsaw Convention denies to the carrier availment ‘of the provisions which exclude
or limit his liability, if the damage is caused by his wilful misconduct or by such
default on his part as, in accordance with the law of the court seized of the case, is considered to be
equivalent to wilful misconduct,’ or ‘if the damage is (similarly) caused x x x by any agent of the
carrier acting within the scope of his employment.’
 

Facts:
1. Plaintiff Ma. Paula San Agustin, herein private respondent, was a passenger on board Flight
SN 284 of defendant airline originating from Casablanca to Brussels, Belgium on her way
back to Manila. She checked in her luggage which contained her valuables, namely: jewelries
valued at $2,350.00; clothes $1,500.00; shoes/bag $150; accessories $75; luggage itself
$10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She stayed
overnight in Brussels and her luggage was left on board Flight SN 284.
2.  She arrived at Manila International Airport and immediately submitted her Tag No. 71423
but her luggage was missing.  She was advised to accomplish and submit a property
Irregularity Report which she submitted and filed on the same day but when her luggage
could not be found, she filed a formal complaint with defendant’s Local Manager.
3. Subsequently, plaintiff was furnished copies of telexes of defendant’s Brussel’s Office that the
latter found her luggage and that they have broken the locks for identification. Plaintiff was
assured by the defendant that it has notified its Manila Office that the luggage will be shipped
to Manila. But unfortunately plaintiff was informed that the luggage was lost for the second
time.
4. Plaintiff demanded from the defendant the money value of the luggage and its contents or its
exchange value, but defendant refused to settle the claim. Defendant asserts in its Answer
 and its evidence tend to show that while it admits that the plaintiff was a passenger with a
piece of checked in luggage, the loss of the luggage was due to plaintiff’s sole if not
contributory negligence.
5. Petitioner airline company, in contending that the alleged negligence of private respondent
should be considered the primary cause for the loss of her luggage, avers that, despite her
awareness that the flight ticket had been confirmed only for Casablanca and Brussels, and
that her flight from Brussels to Manila had yet to be confirmed, she did not retrieve the
luggage upon arrival in Brussels. Petitioner insists that private respondent, being a seasoned
international traveler, must have likewise been familiar with the standard provisions
contained in her flight ticket that items of value are required to be hand-carried by the
passenger and that the liability of the airline or loss, delay or damage to baggage would be
limited, in any event, to only US$20.00 per kilo unless a higher value is declared in advance
and corresponding additional charges are paid thereon.  At the Casablanca International
Airport, private respondent, in checking in her luggage, evidently did not declare its contents
or value, pursuant to Section 5(c), Article IX, of the General Conditions of Carriage, which
states that: “Passengers shall not include in his checked baggage, and the carrier may refuse
to carry as checked baggage, fragile or perishable articles, money, jewelry, precious metals,
negotiable papers, securities or other valuables.”
6.  The trial court rendered judgment ordering Sabena Belgian World Airlines to pay private
respondent. Sabena appealed but the CA affirmed in toto the trial court’s judgment, hence
the present petition for review.
 

Issue:
W/N the airline is liable for the lost luggage

Held:
Yes. Fault or negligence consists in the omission of that diligence which is demanded by the nature
of an obligation and corresponds with the circumstances of the person, of the time, and of the
place.  When the source of an obligation is derived from a contract, the mere breach or non-
fulfillment of the prestation gives rise to the presumption of fault on the part of the obligor.  This rule
is not different in the case of common carriers in the carriage of goods which, indeed, are bound to
observe not just the due diligence of a good father of a family but that of “extraordinary” care in the
vigilance over the goods.
The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the
loss, destruction, or deterioration of the goods is due to any of the following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.’

Not one of the above excepted causes obtains in this case.

The airline cannot invoke the tort doctrine of proximate cause because the private respondent’s
luggage was lost while it was in the custody of petitioner. The “loss of said baggage not only once by
twice,” said the appellate court, “underscores the wanton negligence and lack of care” on the part of
the carrier. The above findings foreclose whatever rights petitioner might have had to the possible
limitation of liabilities enjoyed by international air carriers under the Warsaw Convention.

In Alitalia vs. Intermediate Appellate Court, the Court held that “the Warsaw Convention however
denies to the carrier availment ‘of the provisions which exclude or limit his liability, if the damage is
caused by his wilful misconduct or by such default on his part as, in accordance with the law of the
court seized of the case, is considered to be equivalent to wilful misconduct,’ or ‘if the damage is
(similarly) caused x x x by any agent of the carrier acting within the scope of his employment.’
The Hague Protocol amended the Warsaw Convention by removing the provision that if the airline
took all necessary steps to avoid the damage, it could exculpate itself completely, and declaring the
stated limits of liability not applicable ‘if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and
with knowledge that damage would probably result.’ The same deletion was effected by the Montreal
Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of
wilful misconduct.

The Convention does not thus operate as an exclusive enumeration of the instances of an airline’s
liability, or as an absolute limit of the extent of that liability. It should be deemed a limit of liability
only in those cases where the cause of the death or injury to person, or destruction, loss or damage to
property or delay in its transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness or otherwise improper conduct on the part of any official or employee for which
the carrier is responsible, and there is otherwise no special or extraordinary form of
resulting injury. Decision appealed from AFFIRMED.

G.R. No. 120334. January 20, 1998

NORTHWEST AIRLINES, INC. Petitioner, v.  COURT OF APPEALS

and ROLANDO I. TORRES, Respondents.

G.R. No. 120337. January 20, 1998

ROLANDO I. TORRES, Petitioner, v. COURT OF APPEALS and

NORTHWEST AIRLINES, INC., Respondents.

DECISION

DAVIDE, JR., J.:

Unable to accept the decision of the Court of Appeals in CA-G.R. CV

No. 24068,1 petitioner Northwest Airlines, Inc., (hereafter
NORTHWEST) and petitioner Rolando I. Torres (hereafter TORRES)
filed separate petitions for review under Rule 45 of the Rules of
Court, which were docketed as G.R. No. 120334 and G.R. No.
120337 and thereafter consolidated.

The antecedents of these cases were summarized by the Court of

Appeals as follows:2 cräläwvirtualibräry
The plaintiff, [Torres], allegedly on a special mission to purchase
firearms for the Philippine Senate, purchased a round trip ticket
from defendant [Northwest] for his travel to Chicago and back to
Manila. Via defendants flight, plaintiff left for United States.

After purchasing firearms and on the way back to Manila, plaintiff

checked-in and presented before defendants representative his two
identical baggage, one of which contained firearms. Defendants
representative required the baggage to be opened and the
supporting evidence to be presented. Plaintiff showed them his
authorization from the Philippine government and the purchase
receipts. Plaintiff thereafter sealed the baggage and defendants
representative placed a red tag on the baggage with firearms with
the marking "CONTAINS FIREARMS".

Upon arrival in Manila on June 22, 1988 plaintiff was not able to
claim one of his baggages. Plaintiff was informed by defendants
representative that his baggage containing firearms was recalled
back to Chicago by defendant for US Customs verification. A telex to
this effect was shown to plaintiff.

On June 28, 1988, after being advised of the arrival of his other
baggage, plaintiff claimed and opened the baggage in the presence
of defendants representative and found out that the firearms were
missing. A Personal Property Missing Damage Report was issued by
defendant to plaintiff.

On account of the continuous refusal of defendant to settle

amicably, plaintiff then prayed before the trial court that defendant
be ordered to pay actual damages, moral damages, temperate
damages, exemplary damages and attorney's fees (pp. 1-6,
Complaint; p. 1, Record).

In its answer, defendant pleaded: a) that it was the agents from the
US Customs who ordered for the return of the weapons which
plaintiff checked-in; b) that when opened in the presence of US
Customs agents the box contained no firearms; and c) that since
the baggage which was returned back to Chicago did not contain
any firearms, then the baggage which plaintiff received upon arrival
in Manila must have contained the firearms (pp. 3-5, Answer; pp.
32-34, Record).

After plaintiff had presented its evidence, defendant filed a "Motion

to Dismiss (By Way of Demurrer to the Evidence with Motion for
Summary Judgment)" dated April 24, 1989.

In said motion, defendant moved for the dismissal of the complaint

in so far as it prays for moral, exemplary and temperate damages
and attorney's fees and further moved for "Summary Judgment to
be rendered awarding the plaintiff $640.00 as actual damages."
(Motion to Dismiss By Way of Demurrer to Evidence with Motion for
Summary Judgment; p. 115, Records).

Plaintiff on the other hand, offered no objection to the submission of

the case for decision but insisted that he is entitled to damages as
prayed for (p. 1, Comment on Defendant's Motion to Dismiss by
Way of Demurrer to Evidence with Summary Judgment; pp. 136-
169, Records).

We add to this summary the following relevant matters:

NORTHWEST argued in its motion for summary judgment that the

Warsaw Convention and the contract of carriage limited its liability
to US$640 and that the evidence presented by TORRES did not
entitle him to moral, exemplary, and temperate damages and
attorneys fees.3cräläwvirtualibräry

Instead of just ruling on NORTHWESTs Motion to Dismiss (By Way

of Demurrer to Evidence) with Motion for Summary Judgment,
which it considered submitted for resolution in the order of 14 June
1989,4 the trial court rendered on 13 September 1989 a full-blown
decision5 ordering NORTHWEST to pay TORRES the following
amounts:

1. The amount of $9,009.32, with legal interest thereon from the

date of the filing of the complaint, in its peso equivalent at the
official rate of exchange at the time payment is made, representing
the value of the goods lost by the plaintiff;
2. The amount of P100,000.00 by way of attorney's fees;

3. The amount of P5,181.09 as filing fees paid by the plaintiff and

the amount of P20,000.00 for expenses of litigation, representing
travel expenses and hotel accommodations of plaintiff's counsels;
and

4. The amount of P50,000.00 as moral damages.

The award of US$9,009.32, representing the value of the lost

firearms, was grounded on the trial courts finding that the act of
[NORTHWESTs] personnel in Tokyo or Narita Airport in just
guessing which baggage contained the firearms was careless and
imprudent, amounting to careless disregard for the safety of the
luggage of the passenger. According to the trial court, such act
constituted willful misconduct which brought the case beyond the
application of Section 22(2) of the Warsaw Convention, thereby
depriving NORTHWEST of the limitation of the liability provided for
in said section.

The awards of attorneys fees and expenses of litigation were

premised on NORTHWESTs having ignored the demands of TORRES
forcing the latter to litigate in order to assert his right. TORRES was
also awarded moral damages because of the inconvenience, anxiety
and worry he suffered by reason of NORTHWESTs unjustifiable
refusal to settle his claim.

Both TORRES and NORTHWEST appealed from the decision to the

Court of Appeals, which docketed the case as CA-G.R. CV No.
24068. Torres assailed the failure of the trial court to award the
actual, moral, and exemplary damages prayed for by
him.6 Northwest, on the other hand, alleged that in prematurely
resolving the case on the merits the court prevented it from
presenting evidence, thereby denying it due process; and that even
assuming that the trial court could resolve the entire case on the
merits, it erred in awarding damages, attorneys fees, and expenses
of litigation.7
cräläwvirtualibräry

In its Decision8 of 14 September 1994, the Court of Appeals

sustained the trial courts judgment that TORRES was entitled to
actual damages, since NORTHWEST had, in effect, admitted the loss
of the firearms when it insisted that its liability was limited to $9.07
per pound or $20 per kilo. The appellate court then concluded that
NORTHWESTs guessing of which luggage contained the firearms
amounted to willful misconduct under Section 25(1) of the Warsaw
Convention which entitled TORRES to claim actual damages in
excess of the limitation provided for under Section 22(2) of said
Convention.

Nevertheless, the Court of Appeals held that while the trial court
properly ruled on the right of TORRES to actual damages, it erred in
determining by way of summary judgment the amount of damages;
for under Section 3 of Rule 34 of the Rules of Court, a summary
judgment may be rendered upon proper motion except as to the
amount of damages.

As to the trial courts act of disposing of the entire case by way of

summary judgment, the Court of Appeals noted that NORTHWEST
categorically moved for summary judgment only on the issue of
actual damages, but not on the claims for moral damages and
attorneys fees. NORTHWEST moved for the dismissal of the latter
claims by way of demurrer to evidence. That being so, the trial
court could not, by way of summary judgment, dispose of the case
on its entirety. Section 2 of Rule 34 of the Rules of Court required
that summary judgment should be issued only after the motion
therefor has been heard. Since there was no such motion as to the
claims for moral damages and attorneys fees, no summary
judgment thereon could be made.

Anent the demurrer to evidence, the Court of Appeals held that the
trial court had to either grant or deny it. If granted, no award
therefor could have been validly made. If denied, then under
Section 1 of Rule 35 of the Rules of Court, NORTHWEST should have
been allowed to present its evidence, as it was not deemed to have
waived that right. This section provided:

SECTION 1. Effect of judgment on demurrer to evidence. -- After

the plaintiff has completed the presentation of his evidence, the
defendant without waiving his right to offer evidence in the event
the motion is not granted, may move for a dismissal on the ground
that upon facts and the law the plaintiff has shown no right to relief.
However, if the motion is granted and order of dismissal is reversed
on appeal, the movant loses his right to present evidence in his
behalf.9
cräläwvirtualibräry

The Court of Appeals then held that since the demurrer was
impliedly denied by the trial court, NORTHWEST should have been
allowed to present its evidence in accordance with the above rule.

Accordingly, the Court of Appeals affirmed the trial courts finding as

to the right of TORRES to actual damages but set aside the rest of
the appealed decision. It then remanded the case to the court a
quo for further proceedings.

On 23 May 1995, the Court of Appeals denied10 NORTHWESTs

motion for a partial reconsideration of the decision.

Hence, the present petitions.

NORTHWEST contests the right of TORRES to actual damages on

the following grounds: (1) the loss of firearms was disputed; (2) the
finding of willful misconduct was arbitrary; and (3) TORRES failed to
produce a United States license for the shipment of the firearms;
hence, the importation was illegal and no damages could arise
therefrom.

TORRES, on the other hand, claims that the Court of Appeals erred
(1) in setting aside the appealed decision of the court a quo as to
the awards of damages, attorneys fees, and cost of suit; (2) in
remanding the case to the court a quo for further proceedings; and
(3) in failing to award other damages for breach of contract and
willful misconduct committed by Northwest for mishandling the
cargo.

NORTHWESTs Motion to Dismiss (By Way of Demurrer to Evidence)

with Motion for Summary Judgment involved two distinct and
separate processes, viz: (1) demurrer to evidence, which was then
governed by Rule 35, now by Rule 33; and (2) motion for summary
judgment, which was then governed by Rule 34, now Rule 35, of
the Rules of Court. The subject of the demurrer were the claims for
moral, exemplary, and temperate damages and attorneys fees;
while the target of the motion for summary judgment was the claim
for actual damages.

We agree with the Court of Appeals in its holding that the trial court
erred in deciding the entire case on its merits. Indeed, as to the
demurrer to evidence, the trial court should have been solely guided
by the procedure laid down in the abovementioned rule on demurrer
to evidence. It had no choice other than to grant or to deny the
demurrer. It could not, without committing grave abuse of
discretion amounting to excess of jurisdiction, deny the motion and
then forthwith grant TORRES claims on a finding that TORRES has
established a preponderance of evidence in support of such claims.
In the instant case, the trial court did just that insofar as moral
damages, attorneys fees, and expenses of litigation were
concerned. What it should have done was to merely deny the
demurrer and set a date for the reception of NORTHWESTs evidence
in chief.

As to the motion for summary judgment, both the trial court and
the Court of Appeals were in error . Summary judgments were
formerly governed by Rule 34 of the Rules of Court. The rule is now
Rule 35 of the 1987 Rules of Civil Procedure with the amendments
allowing the parties to submit not only affidavits but also
depositions or admissions in support of their respective
contentions.11 Motions for summary judgment may be filed by the
claimant or by the defending party. Sections 1, 2, and 3 of the old
Rule 34, the governing law in this case, provided as follows:

SECTION 1. Summary judgment for claimant. -- A party seeking to

recover upon a claim, counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the pleading in answer
thereto has been served, move with supporting affidavits for a
summary judgment in his favor upon all or any part thereof.

SEC. 2. Summary judgment for defending party. -- A party against

whom a claim, counterclaim, or cross-claim is asserted or a
declaratory relief is sought may, at any time, move with supporting
affidavits for a summary judgment in his favor as to all or any part
thereof.
SEC. 3. Motion and proceedings thereon. -- The motion shall be
served at least ten (10) days before the time specified for the
hearing. The adverse party prior to the day of hearing may serve
opposing affidavits. After the hearing, the judgment sought shall be
rendered forthwith if the pleadings, depositions, and admissions on
file together with the affidavits, show that, except as to the amount
of damages, there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.

NORTHWEST, the defending party,  moved for summary judgment

on the claim for actual damages after TORRES had presented his
evidence in chief. This was allowed by Section 2 where the motion
may be filed at any time, as distinguished from section 1 where
the claimant, like TORRES, may file the motion at any time after the
answer is filed.

Summary judgment is allowed if, except as to the amount of

damages, there is no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law.

In this case, NORTHWEST denied in its Answer the material

allegations in the complaint and asserted, in fact, that it was not
liable for actual damages because the box containing the alleged
lost firearms was the one received by TORRES when he arrived in
Manila. It likewise contended that, even granting that the firearms
were lost, its liability was limited by the Warsaw Convention and the
contract of transportation to $9.07 per pound, or a total of $640 as
the box weighed 70 pounds.12 It also denied having acted
fraudulently or in bad faith.13
cräläwvirtualibräry

In thus submitting for summary judgment the matter of its liability

only to the maximum allowed in Section 22(2) of the Warsaw
Convention, NORTHWEST was deemed to have hypothetically
admitted arguendo that the firearms were lost. It did not waive the
presentation of evidence that it was not in fact liable for the alleged
loss of firearms. And even if it were so liable, NORTHWEST could
still prove at the appropriate time that it was not liable beyond the
maximum provided in said Section 22(2). Notably, TORRES prayed
for actual damages in the amounts of (1) $9,009.32 representing
the value of the lost firearms; and (2) P39,06514 representing the
cost of his plane tickets.

Concretely then, there remained a genuine issue on the fact and

amount of actual damages. The motion for summary judgment was
not therefore in order. NORTHWEST must have resorted to it, in like
manner as it did in filing the demurrer, to delay the progress of the
trial of the case. Verily, it was grave abuse of discretion on the part
of the trial court to grant such motion and award TORRES actual
damages commensurate to the value of the firearms and based on
his evidence alone.

We, however, agree with both the trial court and the Court of
Appeals that NORTHWESTs liability for actual damages may not be
limited to that prescribed in Section 22(2) of the Warsaw
Convention. In Alitalia v. Intermediate Appellate Court,15 we held:

The [Warsaw] Convention does not operate as an exclusive

enumeration of the instances of an airlines liability, or as an
absolute limit of the extent of that liability. Such a proposition is not
borne out by the language of the Convention, as this Court has now,
and at an earlier time, pointed out. Moreover, slight reflection
readily leads to the conclusion that it should be deemed a limit of
liability only in those cases where the cause of the death or injury to
person, or destruction, loss or damage to property or delay in its
transport is not attributable to or attended by any willful
misconduct, bad faith, recklessness, or otherwise improper conduct
on the part of any official or employee for which the carrier is
responsible, and there is otherwise no special or extraordinary form
of resulting injury. The Conventions provisions, in short, do not
regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage.

IN VIEW WHEREOF, judgment is hereby rendered (1) PARTLY

GRANTING the petition in G.R. No. 120334 by setting aside that
portion of the challenged decision of the Court of Appeals in CA-G.R.
CV No. 24068 affirming the summary judgment as to the right of
respondent ROLANDO I. TORRES to actual damages; (2) DENYING
for want of merit the petition in G.R. No. 120337; and (3)
REMANDING this case to the trial court for the reception of the
evidence for Northwest Airlines, Inc. in Civil Case No. 88-46117
and, thereafter, for the rendition of the judgment therein on the
merits.

No pronouncement as to costs.

 ABOUT

 ASK

 SUBMIT

Sabena Belgian World Airlines vs. CA & Fule

Facts:

Mrs. Fule purchased three round trip tickets for herself and two children from Sabena; the route:
Manila-Brussels-Barcelona-Madrid. During the trip, they encountered inconveniences, such as,
walking under the drizzle after disembarking; delayed connecting flight to Barcelona; and a missing
luggage, among others. They allegedly incurred medical and hotel expenses. Thus, Mrs. Fule made a
letter-complaint to Sabena office. The Madrid Office offered to pay about half of what she was
asking, that the rest would be paid by the Manila Office. A certain Yancha made her sign a document
in French language which she did not understand. It turned out that the document was a quitclaim.
The trial court awarded them actual, moral and exemplary damages, among others. CA modified the
decision by reducing the amount of moral and exemplary damages.

Issue: WON Sabena is liable to the Fules for damages arising from breach of contract of carriage.

Held:

Yes.

In the imposition of moral damages, the defendant’s act must be wrongful or wanton or done in bad
faith. Here, there is no finding that the carrier’s delay in delivering Mrs. Fule’s luggage  was
wrongful or due to bad faith. While there is failure on the part of the carrier in protecting Mrs. Fule et
al from the rain, its neglect was not so gross as to amount to bad faith or wantoness. What is involved
in this case is simple negligence, considering that the rain through which Mrs. Fule et al had to walk
was a slight drizzle.

Nonetheless, there is still bad faith in making Mrs. Fule sign a quitclaim without informing her of its
contents.
----------------------

“[W]ith respect to moral damages, the rule is that the same are recoverable in a damage suit
predicated upon a breach of contract of carriage only where (1) the mishap results in the death a of
passenger and (2) it is proved that the carrier was guilty of fraud and bad faith, even if death does not
result.” (Ibid, at p. 13) As the appellate court found the petitioner guilty of bad faith in letting the
respondent sign a quitclaim without her knowledge or understanding and contrary to what she was
planning to do, the reduced award of moral and exemplary damages is proper and legal.

Lopez vs Pan American World Airways (Pan Am)

Facts:

Senator Lopez et al made reservations for 1 st class accommodations in a flight of Pan Am from
Tokyo to San Francisco. The reservations were confirmed in a phone call. Tickets were also issued.
However, Lopez et al were not accommodated in the first class for the reason that there was no
accommodation for them. They instead took the tourist passengers without prejudice to any claim
against Pan Am. Subsequently, a suit for damages was filed against Pan Am. Pan Am answered
admitting its breach of the contract of carriage but however denied the allegation of bad faith. It
contends that the failure to provide 1 st class accommodations was made in honest mistake:  That the
accommodation was mistakenly cancelled, and expecting that there would be subsequent cancellation
of bookings, they withheld the information regarding the cancellation from Lopez et al.

Issue: WON Pan Am should be held liable for damages to Lopez et al.

Held:

Yes.

The actuation of Pan Am may have been prompted by nothing more than the promotion of its self-
interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their
chances to seek the services of other airlines that may have been able to afford them first class
accommodations. All the time, in legal contemplation such conduct already amounts to action in bad
faith. For bad faith means a breach of a known duty through some motive of  interest or ill-will.
“Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it
is malice nevertheless.”

There being a clear admission in defendant’s evidence of facts amounting to a bad faith on its part in
regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the
evidence adduced by plaintiffs to establish defendant’s bad faith.

Among others, Lopez et al can be awarded moral damages (where the defendant acted fraudulently
or in bad faith) and exemplary damages (where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner).

 
 

Zulueta vs. Pan Am

Facts:

Mr. Zulueta and his wife and child boarded a flight of Pan Am from Wake Island to the Phil. Mr.
Zulueta, however, had to relieve himself and thus looked for a secluded place in the beach. As a
result, he was delayed in boarding for some 20 or 30 minutes. While Mr. Zulueta was reaching the
ramp, the captain of the plane demonstrated an intemperate and arrogant tone thereby impelling Mr.
Zulueta to answer back. Thus, Mr. Zulueta was off-loaded. The airport manager of then sent Mr.
Zulueta a letter stating that his stay in Wake Island would be for a minimum of one week during
which he would be charged $13.30 per day.

Issue: WON Pan Am should be held liable.

Held:

Yes. Mr. Zulueta was off-loaded to retaliate and punish him for the embarrassment and loss of face
thus suffered by defendant’s agent.

The Zuluetas had a contract of carriage with the defendant, as a common carrier, pursuant to which
the latter was bound, for a substantial monetary consideration paid by the former, not merely to
transport them to Manila, but, also, to do so with “extraordinary diligence” or “utmost diligence."The
responsibility of the common carrier, under said contract, as regards the passenger’s safety, is of such
a nature, affecting as it does public interest, that it "cannot be dispensed with” or even “lessenedby
stipulation, by the posting of notices, by statements on tickets, or otherwise." 

In the present case, the defendant did not only fail to comply with its obligation to transport Mr.
Zulueta to Manila, but, also, acted in a manner calculated to humiliate him, to chastise him, to make
him suffer, to cause to him the greatest possible inconvenience.

————————————–

With regard to DAMAGES

It is obvious, however, that in off-loading plaintiff at Wake Island, under the circumstances,
defendant’s agents had acted with malice aforethought and evident bad faith. If "gross negligence”
warrants the award of exemplary damages, with more reason is its imposition justified when the act
performed is deliberate, malicious and tainted with bad faith.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example
or correction for public good. Defendant having breached its contracts in bad faith, the court, as
stated earlier, may award exemplary damages in addition to moral damages
PAL vs. Miano

Facts:

Miano took one of the flights of PAL (Mabuhay Class) bound to Germany. He allegedly checked in a
brown suit case. Upon arrival in Germany, his luggage was missing. It was only after 11 days when
he was bale to obtain such. Allegedly, he incurred expenses as a result of the delay. Thus, he wrote a
demand letter to PAL. Having failed to recover, he instituted a claim for damages. The CFI rendered
a decision ordering PAL to pay moral and exemplary damages, among others, to Miano.

Issue: WON the award of moral & exemplary damages is proper.

Held:

No.

Petitioner’s actuation was not attended by bad faith.

In breach of contract of carriage by air, moral damages are awarded only if the defendant acted
fraudulently or in bad faith. The established facts evince that petitioner’s late delivery of the baggage
for eleven (11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated
with its Central Baggage Services to trace private respondent’s suitcase and succeeded in finding it.

The award of exemplary damages is also not proper. The prerequisite for the award of exemplary
damages in cases of contract or quasi-contract is that the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.  The undisputed facts do not so warrant the
characterization of the action of petitioner.

 Trans World Airlines (TWA) vs. CA

Facts:

Vinluan, a practicing lawyer in Manila had to travel to several cities in Europe and US. While in
Paris, he went to the office of TWA to confirm his reservation for first class accommodation. It was
confirmed twice.  During the time of the flight, he was told that there was no 1 st class seat available.
Hence, he was downgraded to economy. He protested but he was arrogantly treated by a TWA
employee. And while waiting for his flight, he saw white Caucasians who arrived much later than
him, in first class seats.

Issue: WON Vinluan is entitled to damages.

Held:

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

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

Phil Rabbit Bus Lines vs. Esguerra

Facts:

Esguerra boarded abus owned by Phil Rabbit Bus Lines from Manila to Pampanga. While in
Bulacan, the bus and a truck sideswiped each other. The left forearm of Esguerra was hit. The left
arm was amputated. The trial court awarded Esguerra moral damages, among others.

Issue: WON the award of moral damages is proper.

Held:

No.

Moral damages are not recoverable in actions for damages predicated on a breach of the contract of
transportation, as in the instant case. The exceptions are (1) where the mishap results in the death of a
passenger, and (2) where it is proved that the carrier was guilty of fraud or bad faith, even if death
does not result.

The Court of Appeals found that the two vehicles sideswiped each other at the middle of the road. In
other words. both vehicles were in their respective lanes and that they did not invade the lane of the
other. It cannot be said therefore that there was fraud or bad faith on the part of the carrier’s driver.
This being the case, no moral damages are recoverable.

 
 United Airlines vs. CA

Facts:

Respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the Philippine
Travel Bureau in Manila three (3) “Visit the U.S.A.” tickets for himself, his wife and his minor son.
The Fontanillas proceeded to the US as planned; they used the 1 st coupon. Fontanilla then bought two
(2) additional coupons each for himself, his wife and his son from petitioner at its office in
Washington Dulles Airport. After paying the penalty for rewriting their tickets, the Fontanillas were
issued tickets with corresponding boarding passes with the words “CHECK-IN REQUIRED,” for a
United Airlines flight. However, the Fontanillas were not able to board said flight because allegedly,
they did not have assigned seat numbers.

Issue:

Whether or not the Fontanillas were able to prove with adequate evidence his allegations of breach of
contract in bad faith.

Held: No.

Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling passengers
concerned to an award of moral damages. When an airline issues a ticket to a passenger confirmed on
a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to
except that he would fly on that flight and on that date. If he does not, then the carrier opens itself to
a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk
of having to deprive some passengers of their seats in case all of them would show up for check in.
For the indignity and inconvenience of being refused a confirmed seat on the last minute, said
passenger is entitled to moral damages.

However, the Court’s ruling in said case should be read in consonance with existing laws,
particularly, Economic Regulations No. 7, as amended, of the Civil Aeronautics Board which
provides that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be
considered as a deliberate and willful act of non-accommodation.

———————————————-

What law is applicable, the Philippine Law or the US Law?

he Philippine Law. The appellate court, however, erred in applying the laws of the United States as,
in the case at bar, Philippine law is the applicable law. Although, the contract of carriage was to be
performed in the United States, the tickets were purchased through petitioner’s agent in Manila. It is
true that the tickets were “rewritten” in Washington, D.C. however, such fact did not change the
nature of the original contract of carriage entered into by the parties in Manila.

 
Sps Zalamea vs. CA & TWA

Facts:

Sps Zalamea and their daughter purchased 3 airline tickets from TWA from its Manila agent for a
flight to New York to LA. Two tickets were purchased at a discounted rate of 75% while one was
purchased in its full value. All three tickets were confirmed and reconfirmed. However, of the
appointed date, they were placed on the wait-list because the number of passengers who had checked
in before them had already taken all of the seats. Those having full fare tickets were given priority
among those in the wait-list. Thus, Cesar Zalamea was able to board such flight because he was
holding the full fare ticket. Trial court awarded the Zalameas moral damages, among others, based on
breach of contract of carriage. The CA, however, reversed this, holding that moral damages are
recoverable in a damage suit predicated upon a breach of contract of carriage only where there is
fraud or bad faith. Since it is a matter of record that overbooking of flights is a common and accepted
practice of airlines in the United States, no fraud nor bad faith could be imputed on respondent
TransWorld Airlines.

Issue: Whether or not said policies (that overbooking of flights is a common and accepted practice in
the US, thus does not amount to bad faith) were incorporated or deemed written on petitioners’
contracts of carriage.

Held:

No.

TWA failed to show that there are provisions to that effect. The failure of respondent TWA to so
inform them when it could easily have done so thereby enabling respondent to hold on to them as
passengers up to the last minute amounts to bad faith. Evidently, respondent TWA placed its self-
interest over the rights of petitioners under their contracts of carriage. Such conscious disregard of
petitioners’ rights makes respondent TWA liable for moral damages.

LUZON STEVEDORING CORPORATION vs. COURT OF TAX APPEALS and the

COMMISSIONER OF INTERNAL REVENUE

GR No. L-30232

July 29, 1988

FACTS:

Petitioner-appellant Luzon Stevadoring Corporation (LSC), in 1961 and 1962, for the repair and
maintenance of its tugboats, imported various engine parts and other equipment for which it paid,
under protest, the assessed compensating tax. Unable to secure a tax refund from the CIR, on
January 2, 1964, it filed a Petition for Review with the CTA, praying among others, that it be granted
the refund of the amount of P33,442.13.

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax
exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176.
He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former
towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly,
it concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax.

The CTA, however, in a Decision dated October 21, 1969 denied the various claims for tax refund.
Its Motion for Reconsideration was also denied.

ISSUES:

Whether or not petitioner’s tugboats can be interpreted to be included in the term “cargo vessels” for
purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as
amended by Republic Act No. 3176.

HELD:

Petition without merit. Section 190 of NIRC provides that the tax imposed in this section shall not
apply to articles to be used by the importer himself in the manufacture or preparation of articles
subject to specific tax or those for consignment abroad and are to form part thereof or to articles to
be used by the importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel.

This Court has laid down the rule that “as the power of taxation is a high prerogative of sovereignty,
the relinquishment is never presumed and any reduction or dimunition thereof with respect to its
mode or its rate, must be strictly construed, and the same must be coached in clear and
unmistakable terms in order that it may be applied. More specifically stated, the general rule is that
any claim for exemption from the tax statute should be strictly construed against the taxpayer.

As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be
declared exempt from the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo
vessel must be used in coastwise or oceangoing navigation.

As pointed out by the CTA, the amendatory provisions of RA 3176 limit tax exemption from the
compensating tax to imported items to be used by the importer himself as operator of passenger
and/or cargo vessel.

As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used
for attendance on vessel. (Webster New International Dictionary, 2nd Ed.)

A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from
piers for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International
Grolier, Vol. 18, p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier’s Law Dictionary.).

Under the foregoing definitions, petitioner’s tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a
provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense
being entertained to justify non-compliance. All that has to be done is to apply it in every case that
falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555
[1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will
be noted that the legislature in amending Section 190 of the Tax Code by Republic Act 3176, as
appearing in the records, intended to provide incentives and inducements to bolster the shipping
industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator
Gil Puyat.

CASE DIGEST (Transportation Law): Monarch

Insurance Co., Inc. vs. CA
MONARCH INSURANCE CO., INC vs. COURT OF APPEALS and
ABOITIZ SHIPPING CORPORATION
G.R. No. 92735. June 8, 2000

FACTS:
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. Because Aboitiz
refused to compensate Monarch, it filed two complaints against Aboitiz
which were consolidated and jointly tried.

Aboitiz rejected responsibility for the claims on the ground that the sinking
of its cargo vessel was due to force majeure or an act of God. Aboitiz was
subsequently declared as in default and allowed Monarch and Tabacalera
to present evidence ex-parte.

ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.

HELD:
Yes.
The failure of Aboitiz to present sufficient evidence to exculpate itself from
fault and/or negligence in the sinking of its vessel in the face of the
foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of the
M/V P. Aboitiz. [This is in accordance with the rule that in cases involving
the limited liability of 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. This burden, Aboitiz had
unfortunately failed to discharge.] That Aboitiz failed to discharge the
burden of proving that the unseaworthiness of its vessel was not due to its
fault and/or negligence should not however mean that the limited liability
rule will not be applied to the present cases. The peculiar circumstances
here demand that there should be no strict adherence to procedural rules
on evidence lest the just claims of shippers/insurers be frustrated. The rule
on limited liability should be applied in accordance with the latest ruling in
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd.,] promulgated on January 21, 1993, that claimants be
treated as "creditors in an insolvent corporation whose assets are not
enough to satisfy the totality of claims against it."

[ G.R. No. 100446, January 21, 1993 ]

ABOITIZ SHIPPING CORPORATION, PETITIONER, VS. GENERAL

ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.,
RESPONDENT.

DECISION

MELO, J.:
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 "MV 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. 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 MV 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 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), thus effectively denying the
application of the limited liability enunciated under the appropriate articles
of the Code of Commerce. The articles maybe 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:

'x x x 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)
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.

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, 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." (Underscoring 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
[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 Bankers 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 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 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 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.
Negros Navigation Co., Inc. v. Court of Appeals
G.R. No. 110398, 7 November 1997, 281 SCRA 534

FACTS:

In April of 1980, private respondent Ramon Miranda purchased from the Negros Navigation Co., Inc.
four special cabin ticketsfor his wife, daughter, son and niece who were going to Bacolod City to
attend a family reunion. The tickets were for Voyage of the M/V Don Juan, leaving Manila at 1:00
p.m. on April 22, 1980.

The ship sailed from the port of Manila on schedule.

At about 10:30 in the evening of April 22, 1980, the Don Juan collided off the Tablas Strait in
Mindoro, with the M/T Tacloban City, an oil tanker owned by the Philippine National Oil Company
(PNOC) and the PNOC Shipping and Transport Corporation (PNOC/STC). As a result, the M/V Don
Juan sank. Several of her passengers perished in the sea tragedy. The bodies of some of the
victims were found and brought to shore, but the four members of private respondents’ families were
never found.

Private respondents filed a complaint on July 16, 1980 in the Regional Trial Court of Manila, Branch
34, against the Negros Navigation, the Philippine National Oil Company (PNOC), and the PNOC
Shipping and Transport Corporation (PNOC/STC), seeking damages for the death of the four family
members that were never found. Petitioner, however, denied that the four relatives of private
respondents actually boarded the vessel as shown by the fact that their bodies were never
recovered. Petitioner further averred that the Don Juan was seaworthy and manned by a full and
competent crew, and that the collision was entirely due to the fault of the crew of the M/T Tacloban
City. The RTC ruled in favor of the complainants and ordered petitioner to pay for the damages. The
CA affirmed the said decision.

ISSUE:

Whether petitioner is liable for damages to the full extent

RULING:

Prior to this case, a previous case was brought for the death of other passengers. Said case is
entitledMecenas v. Intermediate Appellate Court .In that case it was found that although the
proximate cause ofthe mishap was the negligence of the crew of the M/TTacloban City, the crew of
theDon Juanwas equallynegligent as it found that the latter’s master, Capt. Rogelio Santisteban, was
playing mahjong at the timeof collision, and the officer on watch, Senior Third Mate Rogelio De Vera,
admitted that he failed to call theattention of Santisteban to the imminent danger facing them. This
Court found that Capt. Santisteban andthe crew of the M/VDon Juan failed to take steps to
preventthe collision or at least delay the sinking of theship and supervise the abandoning of the ship.
Petitioner Negros Navigation was found equally negligent in tolerating the playing of mahjong by the
shipcaptain and other crew members while on board the ship and failing to keep the M/VDon
Juanseaworthyso much so that the ship sank within 10 to 15 minutes of its impact with the
M/TTacloban City .

In addition, the Court found that the Don Juan was overloaded
On the Doctrine of stare decisis: Adherence to the Mecenas case is dictated by this Courts policy of
maintaining stability in jurisprudence in accordance with the legal maxim stare decisis et non quieta
movere (Follow past precedents and do not disturb what has been settled.) Where, as in this case,
the same questions relating to the same event have been put forward by parties similarly situated as
in a previous case litigated and decided by a competent court, the rule of stare decisis is a bar to any
attempt to re litigate the same issue.

Philippine American General Insurance Vs

Ca
Philippine American General Insurance Company vs. CA G.R. No. 116940 June 11, 1997
FACTS: 1. On 6 July 1983 Coca-Cola Bottlers Philippines, Inc. (Coca-Cola Bottlers), loaded
on board "MV Asilda," a vessel owned and operated by respondent Felman Shipping
Lines (FELMAN), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported
from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu. The shipment was insured with petitioner Philippine American General Insurance
Co., Inc. (PHILAMGEN) 2. In a joint statement, the Captain as well as the chief mate of
the vessel confirmed that the weather was fine when "MV Asilda" left the port of
Zamboanga at 8 p.m. on 6 July. The ship captain stated that around 4 a.m. of 7 July 1983
he was awakened by the officer on duty to inform him that the vessel had hit a floating
log. 3. At that time he noticed that the weather had deteriorated with strong southeast
winds inducing big waves. After 30 minutes, he observed that the vessel was listing
slightly to starboard and would not correct itself despite the heavy rolling and pitching.
He then ordered his crew to shift the cargo from starboard to portside until the vessel
was balanced. At about 7 a.m., the master of the vessel stopped the engine because the
vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to
starboard (right). The shifting of cargo took about an hour after which he rang the
engine room to resume full speed. 4. At around 8:45 a.m., the vessel suddenly listed to
portside and before the captain could decide on his next move, some of the cargo on
deck were thrown overboard and seawater entered the engine room and cargo holds of
the vessel. At that instance, the master of the vessel ordered his crew to abandon ship.
5. Shortly thereafter, "MV Asilda" capsized and sank in the waters of Zamboanga del
Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-
liter Coca-Cola softdrink bottles. 6. The Ship Captain ascribed the sinking to the entry of
seawater through a hole in the hull caused by the vessel's collision with a partially
submerged log. 7. On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu plant, filed a claim with respondent FELMAN for recovery of damages. FELMAN
denied the claim thus prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim of P755,250.00. 8. Claiming its right of subrogation
PHILAMGEN sought recourse against respondent FELMAN which disclaimed any liability
for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for
sum of money and damages, alleging that the total loss of cargo was due to the vessel’s
unseaworthiness as she was put to sea in an unstable condition. FELMAN, on the other
hand, filed a motion to dismiss contending that there was no right of subrogation in
favor of PHILAMGEN since it had abandoned all its rights, interests and ownership over
the vessel together with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce. 9. The RTC dismissed
PHILAMGEN’s complaint and appealed to the CA which remanded the case and denied
its motion for reconsideration. The RTC then ruled that the vessel was seaworthy and
even if assumed unseaworthy, PHILAMGEN still could not recover from FELMAN since
Coca-Cola Bottlers had breached its implied warranty on the vessel’s seaworthiness. 10.
On appeal, the CA ruled that the vessel was unseaworthy for being topheavy as 2,500
cases of Coca-Cola softdrinks bottles were improperly stowed on deck. Even though the
vessel possessed the necessary Coast Guard certification indicating its seaworthiness
with respect to the structure of the ship itself, it was not seaworthy with respect to the
cargo. However, it denied the money claim of PHILAMGEN because of the implied
breach of warranty of seaworthiness by Coca-Cola Bottlers. Furthermore, the filing of
notice of abandonment had absolved FELMAN from liability under the limited liability
rule.

ISSUES: 1. Whether MV Asilda was seaworthy when it left port of Zamboanga 2. Whether
the limited liability under Article 587 of the Code of Commerce should apply

RULING: 1. NO. The Supreme Court subscribe to the findings of the Elite Adjusters and
the Court of Appeals that the proximate cause of the sinking of the MV Asilda was its
being top-heavy. As according to the report submitted by the Elite Adjusters, while the
vessel may not have been overloaded, the distribution or stowage of the cargo on board
was done in such a manner that the vessel was in top-heavy condition at the time of its
departure which rendered it unstable and unseaworthy for that particular voyage.
Furthermore, MV Asilda was designed as a fishing vessel and was not designed to carry
a substantial amount or quantity of cargo in deck and from the moment it was utilized
to load heavy cargo, the vessel was rendered unseaworthy for the purpose of carrying
the type of cargo and that the capsizing and sinking of the vessel was bound to happen
and an inevitable occurrence. 2. NO. The Supreme Court held that Article 587 of the
Code of Commerce is not applicable. The ship agent is liable for the negligent acts of
the captain in the care of the goods loaded on the vessel. This liability, although can be
limited through abandonment of the vessel, its equipment and freightage, as provided
in Art. 587, there exceptional circumstances wherein the ship agent could still be held
answerable, as where the loss or injury was due to the fault of the ship owner and the
captain. The international rule is to the effect that the right of abandonment of vessels,
as a legal limitation of a ship owner's liability, does not apply to cases where the injury
or average was occasioned by the ship owner's own fault. It must be stressed at this
point that Art. 587 speaks only of situations where the fault or negligence is committed
solely by the captain. Where the ship owner is likewise to be blamed, Art. 587 will not
apply, and such situation will be covered by the provisions of the Civil Code on common
carrier. Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case . . ." In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN, the ship owner, was
not able to rebut this presumption.
[G.R. No. L-9534.  September 29, 1956.]
MANILA STEAMSHIP CO., INC., Petitioner, vs. INSA ABDULHAMAN (MORO) and LIM HONG
TO, Respondents.
 
DECISION
REYES, J. B. L., J.:
This case was begun in the Court of First Instance of Zamboanga (Civil Case No. 170) by Insa
Abdulhaman against the Manila Steamship Co., owner of the M/S “Bowline Knot”, and Lim Hong To,
owner of the M/L “Consuelo V”, to recover damages for the death of his (Plaintiff’s) five children and
loss of personal properties on board the M/L “Consuelo V” as a result of a maritime collision between
said vessel and the M/S “Bowline Knot” on May 4, 1948, a few kilometers distant from San Ramon
Beach, Zamboanga City.
On appeal, the Court of Appeals found the following facts to have been established: chanroblesvirtuallawlibrary

“From 7: 00 to 8: 00 o’clock in the evening of May 4, 1948, the M/L “Consuelo V”, laden with cargoes
chanroblesvirtua llawlibrary chanroblesvirtuallawlibrary

and passengers left the port of Zamboanga City bound for Siokon under the command of Faustino
Macrohon. She was then towing a kumpit, named “Sta. Maria Bay”. The weather was good and fair.
Among her passengers were the Plaintiff Insa Abdulhaman, his wife Carimla Mora and their five children
already mentioned. The Plaintiff and his wife paid their fare before the voyage started.
On that same night the M/S “Bowline Knot” was navigating from Maribojoc towards Zamboanga.
Between 9: 30 to 10: 00 in the evening the dark clouds bloated with rain began to fall and the
chanroblesvirtua llawlibrary chanroblesvirtua llawlibrary

gushing strong wind began to blow steadily harder, lashing the waves into a choppy and roaring sea.
Such weather lasted for about an hour and then it became fair although it was showering and the
visibility was good enough.
When some of the passengers of the M/L “Consuelo V” were then sleeping and some were lying down
awake, all of a sudden they felt the shocking collision of the M/L “Consuelo V” and a big motorship,
which later on was identified as the M/V “Bowline Knot”.
Because the M/L “Consuelo V” capsized, her crew and passengers, before realizing what had happened,
found themselves swimming and floating on the crest of the waves and as a result of which nine (9)
passengers were dead and missing and all the cargoes carried on said boat, including those of
the Plaintiff as appear in the list, Exhibit “A”, were also lost.
Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla, all surnamed Inasa, while
the body of the child Abdula Inasa of 6 years of age was never recovered. Before the collision, none of
the passengers were warned or informed of the impending danger as the collision was so sudden and
unexpected. All those rescued at sea were brought by the M/V “Bowline Knot” to Zamboanga City.”
(Decision of C. A., pp. 5-6).
As the cause of the collision, the Court of Appeals affirmed the findings of the Board of Marine Inquiry,
that the commanding officer of the colliding vessels had both been negligent in operating their
respective vessels. Wherefore, the Court held the owners of both vessels solidarily liable to Plaintiff for
the damages caused to him by the collision, under Article 827 of the Code of Commerce;  but chan roblesvirtualawlibrary

exempted Defendant Lim Hong To from liability by reason of the sinking and total loss of his vessel, the
M/L “Consuelo V”, while the other Defendant, the Manila Steamship Co., owner of the M/S “Bowline
Knot”, was ordered to pay all of Plaintiff’s damages in the amount of P20,784.00 plus one-half of the
costs. It is from this judgment that Defendant Manila Steamship Co. had appealed to this Court.
Petitioner Manila Steamship Co. pleads that it is exempt from any liability to Plaintiff under Article 1903
of the Civil Code because it had exercised the diligence of a good father of a family in the selection of its
employees, particularly Third Mate Simplicio Ilagan, the officer in command of its vessels, the M/S
“Bowline Knot”, at the time of the collision. This defense is untenable. While it is true that Plaintiff’s
action against Petitioner is based on a tort or quasi-delict, the tort in question is not a civil tort under the
Civil Code but a maritime tort resulting in a collision at sea, governed by Articles 826-939 of the Code of
Commerce. Under Article 827 of the Code of Commerce, in case of collision between two vessels
imputable to both of them, each vessel shall suffer her own damage and both shall be solidarily liable for
the damages occasioned to their cargoes. The characteristic language of the law in making the “vessels”
solidarily liable for the damages due to the maritime collision emphasizes the direct nature of the
responsibilities on account of the collision incurred by the shipowner under maritime law, as
distinguished from the civil law and mercantile law in general. This direct responsibility is recognized in
Article 618 of the Code of Commerce under which the captain shall be civilly liable to the ship agent, and
the latter is the one liable to third persons, as pointed out in the collision case of Yueng Sheng Exchange
& Trading Co. vs. Urrutia & Co., 12 Phil. 747, 753: chanroblesvirtua llawlibrary

“The responsibility involved in the present action is that derived from the management of the vessel,
which was defective on account of lack of skill, negligence, or fault, either of the captain or of the crew,
for which the captain is responsible to the agent, who in his turn is responsible to the third party
prejudiced or damaged. (Article 618, Code of Commerce).”
In fact, it is a general principle, well established maritime law and custom, that shipowners and ship
agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587);  so that injured parties may immediately look for
chan roblesvirtualawlibrary

reimbursement to the owner of the ship, it being universally recognized that the ship master or captain
is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This
direct liability, moderated and limited by the owner’s right of abandonment of the vessel and earned
freight (Article 587), has been declared to exist, not only in case of breached contracts, but also in cases
of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511, 515): chanroblesvirtua llawlibrary

“In the second assignment of error, the Appellant contends that the Defendant ought not to be held
liable for the negligence of his agents and employees.
It is proven that the agents and employees, through whose negligence the explosion and fire in question
occurred, were agents, employees and mandatories of the Defendant. Where the vessel is one of
freight, a public concern or public utility, its owner or agents is liable for the tortious acts of his agents
(Articles 587, 613, and 618 Code of Commerce;  and Article 1902, 1903, 1908, Civil Code). This
chan roblesvirtualawlibrary

principle has been repeatedly upheld in various decisions of this court.

The doctrines cited by the Appellant in support of his theory have reference to the relations between
principal and agent in general, but not to the relations between ship agent and his agents and
employees;  for this reason they cannot be applied in the present case.”
chan roblesvirtualawlibrary

It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and
vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would
render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater
protection of injured parties. Shipowners would be able to escape liability in practically every case,
considering that the qualifications and licensing of ship masters and officers are determined by the
State, and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To
compel the parties prejudiced to look to the crew for indemnity and redress would be an illusory
remedy for almost always its members are, from captains down, mere wage earners.
We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of
the Manila Steamship Co., that it is exempt from liability for the collision with the M/L “Consuelo V” due
to absence of negligence on its parts in the selection and supervision of the officers and crew of the M/S
“Bowline Knot”.
The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil. 517, invoked
by Petitioner, is not the point. Said case treated of a civil tort, in that the vessel of the Defendant,
allegedly negligently managed by its captain in the course of its maneuvers to moor at  Plaintiff’s wharf,
struck the same and partially demolished it, causing damage to Plaintiff. Because the tort allegedly
committed was civil, the provisions of Article 1903 of the Civil Code were correctly applied. The present
case, on the other hand, involves tortious conduct resulting in a maritime collision;   wherefore, the chan roblesvirtualawlibrary

liability of the shipowner is, as already stated, governed by the provisions of the Code of Commerce and
not by the Civil Code.
We agree, however, with Petitioner-Appellant, that the Court of Appeals was in error in declaring
the Respondent Lim Hong To, owner of the M/L “Consuelo V”, exempt from liability to the
original Plaintiff, Abdulhaman, in view of the total loss of his own vessel, that sank as a result of the
collision. It is to be noted that both the master and the engineer of the motor launch “Consuelo V” were
not duly licensed as such (Exh. 2). In applying for permission to operate, despite the lack of properly
trained and experienced, crew, Respondent Lim Hong To gave as a reason —
“that the income derived from the vessel is insufficient to pay licensed officers who demand high
salaries”,
and expressly declared: chanroblesvirtuallawlibrary
“That in case of any accident, damage or loss, I shall assume full risk and responsibility for all the
consequences thereof.” (Exhibit 2).
His permit to operate, in fact, stipulated —
“that in case of any accident, damage or loss, the registered owner thereof shall assume full risk and
responsibility for all the consequences thereof, and that said vessel shall be held answerable for any
negligence, disregard or violation of any of the conditions herein imposed and for any consequence
arising from such negligence, disregard or violations.” (Exhibit 3.)
The Court of Appeals held that neither the letter (Exhibit 2) nor the permit (Exhibit 3) contained any
waiver of the right of Respondent Lim Hong To to limit his liability to the value of his motor launch and
that he did not lose the statutory right to limit his liability by abandonment of the vessel, as conferred by
Article 587 of the Code of Commerce.
We find the ruling untenable. Disregarding the question whether mere inability to meet the salary
demands of duly licensed masters and engineers constitutes non-availability thereof that would excuse
noncompliance with the law and authorize operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong To deliberately increased the risk to
which the passengers and shippers of cargo aboard the “Consuelo V” would be subjected. In his desire
to reap greater benefits in the maritime trade, Lim Hong To willfully augmented the dangers and hazards
to his vessel’s unwarry passengers, who would normally assume that the launch officers possessed the
necessary skill and experience to evade the perils of the sea. Hence, the liability of
said Respondent cannot be the identical to that of a shipowner who bears in mind the safety of the
passengers and cargo by employing duly licensed officers. To hold, as the Court of Appeals has done,
that Lim Hong To may limit his liability to the value of his vessels, is to erase all difference between
compliance with law and the deliberate disregard thereof. To such proposition we cannot assent.
The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner’s liability, does not apply to cases where the injury or the average is due to shipowner’s own
fault. Fariña (Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents
from various nations, sets the rule to be as follows: chanroblesvirtuallawlibrary

“Esta generalmente admitido que el propietario del buque no tiene derecho a la limitacion legal de
responsibilidad si los daños o averias que dan origen a la limitacion provienen de sus propias culpas. El
Convenio de Bruselas de 25 de agosto de 1924 tambien invalida la limitacion en el caso de culpa
personal en los accidentes o averías sobrevenidos (Art. 2°).”
To the same effect, a noted French author states: chanroblesvirtua llawlibrary

“La limitacion de la responsabilidad maritima ha sido admitida para proteger a los armadores contra los
actos abusivos de sus encargados y no dejar su patrimonio entero a la discrecion del personal de sus
buques, porque este personal cumple sus obligaciones en condiciones especiales;  pero los armadores chan roblesvirtualawlibrary

no tienen por sobre los demas derecho a ser amparados contra ellos mismos ni a ser protegidos contra
sus propios actos.”
(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)
That Lim Hong To understood that he would incur greater liability than that normally borne by
shipowners, is clear from his assumption of “ full” risk and responsibility for all the consequences” of the
operation of the M/L “Consuelo V”;  a responsibility expressly assumed in his letter Exhibit 2, and
chan roblesvirtualawlibrary

imposed in his special permit, in addition to the vessel itself being held answerable. This express
assumption of “full risk and responsibility” would be meaningless unless intended to broaden the
liability of Respondent Lim Hong To beyond the value of his vessel.
In resume, we hold: chanroblesvirtua llawlibrary

(1)  That the Manila Steamship Co., owner of the M/S “Bowline Knot”, is directly and primarily
responsible in tort for the injuries caused to the Plaintiff by the collision of said vessel with the launch
“Consuelo V”, through the negligence of the crews of both vessels, and it may not escape liability on the
ground that it exercised due diligence in the selection and supervision of the officers and crew of the
“Bowline Knot”;
(2)  That Lim Hong To, as owner of the motor launch “Consuelo V”, having caused the same to sail
without licensed officers, is liable for the injuries caused by the collision over and beyond the value of
said launch;
(3)  That both vessels being at fault, the liability of Lim Hong To and Manila Steamship Co. to
the Plaintiff herein is in solidum, as prescribed by Article 827 of the Code of Commerce.
In view of the foregoing, the decision of the Court of Appeals is modified, and that of the Court of First
Instance affirmed, in the sense of declaring both original Defendants solidarily liable to Plaintiff Insa
Abdulhaman in the sum of P20,784.00 and the cost of the litigation, without prejudice to the right of the
one who should pay the judgment in full to demand contribution from his co-Defendant.

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

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

Attorney-General Villa-Real for appellant.

Antonio M. Opisso for appellee.

MALCOLM, J.:

The Government of the Philippine Islands seeks by this action to recover from The Insular Maritime
Company the sum of P30,437.91 for repairs made by the Bureau of Commerce and Industry on the
motor ship Insular.

The Insular Maritime Company was organized with a capital of P150,000. It became the owner of
one vessel only, the Insular, valued at P150,000. On October 29, 1919, The Insular Maritime
Company asked the Bureau of Commerce and Industry to perform certain repairs on the Insular. The
Government consented and terminated said repairs on November 29 of the same year. Subsequent
thereto, on April 15, 1920, the Insular suffered a total loss by fire.

The bill prepared by the chief accountant of the Bureau of Commerce and Industry for work done on
the motor ship Insular in the amount of P30,437.91, was dated July 31, 1920. Collection of the claim
was attempted pursuant to formal demand made by the Acting Insular Auditor of date April 30, 1921.

It will thus be noted, as was emphasized by the defense and by His Honor, the trial judge, that no
steps were taken by the Government to secure payment for the repairs until after the loss of the
vessel Insular. The first error assigned by the Attorney-General addressed to this finding of fact is
accordingly without merit.
The trial judge further found in effect, as a legal conclusion, that the loss of the vessel Insular
extinguished the obligation. The Attorney-General challenges the correctness of this view.

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

The rights and liabilities of owners of ships are in many respects essentially the same as in the case
of other owners of things. As a general rule, the owners of a vessel and the vessel itself are liable for
necessary repairs. Naturally the total destruction of the vessel extinguishes a maritime lien, as there
is no longer any res to which it can attach. But the total destruction of the vessel does not affect the
liability of the owners for repairs on the vessel completed before its loss.

It is but fair to say that what has been stated in this decision more accurately expresses the
consensus of opinion in the court than it does the views of the writer, who sees more in the
appellee's case than do his colleagues in the court.

The trial court was accordingly right in its exposition of the fact but not in its application of the law.
Judgment must therefore be as it is hereby reversed, and in lieu of the judgment appealed from,
another shall be entered here in favor of the plaintiff and against the defendant for the sum of
P30,437.91 with legal interest from July 20, 1921, when the complaint was presented, until payment.
Without special findings as to costs in either instance, it is so ordered.

G.R. No. L-42926 September 13, 1985

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO

VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.

Emilio D. Castellanes for petitioners.

Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:

This litigation involves a claim for damages for the loss at sea of petitioners' respective children after
the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and
which we find supported by the record, read as follows:

When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso
Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and
struck a reef on the southern part of Malapascua Island, located somewhere north of
the island of Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.

Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo;
and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child, Mario
Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV
"Pioneer Cebu". The issues of the case were limited to the defenses alleged by the
defendant that the sinking of the vessel was caused by force majeure, and that the
defendant's liability had been extinguished by the total loss of the vessel.

The evidence on record as to the circumstances of the last voyage of the MV

"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV "Pioneer
Cebu" was owned and operated by the defendant and used in the transportation of
goods and passengers in the inter-island shipping. Scheduled to leave the Port of
Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following
day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322)
including the crew. It undertook the said voyage on a special permit issued by the
Collector of Customs inasmuch as, upon inspection, it was found to be without an
emergency electrical power system. The special permit authorized the vessel to carry
only two hundred sixty (260) passengers due to the said deficiency and for lack of
safety devices for 322 passengers (Exh. 2). A headcount was made of the
passengers on board, resulting on the tallying of 168 adults and 20 minors, although
the passengers manifest only listed 106 passengers. It has been admitted, however,
that the headcount is not reliable inasmuch as it was only done by one man on board
the vessel.

When the vessel left Manila, its officers were already aware of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signals on the route
from Manila to Cebu, and the vessel having been cleared by the Customs authorities,
the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it
reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the
weather condition was still good. After passing Romblon and while near Jintotolo
island, the barometer still indicated the existence of good weather condition
continued until the vessel approached Tanguingui island. Upon passing the latter
island, however, the weather suddenly changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate island group, the captain ordered a
reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966,
 the vessel struck a reef near Malapascua island, sustained leaks and eventually
sunk, bringing with her Captain Floro Yap who was in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the Court of First Instance of
Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the
extinction of its liability by the actual total loss of the vessel.

After proper proceedings, the trial Court awarded damages, thus:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay:

(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss
of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;

(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss
of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and

(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of
moral damages by reason of the death of Mario Marlon Vasquez.

On appeal, respondent Court reversed the aforementioned judgment and absolved private
respondent from any and all liability.

Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.

The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:

... It is an admitted fact that even before the vessel left on its last voyage, its officers
and crew were already aware of the typhoon brewing somewhere in the same
general direction to which the vessel was going. The crew of the vessel took a
calculated risk when it proceeded despite the typhoon advisory. This is quite evident
from the fact that the officers of the vessel had to conduct conferences amongst
themselves to decide whether or not to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon and other islands the vessel passed en
route, they decided to take a change on the expected continuation of the good
weather the vessel was encountering, and the possibility that the typhoon would veer
to some other directions. The eagerness of the crew of the vessel to proceed on its
voyage and to arrive at its destination is readily understandable. It is undeniably
lamentable, however, that they did so at the risk of the lives of the passengers on
board.

Contrariwise, respondent Appellate Court believed that the calamity was caused solely and
proximately by fortuitous event which not even extraordinary diligence of the highest degree could
have guarded against; and that there was no negligence on the part of the common carrier in the
discharge of its duties.

Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso
fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and that (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor."   In the language of the law, the event must have been
1

impossible to foresee, or if it could be foreseen, must have been impossible to avoid.   There must
2

be an entire exclusion of human agency from the cause of injury or loss.  3

Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed
all the cargo in the hold before sailing in anticipation of strong winds and rough waters.  They
4

proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the
weather report that the typhoon was 154 kms. east southeast of Tacloban and was moving west
northwest.  Since they were still not within the radius of the typhoon and the weather was clear, they
5

deliberated and decided to proceed with the course. At Jintotolo Island, the typhoon was already
reported to be reaching the mainland of Samar.   They still decided to proceed noting that the
6

weather was still "good" although, according to the Chief Forecaster of the Weather Bureau, they
were already within the typhoon zone.   At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the
7

typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone.
Despite knowledge of that fact, they again decided to proceed relying on the forecast that the
typhoon would weaken upon crossing the mainland of Samar.   After about half an hour of navigation
8

towards Chocolate Island, there was a sudden fall of the barometer accompanied by heavy
downpour, big waves, and zero visibility. The Captain of the vessel decided to reverse course and
face the waves in the open sea but because the visibility did not improve they were in total darkness
and, as a consequence, the vessel ran aground a reef and sank on May 16, 1966 around 12:45 P.M.
near Malapascua Island somewhere north of the island of Cebu.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been
kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain
and crew were well aware of the risk they were taking as they hopped from island to island from
Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence
required of very cautious persons,   they decided to take a calculated risk. In so doing, they failed to
9

observe that extraordinary diligence required of them explicitly by law for the safety of the
passengers transported by them with due regard for an circumstances   and unnecessarily exposed
10

the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or
negligence that arises in cases of death or injuries to passengers. 11

While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic,"
the captain having "lived up to the true tradition of the profession." While we are bound by the
Board's factual findings, we disagree with its conclusion since it obviously had not taken into account
the legal responsibility of a common carrier towards the safety of the passengers involved.

With respect to private respondent's submission that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce  as construed in Yangco vs. Laserna, 73
12

Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a
shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of
the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held
liable for by reason of the death of its passengers.

WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of
First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.

SO ORDERED.
DIONISIA ABUEG, ET AL.,vs. BARTOLOME SAN DIEGO G.R. No. L-773 December 17, 1946 FACTS: 1.
Dionisia, Marciana and Rosario are widows of machinists working in the motor ships/fishing boats (San
Diego II and Bartolome S), who perished when the boats sank (they were caught in a typhoon on Oct. 1,
1941 while around Mindoro Island, filed a case against the owner, San Diego for compensation 2. CFI
Manila granted the petition, and awarded compensation provided for in the Workmen’s Compensation
Act. San Diego appealed 3. CA forwarded to SC, since there were no questions of fact. 4. Claims of the
owner: a. Article 587-Code of Commerce =if the vessel together with all her tackle and freight money
earned during the voyage are abandoned, the agent's liability to third persons for tortious acts of the
captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73 Phil., 330)
b. Article 837- CoC= in cases of collision, the ship owners' liability is limited to the value of the vessel
with all her equipment and freight earned during the voyage (Philippine Shipping Company vs. Garcia, 6
Phil., 281) c. Article 643-CoC= if the vessel and freight are totally lost, the agent's liability for wages of
the crew is extinguished 5. ISSUE/S: W/N the owner of the ships which sank as a result of a typhoon is
liable for compensation? YES HELD:  Provisions of the Code of Commerce invoked have no room in the
application of the Workmen's Compensation Act (WCA) which seeks to improve, and aims at the
amelioration of, the condition of laborers and employees.  It is not the liability for the damage or loss of
the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of
the ship; nor the liability for the loss of the ship as result of collision; nor the responsibility for wages of
the crew, but a liability created by a statute to compensate employees and laborers in cases of injury
received by or inflicted upon them, while engaged in the performance of their work or employment, or
the heirs and dependents and laborers and employees in the event of death caused by their
employment.  Such compensation has nothing to do with the provisions of the Code of Commerce
regarding maritime commerce. It is an item in the cost of production, which must be included in the
budget of any well-managed industry.  The WCA was enacted to abrogate the common law and our
Civil Code upon culpable acts and omissions, and that the employer need not be guilty of neglect or
fault, in order that responsibility may attach to him. o The rights and responsibilities defined in WCA
must be governed by its own peculiar provisions in complete disregard of other similar mercantile law. If
an accident is compensable under the WCA, it must be compensated even when the workman's right is
not recognized by or is in conflict with other provisions of the Civil Code or the Code of Commerce Note:
The new point raised by the owner (the motorboats engaged in fishing could not be deemed to be in the
coastwise and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act (No.
3428), as amended by Act no. 3812) was inconsistent with the provisions they invoked, since CoC would
then not apply to them. But even if so true, owner is still liable since the deceased officers of the motor
ships in question were still industrial employees within the purview of section 39, paragraph (d), as
amended, for industrial employment "includes all employment or work at a trade, occupation or
profession exercised by an employer for the purpose of gain." BUT-BUT the term "coastwise and
interisland trade" cannot have a narrow meaning as to confine it to the carriage for hire of passengers
and/or merchandise on vessels between ports and places in the Philippines, because while fishing is an
industry, if the catch is brought to a port for sale, it is at the same time a trade.

CASE DIGEST (Transportation Law): Loadstar

Shipping vs. CA
  Loadstar Shipping vs. Court of Appeals
 (GR 131621, 28 September 1999)

FACTS :

Loadstar Shipping Co. Inc. received on board its M/V “Cherokee” goods,
amounting to P6,067,178, which were insured for the same amount with
the respondent Manila Insurance Co. (MIC) against various risks including
“total loss by total loss of the vessel.” The vessel, in turn, was insured by
Prudential Guarantee & Assurance, Inc. (PGAI) for P4 million. On its way to
Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its
shipment, the consignee made a claim with Loadstar which, however,
ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full
settlement of its claim, and the latter executed a subrogation receipt
therefor.

MIC filed a complaint against Loadstar and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of Loadstar and its
employees. PGAI was later dropped as a party defendant after it paid the
insurance proceeds to Loadstar. Loadstar submits that the vessel was a
private carrier because it was not issued a certificate of public convenience,
it did not have a regular trip or schedule nor a fixed route, and there was
only "one shipper, one consignee for a special cargo. The trial court
rendered judgment in favor of MIC. Loadstar elevated the matter to the
Court of Appeals, which affirmed the RTC’s decision in toto.

ISSUE:

Whether or not Loadstar is a common carrier.

HELD:

Yes.

x x x [W]e hold that LOADSTAR is a common carrier. It is not necessary

that the carrier be issued a certificate of public convenience, and this public
character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., where this Court held
that a common carrier transporting special cargo or chartering the vessel to
a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving
the owner from liability for loss due to the negligence of its agent is void
only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at large is not involved, as in the case of a
ship totally chartered for the use of a single party. LOADSTAR also cited
Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals and
National Steel Corp. v. Court of Appeals, both of which upheld the Home
Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar
for simple reason that the factual settings are different. The records do not
disclose that the M/V "Cherokee," on the date in question, undertook to
carry a special cargo or was chartered to a special person only. There was
no charter party. The bills of lading failed to show any special arrangement,
but only a general provision to the effect that the M/V "Cherokee" was a
"general cargo carrier."14 ["A general ship carrying goods for hire, whether
employed in internal, in coasting, or in foreign commerce is a common
carrier." (Baer, Senior & Co.’s Successors v. La Compania Maritima, 6 Phil.
215, 217-218, quoting Liverpool Steamship Co. v. Phoenix Ins. Co., 129
U.S. 397, 437), cited in 3 TEODORICO C. MARTIN, PHILIPPINE
COMMERCIAL LAWS 118 (Rev. Ed. 1989).] Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to convert the
vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.

RUBISO AND GELITO V. RIVERA

FACTS:

Gelito & Co. was owned by Bonifacio Gelito and Chinaman Sy Qui. One of the properties of the company was a
pilot ship/merchant vessel called Valentina, whose ownership is at question here.

A series of sales had taken place:

1. First, Gelito had sold is 2/3 share to Chinaman Sy Qui.

 2. When Sy Qui acquired full ownership of the company, he sold Valentina to Florentino Rivera for
P2,500 on January 4, 1915. The sale was registered in the Bureau of Customs over two months later on
March 17, 1915.
3. Shorty after the sale to Rivera, a suit was brought against Sy Qui to enforce payment of a certain sum
of money. Valentina was placed at a public auction and was purchased by Sy Qui’s creditor, Fausto
Rubiso. He bought the vessel for P55.45. The sale was registered in the Office of the Collector of
Customs on January 27, 1915 and in the commercial registry on March 14, 1925.

The first buyer, Florentino Rivera, contends that he had lost the ship when it got stranded somewhere in Batangas.
He claims that Rubiso took possession of the vessel without his knowledge or consent. Rivera seeks to be
indemnified for the profits he could have collected from the vessel’s voyages had Rivera not taken it. But, does he
have the right to the vessel?

ISSUE:

Who is the rightful owner of the merchant vessel--Rivera or Rubiso?

RULING:

Rubiso. It is true that the sale to Rivera had taken place prior to the public auction where Rubiso bought the vessel,
but the same was entered in the customs registry only on March 17, 1915. Rubiso, however, had acted more swiftly
by registering the property much earlier in the Office of the Collector Customs and in the commercial registry in the
same month. Although the sale to Rivera had taken place first, the registration made by Rubiso was made earlier.

Rubiso did the smart thing by registering the property at the commercial registry. Pursuant to Article 573 of the
Code of Commerce, the acquisition of a vessel must be registered at the commercial registry in order to bind third
parties. Such registration is necessary and indispensible in order that the purchaser’s rights may be maintained
against a claim filed by third persons.

With respect to the rights of two purchasers, whichever of them first registered his acquisition of the vessel is the
one entitled to enjoy the protection of the law. By first registration, he becomes the absolute owner of the boat and is
freed from all encumbrances and claims by strangers.


 G.R. No. 128661               August 8, 2000
 PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT
CORPORATION, petitioners,
 vs.
THE COURT OF APPEALS, CHINA BANKING CORPORATION, respondents.
 DECISION
 GONZAGA-REYES, J.:
 In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek
the reversal of the 21 March 1997 decision of the Court of Appeals in C.A.-G.R. No. CV-
1 

38131. The assailed decision set aside the Order dated 4 March 1992 of the Regional Trial
2 

Court of Makati City, Branch 146 in Civil Case No. 7119 insofar as it dismissed the
complaint-in-intervention of private respondent China Banking Corporation.
 The facts of the case are as follows:
 To finance the acquisition of seven (7) ocean-going vessels, namely M/V "Asean Liberty,"
M/V "Asean Independence," M/V "Asean Mission," M/V "Asean Knowledge," M/V "Asean
Nations," M/V "Asean Greatness," and M/V "Asean Objectives," the Philippine International
Shipping Corporation (hereinafter "PISC") applied for and was granted by petitioner National
Investment and Development Corporation (hereinafter "NIDC") the following guaranty
accommodations:
 a. US$9.44 Million in favor of Ultrafin A.G. of Zurich, Switzerland as Agent for the
banks/financial institutions as evidenced by and subject to the terms and conditions of a
Guaranty Agreement dated December 7, 1978 to partly finance the acquisition of two (2)
ocean-going vessels;
 b. US$23.60 Million in favor of the Philippine National Bank (hereinafter "PNB" as evidenced
by and subject to the terms and conditions of a Consolidated Amendatory Agreement dated
January 25, 1979 to finance the acquisition cost of four (4) additional ocean-going vessels;
and
 c. US$1.291 Million in favor of PNB as evidenced by and subject to the terms and conditions
of that Second Consolidated Amendatory Agreement dated July 17, 1979 to finance the
additional acquisition cost of one (1) ocean-going vessel.3

 As security for these guaranty accommodations, PISC executed in favor of petitioners the
following mortgage documents:
 a. Deed of Chattel Mortgage dated September 14, 1979 constituted on M/V "Asean Liberty"
and M/V "Asean Nation" and recorded on September 25, 1979 with the Philippine Coast
Guard Headquarters;
 b. Supplemental Chattel Mortgage dated October 2, 1979 constituted on M/V "Asean
Independence," M/V "Asean Mission," M/V "Asean Knowledge," and M/V "Asean Objectives"
and recorded with the Philippine Coast Guard Headquarters on February 13, 1980; and
 c. Supplemental Chattel Mortgage constituted on M/V "Asean Greatness" and recorded with
the Philippine Coast Guard Headquarters on February 3, 1981. 4

 Meanwhile, on March 12, 1979, PISC entered into a Contract Agreement with Hong Kong
United Dockyards, Ltd. for the repair and conversion of the vessel M/V "Asean Liberty" at a
contract price of HK$2,200,000.00 variable as provided therein. 5

 On May 28, 1979, the Central Bank of the Philippines authorized PISC to open with private
respondent China Banking Corporation (hereinafter "CBC") a standby letter of credit for
US$545,000.00 in favor of Citibank, N.A. (hereinafter "Citibank") to cover the repair and
partial conversion of the vessel M/V "Asean Liberty". This was pursuant to the letter of the
Central Bank of the Philippines dated May 28, 1979 as amended on June 20, 1979. 6

 On June 15, 1979, PISC executed an Application and Agreement for Commercial Letter of
Credit for $545,000.00 with private respondent CBC in favor of Citibank. Pursuant to this
application and agreement, private respondent CBC issued on September 12, 1979 its
Irrevocable Standby Letter of Credit No. 79/4174 for US$545,000.00 in favor of Citibank for
account of PISC.
 On September 17, 1979, a Promissory note for US$545,000.00 was executed by PISC in
favor of Citibank pursuant to the Loan Agreement for US$545,000.00 between PISC, as
borrower, and Citibank, as lender. 7

 Upon failure of PISC to fulfill its obligations under the said promissory note, Citibank sent to
private respondent CBC a letter dated March 25, 1983 drawing on Letter of Credit No.
79/4174. In this letter, Citibank certified that the draft attached thereto for US$242,225.00
represented the principal balance due to Citibank as of March 17, 1983 under the promissory
note executed by PISC, the proceeds of which were used for the repair and conversion of
M/V Asean Liberty. Thus, on March 30, 1983, CBC instructed its correspondent Irving Trust
Co., by cable, to pay to Citibank the amount of US$242,225.00. On the same date, Irving
Trust Co. advised private respondent CBC by mail that the amount of US$242,225.00 had
been debited against CBC’s Account No. 8033278269 and remitted to Citibank. 8

 On May 10, 1983, for failure of PISC to settle its obligations in the amount of
US$64,789,470.96, petitioner PNB conducted, thru the Sheriff’s Office, an auction sale of the
mortgaged vessels, except for the vessel M/V "Asean Objective." Petitioner NIDC emerged
as the highest bidder in these auctions.9

 On May 27, 1983, claiming that the foreclosure sale of its mortgaged vessels was illegal,
unjust, irregular, and oppressive, PISC instituted before the Regional Trial Court of Makati, a
civil case against petitioners for the annulment of the foreclosure and auction sale of its
10 

vessels and damages.

 As accurately narrated in the trial court’s Order and adopted by the Court of Appeals in its
Decision of March 21, 1997, the following proceedings transpired in the lower court:
 "Records show that on May 27, 1983, PISC (Philippine International Shipping Corporation)
filed suit against National Investment and Development Corporation (NIDC, for short) and
Philippine National Bank (PNB, for short) for annulment of foreclosure of mortgage and
auction sale with damages vis-à-vis the sale on foreclosure of vessels Asean Mission, Asean
Knowledge, Asean Nations and Asean Greatness (as well as Asean Liberty and Asean
Independence). NIDC answered the complaint, and in an amended answer impleaded
additional counterclaim defendants. In an Order dated September 29, 1984, then Judge Jose
L. Coscolluela, Jr. dismissed the complaint as against PNB and the counterclaimed
defendants. And under date of November 3, 1986, the complaint itself against and the NIDC
counterclaims were dismissed with prejudice.
 In the meantime, NIDC acquired the vessels as highest bidder in the foreclosure thereof
initiated by PNB, NIDC having thereafter disposed of said vessels in favor of the National
Steel Corporation (NSC).
 Complaints in intervention were filed by and for Unitor Ships Services PTE, Ltd., IMO
Industries AB, UDDVALLARVARVET AB, Hyundai, Shipyard Co., Lloyd’s, China bank,
Chiang Tung Enterprises Co., Ltd., Pan Asia, Inc., and HANMF Marine Service, Co., Ltd., for
recovery upon maritime liens against the proceeds of the sale of the foreclosed vessels. The
parties concerned, except for intervenors Lloyd’s and China Bank, eventually submitted a
Compromise Agreement dated July 12, 1989, and made the basis for the Decision of August
23, 1989.
 As first stated, there now remain only Lloyd’s and China Bank claims in intervention,
recovery upon which is covered by a PNB bank guarantee therefor if found matters of
entitlement (sic) by said intervenors.
 Intervenor Lloyd’s claim is for ‘the service of herein intervenor Lloyd’s Register of Shipping to
class aforementioned vessels (M/V Asean Nations and Asean Greatness) during the period
covering July 22, 1981 to July 14, 1983 and the cost for said maritime surveys in the sum of
HK$65,930.00, UKC10,363.45 and ₱9,653.00’ said to have been unpaid by PISC despite
demands. NIDC traversed the Lloyd’s claim as not being preferred maritime liens and in any
event inferior in nature.
 Intervenor China Bank’s claims are predicated on (i) a China Bank Standby Letter of Credit
in favor of Citibank, N. A. purportedly to cover repair and partial conversion of M/V Asean
Liberty, to the extent of US$242,225.00 paid by China Bank to Citibank, and said to be now
owing by PISC together with stipulated interest; (ii) a China Bank loan of US$2,700,000.00
as evidenced by a promissory note, the loan proceeds said to have allowed PISC to reduce
overhead expenses and afford it competitive advantage in overseas shipping, and to pay for
bunker fuel, defray port expenses and storage, container rental and insurance, as well as
salaries and wages of crew members; and (iii) a China bank commercial letter of credit to
PISC in favor of Bank of America, particularly a BA Draft for US$648,002.54 said to have
been applied towards vessel repair and conversion by the China Shipbuilding Corporation of
Taiwan, together with stipulated interests due from PISC. China Bank’s claims are premised
on the above as being preferred maritime liens. NIDC rejects said claims as not being
maritime liens, much less preferred maritime liens.
 Shortly after the undersigned penning Judge assumed his duties in this Court, Lloyd’s and
China Bank were enjoined to furnish opposite counsel with copies of the documentation of
their respective claims, to obviate the necessity of adducing evidence in point on matters
capable of stipulation. Thus, failing formulation of any amicable settlement in the manner
arrived at by all other intervenors, pre-trial proceedings for the subject last remaining claims
in intervention by and for Lloyd’s and China Bank resulted in an August 9, 1991 Pre-Trial
Order which set forth-
 ‘A. NATURE OF THE CASE
 Claimant-intervenor Lloyd’s Register of Shipping seeks recovery as unpaid creditor of
HK$65,930., UK Pounds C10,363.45 and P9,653.00 as being in the nature of preferred
maritime liens on the vessels M/V "ASEAN NATIONS" and "ASEAN GREATNESS",
representing costs for maritime services rendered for said vessels for the period July 22,
1981 to July 14, 1983.
 Intervenor-claimant China Banking Corporation seeks recovery, as being in the nature of a
preferred maritime lien, of the sum of US$3,890,227.53, representing the totality of loans
extended by said intervenor-claimant said to have been expended in financing repair and
conversion costs, for expenses and storage container rentals and insurance premium paid
out by it.
 Plaintiffs admit the recoverability of said claims as being in the nature of preferred maritime
liens, whereas PNB-NIDC contests the said claims.
 B. STIPULATIONS AND ADMISSIONS.
 Plaintiffs, PNB-NIDC and intervenor-claimant Lloyd’s Register of Shipping stipulate and
admit that the totality of its claims as fully supported by documentation already verified by the
parties are in the sums of HK$65,930,00, UKC10,363.45 and ₱9,653.00.
 Plaintiffs, PNB-NIDC and intervenor-claimant China Banking Corporation stipulate and admit
that the totality of its claim is in the sum of US$3,870,227.53 as fortified by documentation
already verified in point.
 C. ISSUES.
 The parties have agreed to limit the resolution of the last two remaining claims in intervention
aforementioned to the following legal questions:
 i. Whether or not said claims, in the context in which they sought to be recovered, are
preferred maritime lien as would entitle said claims to recover, and
 ii. Whether or not assuming recoverability thereon as being in the nature of maritime liens,
such recovery may be allowed in relation with PNB’s being the mortgagee of the assets from
which recovery is sought.
 Considering that the issues to be addressed are purely legal in nature, presentation of
evidence and/or witnesses in point is unnecessary.’" 11

 After the parties submitted their respective memoranda, the trial court issued on March 4,
1992 an Order dismissing the complaint-in-intervention filed by private respondent CBC for
 lack of merit. In dismissing the complaint-in-intervention, the trial court ruled that the claim of
private respondent CBC was not a preferred maritime lien but was merely a loan extended to
PISC by CBC.
 Private respondent CBC appealed the Order of the trial court to the Court of Appeals. In its
appeal, private respondent CBC imputed the following errors allegedly committed by the trial
court:
 a) the trial court erred in holding that the loans extended by China Banking Corporation to
the Philippine International Shipping Corporation did not create maritime liens.
 b) assuming that the loans are not themselves maritime liens, the trial court erred in holding
that the China Banking Corporation did not acquire the maritime liens of Philippine
International Shipping Corporation's creditors by subrogation.
 For its part, herein petitioners PNB/NIDC raised as an issue in its Appellee’s Brief before the
Court of Appeals the lack of jurisdiction of the appellate court to entertain and pass upon the
appeal interposed by CBC on the ground that the issues raised therein were purely legal;
and that the appeal of CBC should have been lodged with the Supreme Court by petition for
review on certiorari. 12

 On March 21, 1997, the Court of Appeals promulgated its questioned decision, the
dispositive portion of which states:
 "WHEREFORE, insofar as the appellant CBC is concerned, the appealed Order is hereby
SET ASIDE and judgment is rendered:
 (a) Directing the appellee Philippine National Bank/National Investment and Development
Corporation to pay the appellant China Banking Corporation from the proceeds of the
foreclosure sale of M/V Asean Liberty the amount of US$242,225.00 or its Philippine Peso
Equivalent at the time of payment, with interest thereon at the legal rate from November 7,
1984, the date of filing of CBC’s complaint-in-intervention, until fully paid; and
 (b) Ordering the appellee Philippine International Shipping Corporation to pay the same CBC
the amounts of US$648,002.54 and US$2.7 Million plus stipulated interests, arrangement
fees, swap premiums, expenses, losses, taxes and penalties,
 xxx
 SO ORDERED." 13

 In the said decision, the appellate court held petitioners PNB/NIDC liable to CBC only for the
amount of US$242,225.00, which was used for the repair and conversion of the M/V "Asean
Liberty", as it was only this amount which CBC was able to prove as being a preferred
maritime lien. Moreover, such amount was to be paid by petitioners PNB/NIDC from the
proceeds of the foreclosure sale of the vessel M/V "Asean Liberty". Private respondent
CBC’s other claims of US$648,000.54 and US$2.7 Million were found by the appellate court
as not being in the nature of maritime liens and as such, recoverable only from PISC, not
from herein petitioners PNB/NIDC.
 Not satisfied with the decision of the appellate court, petitioners PNB/NIDC institute the
present petition for review on certiorari where they raise the following issues:
 I.
 WHETHER OR NOT THE COURT OF APPEALS HAS APPELLATE JURISDICTION TO
ENTERTAIN AND PASS UPON THE APPEAL INTERPOSED BY PRIVATE RESPONDENT
CBC FROM THE ORDER OF THE TRIAL COURT OF MARCH 4, 1992 WHICH INVOLVED
PURE QUESTIONS OF LAW.
 II.
 WHETHER OR NOT PRIVATE RESPONDENT CBC’S CLAIM FOR US$242,225.OO AS
EVIDENCED BY ITS IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF SEPTEMBER
12, 1979 IS IN THE NATURE OF A MARITIME LIEN UNDER THE PROVISIONS OF P.D.
NO. 1521; AND IF SO, WHETHER OR NOT SAID MARITIME LIEN IS PREFERRED OVER
THE MORTGAGE LIEN OF PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL M/V
"ASEAN LIBERTY".
 On the first issue, petitioners argue that the Court of Appeals committed grave error in law in
taking cognizance of the appeal interposed by private respondent CBC from the Order of the
trial court dated 4 March 1992 involving as it does pure questions of law. They claim that the
Court of Appeals had no jurisdiction to entertain and pass upon the appeal interposed by
private respondent CBC as the issues raised therein are purely legal. As such, petitioners
continue, the appeal of CBC should have been lodged directly with the Supreme Court by
way of petition for review on certiorari under Rule 45 of the Revised Rules of Court. Citing
the pronouncement of this Court en banc in Anacleto Murillo vs. Rodolfo Consul , the
14 

petitioners conclude that the appeal made by private respondent CBC to the Court of
Appeals should have been dismissed by the respondent court for lack of jurisdiction.
 It is true that the decisions of the Regional Trial Court may be directly reviewed by the
Supreme Court on petition for review if pure questions of law are raised. Circular 2-
90, which petitioners cite and which outlined the applicable rules of procedure on this matter
15 

at that time, indirectly states that cases from the Regional Trial Court raising only questions
of law should be taken to the Supreme Court. Paragraphs No. 4(c) and (d) of the said
Circular provide as follows:
 "4. Erroneous Appeals. – An appeal taken to either the Supreme Court of the Court of
Appeals by the wrong or inappropriate mode shall be dismissed.
 x x x           x x x          x x x
 (c) Raising issues purely of law in the Court of Appeals or appeal by wrong mode. – If an
appeal under Rule 41 is taken from the Regional Trial Court to the Court of Appeals and
therein the appellant raises only questions of law, the appeal shall be dismissed, issues
purely of law not being reviewable by said court. xxx
 (d) No transfer of appeals erroneously taken. – No transfers of appeals erroneously taken to
the Supreme Court or to the Court of Appeals to whichever of these Tribunals has
appropriate appellate jurisdiction will be allowed; continued ignorance or willful disregard of
the law on appeals will not be tolerated."
 From the cited provisions, it is clear that the Court of Appeals does not have jurisdiction over
appeals from the Regional Trial Court that raise purely questions of law. Appeals of this
nature should be raised to the Supreme Court. Furthermore, transfer of erroneous appeals
16 

is not allowed and the tribunal which receives the erroneous appeal should perforce dismiss
the same for lack of jurisdiction.
 Notwithstanding this legal rule, the appeal brought before the Court of Appeals by the private
respondent CBC must first be analyzed as to whether the same raised questions or errors of
law alone. If the petition raised only questions of law, then the Court of Appeals had no
jurisdiction to take cognizance of the case and should have dismissed the case outright. On
the other hand, if the petition raised only questions of fact or questions of both fact and law,
then the Court of Appeals correctly exercised jurisdiction over the issue.17

 As such, even if, as in this case, the documentary evidence adduced by the parties was
admitted without objection, a question of fact is still involved when the query necessarily
invites the calibration of the whole evidence including the relevancy of surrounding
circumstances and their relation to each other.
 On this point, we note with approval the following justification made by the respondent court
in assuming jurisdiction over the case:
 "A question of fact has been distinguished from a question of law in this wise:
 ‘At this point, the distinction between a question of fact and a question of law must be clear.
As distinguished from a question of law which exists ‘when the doubt or difference arises as
to what the law is on certain state of facts’ – ‘there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts;’ or when the query
necessarily invites calibration of the whole evidence considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding circumstances, their relation to
 each other and to the whole and probabilities of the situation.’(Bernardo vs. Court of
Appeals, 216 SCRA 224)
 Stated differently, a question of law does not involve an examination of the probative value of
the evidence presented by the litigants or any of them; otherwise, if such examination and
re-evaluation of the evidence is called for, a question of fact is raised.
 "In the decision from which the CBC appealed, the trial court primarily held that the former is
a mere money lender and not a maritime lienor. In its appeal, the CBC argues that in so
holding, the trial court disregarded the maritime purposes for which the loans it extended to
the Philippine International Shipping Corporation (PISC) were availed of and used. The issue
thus raised cannot be judiciously resolved without reviewing the probative weight of the
evidence on record consisting in the main of the various documents, contracts and
transactions attached to CBC’s complaint-in-intervention. It is, therefore, indubitable that
mixed questions of fact and of law are involved over which this Court has jurisdiction." 18

 Thus, in resolving the issues raised by private respondent in the Court of Appeals, the
appellate court had to make a factual inquiry, among others, on the nature and terms of the
contracts among the different parties, the relationship of the different parties with one
another and with respect to the vessels involved in the case, how the proceeds of the loans
were used, and the correct dates when the maritime and mortgage liens were constituted on
the vessels. The determination of these facts is crucial as it will resolve whether the amount
advanced by respondent CBC is in the nature of a maritime lien and if so, whether the lien is
superior to the mortgage lien of petitioners. If the appellate court, in the exercise of its review
power, finds that the amount advanced by CBC was used for the repair of the vessels, then a
mortgage lien was indubitably established over the shipping vessels. Moreover, a
determination of the dates when the respective liens of the parties were constituted over the
vessels will answer the question as to which lien is preferred over the other. In short, in order
to address fully the issues raised by the parties in their pleadings, the appellate court
necessarily had to make factual findings.
 Verily, the issues raised by private respondent in the appellate court were cognizable by the
said court, the issues being mixed questions of fact and law. Respondent court was therefore
acting within its jurisdiction when it promulgated its questioned decision.
 The next issue brought up by petitioners is whether or not private respondent CBC’s claim
for US$242,225.00 is in the nature of a maritime lien. It is the contention of petitioners that
"(t)he Court of Appeals gravely erred in law in holding that private respondent CBC’s claim
under its Standby Letter of Credit No. 79/4174 is a maritime lien, and that said maritime lien
is preferred over the mortgage lien of petitioners PNB/NIDC on the foreclosed vessel M/V
Asean Liberty." 19

 The applicable law on the matter is Presidential Decree No. 1521, otherwise known as the
Ship Mortgage Decree of 1978. Sections 17 and 21 of the said Presidential Decree provides
as follows:
 "Sec. 17. Preferred Maritime Liens, Priorities, Other Liens – (a) Upon the sale of any
mortgaged vessel in any extra-judicial sale or by order of a district court of the Philippines in
any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all pre-
existing claims on the vessel, including any possessory common-law lien of which a lienor is
deprived under the provisions of Section 16 of this Decree, shall be held terminated and
shall thereafter attach, in like amount and in accordance with the priorities established herein
to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims
against the vessel, except the following claims in the order stated: (1) expenses and fees
allowed and costs taxed by the court and taxes due to the government; (2) crew’s wages; (3)
general average; (4) salvage; including contract salvage; (5) maritime liens arising prior in
time to the recording of the preferred mortgage; and (6) damages arising out of tort; and (7)
preferred mortgage registered prior in time.
 (b) If the proceeds of the sale should not be sufficient to pay all creditors included in one
number or grade, the residue shall be divided among them pro rata. All credits not paid,
 whether fully or partially shall subsist as ordinary credits enforceable by personal action
against the debtor. The record of judicial sale or sale by public auction shall be recorded in
the Record of Transfers & Encumbrances of Vessels in the port of documentation."
 "Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. – Any person
furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other
necessaries to any vessel, whether foreign or domestic, upon the order of the owner, shall
have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be
necessary to allege or prove that credit was given to the vessel."
 Under these provisions, any person furnishing repairs, supplies, or other necessaries to a
vessel on credit will have a maritime lien on the said vessel. Such maritime lien, if it arose
prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage
lien.
 In the instant case, it was Hongkong United Dockyards, Ltd. which originally possessed a
maritime lien over the vessel M/V "Asean Liberty" by virtue of its repair of the said vessel on
credit. Under the Contract Agreement dated March 12, 1979 between Hongkong United
Dockyards, Ltd. and PISC, the former, as contractor, obligated itself to repair and convert the
vessel M/V "Asean Liberty," which was owned by PISC. Section 7 of the said Agreement
provides as follows:
 "(7) a) The Owner will, before the commencement of work, provide an Irrevocable
Documentary Credit for the Contract Price plus an estimate to cover the cost of extra work.
The banks and wording of the Credit are to be agreed by the Contractor.
 b) Payment will be:
 (1) Before departure of vessel from Contractor’s yard: 20% of contract price;
 (2) 60 days from departure of vessel from Contractors yard: 40% of contract price;
 (3) 90 days from departure of vessel from Contractors yard: 40% of contract price." 20

 The foregoing provision of the contract agreement indubitably shows that credit was given to
the vessel M/V "Asean Liberty" by Hongkong United Dockyards, Ltd. and as a result, a
maritime lien in favor of Hongkong United Dockyards, Ltd. was constituted on the said vessel
by virtue of Section 21 of the Ship Mortgage Decree of 1978.
 It is the contention of private respondent CBC however, that it ultimately acquired the
maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V "Asean Liberty". As
shown by the documentary evidence offered by private respondent CBC, its proof that it
acquired said maritime lien is as follows:
 (a) On March 12, 1979, PISC entered into a Contract Agreement with Hongkong United
Dockyards, Ltd., as contractor, for the repair and conversion of its vessel M/V "Asean
Liberty" for a contract price of HK$2,200,000.00 ;
21 

 (b) On May 28, 1979, the Central Bank of the Philippines approved PISC’s request to open
with private respondent China Banking Corporation a Standby Letter of Credit for
US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This May 28, 1979 letter stated
that the credit for US$545,000 would be used "to cover the partial conversion cost of the
vessel ‘Asean Liberty’". On June 20, 1979, the Central Bank approved the request of PISC to
change the beneficiary of the said Standby Letter of Credit from Hongkong United
Dockyards, Ltd. to Citibank ;
22 

 (c) On June 15, 1979, PISC executed an Application and Agreement with private respondent
CBC for the opening of a Standby Letter of Credit for US$545,000.00 in favor of Citibank,
N.A., Makati, Metro Manila as beneficiary. The agreement confirmed that the letter of credit
would be used to guarantee the loan in the amount of US$545,000.00, the proceeds of
which will be used "to finance partially the conversion cost of the vessel MV ‘ASIAN
LIBERTY’" ;
23 

 (d) On September 12, 1979, private respondent CBC issued an Irrevocable Standby Letter of
Credit in favor of Citibank for any sum or sums not exceeding a total of US$545,000.00. Per
express terms of the Letter of Credit, its purpose was "to guarantee (Citibank’s) loan to
 Philippine International Shipping Corporation, the proceeds of which loan, according to
accountee, are to finance partially the conversion cost of the vessel M/V ‘ASIAN LIBERTY’" ; 24 

 (e) Pursuant to its loan agreement with Citibank, PISC executed on September 17, 1979 a
promissory note for US$545,000.00 in favor of Citibank, promising to pay the latter the
principal sum of US$545,000.00 in nine (9) consecutive semi-annual installments of
US$60,555.00 commencing one (1) year from date hereof or on September 17, 1980 until
September 17, 1984 ; 25 

 (f) On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing
on CBC’s Letter of Credit No. 79/4174 and certifying that the draft attached thereto for
US$242,225.00 represents the principal balance due to Citibank as of March 17, 1983 under
PISC’s Promissory Note of September 17, 1979 . This March 25, 1983 letter likewise
26 

indicated that the loan due from PISC was used to finance partially the conversion cost of the
vessel M/V "Asian Liberty";
 (g) On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving
Trust Co., to pay Citibank US$242,225.00. On the same date, Irving Trust Co., advised
private respondent CBC by mail that the sum of US$242,225.00 was debited against CBC’s
Account No. 8033278269 and remitted to the Citibank Foreign Currency Deposit Unit,
Makati ;
27 

 From the documentary evidence thus presented, it is clear that private respondent’s claim is
predicated on the payment it made to Citibank by virtue of the Irrevocable Letter of Credit it
established in the latter’s favor. Per express provisions of the Letter of Credit, the same was
established to "guarantee your (Citibank) loan in the principal amount of US$545,000.00 to
Philippine International Shipping Corporation, the proceeds of which loan, according to
accountee, are to finance partially the conversion cost of the vessel M/V "Asean Liberty." 28

 In short, private respondent CBC was a guarantor of the loan extended by Citibank to PISC.
It was Citibank, which advanced the money to PISC. It was only upon the failure of PISC to
fulfill its obligations under its promissory note to Citibank that private respondent CBC was
called upon by Citibank to exercise its duties under the Standby Letter of Credit.
 It is the holding of the appellate court, however, that private respondent stepped into the
shoes of Hongkong United Dockyards, Ltd. by legal subrogation and thus acquired the
maritime lien of the latter over the vessel M/V "Asean Liberty." Thus:
 "It is not disputed that CBC’s claim for US$242,225.00 and US$648,002.54 refer to the repair
and conversion of two (2) of PISC’s vessels, namely M/V Asean Liberty and M/V Asean
Mission, undertaken by Hongkong United Dockyards, Ltd. and the China Shipbuilding
Corporation of Taiwan, respectively, upon the order of the owner, as deposed by George
Lim, the President of the PISC. Such being the case, maritime liens on the vessels
concerned arose conformably with the aforequoted provision of Section 21 of P.D. No. 1521.
True it is that under the law the persons entitled to the lien are the Hongkong United
Dockyards, Ltd. and the China Shipbuilding Corporation of Taiwan, they being the ones who
furnished the repair works. However, since it was CBC who paid off these lienors, it stepped
into the shoes of the latter by subrogation. This is the prevailing doctrine in American
jurisprudence which holds that: ‘A creditor who advances money specifically for the purpose
of discharging a maritime lien is subrogated to the lienor’s rights.’ Significantly, the Federal
Maritime Lien Act, like our Ship Mortgage Decree of 1978, provides that, ‘any person
furnishing repairs, supplies, towage, use of drydock or marine railway, or other necessaries,
to any foreign or domestic vessel on the order of the owner of such vessel, or of a person
authorized by the owner of such vessel, or of a person authorized by the owner has a
maritime lien on the vessel which may be enforced by suit in rem.’ The only difference is that
under the Federal Maritime Lien Act, it is not necessary to allege or prove that the credit was
given to the vessel. Hence, insofar as the creation of the lien and the persons entitled to the
lien are concerned, American jurisprudence is highly persuasive. Furthermore, Article 1302
(2) of our Civil Code explicitly provides:
 ‘Art. 1302 (2). It is presumed that there is legal subrogation:
  x x x           x x x          x x x
 (2) When a third person not interested in the obligation pays with the express or tacit
approval of the debtor;
 x x x           x x x          x x x'
 Accordingly, since CBC’s payment to the lienors was with the express consent of the debtor
owner of the vessels repaired, legal subrogation took place in CBC’s favor."
 Petitioners do not question the abovequoted rationale of the Court of Appeals. It takes
exception however to the appellate court’s finding and conclusion that it was ultimately
private respondent CBC which paid off the maritime lienor and that the US$545,000.00
advanced by Citibank was actually paid to the persons who furnished the repairs on the
vessels. On this point, petitioners argue that the entirety of the documentary evidence of
private respondent CBC does not show that the latter actually paid off the maritime lienholder
for the repair of M/V "Asean Liberty" as required by Section 21 of the Ship Mortgage Act of
1978. Furthermore, petitioners claim that the respondent court committed serious error in
29 

law when it considered and gave credence to the written deposition of Mr. George Lim, the
President of PISC, as basis for the said finding considering that the same had earlier been
denied admission by the trial court.
 There is no merit in the contentions of petitioners.
 The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the
U.S. Ship Mortgage Act of 1920. Significantly, the Federal Maritime Lien Act of the United
30 

States, like our Ship Mortgage Decree of 1978, provides that "any person furnishing repairs,
supplies, towage, use of drydock, or marine railway, or other necessaries, to any foreign or
domestic vessel on the order of the owner of such vessel, or of a person authorized by the
owner has a maritime lien on the vessel, which may be enforced by suit in rem." Being of
31 

foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed
with the aid of foreign jurisprudence from which they are derived except insofar as they
conflict with existing laws or are inconsistent with local customs and institutions.
 As held by the public respondent Court of Appeals, those who provide credit to a master of a
vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel.
Under American jurisprudence, "(f)urnishing money to a master in good faith to obtain
repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a
lien just as though the things (for which) money was obtained to pay for had been furnished
by the lender." Likewise, "(a)dvances to discharge maritime liens create a lien on the vessel,
32 

and one advancing money to discharge a valid lien gets a lien of equal dignity with the one
discharged." There is no reason why these doctrines cannot be given persuasive application
33 

in the instant case considering that they do not violate or contravene any of our existing
laws. Moreover, as pointed out by the appellate court, these doctrines are in accord with our
provisions on subrogation particularly Art. 1302, paragraph 2 of the New Civil Code which
provides that there is legal subrogation "when a third person, not interested in the fulfillment
in the obligation, pays with the express or tacit approval of the debtor."
 Under these doctrines, a person who extends credit for the purpose of discharging a
maritime lien is not entitled to the said lien "where the funds were not furnished to the ship on
the order of the master and there was no evidence that the money was actually used to pay
debts secured by the lien." As applied in the instant case, it becomes necessary to prove
34 

that the credit advanced by Citibank to PISC was actually utilized for the repair and
conversion of the vessel M/V "Asean Liberty." Otherwise, Citibank could not have acquired
the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V "Asean Liberty."
 On this point, we agree with the position of private respondent that the question of whether
or not the proceeds of the loans extended by Citibank were used for the repair and
conversion of M/V "Asean Liberty" is a factual issue which the Court cannot review absent a
35 

showing that it was arbitrarily resolved.

36
 Contrary to the assertions of petitioners, the records are replete with documents that show
that the proceeds of the loans were used for the repair and conversion of the vessel M/V
"Asean Liberty." Even without the written deposition of Mr. George Lim, there is still sufficient
documentary evidence in the records supporting the appellate court’s findings. The
correspondences between PISC and the Central Bank, the Application and Agreement, and
the Standby Letter of Credit itself explicitly state that the proceeds of the loan applied for by
PISC are to be used to finance partially the conversion cost of the vessel M/V "Asean
Liberty." Moreover, the March 25, 1983 letter of Citibank to private respondent CBC drawing
on the latter’s letter of credit, confirmed that the loan due from PISC was used to finance
partially the conversion cost of the said vessel.
 In the presence of such documentary evidence, which were admitted without objection from
the petitioners, we cannot say that the Court of Appeals resolved the issue arbitrarily. The
appellate court’s finding that the amount sought to be recovered by petitioner was actually
used for the repair and conversion of the vessel M/V "Asean Liberty" is based on substantial
evidence.
 From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean
Liberty" was advanced by Citibank and was utilized for the purpose of paying off the original
maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the
fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank
was subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the
vessel, by virtue of Article 1302, par. 2 of the New Civil Code. By definition, subrogation is
the transfer of all the rights of the creditor to a third person, who substitutes him in all his
rights. Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards,
37 

Ltd. it became the transferee of all the rights of Hongkong United Dockyards, Ltd. as against
PISC, including the maritime lien over the vessel M/V "Asean Liberty."
 Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as
against PISC, the latter’s debtor. Article 2067 of the New Civil Code provides that "(t)he
guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had
against the debtor." Private respondent, having paid off the debt of PISC to Citibank, was
therefore, subrogated to all the rights Citibank had against its debtor PISC. Considering that
Citibank had a maritime lien over the vessel M/V "Asean Liberty," private respondent was
likewise subrogated to this right when it paid off Citibank under the contract of guarantee.
 Having thus established that private respondent CBC possessed a maritime lien over the
vessel M/V "Asean Liberty," the next issue is whether the said maritime lien is preferred over
the mortgage lien of petitioners.
 In the case at bench, petitioners’ mortgage lien arose on September 25, 1979 when the said
mortgage was registered with the Philippine Coast Guard Headquarters. As such, in order
38 

for the maritime lien of private respondent CBC to be preferred over the mortgage lien of
petitioners, the same must have arisen prior to the recording of the mortgage on September
25, 1979.
 On this point, petitioners argue that inasmuch as the Standby Letter of Credit was in the
nature of a guarantee, the right of private respondent CBC to claim or to collect the maritime
lien arose only at the time CBC actually paid off the said lien to Citibank on March 30, 1983.
Otherwise stated, it is the contention of petitioners that private respondent CBC’s maritime
lien under its Standby Letter of Credit No. 79/4174 arose only on March 30, 1983 when CBC
actually paid off the outstanding obligation of PISC to Citibank. Considering that its
39 

mortgage lien arose on September 25, 1979, petitioners thus conclude that its lien is
preferred as against private respondent CBC’s maritime lien.
 There is no merit in this contention.
 As stated by a noted commentator on the subject, a maritime lien "constitutes a present right
of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem.
 From the moment the claim or privilege attaches, it is inchoate, and when carried into effect
by legal process, by a proceeding in rem, it relates back to the period when it first attached." 40

 In the case at bench, the maritime lien over the vessel M/V "Asean Liberty" arose or was
constituted at the time Hongkong United Drydocks, Ltd. made repairs on the said vessel on
credit. As such, as early as March 12, 1979, the date of the contract for the repair and
conversion of M/V "Asean Liberty," a maritime lien had already attached to the said vessel.
When Citibank advanced the amount of US$242,225.00 for the purpose of paying off PISC’s
debt to Hongkong United Dockyards, Ltd., it acquired the existing maritime lien over the
vessel. When private respondent honored its contract of guarantee with Citibank on March
30, 1983, it likewise acquired by subrogation the maritime lien that was already existing over
the vessel M/V "Asean Liberty." Thus, when private respondent CBC chose to exercise its
right to the maritime lien during the proceedings in the trial court, it was actually enforcing a
privilege that attached to the ship as early as March 12, 1979. 1âwphi1

 The maritime lien of private respondent CBC thus arose prior in time to the recording of
petitioners’ mortgage on September 25, 1979. As such, the said maritime lien has priority
over the said mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a
"preferred mortgage lien shall have priority over all claims against the vessel" except, among
others, "maritime liens arising prior in time to the recording of the preferred mortgage." The
respondent court thus committed no reversible error when it ruled that the maritime lien of
private respondent CBC is superior to the mortgage lien of petitioners.
 WHERFORE, in view of the foregoing, the petition is denied and the decision of the Court of
Appeals dated March 21, 1997 in CA-G.R. CV. No. 38131 is hereby AFFIRMED.
 SO ORDERED.
 Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
 G.R. No. L-40234 December 14, 1987
 MARIMPERIO COMPAÑIA NAVIERA, S.A., petitioner,
vs.
COURT OF APPEALS and UNION IMPORT & EXPORT CORPORATION and
PHILIPPINES TRADERS CORPORATION, respondents.

 PARAS, J.:
 This is a petition for certiorari under Section 1, Rule 65 of the Rules of Court seeking the
annulment and setting aside of the decision of the Court of Appeals * and promulgated on September
2, 1974 in CA-G.R. No. 48521-R entitled "Union Import and Export Corporation, et al., Plaintiffs-Appellees v. Marimperio
Compañia Naviera, S.A., Defendant-Appellant", ordering petitioner to pay respondent the total sum of US $265,482.72 plus
attorney's fees of US$100,000.00 and (b) the resolution of the said Court of Appeals in the same case, dated February 17, 1975
fixing the amount of attorney, s fees to Pl00,000.00 instead of $100,000.00 as erroneously stated in the decision but denying
petitioner's motion for reconsideration and/or new trial.
 The dispositive portion of the decision sought to be annulled (Rollo, p. 215) reads as follows:
 For all the foregoing, and in accordance therewith, let judgment be entered (a) affirming the
decision appealed from insofar as it directs the defendant-appellant: (1) to pay plaintiffs the
sum of US $22,500.00 representing the remittance of plaintiffs to said defendant for the first
15-day hire of the vessel "SS PAXOI" including overtime and an overpayment of US
$254.00; (2) to pay plaintiffs the sum of US $16,000.00, corresponding to the remittance of
plaintiffs to defendant for the second 15-day hire of the aforesaid vessel; (3) to pay plaintiffs
the sum of US $6,982.72, representing the cost of bunker oil, survey and watering of the said
vessel; (4) to pay plaintiffs the sum of US $100,000.00 as and for attorney's fees; and, (b)
reversing the portion granting commission to the intervenor-appellee and hereby dismissing
the complaint-in-intervention. The order of the court a quo denying the plaintiffs' Motion for
Partial Reconsideration, is likewise, affirmed, without any special pronouncement as to costs.
 The facts of the case as gathered from the amended decision of the lower court (Amended
Record on Appeal, p. 352), are as follows:
 In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered
into a joint business venture for the purchase of copra from Indonesia for sale in Europe.
 James Liu President and General Manager of the Union took charge of the European market
and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the
other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra
for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found
the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to
negotiate for its charter but with instructions to keep confidential the fact that they are the
real charterers.
 Consequently on March 21, 1965, in London England, a "Uniform Time Charter" for the hire
of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A.
through its agents N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd. to be
referred to simply as Matthews, representing Interocean Shipping Corporation, which was
made to appear as charterer, although it merely acted in behalf of the real charterers, private
respondents herein.
 The pertinent provisions or clauses of the Charter Party read:
 1. The owners let, and the Charterers hire the Vessel for a period of 1 (one) trip via safe port
or ports Hong Kong, Philippine Islands and/or INDONESIA from the time the Vessel is
delivered and placed at the disposal of the Charterers on sailing HSINKANG ... .
 4. The Charterers are to provide and pay for oil-fuel, water for boilers, port charges, pilotages
... .
 6. The Charterers to pay as hire s.21 (Twenty-one Shillings per deadweights ton per 30 days
or pro rata commencing in accordance with Clause 1 until her redelivery to the owners.
 Payment of hire to be made in cash as per Clause 40 without discount, every 15 days in
advance.
 In default of payment of the Owners to have the right of withdrawing the vessel from the
services of the Charterers, without noting any protest and without interference by any court
or any formality whatsoever and without prejudice the Owners may otherwise have on the
Charterers under the Charter.
 7. The Vessel to be redelivered on the expiration of the Charter in the same good order as
when delivered to the Charterers (fair wear and tear expected) in the Charterer's option in
ANTWERP HAMBURG RANGE.
 20. The Charterers to have the option of subletting the Vessel, giving due notice to the
Owners, but the original Charterers always to remain responsible to the Owners for due
performance of the Charter.
 29. Export and/or import permits for Charterers'cargo to the Charterers'risk and expense.
Charterers to obtain and be responsible for all the necessary permits to enter and/or trade in
and out of all ports during the currency of the Charter at their risk and expense. ...
 33. Charterers to pay as overtime, bonus and premiums to Master, Officers and crew, the
sum of 200 (Two Hundred Pounds) per month to be paid together with hire.
 37. Bunkers on delivery as on board. Bunkers on redelivery maximum 110 tons. Prices of
bunkers at 107' per long ton at both ends.
 38. Upon sailing from each loading port, Master to cable SEASHIPS MANILA advising the
quantity loaded and the time of completion.
 40. The hire shall be payable in external sterling or at Charterers' option in U.S. dollars in
London; - Williams Deacon's Vlassopulos Ltd., Account No. 861769.
 In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm offer to
P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be loaded
either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable
letters of Credit in favor of P.T. Karkam
 On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews
that the vessel "PAXOI" had sailed from Hsinkang at noontime on March 27, 196-5 and that
it had left on hire at that time and date under the Uniform Time-Charter.
 The Charterer was however twice in default in its payments which were supposed to have
been done in advance. The first 15-day hire comprising the period from March 27 to April 1-
1, 1965 was paid despite follow-ups only on April 6, 1965 and the second 15-day hire for the
period from April 12 to April 27, 1965 was paid also despite follow-ups only on April 26,
1965. On April 14, 1965 upon representation of Toeg, the Esso Standard Oil (Hongkong)
Company supplied the vessel with 400 tons of bunker oil at a cost of US $6,982.73.
 Although the late payments for the charter of the vessel were received and acknowledged by
Vlassopulos without comment or protest, said agent notified Matthews, by telex on April 23,
1965 that the shipowners in accordance with Clause 6 of the Charter Party were withdrawing
the vessel from Charterer's service and holding said Charterer responsible for unpaid hirings
and all legal claims.
 On April 29, 1965, the shipowners entered into another charter agreement with another
Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was
around May 3, 1965 for a trip via Indonesia to Antwep/Hamburg at an increase charter cost.
 Meanwhile, the original Charterer again remitted on April 30, 1965, the amount
corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was
refused.
 On May 3,1965, respondents Union Import and Export Corporation and Philippine Traders
Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against
the Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for
preliminary attachment, alleging, among other things, that the defendants (unknown owners)
through their duly authorized agent in London, the N & J Vlassopulos Ltd., ship brokers,
entered into a contract of Uniform Time-Charter with the Interocean Shipping Company of
Manila through the latter's duly authorized broker, the Overseas Steamship Co., Inc., for the
Charter of the vessel SS PAXOI' under the terms and conditions appearing therein ...; that,
immediately thereafter, the Interocean Shipping Company sublet,the said vessel to the
plaintiff Union Import & Export, Corporation which in turn sublet the same to the other
plaintiff, the Philippine Traders Corporation (Amended Record on Appeal, p. 17).
Respondents as plaintiffs in the complaint obtained a writ of preliminary attachment of vessel
PAXOI' " which was anchored at Davao on May 5, 1969, upon the filing of the corresponding
bond of P1,663,030.00 (Amended Record on Appeal, p. 27). However, the attachment was
lifted on May 15, 1969 upon defendant's motion and filing of a counterbond for P1,663,030
(Amended Record on Appeal, p. 62).
 On May 11, 1965, the complaint was amended to Identify the defendant as Marimperio
Compania Naviera S.A., petitioner herein (Amended Record on Appeal, p. 38). In answer to
the amended complaint, by way of special defenses defendant (petitioner herein) alleged
among others that the Charter Party covering its vessel "SS PAXOI" was entered into by
defendant with Interocean Shipping Co. which is not a party in the complaint; that defendant
has no agreement or relationship whatsoever with the plaintiffs; that plaintiffs are unknown to
defendant; that the charter party entered into by defendant with the Interocean Shipping Co.
over the vessel "SS PAXOI" does not authorize a sub-charter of said vessel to other parties;
and that at any rate, any such sub-charter was without the knowledge or consent of
defendant or defendant's agent, and therefore, has no effect and/or is not binding upon
defendant. By way of counterclaim, defendant prayed that plaintiffs be ordered to pay
defendant (1) the sum of 5,085.133d or its equivalent, in Philippine currency of P54,929.60,
which the defendant failed to realize under the substitute charter, from May 3, 1965 to May
16, 1965, while the vessel was under attachment; (2) the sum of E68.7.10 or its equivalent of
P7,132.83, Philippine currency, as premium for defendant's counterbond for the first year,
and such other additional premiums that will have to be paid by defendant for additional
premiums while the case is pending; and (3) a sum of not less than P200,000.00 for and as
attomey's fees and expenses of litigations (Amended Record on Appeal, p. 64).
 On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-in-
intervention to collect what it claims to be its loss of income by way of commission and
 expenses in the amount of P15,000.00 and the sum of P2,000.00 for attorney's fees
(Amended Record on Appeal, p. 87). In its amended answer to the complaint-in-intervention
petitioner, by way of special defenses alleged that (1) the plaintiff-in-intervention, being the
charterer, did not notify the defendant shipowner, petitioner, herein, about any alleged sub-
charter of the vessel "SS PAXOI" to the plaintiffs; consequently, there is no privity of contract
between defendant and plaintiffs and it follows that plaintiff-in-intervention, as charterer, is
responsible for defendant shipowner for the proper performance of the charter party; (2) that
the charter party provides that any dispute arising from the charter party should be referred
to arbitration in London; that Charterer plaintiff-in-intervention has not complied with this
provision of the charter party; consequently its complaint-in intervention is premature; and (3)
that the alleged commission of 2 1/2 and not become due for the reason, among others, that
the charterer violated the contract, and the full hiring fee due the shipowner was not paid in
accordance with the terms and conditions of the charter party. By way of counterclaim
defendant shipowner charged the plaintiff-in-intervention attorney's fees and expenses of
litigation in the sum of P10,000.00 (Amended Record on Appeal, p. 123).
 On November 22, 1969 the Court of First Instance of Manila, Branch VIII rendered its
decision ** in favor of defendant Marimperio Compania Naviera, S.A., petitioner herein, and against plaintiffs Union Import and
Export Corporation and Philippine Traders Corporation, respondents herein, dismissing the amended complaint, and ordering said
plaintiff on the counterclaim to pay defendant, jointly and severally, the amount of f 8,011.38 or its equivalent in Philippine
currency of P75,303.40, at the exchange rate of P9.40 to 1 for the unearned charter hire due to the attachment of the vessel
"PAXOI" in Davao, plus premiums paid on the counterbond as of April 22, 1968 plus the telex and cable charges and the sum of
P10,000.00 as attorney's fees and costs. The trial court dismissed the complaint-in-intervention, ordering the intervenor, on the
counterclaim, to pay defendant the sum of P10,000.00 as attorney's fees, and the costs (Amended Record on Appeal, p. 315).
 Plaintiffs filed a Motion for Reconsideration and/or new trial of the decision of the trial court
on December 23, 1969 (Amended Record on Appeal, p. 286); the intervenor filed its motion
for reconsideration and/or new trial on January 7, 1970 (Amended Record on Appeal, p.
315).
 Acting on the two motions for reconsideration, the trial court reversed its stand in its
amended decision dated January 24, 1978. The dispositive portion of the amended decision
states:
 FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment for the
plaintiffs Union Import & Export Corporation and Philin Traders Corporation, and plaintiff-in-
intervention, Interocean Shipping Corporation, and consequently orders the defendant,
Marimperio Compania Naveria S.A.:
 (1) To pay plaintiffs the sum of US$22,500.00 representing the remittance of plaintiffs to said
defendant for the first 15-day hire of the vessel "SS PAXOI" including overtime and an
overpayment of US$254.00;
 (2) To pay plaintiffs the sum of US$16,000.00 corresponding to the remittance of plaintiffs to
defendant for the second 15-day hire of the aforesaid vessel;
 (3) To pay plaintiffs the sum of US$6,982.72 representing the cost of bunker oil, survey and
watering of the said vessel;
 (4) To pay plaintiffs the sum of US$220,0,00.00 representing the unrealized profits; and
 (5) To pay plaintiffs the sum of P100,000.00, as and for attorney's fees (Moran, Comments
on the Rules of Court, Vol. III, 1957 5d 644, citing Haussermann vs. Rahmayer, 12 Phil. 350;
and others)" (Francisco vs. Matias, G.R. No. L-16349, January 31, 1964; Sison vs. Suntay,
G.R. No. L-1000 . December 28, 1957).
 The Court further orders defendant to pay plaintiff-in-intervention the amount of P15,450.44,
representing the latter's commission as broker, with interest thereon at 6% per annum from
the date of the filing of the complaint-in-intervention, until fully paid, plus the sum of
P2,000.00 as attorney's fees.
 The Court finally orders the defendant to pay the costs.
 In view of the above conclusion, the Court orders the dismissal of the counterclaims filed by
defendant against the plaintiffs and plaintiff-in- intervention, as wen as its motion for the
award of damages in connection with the issuance of the writ of preliminary attachment.
 Defendant (petitioner herein), filed a motion for reconsideration and/or new trial of the
amended decision on February 19, 1970 (Amended Record on Appeal, p. 382). Meanwhile a
new Judge was assigned to the Trial Court (Amended Record on Appeal, p. 541). On
September 10, 1970 the trial court issued its order of September 10, 1970 *** denying defendant's
motion for reconsideration (Amended Record on Appeal, p. 583).
 On Appeal, the Court of Appeals affirmed the amended decision of the lower court except
the portion granting commission to the intervenor- appellee, which it reversed thereby
dismissing the complaint-in- intervention. Its two motions (1) for reconsideration and/or new
trial and (2) for new trial having been denied by the Court of Appeals in its Resolution of
February 17, 1975 which, however, fixed the amount of attorney's fees at P100,000.00
instead of $100,000.00 (Rollo, p. 81), petitioner filed with this Court its petition for review on
certiorari on March 19, 197 5 (Rollo, p. 86).
 After deliberating on the petition, the Court resolved to require the respondents to comment
thereon, in its resolution dated April 2, 1975 (rollo, p. 225).
 The comment on petition for review by certiorari was filed by respondents on April 21, 1975,
praying that the petition for review by certiorari dated March 18, 1975 be dismissed for lack
of merit Rollo p. 226). The reply to comment was filed on May 8, 1975 (Rollo, p. 259). The
rejoinder to reply to comment was filed on May 13, 197 5 (Rollo, p. 264).
 On October 20, 1975, the Court resolved (a) to give due course to the petition; (b) to treat
the petition for review as a special civil action; and (c) to require both parties to submit their
respective memoranda within thirty (30) days from notice hereof (Rollo, p. 27).
 Respondents filed their memoranda on January 27, 1976 (Rollo, p. 290); petitioner, on
February 26, 1976 (Rollo, p. 338). Respondents' reply memorandum was filed on April 14,
1976 (Rollo, p. 413) and Rejoinder to respondents' reply memorandum was filed on May 28,
1976 (Rollo, p. 460).
 On June 11, 1976, the Court resolved to admit petitioner's rejoinder to respondents' reply
memorandum and to declare this case submitted for decision (Rollo, p. 489).
 The main issues raised by petitioner are:
 1. Whether or not respondents have the legal capacity to bring the suit for specific
performance against petitioner based on the charter party, and
 2. Whether or not the default of Charterer in the payment of the charter hire within the time
agreed upon gives petitioner a right to rescind the charter party extra judicially.
 I.
 According to Article 1311 of the Civil Code, a contract takes effect between the parties who
made it, and also their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. Since a contract may be violated only by the parties, thereto as against
each other, in an action upon that contract, the real parties in interest, either as plaintiff or as
defendant, must be parties to said contract. Therefore, a party who has not taken part in it
cannot sue or be sued for performance or for cancellation thereof, unless he shows that he
has a real interest affected thereby (Macias & Co. v. Warner Barners & Co., 43 Phil. 155
[1922] and Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's
Insurance Co., Inc., 26 SCRA 178 [1968]).
 It is undisputed that the charter party, basis of the complaint, was entered into between
petitioner Marimperio Compañia Naviera, S.A., through its duly authorized agent in London,
the N & J Vlassopulos Ltd., and the Interocean Shipping Company of Manila through the
latter's duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews,
Wrightson Burbridge Ltd., for the Charter of the 'SS PAXOI' (Amended Complaint, Amended
Record on Appeal, p. 33; Complaint-in-Intervention, Amended Record on Appeal, p. 87). It is
also alleged in both the Complaint (Amended Record on Appeal 18) and the Amended
Complaint (Amended Record on Appeal, p. 39) that the Interocean Shipping Company sublet
the said vessel to respondent Union Import and Export Corporation which in turn sublet the
same to respondent Philippine Traders Corporation. It is admitted by respondents that the
 charterer is the Interocean Shipping Company. Even paragraph 3 of the complaint-in-
intervention alleges that respondents were given the use of the vessel "pursuant to
paragraph 20 of the Uniform Time Charter ..." which precisely provides for the subletting of
the vessel by the charterer (Rollo, p. 24). Furthermore, Article 652 of the Code of Commerce
provides that the charter party shall contain, among others, the name, surname, and
domicile of the charterer, and if he states that he is acting by commission, that of the person
for whose account he makes the contract. It is obvious from the disclosure made in the
charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real
charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and
Export Corporation which in turn sublet it to Philippine Traders Corporation).
 In a sub-lease, there are two leases and two distinct judicial relations although intimately
connected and related to each other, unlike in a case of assignment of lease, where the
lessee transmits absolutely his right, and his personality disappears; there only remains in
the juridical relation two persons, the lessor and the assignee who is converted into a lessee
(Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-
lease, the personality of the lessee does not disappear; he does not transmit absolutely his
rights and obligations to the sub-lessee; and the sub-lessee generally does not have any
direct action against the owner of the premises as lessor, to require the compliance of the
obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil
Code, 438).
 However, there are at least two instances in the Civil Code which allow the lessor to bring an
action directly (accion directa) against the sub-lessee (use and preservation of the premises
under Art. 1651, and rentals under Article 1652).
 Art. 1651 reads:
 Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the
lessor for all acts which refer to the use and preservation of the thing leased in the manner
stipulated between the lessor and the lessee.
 Article 1652 reads:
 The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However,
the sub-lessee shall not be responsible beyond the amount of rent due from him, in
accordance with the terms of the sub-lease, at the time of the extra-judicial demand by the
lessor.
 Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so
far as the lessor's claim is concerned, unless said payments were effected in virtue of the
custom of the place.
 It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who
can bring the action. In the instant case, it is clear that the sub-lessee as such cannot
maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil.
916).
 In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads:
 If an agent acts in his own name, the principal has no right of action against the persons with
whom the agent has contracted; neither have such persons against the principal.
 In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.
 The provisions of this article shag be understood to be without prejudice to the actions
between the principal and agent.
 While in the instant case, the true charterers of the vessel were the private respondents
herein and they chartered the vessel through an intermediary which upon instructions from
them did not disclose their names. Article 1883 cannot help the private respondents,
because although they were the actual principals in the charter of the vessel, the law does
not allow them to bring any action against the adverse party and vice, versa.
  II.
 The answer to the question of whether or not the default of charterer in the payment of the
charter hire within the time agreed upon gives petitioner a right to rescind the charter party
extrajudicially, is undoubtedly in the affirmative.
 Clause 6 of the Charter party specifically provides that the petitioner has the right to withdraw
the vessel fromthe service of the charterers, without noting any protest and without
interference of any court or any formality in the event that the charterer defaults in the
payment of hire. The payment of hire was to be made every fifteen (1 5) days in advance.
 It is undisputed that the vessel "SS PAXOI" came on hire on March 27, 1965. On March 29,
Vlassopulos notified by letter the charterer through Matthews of that fact, enclosing therein
owner's debit note for a 15-day hire payable in advance. On March 30, 1965 the shipowner
again notified Matthews that the payment for the first 15-day hire was overdue. Again on
April 2 the shipowner telexed Matthews insisting on the payment, but it was only on April 7
that the amount of US $22,500.00 was remitted to Williams Deacons Bank, Ltd. through the
Rizal Commercial Banking Corporation for the account of Vlassopulos, agent of petitioner,
corresponding to the first 15-day hire from March 27 to April 11, 1965.
 On April 8, 1965, Vlassopulos acknowledged receipt of the payment, again with a debit note
for the second 15-day hire and overtime which was due on April 11, 1965. On April 23, 1965,
Vlassopulos notified Matthews by telex that charterers were in default and in accordance
with Clause 6 of the charter party, the vessel was being withdrawn from charterer's service,
holding them responsible for unpaid hire and all other legal claims of the owner.
Respondents remitted the sum of US$6,000.00 and US$10,000.00 to the bank only on April
26, 1965 representing payment for the second 15-day hire from April 12 to April 27, 1965,
received and accepted by the payee, Vlassopulos without any comment or protest.
 Unquestionably, as of April 23, 1965, when Vlassopulos notified Matthews of the withdrawal
of the vessel from the Charterers' service, the latter was already in default. Accordingly,
under Clause 6 of the charter party the owners had the right to withdraw " SS PAXO I " from
the service of charterers, which withdrawal they did.
 The question that now arises is whether or not petitioner can rescind the charter party extra-
judicially. The answer is also in the affirmative. A contract is the law between the contracting
parties, and when there is nothing in it which is contrary to law, morals, good customs, public
policy or public order, the validity of the contract must be sustained (Consolidated Textile
Mills, Inc. v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic Surety &
Insurance Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA 722 [1980];
Escano v. Court of Appeals, 100 SCRA 197 [1980]). A judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions (Enrile v. Court of Appeals, 29 SCRA 504
[1969]; University of the Philippines v. De los Angeles, 35 SCRA 102 [1970]; Palay, Inc. v.
Clave, 124 SCRA 638 [1983]).
 PREMISES CONSIDERED, (1) the decision of the Court of Appeals affirming the amended
decision of the Court of First Instance of Manila, Branch VIII, is hereby REVERSED and SET
ASIDE except for that portion of the decision dismissing the complaint-in-intervention; and
(2) the original decision of the trial court is hereby REINSTATED.
 SO ORDERED.
 Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Ouano vs. CA (GR 95900, 23 July 1992) Second Division, Regalado (J): 3 concur Facts: Julius C. Ouano is
the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On 8 October
1980, Ouano leased the said vessel to Florentino Rafols Jr. under a charter party. The consideration for
the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the
balance of P30,000.00 to be paid within 20 days after actual departure of the vessel from the port of
call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and
should not sublet or sub-charter the same without the knowledge and written consent of the owner. On
11 October 1980, Rafols contracted with Market Developers, Inc. (MADE) through its group manager,
Julian O. Chua, under an agreement denominated as a “Fixture Note” to transport 13,000 bags of
cement from Iligan City to General Santos City, consigned to Supreme Merchant Construction Supply,
Inc. (SMCSI) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in
two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of
P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture
note did not have the written consent of Ouano. Rafols had on board the M/V Don Julio Ouano his sobre
cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General
Santos City, the port of destination. On 13 October 1980, Ouano wrote a letter to MADE through its
manager, Chua, “to strongly request, if not demand to hold momentarily any payment or partial
payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes good his
commitment” to petitioner. On 20 October 1980, MADE, as shipper, paid Rafols the amount of
P23,075.00 corresponding to the first installment of the freightage for the aforestated cargo of cement.
The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee,
SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre
cargo of Rafols, or even of Ouano himself who was then in General Santos City Port, to hold and keep in
deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any
demand made on Rafols, et. al. for a bond to secure payment of the freightage, nor to assert in any
manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee
SMCI. The cement was sold in due course of trade by SMCSI to its customers in October and November
1980. On 6 January 1981, Ouano filed a complaint in the RTC of Cebu against MADE, as shipper; SMCSI,
as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges
for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney’s
fees and expenses of litigation. On 10 March 1981, MADE filed its answer, while Ang and Chua filed
theirs on 10 February 1982 and 31 May 1982, respectively. Rafols was declared in default for failure to
file his answer despite due service of summons. On 25 May 1985, the trial court rendered a decision in
favor of Ouano, (1) ordering MADE, Chua, SMCSI, Ang (Chua Pek Giok) and Rafols, jointly and severally,
to pay to Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on the latter’s
vessel ‘M/V Don Julio Ouano’ included as part of the purchase price paid by SMCSI to MADE, plus legal
interest from 6 January 1981 date of filing of the original complaint; (2) sentencing MADE, Chua and
Rafols, jointly and solidarily, to pay Ouano P50,000.00 in concept, of moral and exemplary damages, and
P5,000.00 attorney’s fees; and (3) sentencing SMCSI and Ang, jointly and severally, to pay Ouano
P200,000.00 attorney’s fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by
Ouano for travel to General Santos City to coordinate in serving an alias summons per sheriff’s return of
service, with costs against Rafols, et.al. On appeal, and on 30 August 1990, the Court of Appeals
reversed the decision, and absolved MADE, et. al. from the complaint; but affirmed the decision with
respect to Rafols. Ouano filed a motion for reconsideration which was denied by the Court of Appeals on
15 October 1990. Hence, the petition for review on certiorari. The Supreme Court denied the petition
and affirmed the assailed judgment of the Court of Appeals.

NATIONAL FOOD AUTHORITY vs. CA G.R. No. 96453, August

4, 1999
Thursday, January 29, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Commercial Law

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

“Letter of Agreement for Vessel/Barge Hire with Hongfil for the shipment of
200,000 bags of corn grains from Cagayan de Oro City to Manila.

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

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

Issues:
1) Can petitioners be held liable for deadfreight?
2) Can petitioners be held liable for demurrage?

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

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

Under the law, the cargo not loaded is considered a deadfreight. It is the
amount paid by or recoverable from a charterer of a ship for the portion of the
ship’s capacity the latter contracted for but failed to occupy. Explicit and
succinct is the law that the liability for deadfreight is on the charterer. (Article
680 of the Code of Commerce).

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

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

Shipper or charterer is liable for the payment of demurrage claims when he

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

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

Furthermore, considering the subject contract of affreightment contains an

express provision “Demurrage/Dispatch: NONE”, the same left the parties with
no recourse but to apply the literal meaning of such stipulation.

Lintojua Shipping Company Inc VS National Seaman Board

and Gregorio P. Candongo
G.R. No. L-51910 August 10, 1989

FACTS

Petitioner is the duly appointed local crewing managing office of the Fairwind Shipping Corporation.

On September 11, 1976 M/V Dufton Bay an ocean-going vessel of foreign registry owned by the R.D.
Mullion ship broking agency under charter by Fairwind, while in the port of Cebu contracted the services
(among others) of Gregorio Candongo as Third Engineer for 12 months with a monthly wage of
US$500.00. The agreement was executed before the Cebu Area Manning Unit of the NSB, after which
respondent boarded the vessel.

On December 28, 1976 before the expiration of contract, respondent was required to disembark at Port
Kilang, Malaysia. Describe in his seaman’s handbook is the reason “by owner’s arrange.”

Condongo filed a complaint against Mullion (Shipping company) for violation of contract and against
Litonjua as agent of shipowner.

On February 1977, NSB rendered a judgment by default for failure of petitioners to appear during the
initial hearing, rendering the same to pay Candongo because there was no sufficient or valid cause for the
respondents to terminate the service of the complainant.

Litonjua’s defense:

Contends that the shipowner, nor the charterer, was the employer of private respondent; and that liability
for damages cannot be imposed upon petitioner which was a mere agent of the charterer.

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

HELD

YES.

The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the
charterer.

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

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

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

In so doing, petitioner Litonjua certainly in effect represented that it was taking care of the crewing and
other requirements of a vessel chartered by its principal, Fairwind.

Last, but certainly not least, there is the circumstance that extreme hardship would result for the
private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to
private respondent upon the contract of employment.
Case Digest: National Development Company vs. Court of Appeals

NATIONAL DEVELOPMENT COMPANY vs. THE COURT OF APPEALS and DEVELOPMENT

INSURANCE AND SURETY CORPORATION

G.R. No. L-49407 19 August 1988

Facts:
National Development Company (NDC) appointed Maritime Company of the Philippines (MCP) as its
agent to manage and operate its vessel, ‘Dona Nati’, for and in behalf of its account. In 1964, while
en route to Japan from San Francisco, Dona Nati collided with a Japanese vessel, ‘SS Yasushima
Maru’, causing its cargo to be damaged and lost. The private respondent, as insurer to the
consigners, paid almost Php400,000.00 for said lost and damaged cargo. Hence, the private
respondent instituted an action to recover from NDC.

Issue: 

Which laws govern the loss and destruction of goods due to collision of vessels outside Philippine
waters?

Ruling:

In a previously decided case, it was held that the law of the country to which the goods are to be
transported governs the liability of the common carrier in case of their loss, destruction or
deterioration pursuant to Article 1753 of the Civil Code.  It is immaterial that the collision actually
occurred in foreign waters, such as Ise Bay, Japan.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code,
hence, we apply Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively
with collision of vessels.

Switzerland General Insurance Co. Ltd. v. Ramirez

G.R. No. L-48264, 21 February 1980

FACTS:

Petitioner Switzerland General Insurance Company, Ltd, a foreign insurance company authorized to

do business in the Philippines thru its agent, F. E:.Zuellig, Inc., filed an admiralty case against
private respondents Oyama Shipping Co., Ltd. (Oyama Lines), a foreign firm doing business in the
Philippines, and Citadel Lines, Inc (Citadel). which is the local agent of private respondent Oyama
Shipping Co., Inc. and/or Mabuhay Brokerage Co., Inc. (Mabuhay)

The complaint alleged that 60,000 bags of Urea Nitrogen were shipped from Japan, on board the
S/S “St Lourdes”, claimed to be owned and operated by defendant Citadel. The goods were
consigned to Borden International Phils., Inc., and insured by petitioner against all risks. The
shipment was discharged from the vessel shipside into lighters owned by Mabuhay, but when the
same was subsequently delivered to and received by the consignee, it was found to have sustained
losses and/or damage which was paid by petitioner insurance company to the consignee/assured,
by virtue of which payment it became subrogated to the rights of the latter. Petitioner made repeated
demands against private respondents for payment of the losses but no payment was made and,
uncertain in whose custody the goods were damaged, impleaded the private respondents as
alternative defendants to determine their respective liability.

Defendant filed an Answer alleging that defendant Citadel Lines was merely the civil agent in the
Philippines for the Japanese firm Oyama Lines., the charterer of the vessel S/S “St. Lourdes”, said
vessel being owned by Companie Maritime de Brios, Sociedad Anonima (CMBSA), a Panamanian
corporation. It was further alleged that the principal agency relationship between the said Oyama
Lines and defendant Citadel Lines, Inc. was terminated on August 21, 1975 when the Tokyo District
Court declared and decreed its insolvency. It was argued that defendant Citadel Lines “has always
acted as an agent of a disclosed principal and, therefore, the herein defendant is without any liability
at all” in connection with the plaintiff’s claim. Defendant alleged that said corporation should be held
liable and interposed a counterclaim for damages against plaintiff. Defendant Oyama Lines alleged
that it ceased to be represented in the Philippines upon the declaration of its insolvency by the
Tokyo Court; that it was a mere charterer of the S/S “St. Lourdes” which is owned by CMBSA; that
due to the insolvency of Oyama lines, the case as against it should be dismissed, the remedy for the
plaintiff being to file its claim before the insolvency court in Tokyo, Japan. Further, it imputed the loss
or damage to the shipment to the shipper, Sumitomo Shoji Kaisha, Ltd. for failing to provide
seaworthy packages for the goods, and/or the Mabuhay Brokerage for failure to exercise utmost
diligence after it took possession of the cargo from the vessel S/S “St. Lourdes.”

After trial on the merits, respondent court rendered a decision in favor of petitioner as against therein
defendant Oyama Lines but absolving Citadel Lines, Inc. and Mabuhay Brokerage Co., Inc. from
liability. Petitioner filed a Motion for Reconsideration insofar as it absolves respondents Citadel
Lines, Inc. and Mabuhay Brokerage Co., Inc. from liability, but said Motion for Reconsideration was
denied; hence, the instant petition for review.

ISSUE:

Whether respondent Citadel Lines, Inc., the local agent of a foreign ocean going vessel, the S/S “St.
Lourdes”, may be held primarily liable for the loss/damage found to have been sustained by subject
shipment while on board and/or still in the custody of the said vessel.

RULING:

In fine, private respondents do not dispute that a ship agent is liable to third persons under certain
circumstances as provided in the Code of Commerce, but insists that it is not a ship agent but a
mere agent and hence, not liable.

We find the instant petition meritorious. The error of the lower court lies in its application of the
general rule on agency to the case a quo, when the applicable law is contained in the pertinent
provisions of the Code of Commerce as applied in relevant decisions of this Court. Its finding,
therefore, that respondent Citadel Lines, Inc. was a mere agent of Oyama Shipping Co., Ltd. was a
result of its erroneous application of the law on agency to the instant case. Considering the peculiar
relationship of the parties, respondent Citadel Lines, Inc. cannot be considered as a “mere agent”
under the civil law on agency as distinguished from a ship agent, within the context of the Code of
Commerce. In Yu Biao Sontua& Co. v. Ossorio 1 for example, it was held that the doctrines having
reference to the relations between principal and agent cannot be applied in the case of ship agents
and ship owners. For this reason, respondent cannot validly claim that the court a quo made a
finding of fact which is conclusive upon this Court. A ship agent, according to Article 586 of the Code
of Commerce, is “the person entrusted with the provisioning of a vessel, or who represents her in the
port in which she happens to be.” (Emphasis supplied.)

It is not disputed by the private respondent that it is the local representative in the Philippines of the
Oyama Lines and, as alleged by petitioner, upon arrival of the vessel S/S “St. Lourdes” in Manila, it
took charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name,
for the purpose of evidencing discharge of cargoes and the conditions thereof from the vessel to the
arrastre operators and/or unto barges/lighters, and that claims against the vessel S/S “St. Lourdes”
for losses/damages sustained by shipments were in fact filed and processed by respondent Citadel
Lines, Inc. These facts point to the inevitable conclusion that private respondent is the entity that
represents the vessel in the port of Manila and hence is a ship agent within the meaning and context
of Article 586 of the Code of Commerce.

At any rate, the liabilities of the ship agent are not disputed by private Respondent. It appearing that
the Citadel Lines is the ship agent for the vessel S/S “St. Lourdes” at the port of Manila, it is,
therefore, liable to the petitioner, solidarily with its principal, Oyama Shipping Co., Ltd., in an amount
representing the value of the goods lost and or damaged, amounting to P38,698.94, which was
likewise the amount paid by petitioner, as insurer, to the insured/consignee. As found by the court a
quo, there has been no proof presented to show that the officers of the vessel, in whose custody the
goods were lost or damaged, are exempt from liability therefrom and that the damage was caused
by factors and circumstances exempting them from liability.

The insolvency of Oyama Lines has no bearing on the instant case insofar as the liability of Citadel
Lines, Inc. is concerned. The law does not make the liability of the ship agent dependent upon the
solvency or insolvency of the ship owner.

WHEREFORE, the decision appealed from is modified, and private respondent Citadel Lines, Inc. is
hereby ordered to pay, solidarily with its principal, Oyama Lines (Oyama Shipping Co., LTD.), the
amount of P38,698.94, with interest thereon at the legal rate from the date of the filing of the
complaint on December 24, 1975 until fully paid, P5,000.00 as attorney’s fees and the costs of suit.
The rest of the decision is affirmed. No pronouncement as to costs.

G.R. No. L-16850             May 30, 1962

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
UNITED STATES LINES COMPANY, respondent.

Office of the Solicitor General for petitioner.

Ross, Selph and Carrascoso for respondent.

BARRERA, J.:

This is an appeal by the Commissioner of Internal Revenue from the decision of the Court of Tax
Appeals (in CTA Case No. 556) holding the U.S. Lines Company liable for payment of common
carrier's tax deficiency and surcharges in the total sum of only P502.75 instead of P25,769.41 as
originally assessed and demanded by appellant Commissioner.

As found and stated in the decision of the Court of Tax Appeals, the U.S. Lines Company, a foreign
corporation duly licensed to do business in the Philippines, under the trade name "American Pioneer
Lines" (for short hereinafter referred to as the Company), is the operator of ocean-going vessels
transporting passengers and freight to and from the Philippines. It is also the sole agent and
representative of the Pacific Far East Line, Inc., another shipping company engaged in business in
the Philippines as a common carrier by water.

In the examination of its books of accounts and other records to determine its tax liabilities for the
period from January 1, 1950 to September 30, 1955, it was found that the Company also acted in
behalf of the West Coast Trans-Oceanic Steamship Lines Co., Inc., a non-resident foreign
corporation, in connection with the transportation, on board the "SS Portland Trader" belonging to
the latter, on November 27, 1951 and April 29, 1952, of chrome ores from Masinloc, Zambales to the
United States, from which carriage or transportation freight revenue in the total sum of $272,470.00
was realized by the vessel's owner, and for which the 2% common carrier's percentage tax imposed
by Section 192 of the National Internal Revenue Code was never paid.

As a consequence, the Commissioner of Internal Revenue assessed and demanded from the
Company, as deficiency tax, (a) the sum of P6,691.36 for its own business under the name
American Pioneer Lines; (b) P5,429.00 as agent of Pacific Far East Line, Inc.; and (c) P13,649.05 on
the freight revenue of the West Coast Trans-Oceanic Steamship Lines Co. from the carriage or
transportation of the chrome ores, or a total of P25,769.41. 1äwphï1.ñët

At the instance of the Company, a reinvestigation of the case was conducted and a hearing thereon
held before the Appellate Division of the Bureau of Internal Revenue. These, notwithstanding, the
Commissioner maintained his demand. Thus, the Company filed a petition with the Court of Tax
Appeals contesting the correctness of (1) the conversion of "collect" revenues or those freight and
passage receipts, commissions, and agency fees for services in the Philippines, but payable in the
United States, at the rate of P2.00375 to $1.00 and (2) the demand on the Company of the 2%
carrier's percentage tax on the gross receipts of the West Coast Trans-Oceanic Steamship Lines
from the chrome ore shipments of November 27, 1951 and April 29, 1952.

The Court of Tax Appeals, in its decision, ruled for the Company on the first issue, thus —

We wish to make it clear that from the records of the case, it appears that all the "collect"
revenues, or those freight charges, passage fares, commissions and agency fees, collected
in the United States in United States currency belong to petitioner's home office in the United
States and were not remitted to petitioner's local office in the Philippines. In short, the United
States dollars collected abroad were not actually converted to and received in Philippine
pesos, and therefore there is no occasion nor reason to use a conversion rate aside from the
legal rate of exchange, i.e., $1.00 to P2.00. If we have placed the judicial stamp of approval
on the agreed conversion rates of $1.00 to P2.015 and $1.00 to P2.02 with regard to the
"prepaid" freight and passage revenues, respectively, we did so in order to arrive at the
actual amounts collected by the petitioner in Philippine pesos — the correct taxable gross
receipts. (Emphasis supplied.)

As to the second issue, it ruled that the 2% percentage tax under Section 192 of the Tax Code is
imposable only on owners or operators of the common carrier, and as there is no law constituting the
shipping agent the withholding agent of the taxes due from the principal, said shipping agent is not
personally liable for the tax obligations of the latter, unless the agent voluntarily assumes such
obligation which, in this case, the agent Company did not. Consequently, the petitioning taxpayer
was ordered to pay only a tax deficiency and surcharge in the sum of P502.75. Hence, the institution
of this appeal.

The ruling by the lower court that the conversion of the "collect" freight fees (or those earned in the
Philippines but actually paid in the United States in dollars) should be at the rate of P2.00 to $1.00
as established by law (Sec. 48, Rep. Act No. 265), and not the rate or exchange of P2.00375 to
$1.00, as fixed by the Monetary Board, must be upheld. No evidence was presented rebutting the
positive allegation of respondent taxpayer, which was sustained by the Tax Court, that the "collect"
freightage fees were not remitted to the local office of the U.S. Lines Company (in the Philippines)
nor actually converted to and received in Philippine pesos. In other words, no foreign exchange
operations were involved here. The statement made in the Commissioner's brief (p. 20) that "it is
uncontroverted that the respondent's (Company's) dollar earnings here representing its so-called
"collect" revenues were accounted for thru its bank, the National City Bank of New York at P2.00375
to a dollar", is not borne out by the records. What appears is that the Company received certain
amounts from its home office in the United States to meet its local expenses, and these were
withdrawn from a letter of credit in the First City Bank of New York in Manila at the rate of P2.00375
to a dollar. But the Company asserts — and there is no evidence to the contrary — that there is no
relationship whatsoever between these funds and the freight fees collected in the United States.

The other issue is whether on the facts of the case, the Company, as agent of the vessel "SS
Portland Trader" in behalf of its owner, the West Coast Trans-Oceanic Steamship Lines Company,
can be compelled to pay the 2% percentage tax on the freight revenue earned from the shipment of
chrome ores transported from the Philippines to the United States. As stated earlier, the Court of Tax
Appeals ruled in the negative, citing and adopting a unanimous decision of the defunct Board of Tax
Appeals rendered on July 30, 1953, purporting to interpret Section 192 of the National Internal
Revenue Code, in which it held that a shipping agent is not personally responsible for the payment
of the tax obligations of its principal, reasoning that there is no law constituting a shipping agent as a
withholding agent of the taxes due from its principal. It further stated that a shipping agent can only
be held liable for the payment of the common carrier's percentage tax if such obligation is stipulated
in the agency agreement, or if the agent voluntarily assumes the tax liability.

We can not agree to this view as applied to the present case, because it adopts a very restrictive
interpretation of Section 192 of the Tax Code. 1 What the legal provision purports to tax is the
business of transportation, so much so that the tax is based on the gross receipts. The person liable
is of course the owner or operator, but this does not mean that he and he alone can be made
actually to pay the tax. In other words, whoever acts on his behalf and for his benefit may be held
liable to pay, for and on behalf of the carrier or operator, such percentage tax on the business.

It is claimed for the Company that it merely acted as a "husbanding agent" of the vessel with limited
powers. This appears not to be so. A "husbanding agent" is the general agent of the owner in
relation to the ship, with powers, among others, to engage the vessel for general freight and the
usual conditions, and settle for freight and adjust averages with the merchant. 2 But whatever may be
the technical functions of a "ship's husband", the Company, in the case at bar, was considered and
acted more as a general agent. The agency contract is not extant in the records. Still, from the
correspondence between the principal West Coast Trans-Oceanic Steamship Lines and the
Company itself, and with other entities regarding the shipment in question, the real nature of the
agency may be gleaned. Thus, in the letter of West Coast Trans-Oceanic Steamship Lines, dated
October 20, 1951 (Exh. 30), giving instructions to the master of its vessel "SS Portland Trader", it
referred to respondent Company as the "Owner's agents" at the loading point (Masinloc) to which
the vessel had to be consigned. In line with its designation as the "Owner's agent" and the vessel's
consignee, respondent Company wrote the master of the vessel (Exh. 23) advising him that it had
secured Customs authority for the vessel to proceed to Masinloc, as well as the Export Entry
covering the loading of ore, giving instructions how to proceed with the loading and to keep it closely
advised of all movements and daily tonnages laden. It also undertook to and did in fact prepare all
the cargo documents. The corresponding bill of lading for the cargo was prepared and signed by the
respondent Company "As Agent for West Coast Trans-Oceanic Steamship Lines" wherein it
acknowledged the receipt of 9,900 long tons of chrome, a prerogative act of a common carrier itself.
(p. 114, BIR record). Again, signing "As Agents for West Coast Trans-Oceanic Steamship Lines",
respondent Company transmitted the shipping documents covering the shipment of ore to Castle
Cooke, Ltd., the vessel's agent at Honolulu (Exh. 20). All these were in respect to the first shipment
on November 27, 1951.

Concerning the second shipment, we have first the letter of West Coast Trans-Oceanic Steamship
Lines, dated February 21, 1952 addressed to respondent Company, advising it of the second trip of
"SS Portland Trader" and stating: "We trust that you will handle the vessel at Manila and that your
usual fee will apply", and requesting respondent Company to act also as supervisory agent at
Saigon and Haiphong (p. 57, BIR records). The steamship company, likewise, advised the master of
its vessel that "its agents for Masinloc" will be the respondent Company from which "full assistance
and information" could be obtained (Exh. 18, dated March 12, 1952). Evidently accepting the
designation, respondent Company, representing itself as "the local agents" of the vessel (Exh. 21,
dated March 26, 1952), secured the entry and clearance of the vessel at the customs. After the
loading of ore at Masinloc, again respondent Company prepared the shipping documents and signed
the bill of lading "As Agent for the West Coast Trans-Oceanic Steamship Lines" (p. 114, BIR record).

All these documents show that respondent Company clearly acted — as it held itself to the public
and to the Government (specifically the Bureau of Customs) — as the shipowner's local agent or the
ship agent representing the ownership of the vessel. To adopt the view of the trial court would be to
sanction the doing of business in the Philippines by non-resident corporations over which we have
no jurisdiction, without subjecting the same to the operation of our revenue and tax laws, to the
detriment and discrimination of local business enterprises. We, therefore, hold that in the
circumstances, said respondent is under obligation to pay, for and in behalf of its principal, the tax
due from the latter. And, this is but logical, because, as provided in Article 595 of the Code of
Commerce, "the ship agent shall represent the ownership of the vessel, and may, in his own name
and in such capacity, take judicial and extrajudicial steps in matters relating to commerce". If the
shipping agent represents the ownership of the vessel in matters relating to commerce, then any
liability arising in connection therewith may be enforced against the agent who is, as a consequence
thereof, authorized to take judicial or extrajudicial steps, either in the prosecution or defense of the
owner's rights or interests. As a matter of fact, if a foreign shipping company has a claim against the
Government in relation to commerce, its local shipping agent, by virtue of Article 595 of the Code of
Commerce, can file such a claim in his own name. Conversely, and logically, it must be admitted, the
Government can hold the local shipping agent liable for the taxes due from his, principal. This is, of
course, without prejudice to the right of the agent to seek reimbursement from his principal.

The contention that the agreement between the principal and agent solely determines the liability of
the agent, is not tenable. Any agreement or contract to be enforceable in this jurisdiction is
understood to incorporate therein the provision or provisions of law specifying the obligations of the
parties under such contract. The contract between herein respondent Company and its principal
consequently imposed upon the parties not only the rights and duties delineated therein, but also the
provisions of law such as that of the Code of Commerce aforecited.

As to the third assigned error, i.e., the amount of taxable receipts, the records are not clear.
Petitioner Commissioner of Internal Revenue claims that there are contradictions in and among the
three sets of summaries submitted by the respondent Company and they should not have been
considered by the trial court. On the other hand, we find also that the assessments issued by the
Commissioner are, likewise, conflicting. In his present petition, the prayer sets the tax delinquency of
the respondent Company at P26,436.17, which is the amount demanded in his letter of June 6,
1952, (Exh. E, also marked as Exh. 34). In his brief, the Commissioner prays that respondent
Company be ordered to pay the sum of P25,769.41, the amount demanded in his letter of June 28,
1956 (Exh. A, also marked as Exh. 26). In view of these discrepancies, a re-examination and
verification of the records is necessary to determine the exact taxable amount on which the 2%
common carrier's percentage tax is to be computed in accordance with the terms of this decision.

WHEREFORE, the decision of the Court of Tax Appeals in this case is modified at above-indicated,
and the records remanded to the court a quo for the purpose herein directed. No costs. So ordered.

Coastwise Lighterage Corp. vs. CA

Coastwise Lighterage Corp. vs. Court of Appeals and Philippine General Insurance
Company
G.R. No. 114167, July 12, 1995
245 SCRA 796
 

FACTS:
The consignee entered into a contract of affreightment which is to transport molasses from the
province of Negros to Manila with the carrier using the latter’s barges. The barges were towed in
tandem by the tugboat MT Marica, also owned by the carrier. While approaching the pier of
destination, one of the barges, “Coastwise 9” was struck and as a result, the molasses at the cargo
tanks were contaminated and rendered unfit for the use it was intended. The consignee rejected
the shipment of molasses as a total loss. The insurer paid the consignee the amount representing
the value of the damaged cargo of molasses.
Parties:
Consignee – Pag-asa Sales, Inc.
Carrier – Coastwise Lighterage Corporation (Coastwise)
Insurer of the cargo – Philippine General Insurance Company (PhilGen)
ISSUES:
1. WON 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. What is the extent of
its liability over the lost, damaged and deteriorated cargo?
2. WON 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.
RULING:
1. No. The contract of affreightment entered into between the consignee and the carrier did not
convert the latter into a private carrier, but remained a common carrier and was still liable as
such. The consignee 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 carrier.
As a common carrier, the presumption of negligence attaches to it when the goods it transports
are lost, destroyed or deteriorated. This presumption may be overcame only by proof of the
exercise of extraordinary diligence such as placing a person with navigational skills. However,
the carrier failed to overcome this presumption of negligence as the patron did not possess the
necessary license to navigate.
2. Petitioner carrier was liable for breach of the contract of carriage it entered into with the
consignee. In accordance with Art. 2207, 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. 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.

 
NOTES:
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment)  –
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. . . . – Puromines, Inc.
vs. Court of Appeals,
Inter Orient Maritime Enterprises Inc, et al vs
NLRC
Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

INTERORIENT MARITIME ENTERPRISES, INC., FIRCROFT SHIPPING CORPORATION and TIMES SURETY &
INSURANCE CO., INC., petitioners,
vs
NATIONAL LABOR RELATIONS COMMISSION and CONSTANCIA PINEDA, respondents.

G.R. No. 115497

September 16, 1996

Facts:

The instant petition seeks the reversal and/or modification of the Resolution dated March 30, 1994 of public
respondent National Labor Relations Commission dismissing the appeals of petitioners and affirming the decision
dated November 16, 1992 of Philippine Overseas Employment Administration (POEA) Administrator Felicisimo C.
Joson, This is a claim for death compensation benefits filed by Constancia Pineda as heir of her deceased son,
seaman Jeremias Pineda, against Interorient Maritime Enterprises, Inc. and its foreign principal, Fircroft Shipping
Corporation and the Times Surety and Insurance Co., Inc. The following facts were found by the POEA Administrator.

On September 28, 1989, he finished his contract and was discharged from the port of Dubai for repatriation to Manila;
that his flight schedule from Dubai to the Philippines necessitated a stopover at Bangkok, Thailand, and during said
stopover he disembarked on his own free will and failed to join the connecting flight to Hongkong with final destination
to Manila; that on October 5, 1990, it received a fax transmission from the Department of Foreign Affairs to the effect
that Jeremias Pineda was shot by a Thai Officer on duty on October 2, 1989 at around 4:00 P.M.; that the police
report submitted to the Philippine Embassy in Bangkok confirmed that it was Pineda who "approached and tried to
stab the police sergeant with a knife and that therefore he was forced to pull out his gun and shot Pineda"

Petitioner contends that they are not liable to pay any death/burial benefits pursuant to the provisions of Par. 6,
Section C. Part II, POEA Standard Format of Employment which state(s) that "no compensation shall be payable in
respect of any injury, (in)capacity, disability or death resulting from a willful (sic) act on his own life by the seaman";
that the deceased seaman died due to his own willful (sic) act in attacking a policeman in Bangkok who shot him in
self-defense.

After the parties presented their respective evidence, the POEA Administrator rendered his decision holding
petitioners liable for death compensation benefits and burial expenses.

Petitioners appealed the POEA decision to the public respondent. In a Decision dated March 30, 1994, public
respondent upheld the POEA.

Thus, this recourse to this Court by way of a special civil action for certiorari per Rule 65 of the Rules of Court.

Issue:

Whether the petitioners can be held liable for the death of seaman Jeremias Pineda?

Held:

The petitioners contention that the assailed Resolution has no factual and legal bases is belied by the adoption with
approval by the public respondent of the findings of the POEA Administrator, which recites at length the reasons for
holding that the deceased Pineda was mentally sick prior to his death and concomitantly, was no longer in full control
of his mental faculties.

In this instance, seaman Pineda, who was discharged in Dubai, a foreign land, could not reasonably be expected to
immediately resort to and avail of psychiatric examination, assuming that he was still capable of submitting himself to
such examination at that time, not to mention the fact that when he disembarked in Dubai, he was already discharged
and without employment — his contract having already run its full term — and he had already been put on a plane
bound for the Philippines. Such mental disorder became evident when he failed to join his connecting flight to
Hongkong, having during said stopover wandered out of the Bangkok airport's immigration area on his own. This
Court agrees with the POEA Administrator that seaman Pineda was no longer acting sanely when he attacked the
Thai policeman. The report of the Philippine Embassy in Thailand dated October 9, 1990 depicting the deceased's
strange behavior shortly before he was shot dead, after having wandered around Bangkok for four days, clearly
shows that the man was not in full control of his own self.

The POEA Administrator ruled, and this Court agrees, that since Pineda attacked the Thai policeman when he was
no longer in complete control of his mental faculties, the aforequoted provision of the Standard Format Contract of
Employment exemption the employer from liability should not apply in the instant case. Firstly, the fact that the
deceased suffered from mental disorder at the time of his repatriation means that he must have been deprived of the
full use of his reason, and that thereby, his will must have been impaired, at the very least. Thus, his attack on the
policeman can in no wise be characterized as a deliberate, willful or voluntary act on his part. Secondly, and apart
from that, we also agree that in light of the deceased's mental condition, petitioners "should have observed some
precautionary measures and should not have allowed said seaman to travel home alone", and their failure to do so
rendered them liable for the death of Pineda.

Petitioners further argue that the cause of Pineda's death "is not one of the occupational diseases listed by law", and
that in the case of De Jesus vs. Employee's Compensation Commission, this Court held that ". . . for the sickness and
the resulting disability or death to be compensable, the sickness must be the result of an occupational disease listed
under Annex 'A' of the Rules (the Amended Rules on Employee's Compensation) with the conditions set therein
satisfied; otherwise, proof must be shown that the risk of contracting the disease is increased by the working
conditions."

The foreign employer may not have been obligated by its contract to provide a companion for a returning employee,
but it cannot deny that it was expressly tasked by its agreement to assure the safe return of said worker. The
uncaring attitude displayed by petitioners who, knowing fully well that its employee had been suffering from some
mental disorder, nevertheless still allowed him to travel home alone, is appalling to say the least. Such attitude harks
back to another time when the landed gentry practically owned the serfs, and disposed of them when the latter had
grown old, sick or otherwise lost their usefulness.

WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision assailed in this petition is
AFFIRMED. Costs against petitioners.

Far Eastern Shipping Company v. CA

May 24, 2018
Commercial Law.  Transportation. Pilots. Compulsory Pilotage.
FAR EASTERN SHIPPING COMPANY vs.
COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY
G.R. No. 130150; October 1998
FACTS:
M/V PAVLODAR, owned and operated by the Far Eastern Shipping Company (FESC),
arrived at the Port of Manila and was assigned Berth 4 of the Manila International Port,
as its berthing space. Gavino, who was assigned by the Appellant Manila Pilots’
Association to conduct the docking maneuvers for the safe berthing, boarded the
vessel at the quarantine anchorage and stationed himself in the bridge, with the
master of the vessel, Victor Kavankov, beside him. After a briefing of Gavino by
Kavankov of the particulars of the vessel and its cargo, the vessel lifted anchor from the
quarantine anchorage and proceeded to the Manila International Port. The sea was
calm and the wind was ideal for docking maneuvers. When the vessel reached the
landmark, one-half mile from the pier, Gavino ordered the engine stopped. When the
vessel was already about 2,000 feet from the pier, Gavino ordered the anchor dropped.
Kavankov relayed the orders to the crew of the vessel on the bow. The left anchor, with
two (2) shackles, were dropped. However, the anchor did not take hold as expected.
The speed of the vessel did not slacken. A commotion ensued between the crew
members.  After Gavino noticed that the anchor did not take hold, he ordered the
engines half-astern. Abellana, who was then on the pier apron, noticed that the vessel
was approaching the pier fast. Kavankov likewise noticed that the anchor did not take
hold. Gavino thereafter gave the “full-astern” code. Before the right anchor and
additional shackles could be dropped, the bow of the vessel rammed into the apron of
the pier causing considerable damage to the pier as well as the vessel.
ISSUES:
(1) Is the pilot of a commercial vessel, under compulsory pilotage, solely liable for the
damage caused by the vessel to the pier, at the port of destination, for his negligence?;
(2) Would the owner of the vessel be liable likewise if the damage is caused by the
concurrent negligence of the master of the vessel and the pilot under a compulsory
pilotage?
HELD:
(1) Generally speaking, the pilot supersedes the master for the time being in the
command and navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation. He becomes the master pro hac vice and should give all
directions as to speed, course, stopping and reversing anchoring, towing and the like.
And when a licensed pilot is employed in a place where pilotage is compulsory, it is his
duty to insist on having effective control of the vessel or to decline to act as pilot. Under
certain systems of foreign law, the pilot does not take entire charge of the vessel but is
deemed merely the adviser of the master, who retains command and control of the
navigation even in localities where pilotage is compulsory. It is quite common for states
and localities to provide for compulsory pilotage, and safety laws have been enacted
requiring vessels approaching their ports, with certain exceptions, to take on board
pilots duly licensed under local law. The purpose of these laws is to create a body of
seamen thoroughly acquainted with the harbor, to pilot vessels seeking to enter or
depart, and thus protect life and property from the dangers of navigation. Upon
assuming such office as a compulsory pilot, Capt. Gavino is held to the universally
accepted high standards of care and diligence required of a pilot, whereby he assumes
to have skill and knowledge in respect to navigation in the particular waters over which
his license extends superior to and more to be trusted than that of the master. He is
not held to the highest possible degree of skill and care but must have and exercise the
ordinary skill and care demanded by the circumstances, and usually shown by an
expert in his profession. Under extraordinary circumstances, a pilot must exercise
extraordinary care. In this case, Capt. Gavino failed to measure up to such strict
standard of care and diligence required of pilots in the performance of their duties. As
the pilot, he should have made sure that his directions were promptly and strictly
followed.

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

PHILIPPINE HOME ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and EASTERN SHIPPING LINES, INC., respondents.

KAPUNAN, J.:p

Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the
following shipment for carriage to Manila and Cebu, freight pre-paid and in good order and
condition, viz: (a) two (2) boxes internal combustion engine parts, consigned to William Lines, Inc.
under Bill of Lading No. 042283; (b) ten (l0) metric ton. (334 bags) ammonium chloride, consigned to
Orca's Company under Bill of Lading No. KCE-I2; (c) two hundred (200) bags Glue 300, consigned
to Pan Oriental Match Company under Bill of Lading No. KCE-8; and (d) garments, consigned to
Ding Velayo under Bills of Lading Nos. KMA-73 and KMA-74.

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

Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was
declared abandoned.

Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the vessel and
commenced to tow the vessel for the port of Naha, Japan.

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

The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and
in behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of
Manila, Branch 39, against ESLI to recover the sum paid under protest on the ground that the same
were actually damages directly brought about by the fault, negligence, illegal act and/or breach of
contract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody
and carriage of the shipment; that the fire was caused by an unforeseen event; that the additional
freight charges are due and demandable pursuant to the Bill of Lading;   and that salvage
1

charges are properly collectible under Act No. 2616, known as the Salvage
Law.
The trial court dismissed PHAC's complaint and ruled in favor of ESLI ratiocinating thus:

The question to be resolved is whether or not the fire on the vessel which was
caused by the explosion of an acetylene cylinder loaded on the same was the fault or
negligence of the defendant.

Evidence has been presented that the SS "Eastern Explorer" was a seaworthy
vessel (Deposition of Jumpei Maeda, October 23, 1980, p. 3) and before the ship
loaded the Acetylene Cylinder No. NCW 875, the same has been tested, checked
and examined and was certified to have complied with the required safety measures
and standards (Deposition of Senjei Hayashi, October 23, 1980, pp. 2-3). When the
fire was detected by the crew, fire fighting operations was immediately conducted but
due to the explosion of the acetylene cylinder, the crew were unable to contain the
fire and had to abandon the ship to save their lives and were saved from drowning by
passing vessels in the vicinity. The burning of the vessel rendering it a constructive
total loss and incapable of pursuing its voyage to the Philippines was, therefore, not
the fault or negligence of defendant but a natural disaster or calamity which nobody
would like to happen. The salvage operations conducted by Fukuda Salvage
Company (Exhibits "4-A" and "6-A") was perfectly a legal operation and charges
made on the goods recovered were legitimate charges.

Act No. 2616, otherwise known as the Salvage Law, is thus

applicable to the case at bar. Section 1 of Act No. 2616 states:

Sec 1. When in case of shipwreck, the vessel or its

cargo shall be beyond the control of the crew, or shall
have been abandoned by them, and picked up and
conveyed to a safe place by other persons, the latter
shall be entitled to a reward for the salvage.

Those who, not being included in the above

paragraph, assist in saving a vessel or its cargo from
shipwreck, shall be entitled to like reward.

In relation to the above provision, the Supreme Court has ruled in

Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178,
that three elements are necessary to a valid salvage claim, namely
(a)a marine peril (b) service voluntarily rendered when not required
as an existing duty or from a special contract and (c) success in
 whole or in part, or that the service rendered contributed to such
success.

The above elements are all present in the instant case. Salvage
charges may thus be assessed on the cargoes saved from the
vessel. As provided for in Section 13 of the Salvage Law, "The
expenses of salvage, as well as the reward for salvage or assistance,
shall be a charge on the things salvaged or their value." In Manila
Railroad Co. v. Macondray Co., 37 Phil. 583, it was also held that
"when a ship and its cargo are saved together, the salvage allowance
should be charged against the ship and cargo in the proportion of
their respective values, the same as in a case of general
average . . ." Thus, the "compensation to be paid by the owner of the
cargo is in proportion to the value of the vessel and the value of the
cargo saved." (Atlantic Gulf and Pacific Co. v. Uchida Kisen Kaisha,
42 Phil. 321). (Memorandum for Defendant, Records, pp. 212-213).

With respect to the additional freight charged by defendant from the consignees of
the goods, the same are also validly demandable.

As provided by the Civil Code:

Art. 1174. Except in cases expressly specified by law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
require the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which though foreseen,
were inevitable.

Art 1266. The debtor in obligations to do shall also be released when

the prestation becomes legally or physically impossible without the
fault of the obligor."

The burning of "EASTERN EXPLORER" while off Okinawa rendered it physically

impossible for defendant to comply with its obligation of delivering the goods to their
port of destination pursuant to the contract of carriage. Under Article 1266 of the Civil
Code, the physical impossibility of the prestation extinguished defendant's
obligation..

It is but legal and equitable for the defendant therefore, to demand additional freight
from the consignees for forwarding the goods from Naha, Japan to Manila and Cebu
City on board another vessel, the "EASTERN MARS." This finds support under
Article 844 of the Code of Commerce which provides as follows:

Art. 844. A captain who may have taken on board the goods saved
from the wreck shall continue his course to the port of destination;
and on arrival should deposit the same, with judicial intervention at
the disposal of their legitimate owners. . . .

The owners of the cargo shall defray all the expenses of this arrival
as well as the payment of the freight which, after taking into
consideration the circumstances of the case, may be fixed by
agreement or by a judicial decision.
 Furthermore, the terms and conditions of the Bill of Lading authorize the imposition of
additional freight charges in case of forced interruption or abandonment of the
voyage. At the dorsal portion of the Bills of Lading issued to the consignees is this
stipulation:

12. All storage, transshipment, forwarding or other disposition of

cargo at or from a port of distress or other place where there has
been a forced interruption or abandonment of the voyage shall be at
the expense of the owner, shipper, consignee of the goods or the
holder of this bill of lading who shall be jointly and severally liable for
all freight charges and expenses of every kind whatsoever, whether
payable in advance or not that may be incurred by the cargo in
addition to the ordinary freight, whether the service be performed by
the named carrying vessel or by carrier's other vessels or by
strangers. All such expenses and charges shall be due and payable
day by day immediately when they are incurred.

The bill of lading is a contract and the parties are bound by its terms (Gov't of the
Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The provision quoted is
binding upon the consignee.

Defendant therefore, can validly require payment of additional freight from the
consignee. Plaintiff can not thus recover the additional freight paid by the consignee
to defendant. (Memorandum for Defendant, Record, pp. 215-216). 2

On appeal to the Court of Appeals, respondent court affirmed the trial court's findings and
conclusions,   hence, the present petition for review before this Court on the
3

following errors:
I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL
THE TRIAL COURT'S FINDINGS THAT THE BURNING OF THE SS "EASTERN
EXPLORER", RENDERING ET A CONSTRUCTIVE TOTAL LOSS, IS A NATURAL
DISASTER OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN, DESPITE
EXISTING JURISPRUDENCE TO THE CONTRARY.

II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE BURNING OF

THE SS "EASTERN EXPLORER" WAS NOT THE FAULT AND NEGLIGENCE OF
RESPONDENT EASTERN SHIPPING LINES.

III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN

RULING THAT DEFENDANT HAD EXERCISED THE EXTRAORDINARY
DILIGENCE IN THE VIGILANCE OVER THE GOODS AS REQUIRED BY LAW.

IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE MARINE NOTE
OF PROTEST AND STATEMENT OF FACTS ISSUED BY THE VESSEL'S MASTER
ARE NOT HEARSAY DESPITE THE FACT THAT THE VESSEL'S MASTER, CAPT.
LICAYLICAY WAS NOT PRESENTED COURT, WITHOUT EXPLANATION
WHATSOEVER FOR HIS NON-PRESENTATION, THUS, PETITIONER WAS
DEPRIVED OF ITS RIGHT TO CROSS- EXAMINE THE AUTHOR THEREOF.
 V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL
THE TRIAL COURT'S CONCLUSION THAT THE EXPENSES OR AVERAGES
INCURRED IN SAVING THE CARGO CONSTITUTE GENERAL AVERAGE.

VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'S

RULING THAT PETITIONER WAS LIABLE TO RESPONDENT CARRIER FOR
ADDITIONAL FREIGHT AND SALVAGE CHARGES.  4

It is quite evident that the foregoing assignment of errors challenges the findings of fact and the
appreciation of evidence made by the trial court and later affirmed by respondent court. While it is a
well-settled rule that only questions of law may be raised in a petition for review under Rule 45 of the
Rules of Court, it is equally well-settled that the same admits of the following exceptions, namely: (a)
when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (b) when
the inference made is manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of
fact are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (g) when the
findings of the Court of Appeals are contrary to those of the trial court; (h) when the findings of fact
are conclusions without citation of specific evidence on which they are based;
(i) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not
disputed by the respondents; and (j) when the finding of fact of the Court of Appeals is premised on
the supposed absence of evidence and is contradicted by the evidence on record.   Thus, if there
5

is a showing, as in the instant case, that the findings complained of are totally
devoid of support in the records, or that they are so glaringly erroneous as to
constitute grave abuse of discretion, the same may be properly reviewed and
evaluated by this Court.
It is worthy to note at the outset that the goods subject of the present controversy were neither lost
nor damaged in transit by the fire that razed the carrier. In fact, the said goods were all delivered to
the consignees, even if the transshipment took longer than necessary. What is at issue therefore is
not whether or not the carrier is liable for the loss, damage, or deterioration of the goods transported
by them but who, among the carrier, consignee or insurer of the goods, is liable for the additional
charges or expenses incurred by the owner of the ship in the salvage operations and in the
transshipment of the goods via a different carrier.

In absolving respondent carrier of any liability, respondent Court of Appeals sustained the trial
court's finding that the fire that gutted the ship was a natural disaster or calamity. Petitioner takes
exception to this conclusion and we agree.

In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always
arises from some act of man or by human means.

It cannot be an act of God unless caused by lightning or a natural disaster or casualty not
attributable to human agency.  6

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

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

Second, respondent ESLI should have known that by storing the acetylene cylinder in the
accommodation area supposed to be reserved for passengers, it unnecessarily exposed its
passengers to grave danger and injury. Curious passengers, ignorant of the danger the tank might
have on humans and property, could have handled the same or could have lighted and smoked
cigarettes while repairing in the accommodation area.

Third, the fact that the acetylene cylinder was checked, tested and examined and subsequently
certified as having complied with the safety measures and standards by qualified experts   before
7

it was loaded in the vessel only shows to a great extent that negligence was
present in the handling of the acetylene cylinder after it was loaded and while
it was on board the ship. Indeed, had the respondent and its agents not been
negligent in storing the acetylene cylinder near the engine room, then the
same would not have leaked and exploded during the voyage.
Verily, there is no merit in the finding of the trial court to which respondent court erroneously agreed
that the fire was not the fault or negligence of respondent but a natural disaster or calamity. The
records are simply wanting in this regard.

Anent petitioner's objection to the admissibility of Exhibits "4'' and ''5", the Statement of Facts and
the Marine Note of Protest issued by Captain Tiburcio A. Licaylicay, we find the same impressed
with merit because said documents are hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern
Explorer who issued the said documents, was not presented in court to testify to the truth of the facts
he stated therein; instead, respondent ESLI presented Junpei Maeda, its Branch Manager in Tokyo
and Yokohama, Japan, who evidently had no personal knowledge of the facts stated in the
documents at issue. It is clear from Section 36, Rule 130 of the Rules of Court that any evidence,
whether oral or documentary, is hearsay if its probative value is not based on the personal
knowledge of the witness but on the knowledge of some other person not on the witness stand.
Consequently, hearsay evidence, whether objected to or not, has no probative value unless the
proponent can show that the evidence falls within the exceptions to the hearsay evidence rule.   It is
8

excluded because the party against whom it is presented is deprived of his

right and opportunity to cross-examine the persons to whom the statements or
writings are attributed.
On the issue of whether or not respondent court committed an error in concluding that the expenses
incurred in saving the cargo are considered general average, we rule in the affirmative. As a rule,
general or gross averages include all damages and expenses which are deliberately caused in order
to save the vessel, its cargo, or both at the same time, from a real and known risk   While the
9

instant case may technically fall within the purview of the said provision, the
formalities prescribed under Articles 813   and 814   of the Code of
10 11
Commerce in order to incur the expenses and cause the damage
corresponding to gross average were not complied with. Consequently,
respondent ESLI's claim for contribution from the consignees of the cargo at
the time of the occurrence of the average turns to naught.
Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be
made liable to respondent carrier for additional freight and salvage charges. Consequently,
respondent carrier must refund to herein petitioner the amount it paid under protest for additional
freight and salvage charges in behalf of the consignees.

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. Respondent
Eastern Shipping Lines, Inc. is ORDERED to return to petitioner Philippine Home Assurance
Corporation the amount it paid under protest in behalf of the consignees herein.

SO ORDERED.

AMERICAN HOME ASSURANCE, COMPANY, petitioner,

vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL
MARINE CORPORATION (Manila), respondents.

PARAS, J.:

This is a petition for review on certiorari which seeks to annul and set aside the (a) decision   dated
1

May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled "American Home
Assurance Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila, Branch
41 and National Marine Corporation and/or National Marine Corporation (Manila)", dismissing
petitioner's petition for certiorari, and (b) resolution   dated June 29, 1990 of the Court of Appeals
2

denying petitioner's motion for reconsideration.

The undisputed facts of the case are follows:

Both petitioner American Home Assurance Co. and the respondent National Marine Corporation are
foreign corporations licensed to do business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter through its branch. The
National Marine Corporation (Manila) (Rollo, p. 20, Annex L, p.1).

That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of
bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by
herein respondent National Marine Corporation with Registration No. PID-224. The said shipment
was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner
American Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.

On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the Marina
Port Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the
shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The
loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).

As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper, Inc.
sought recovery from the former. Upon demand and submission of proper documentation, American
Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the recovery
of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by filing a
complaint for recovery of sum of money (Petition, p. 4).

Respondent, National Marine Corporation, filed a motion to dismiss dated August 7, 1989 stating
that American Home Assurance Company had no cause of action based on Article 848 of the Code
of Commerce which provides "that claims for averages shall not be admitted if they do not exceed
5% of the interest which the claimant may have in the vessel or in the cargo if it be gross average
and 1% of the goods damaged if particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary." It contended that based on the allegations
of the complaint, the loss sustained in the case was P35,506.75 which is only .18% of
P17,420,000.00, the total value of the cargo.

On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and
that a particular average presupposes that the loss or damages is due to an inherent defect of the
goods, an accident of the sea, or a force majeure or the negligence of the crew of the carrier, while
claims for damages due to the negligence of the common carrier are governed by the Civil Code
provisions on Common Carriers.

In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:

Before the Court for resolution is a motion for reconsideration filed by defendant
through counsel dated October 6, 1989.

The record shows that last August 8, 1989, defendant through counsel filed a motion
to dismiss plaintiff's complaint.

Resolving the said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now under
consideration, defendant prays for the reconsideration of the order of September 18,
1989 and in lieu thereof, another order be entered dismissing plaintiff's complaint.

There appears to be good reasons for the court to take a second look at the issues
raised by the defendant.

xxx xxx xxx

It is not disputed defendants that the loss suffered by the shipment is only .18% or
less that 1% of the interest of the consignee on the cargo Invoking the provision of
the Article 848 of the Code of Commerce which reads:
 Claims for average shall not be admitted if they do not exceed five
percent of the interest which the claimant may have in the vessels or
cargo if it is gross average, and one percent of the goods damaged if
particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary. (Emphasis
supplied)

defendant claims that plaintiff is barred from suing for recovery.

Decisive in this case in whether the loss suffered by the cargo in question is a
"particular average."

Particular average, is a loss happening to the ship, freight, or cargo

which is not be (sic) shared by contributing among all those
interested, but must be borne by the owner of the subject to which it
occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172, citing
Bargett v. Insurance Co. 3 Bosw. [N.Y.] 395).

as distinguished from general average which

is a contribution by the several interests engaged in the maritime

venture to make good the loss of one of them for the voluntary
sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary
expenses necessarily incurred for the common benefit and safety of
all (Ibid., citing California Canneries Co. v. Canton Ins. Office 25 Cal.
App. 303, 143 p. 549-553).

From the foregoing definition, it is clear that the damage on the cargo in question, is
in the nature of the "particular average." Since the loss is less than 1% to the value of
the cargo and there appears to be no allegations as to any agreement defendants
and the consignee of the goods to the contrary, by express provision of the law,
plaintiff is barred from suing for recovery.

WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action.

(Rollo, p. 27; Annex A, pp. 3-4).

The petitioner then filed a motion for reconsideration of the order of dismissal but same was denied
by the court in its order dated January 26, 1990 (supra).

Instead of filing an appeal from the order of the court a quo dismissing the complaint for recovery of
a sum of money, American Home Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders or respondent judge in said court (Rollo, p. 25).

But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as constituting
plain errors of law and not grave abuse of discretion correctible by certiorari (a Special Civil Action).
If at all, respondent court ruled that there are errors of judgment subject to correction by certiorari as
a mode of appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary Act of
1948 as amended by Republic Act No. 5440. Otherwise stated, respondent Court opined that the
proper remedy is a petition for review on certiorari with the Supreme Court on pure questions of law
(Rollo, p. 30).
Hence, this petition.

In a resolution dated December 10, 1990, this Court gave due course to the petition and required
both parties to file their respective memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari was the proper remedy in the case
before the Court of Appeals.

The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of
Rule 41, Section 2 of the Rules of Court, subject petition raised questions which if at all, constituting
grave abuse of discretion correctible by certiorari.

Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as ruled by this
Court, an order of dismissal whether right or wrong is a final order, hence, a proper subject of
appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact remains
that respondent Court of Appeals obviously in the broader interests of justice, nevertheless
proceeded to decide the petition for certiorari and ruled on specific points raised therein in a manner
akin to what would have been done on assignments of error in a regular appeal, the petition therein
was therefore disposed of on the merits and not on a dismissal due to erroneous choice of remedies
or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence, a review of the decision of the Court
of Appeals on the merits against the petitioner in this case is in order.

On the main controversy, the pivotal issue to be resolved is the application of the law on averages
(Articles 806, 809 and 848 of the Code of Commerce).

Petitioner avers that respondent court failed to consider that respondent National Marine Corporation
being a common carrier, in conducting its business is regulated by the Civil Code primarily and
suppletorily by the Code of Commerce; and that respondent court refused to consider the Bill of
Lading as the law governing the parties.

Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws
as provided for in Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of
Commerce should be applied suppletorily as they provide for the extent of the common carriers'
liability.

This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593
[1988]; citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held
that "the law of the country to which the goods are to be transported persons the liability of the
common carrier in case of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus,
for cargoes transported to the Philippines as in the case at bar, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil
Code).

Corollary thereto, the Court held further that under Article 1733 of the Civil Code, common carriers
from the nature of their business and for reasons of public policy are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of passengers transported by them
according to all circumstances of each case. Thus, under Article 1735 of the same Code, in all cases
other than those mentioned in Article 1734 thereof, the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
diligence required by law (Ibid., p. 595).

But more importantly, the Court ruled that common carriers cannot limit their liability for injury or loss
of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where there is
negligence (Ibid., p. 606).

Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is but
reasonable to conclude that the issue of negligence must first be addressed before the proper
provisions of the Code of Commerce on the extent of liability may be applied.

The records show that upon delivery of the shipment in question of Mayleen's warehouse in Manila,
122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called
"percentage method" at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68). Instead of
presenting proof of the exercise of extraordinary diligence as required by law, National Marine
Corporation (NMC) filed its Motion to Dismiss dated August 7, 1989, hypothetically admitting the
truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was
due to the negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the filing of a motion to
dismiss on the ground of lack of cause of action carries with it the admission of the material facts
pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such
being the case, it is evident that the Code of Commerce provisions on averages cannot apply.

On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for
loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein.
It is obvious that the case at bar does not fall under any of the exceptions. Thus, American Home
Assurance Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.

Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the findings and
conclusions of the court a quo are not supported by law and jurisprudence.

PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional Trial
Court of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent National
Marine Corporation is hereby ordered to reimburse the subrogee, petitioner American Home
Assurance Company, the amount of P31,506.75.

SO ORDERED.

A. MAGSAYSAY, INC., Plaintiff-Appellee, v. ANASTACIO AGAN, Defendant-

Appellant.

Custodio A. Villalva for Appellant.

Quijano, Alidio & Azores for Appellee.

SYLLABUS
1. ADMIRALTY LAW; VESSELS; ACCIDENTAL STRANDING; AVERAGES. — The law on
averages is contained in the Code of Commerce. Under that law, averages are classified
into simple or particular and general or gross. Generally speaking, simple or particular
averages include all expenses and damages caused to the vessel or cargo which have
not inured to the common benefit (Art. 809) and are, therefore, to be borne only by the
owner of the property which gave rise to the same (Art. 810); while general or gross
averages include "all the damages and expenses which are deliberately caused in order
to save the vessel, its cargo, or both at the same time, from a real and known risk"
(Art. 811). Being for the common benefit, gross averages are to be borne by the
owners of the articles saved (Art. 812).

2. ID.; ID.; ID.; CLASSIFICATION OF AVERAGES. — In classifying averages into simple

or particular and general or gross and defining each class, the Code (Arts. 809 and 811)
at the same time enumerates certain specific cases as coming specially under one or
the other denomination. While the expenses incurred in putting a vessel afloat may well
come under number 2 of article 809 — which refers to expenses suffered by the vessel
"by reason of an accident of the sea or force majeure" — and should therefore be
classified as particular average, the said expenses do not fit into any of the specific
cases of general average enumerated in article 811. No. 6 of this article does mention
"expenses caused in order to float a vessel," but it specifically refers to "a vessel
intentionally stranded for the purpose of saving it" and would have no application where
the stranding was not intentional.

3. ID.; ID.; GENERAL AVERAGE; ITS REQUISITES. — The following are the requisites
for general average: (1) there must be a common danger; (2) for the common safety
part of the vessel or of the cargo or both is sacrificed deliberately; (3) from the
expenses or damages caused follows the successful saving of the vessel and cargo; and
(4) the expenses or damages should have been incurred or inflicted after taking proper
legal steps and authority.

4. ID.; ID.; ID.; ID. — It is the deliverance from an immediate peril, by a common
sacrifice, that constitutes the essence of general average (Columbian Insurance Co. of
Alejandria v. Ashby & Stribling, 13 Peters 331, 10 L. ed. 186). Where there is no proof
that the stranded vessel had to be put afloat to save it from an imminent danger, and
what does appear is that the vessel had to be salvaged in order to enable it "to proceed
to its port or destination," the expenses incurred in floating the vessel do not constitute
general average. It is the safety of the property, and not of the voyage, which
constitutes the true foundation of general average.

5. ID.; ID.; ID.; ID. — Even if the salvage operation was a success, yet if the sacrifice
was for the benefit of the vessel - to enable it to proceed to its destination — and not
for the purpose of saving the cargo, the cargo owners are not in law bound to
contribute to the expense.

DECISION

REYES, A., J.:
The S S "San Antonio", a vessel owned and operated by plaintiff, left Manila on October
6, 1949, bound for Basco, Batanes, via Aparri, Cagayan, with general cargo belonging
to different shippers, among them the defendant. The vessel reached Aparri on the
10th of that month, and after a day’s stopover in that port, weighed anchor to proceed
to Basco. But while still in port, it ran aground at the mouth of the Cagayan river, and,
attempts to refloat it under its own power having failed, plaintiff had it refloated by the
Luzon Stevedoring Co. at an agreed compensation. Once afloat, the vessel returned to
Manila to refuel and then proceeded to Basco, the port of destination. There the
cargoes were delivered to their respective owners or consignees, who, with the
exception of defendant, made a deposit or signed a bond to answer for their
contribution to the average.

On the theory that the expenses incurred in floating the vessel constitute general
average to which both ship and cargo should contribute, plaintiff brought the present
action in the Court of First Instance of Manila to make defendant pay his contribution,
which, as determined by the average adjuster, amounts to P841.40. Defendant, in his
answer, denies liability for this amount, alleging, among other things, that the
stranding of the vessel was due to the fault, negligence and lack of skill of its master,
that the expenses incurred in putting it afloat did not constitute general average, and
that the liquidation of the average was not made in accordance with law. After trial, the
lower court found for plaintiff and rendered judgment against the defendant for the
amount of the claim, with legal interests. From this judgment defendant has appealed
directly to this Court.

Although appellant assigns various errors, under our view of the case only the following
need be considered: jgc:chanrobles.com.ph

"The trial court erred in allowing the general average for floating a vessel
unintentionally stranded inside a port and at the mouth of a river during a fine
weather." cralaw virtua1aw library

For the purposes of this assignment of error we may well accept the finding below that
the stranding of plaintiff’s vessel was due to the sudden shifting of the sandbars at the
mouth of the river which the port pilot did not anticipate. The standing may, therefore,
be regarded as accidental, and the question is whether the expenses incurred in
floating a vessel so stranded should be considered general average and shared by the
cargo owners.

The law on averages is contained in the Code of Commerce. Under that law, averages
are classified into simple or particular and general or gross. Generally speaking, simple
or particular averages include all expenses and damages caused to the vessel or cargo
which have not inured to the common benefit (Art. 809, and are, therefore, to be borne
only by the owner of the property which gave rise to the same (Art. 810); while general
or gross averages include "all the damages and expenses which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a real and known
risk" (Art. 811). Being for the common benefit, gross averages are to be borne by the
owners of the articles saved (Art. 812).
In classifying averages into simple or particular and general or gross and defining each
class, the Code (Art. 809 and 811) at the same time enumerates certain specific cases
as coming specially under one or the other denomination. Going over the specific cases
enumerated we find that, while the expenses incurred in putting plaintiff’s vessel afloat
may well come under number 2 of article 809 — which refers to expenses suffered by
the vessel "by reason of an accident of the sea or force majeure" — and should
therefore be classified as particular average, the said expenses do not fit into any of the
specific cases of general average enumerated in article 811. No. 6 of this article does
mention "expenses caused in order to float a vessel," but it specifically refers to "a
vessel intentionally stranded for the purpose of saving it" and would have no application
where, as in the present case, the stranding was not intentional.

Let us now see whether the expenses here in question could come within the legal
concept of general average. Tolentino, in his commentaries on the Code of Commerce,
gives the following requisites for general average: jgc:chanrobles.com.ph

"First, there must be a common danger. This means, that both the ship and the cargo,
after it has been loaded, are subject to the same danger, whether during the voyage,
or in the port of loading or unloading; that the danger arises from accidents of the sea,
dispositions of the authority, or faults of men, provided, that the circumstance
producing the peril should be ascertained and imminent - or may rationally be said to
be certain and imminent. This last requirement excludes measures undertaken against
a distant peril.

"Second, that for the common safety part of the vessel or of the cargo or both is
sacrificed deliberately.

"Third, that from the expenses or damages caused follows the successful saving of the
vessel and cargo.

"Fourth, that the expenses or damages should have been incurred or inflicted after
taking proper legal steps and authority." (Vol. I, 7th ed., p. 155.)

With respect to the first requisite, the evidence does not disclose that the expenses
sought to be recovered from defendant were incurred to save vessel and cargo from a
common danger. The vessel ran aground in fine weather inside the port at the mouth of
a river, a place described as "very shallow." It would thus appear that vessel and cargo
were at the time in no imminent danger or a danger which might "rationally be sought
to be certain and imminent." It is, of course, conceivable that, if left indefinitely at the
mercy of the elements, they would run the risk of being destroyed. But as stated in the
above quotation, "this last requirement excludes measures undertaken against a distant
peril." It is the deliverance from an immediate, impending peril, by a common sacrifice,
that constitutes the essence of general average. (The Columbian Insurance- Company
of Alexandria v. Ashby & Stribling Et. Al., 13 Peters 331; 10 L. Ed., 186). In the present
case there is no proof that the vessel had to be put afloat to save it from an imminent
danger. What does appear from the testimony of plaintiff’s manager is that the vessel
had to be salvaged in order to enable it "to proceed to its port of destination." But as
was said in the case just cited, it is the safety of the property, and not of the voyage,
which constitutes the true foundation of general average.
As to the second requisite, we need only repeat that the expenses in question were not
incurred for the common safety of vessel and cargo, since they, or at least the cargo,
were not in imminent peril. The cargo could, without need of expensive salvage
operation, have been unloaded by the owners if they had been required to do so.

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

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

In conclusion, we find that plaintiff has not made out a case for general average, with
the result that its claim for contribution against the defendant cannot be granted.

Wherefore, the decision appealed from is reversed and plaintiff’s complaint ordered
dismissed with costs.

Paras, C.J., Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo, and Reyes, J. B.

L., JJ., concur.

G. URRUTIA & CO., plaintiff-appellee,

vs.
BACO RIVER PLANTATION CO., defendant-appellee.
M. GARZA, intervener-appellant.

Antonio Sanz, for plaintiff.

Hartford Beaumont, for defendant.
Recaredo M.a Calvo, for intervener.

MORELAND, J.:

This action spring from a collision between the steamship Nuestra Señora del Pilar, owned by the
plaintiff, and the schooner Mangyan owned by the defendant, which occurred in the early morning of
the 8th of April, 1910, in Verde Island North Passage. The sail vessel was sailing with a fresh breeze
dead astern, her sails wing and wing. The steamer was seen by those on board the sailing vessel
some time before the actual collision, sailing erratically. The sail vessel kept her course steadily until
just before the actual contact when her helmsman threw her hard to port in an effort to avoid the
collision. The movement, however, was unsuccessful and the sail vessel rammed the steamer on
the starboard quarter well aft. The steamer sank and eight lives were lost. The sail vessel was
considerably injured.

This action was brought by the owners of the steamship against the owner of the sail vessel, to
recover the value of the destroyed steamer and the damages caused by reason of its destruction,
alleging as a basis therefor the negligence of the said vessel. The defendant denied the material
allegations of the complaint and set up a counterclaim for damages, alleging as grounds therefor
that the injuries sustained by the said vessel were due to the gross negligence of those handling
plaintiff's steamer.
Before the action was tried, M. Garza made an application to intervene under the provisions of
section 121 of the Code of Civil Procedure, he alleging in support of his application that the steamer
was carrying for him at the time several thousand pesos' worth of merchandise as freight, which was
lost as a result of the collision. He was permitted to intervene and accordingly filed a complaint
setting up the loss of this merchandise and the value thereof and alleging, as the basis for his right
to recover, the negligence of one or the other of the vessels, without specifying which, and praying
that the court award him damages against the vessel the negligence of which, upon the trial, was
shown to have caused his loss.

The case turns upon the question which of the vessels was negligent in failing to conform to the
International Rules for the Prevention of Collissions at Sea. The learned trials court found that those
managing the steamer were guilty of gross negligence and that for that reason the plaintiff could
recover nothing.

An examination of the record leave no doubt that the finding of the trial court that the steamer was
handled in a grossly negligent manner is clearly and fully supported by the evidence. No other
finding could be sustained.

Relative to the alleged negligence of the sail vessel the learned trial court said:

I am satisfied beyond any reasonable doubt that the steamer Ntra. Sra. del Pilar was sailing
erratically, that it did not have a proper watch on board, and that it therefore contributed
neglect to the collision.

I am thoroughly satisfied that the sailing vessel Mangyan had its lights properly on it long
before the time the collision occurred, and that the lights were so arranged upon the rigging
of the vessel as to comply with the rules, and that they were visible and were seen by the
crew of the steamer Elcano and could have been seen by the wathcman or the chief officer
of the steamer Ntra. Sra. del Pilar, if they had been on the lookout for them;

That the steamer Ntra. Sra. del Pilar, being bound to keep out of the course of the sailing
vessel and suddenly seeing the sailing vessel very close, went over hard to port and crossed
the course of the sailing vessel.

I also find that the sailing vessel, notwithstanding the erratic movements of the steamer,
proceeded directly on its course regardless of consequences when with all the searoom
there was it could easily have maneuvered so as to very well avoid the collision, and thereby
having contributed neglect to the collision, neither is entitled to recover from the other any
damages which may have occurred.

These facts and circumstances clearly appear in the record and fully sustain the conclusions
reached.

We are of the opinion that under the facts stated in the decision of the trial court the defendant was
entitled to recover upon its counterclaim.

It being clear from, the evidence that the gross negligence of those managing the steamer brought it
into such close proximity to the sail vessel that a collision was apparently inevitable, the question is
whether or not the sail vessel was negligent in continuing its course without variation up to the
moment that it found itself in extremis.
Article 20 of the International Rules for the Prevention of Collission at Sea is as follows: "If two ships,
one of which is a sailing ship and the other a steam ship, are proceeding in such directions as to
involve risk of collision, the steam ship shall keep out of the way, of the sailing ship."

Article 21 is as follows: "where by any of these rules one of two vessels is to keep out of the way, the
other shall keep her course and speed."

Generally speaking, in collisions between vessels there exist three divisions of time, or zones; The
first division covers all the time up to the moment when the risk of collision may be said to have
begun. Within this zone no rule is applicable because none is necessary. Each vessel is free to
direct its course as it deems best without reference to the movements of the other vessel. The
second division covers the time between the moment when the risk of collision begins and the
moment when it has become a practical certainty. The third division covers the time between the
moment when collision has become a practical certainty and the moment of actual contact.

It was during the time when the sail vessel was passing through the third zone that it changed its
course to port in order to avoid, if possible, the collision. This act may be said to have been done in
extremis, and, even if wrong, the sailing vessel is not responsible for the result.

The question before us, as presented by the finding of the trial court, arises wholly over the action of
the schooner in keeping her course through the second zone, that is, during the period when there
was a risk of collision. In resolving this question we have to note the well-established presumption
which favors the sail vessel in cases of this character. The rule relative to this presumption is
conservatively stated in volume 25 of the American and English Encyclopedia of Law, page 926:

Subject to the general rules of evidence in collision cases as to the burden of proof, in the
case of a collision between a steam vessel and a sail vessel, the presumption is against the
steam vessel, and she must show that she took the proper measures to avoid a collision.

Hughes on Admiralty, page 242, declares the law thus:

A steamer must keep out of the way of a sail vessel. In doing so she must allow the said
vessel a wide berth. . . .

A steamer may take her own method of passing a sail vessel. The mere approach of the two
vessels does not bring about risk of collision. The steamer may assume that the sail vessel
will do her duty and do nothing to embarrass her. Hence the steamer may shape her course
so as to avoid the sail vessel. . . .

This rule that vessels may each assume that the other will obey the law is one of the most
important in the law of collision. Were it otherwise and were vessels required to take all sorts
of measures to keep out the way, when they are not in each other's way, navigation would
be impossible. . . . There is, however, one important qualification which must be borne in
mind. It is that a steamer must not approach so near a sailing vessel, and on such a course
as to alarm a man of ordinary skill and prudence. If the man on the sailing vessel makes an
improper manuever, he is not responsible. It is what is called an "error in extremis." . . . The
leading case on the subject is The Lucille (15 Wallace, 676). In that case a steamer and
schooner were approaching on converging course only half a point apart, so that they would
have come within thirty yards of each other, and that in Chesapeake Bay. The court held that
this was too close and condemned the steamer."
On page 245 the same author says:

Article 21 . . . renders it obligatory on the vessel which has the right of way to pursue her
course. . . . She must rely on the other vessel to avoid the collision and not embarrass her by
any maneuver. All she need do is to do nothing. Then the other vessel knows to expect and
navigates accordingly. . . .

In collisions between steam and sail vessels the steamer's defense is almost invariably that
the sail vessel changed her course.

On page 255 of the same work appears the following:

In The Clara Davidson (24 Fed. 763), the court said: "But I do not find my self at liberty to
ignore the inquiry whether a statutory rule of navigation was violated by the schooner. These
rules are the law of laws in cases of collision. They admit of no option or choice. No
navigator is at liberty to set up his discretion against them. If these rules were subject to the
caprice or election of masters and pilots, they would be not only useless, but worse than
useless. These rules are imperative. They yield to necessity, indeed, but only to actual and
obvious necessity. It is not stating the principles too strongly to say that nothing but
imperious necessity or some overpowering his major will excuse a sail vessel in changing
her course when in the presence of a steamer in motion."

Spencer on Marine Collisions, page 154, says:

The duties imposed upon vessels are of a mutual character; and where the statute directs
one to give way to the other, it imposes an equal duty upon the latter to continue on its
course, and a change of course on its part is as unlawful as it would be for the other refuse
to yield the right of way. . . .

It is one of the conditions of the duty to keep out of the way," that the other vessel shall act
intelligently, and afford reasonable evidence of her intention; while it is doubtful what the
other will do, the former should hold her course. Like all other rules for the prevention of
collisions at sea, there may be special circumstance which would warrant a ship in departing
from her course, where collision appears inevitable by pursuing it; indeed, it is her duty to do
so; but until it plainly appears that there is no other alternative, a vessel should hold her
course when in a position required to do so by the statute."

On page 181 the same author says:

The duty of one vessel to keep her course is not intended by the rules as a privilege
conferred, but as an obligation imposed, in order to enable the other vessel with certainty to
keep out of the way. In order to warrant a vessel to either change her course or speed, there
must be reasonable certainty that the other is not doing her duty, and that the situation
imperatively demands a departure from the rules. It is the duty of the vessel required to keep
out of the way to give an early and intelligible expression of her intentions to do so; and while
there is any doubt as to what her actions will be, the vessel required to hold her course may
presume that the other will act intelligently and lawfully, and she should hold her course until
the contrary appears. it is no excuse for a vessel taking a course forbidden by law that the
unlawful course was the best one.

In the American and English Encyclopedia of law (vol. 25. p. 925) the rules is stated as follows:
 But it must be a strong case which puts the sail vessels in the wrong for obeying the rule to
hold her course, for the court must clearly see, not only that a deviation from the rule for
would have prevented the collision, but that the officer in charge of the sail vessel was guilty
of negligence or a culpable want of seamanship in not perceiving the necessity for a
departure from the rule and acting accordingly. The sail vessel is justified in holding her
course to the last minute possible for the steamship to avoid her by making the necessary
maneuver.

In the case of St. John vs. Paine (10 How., 557), the collision was between a schooner and a
steamer. The schooner had no lights visible; the night was starlight and clear. The court reviewed
the rules governing the management of sail vessel at some length, explained the rules applicable to
the management of steam vessels, and gave the reasons why the rules which govern travelers on
the highways of the sea should be strictly enforced. After showing the greater facility of manuevering
which a steamer has over a sail vessel and, therefore, the greater ability to avoid collisions, the court
said:

As a general rule, therefore, when meeting a sailing vessel, whether close hauled or with the
wind free, the latter has a right to keep her course, and it is the duty of the steamer to adopt
precautions as will avoid her. (Cites cases.)

By an adherence to this rule on the part of the sailing vessel the steamer with a proper
lookout will be enabled, when approaching in an opposite direction, to adopt the necessary
measures to avoid the danger, and she will have a right to assume that the sailing vessel will
keep her course. If the latter fails to do this, the fault will be attributable to her, and the
master of the steamer will be responsible only for a fair exertion of the power of his vessel to
avoid the collision under the unexpected change of the course of the other vessel, and the
circumstances of the case.

A similar case is that of The Genesee Chief vs. Fitzhugh (12 How., 443). This pertains also to a
collision between a steamer, The Genesee Chief , and a sail vessel. The two watched each other for
some time before the collision. The sailing vessel kept her course until in extremis when she made a
wrong maneuver. The court said:

The collision took place in the open lake. It was a starlight night, and although there was a
haze near the surface of the lake, it was not sufficient to conceal the Cuba from those on
board of the propeller. . . .

The lake was smooth. The steamboat had the entire command of her course and a wide
water, by which she might have passed the Cuba on either side, and at a safe distance. She
was going at the rate of eight miles an hour. And if proper care had been taken on board the
Genesee Chief , after the schooner was first seen, it would seem to be almost impossible
that a collision could have happened with a vessel moving so slowly and sluggishly through
the water even if she was carelessly or injudiciously managed. There was no necessity for
passing so near her as to create the hazard. The steamboat could choose it own distance. . .
.

And the captain and crew of the Cuba appear to have been watchful and attentive from the
time the propeller was discovered. Nor do we deem it material to inquire whether the order of
the captain at the moment of collision was judicious or not. He saw the steamboat coming
directly upon him; her speed not diminished; nor any measures taken to avoid a collision.,
And if, in the excitement and alarm of the moment, a different order might have been more
fortunate, it was the fault of the propeller to have placed him in a situation where there was
 no time for thought; and she is responsible for the consequences. She had the power to
have passed at a safer distance, and had no right to place the schooner in such jeopardy,
that the error of a moment might cause her destruction, and endanger the lives of those on
board. And if an error was committed under such circumstances it was not a fault.

In the case of The Ottawa (3 Wall., 269), the court said:

Rules of navigation are obligatory from the time the necessity for precaution begins, and
continue to be applicable as the vessels advance, so long as the means and opportunity to
avoid the danger remain; but they do not apply to a vessel required to keep her course after
the approach is so near that the collision is inevitable, and are equally inapplicable to vessels
of every description while they are yet so distant from each other that measures of
precaution have not become necessary.

This case exemplifies the three zone theory already referred to. In the first zone no rules apply. In
the second the burden is on the vessel required to keep away and avoid the danger. The third zone
covers the period in which errors in extremis occur; and the rule is that the vessel which has forced
the privileged vessel into danger is responsible even if the privileged vessel has committed an error
within that zone.

The duty of the sailing vessel to keep her course is well exemplified in the leading case of The
Lucille vs. Respass (15 Wall., 676), which was a collision between a schooner and a steamer. Both
vessels saw each other in time to have avoided the collision. The court said:

The principles of law applicable to the case are well settled. They are not disputed by either
party. In the case of The Carrol (8 Wall., 302), it is thus laid down, "Nautical rules require that
where a steamship and sailing vessel are approaching each other from opposite directions,
or on intersecting lines, the steamship from the moment the sailing vessel is seen, shall
watch with the highest diligence her course and movements so as to be able to adopt such
timely means of precaution as will necessarily prevent the two boats from coming in contact.
Fault on the part of the sailing vessel at the moment preceeding a collision does not absolve
a steamer which has suffered herself and a sailing vessel to get in such dangerous proximity
as to cause inevitable alarm and confusion and collusion as a consequence. The steamer,
as having committed a far greater fault in allowing such proximity to be brought about, is
chargeable with all the damages resulting from a collision."

The rule laid down in the case of The Fannie (11 Wal., 238( is still more applicable to the
case before us. It was held that a schooner meeting a steamer approaching her on a parallel
line, with the difference of half a point in the course of the two, ought to have kept in her
course; that a steamer approaching a sailing vessel is bound to keep out of her way, and
allow her a free and unobsructed passage. Whatever is necessary for this it is her duty to do,
and to avoid whatever obstructs or endangers the sailing vessel in her course. It, therefore,
the sailing vessel does not change her course so as to embarrass the steamer, and render it
difficult for her to avoid a collision, the steamer alone is answerable for the damage of a
collision, if there is one.

In the case of The Sea Gull (23 Wall., 165) the court said:

Steamers approaching a sail ship in such a direction as to involve risk of collision are
required to keep out of the way of the sail ship; but the sail ship is required to keep her
course unless the circumstances are such as to render a departure from the rule necessary
in order to avoid immediate danger.
 Vessels with sails being required to keep their course, the duty of adopting the necessary
measures of precaution to keep out the way is devolved upon the steamer subject only to the
condition that the sail ship shall keep her course and do not act to embarrass the steamer in
her efforts to perform her duty. Doubtless the steamer may go to the right or left if she can
keep out of the way, but if not and the approach is such as to involve risk of collision she is
required to slacken her speed, or, if necessary, stop and reverse, and if she fails to perform
her duty as required by the rules of navigation she is responsible for the consequences if the
sail vessel is without fault. . . .

Attempts is made in argument to show that the schooner also was in fault and that the case
falls within the rule which requires that the damages shall be divided.

Support to that charge is attempted to be drawn from the assumed fact that the schooner
changed her course in violation of the rule of navigation which requires the sail ship to keep
her course, as a correlative duty to that of the steamer whenever the latter is required to
keep out of the way. . . .

Two answers are made by the libelants to that defense, either of which, if found to be true, is
sufficient to exonerate the schooner: . . . (2) That the schooner made no change in her
course until the collision was inevitable, nor until it became indispensably necessary in order
to avoid immediate danger caused by the fault of the steamer. . . .

Rules of navigation continue to be applicable as long as the means and opportunity remain
to avoid the danger, but they do not apply to a vessel required to keep her course after the
wrongful approach of the opposite vessel is so near that a collision is inevitable. . . .

Nor will an error committed by the sail vessel under such circumstances of peril, if she
otherwise without fault, impair the right of the sail vessel to recover for the injuries
occasioned by the collision, for the plain reason that those who produced the peril and put
the sail vessel in that situation are chargeable with the error and must answer for the
consequences. (Steamship Co. vs. Rumball, 21 How., 383.)

Subject to that exceptions the sail vessel must keep her course.

In the case of The Benefactor (102 U. S. 214), the court laid down the following conclusions.:

1. Upon the steamship and schooner discovering each other proceeding in such directions
as to involve risk of collision, as stated in the foregoing findings of fact, it was the right and
duty of the schooner to keep her course, and the duty of the steamship to keep out of the
way of the schooner, and the steamship was in fault in failing to perform that duty.

2. It was also the duty of the steamship under the circumstances stated, to pursue a course
which should not needlessly put the schooner in imminent peril; and the steamship was in
fault in failing to perform that duty.

3. It was the duty of the steamship before the time when she did so, to slacken her speed or
stop, and the steamship was in fault in failing to perform that duty.

4. If, when a collision had become imminent by reason of the fault of the steamship, any
error was committed in extremis by those in charge of the schooner, the schooner is not
responsible therefor.
 5. The steamship had no right, under the circumstances stated, needlessly to place herself in
such close proximity to the schooner that the error or a moment would bring destruction.

6. The collision was occasioned by the fault of the steamship, and the steamship should be
condemned therefor.

In the case of The Badger State (8 Fed. Rep., 526), the court said:

Where a sailing level and one propelled by steam are approaching each other bow, on the
steamer must give away, In case of a collision between such vessels, the steamer is prima
facie in fault.

In the case of The Gate City (90 Fed. Rep., 314), the court held, according to the syllabus:

The rule requiring a sailing vessel meeting a steamer to hold her course is a broad and
general one intended to put the burden of avoiding a collision upon the steamer; and, if the
sailing vessel departs from the injunction the burden is on her to show some reasonable
excuse therefor.

A disregard of the rule not demanded by a clearly existing exigency should not be excused.

Therefore, she will not be held in fault for adhering to her course, although the steamer
seems to be manuevering in an uncertain and dangerous way.

We are satisfied from the authorities that, under the facts stated in the opinion of the trial court, the
defendant is entitled to recover such damages as reasonably and naturally flowed from the collision.
There is sufficient evidence in the record to fix such damages with reasonable accuracy. It was
proved upon the trial that it would require an expenditure of P3,525 to put the sail vessel in the
condition in which it was before the injury; that it cost 245 to get the vessel to Manila after the injury;
that the value of the supplies lost was P240.99. The evidence relative to the loss of earnings is not
sufficient to permit the court to formulate any conclusion in relation thereto, even if it be considered a
proper item of damage.

We think the judgment of the trial court was correct in dismissing the complaint of intervention. The
intervener had no "legal interest in the matter in litigation, or in the success of either of the parties, or
an interest against both." Their action was personal, involved no rights in property which extended
beyond their immediate selves, and touched no third party in any of the ramifications of those rights.

The judgment of the court below, in so far as it finds against the plaintiff and the intervener, is hereby
affirmed. As to that portion which dismisses the counterclaim of the defendant, the Baco River
Plantation Company, the judgment is reversed and the cause remanded, with instructions to the trial
court to enter judgment in favor of the defendant, The Baco River Plantation Company, and against
the plaintiff, G. Urrutia & Company, for the sum of P4,010.99 and costs. No costs on this appeal.

While it was held in the case of Philippine Shipping Co. vs. Vergara (6 Phil. Rep., 281), that, in
accordance with articles 837 and 826 of the Code of Commerce, the defendant in an action such as
the one at bar cannot be held responsible in damages when the ship causing the injury was wholly
lost by reason of the accident, we do not apply it in this case for the reason that the vessel lost was
insured and that the defendant collected the insurance. That being the case, the insurance money
substitutes the vessel and must be used, so far as necessary, to pay the judgment rendered in this
case.
In coming to this conclusion we have not lost sight of the case of Place vs. Norwich and N. Y. Trans.
Co. (118 U. S., 468), in which it was held that, under the provision of the Act of Congress relative
thereto, insurance money obtained by reason of the loss of a vessel causing damages, as in the
case at bar, was not subject to the payment of the damages sustained by the negligence of the
vessel lost by reason of the accident in which the damages occurred. We do not follow that case
because we are met in this jurisdiction with article 1186 of the Civil Code, which provides that "after
the obligation is extinguished by the loss of the thing, all the actions which the debtor may have
against third persons, by reason thereof, shall pertain to the creditor," and with article 2 of the Code
of Commerce, which provides that where the Code of Commerce is silent to the law relating to the
matters of which it treats, those matters shall be governed by the provisions of the Civil Code.

That said article 1186 is, under the Spanish jurisprudence, applicable to money obtained from the
insurance of the thing lost or destroyed, there can be no doubt. (Manresa, vol. 8, 353.)

The judgment in this case is, therefore, collectible, but the amount collected cannot exceed the
amount of insurance money actually received.

The writer of this opinion had doubts of the applicability of article 1186, referred to; but has yielded to
the learning of the majority relative to the Roman and Spanish jurisprudence on this point.

C. B. WILLIAMS, plaintiff-appellant,
vs.
TEODORO R. YANGCO, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for plaintiff.

Haussermann, Cohn, & Fisher fro defendant.

CARSON, J.:

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

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

After a careful review of all the evidence of record we are all agreed with the trial judge in his holding
that the responsible officers on both vessels were negligent in the performance of their duties at the
time when the accident occurred, and that both vessels were to blame for the collision. We do not
deem it necessary to review the conflicting testimony of the witnesses called by both parties, the trial
also having inserted in his opinion a careful and critical summary and analysis of the testimony
submitted to him, which, to our minds, fully and satisfactorily disposes of the evidence are set forth in
the following language (translated):

In view of the negligence of which the patron Millonario (of defendant's vessel) has been
guilty as well as that imputable to the patron of the launch Euclid, both contributed in a
decided manner and beyond all doubt to the occurrence of the accident and the consequent
damages resulting therefrom in the loss of the launch Euclid.
 With a little diligence which either of the two patrons might have practiced under the
circumstances existing at the time of the collision, if both had not been so distracted and so
negligent in the fulfillment of their respective duties, the disaster could have been easily
avoided, since the sea was free of obstacles and the night one which permitted the patron
Millonario to distinguish the hull of the launch twenty minutes before the latter entered upon
his path . . .

There is proven, therefore, the negligence of which the patron of the Euclid has been guilty.

If the negligence by which the patron of the launch Euclid has contributed to the cause of the
accident and to the resulting damages is patent, none the less so is the negligence of the
patron of the steamer Subic, Hilarion Millonario by name, as may be seen from his own
testimony which is here copied for the better appreciation thereof.

It will be seen that the trial judge was of opinion that the vessels were jointly liable for the loss
resulting from the sinking of the launch. But actions for damages resulting from maritime collisions
are governed in this jurisdiction by the provisions of section 3, title 4, Book III of the Code of
Commerce, and among these provisions we find the following:

ART. 827. If both vessels may be blamed for the collision, each one shall be liable for its own
damages, and both shall be jointly responsible for the loss and damages suffered by their
cargoes.

In disposing of this case the trial judge apparently had in mind that portion of the section which treats
of the joint liability of both vessels for loss or damages suffered by their cargoes. In the case at bar,
however, the only loss incurred was that of the launch Euclid itself, which went to the bottom soon
after the collision. Manifestly, under the plain terms of the statute, since the evidence of record
clearly discloses, as found by the trail judge, that "both vessels may be blamed for the collision,"
each one must be held may be blamed for it own damages, and the owner of neither one can
recover from the other in an action for damages to his vessel.

Counsel for the plaintiff, basing his contention upon the theory of the facts as contended for by him,
insisted that under he doctrine of "the last clear chance," the defendant should be held liable
because, as he insists, even if the officers on board the plaintiff's launch were negligence in failing to
exhibit proper lights and in failing to take the proper steps to keep out of the path of the defendant's
vessel, nevertheless the officers on defendant's vessel, by the exercise of due precautions might
have avoided the collision by a very simple manuever. But it is sufficient answer to this contention to
point out that the rule of liability in this jurisdiction for maritime accidents such as that now under
consideration is clearly, definitely, and unequivocally laid down in the above-cited article 827 of the
Code of Commerce; and under that rule, the evidence disclosing that both vessels were
blameworthy, the owners of either can successfully maintain an action against the other for the loss
or injury of his vessel.

In cases of a disaster arising from the mutual negligence of two parties, the party who has a last
clear opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is
considered wholly responsible for it under the common-law rule of liability as applied in the courts of
common law of the United States. But this rule (which is not recognized in the courts of admiralty in
the United States, wherein the loss is divided in cases of mutual and concurring negligence, as also
where the error of one vessel has exposed her to danger of collision which was consummated by he
further rule, that where the previous application by the further rule, that where the previous act of
negligence of one vessel has created a position of danger, the other vessel is not necessarily liable
for the mere failure to recognize the perilous situation; and it is only when in fact it does discover it in
time to avoid the casualty by the use of ordinary care, that it becomes liable for the failure to make
use of this last clear opportunity to avoid the accident. (See cases cited in Notes, 7 Cyc., pp. 311,
312, 313.) So, under the English rule which conforms very nearly to the common-law rule as applied
in the American courts, it has been held that the fault of the first vessel in failing to exhibit proper
lights or to take the proper side of the channel will relieve from liability one who negligently runs into
such vessels before he sees it; although it will not be a defense to one who, having timely warning of
the danger of collision, fails to use proper care to avoid it. (Pollock on Torts, 374.) In the case at bar,
the most that can be said in support of plaintiff's contention is that there was negligence on the part
of the officers on defendant's vessel in failing to recognize the perilous situation created by the
negligence of those in charge of plaintiff's launch, and that had they recognized it in time, they might
have avoided the accident. But since it does not appear from the evidence that they did, in fact,
discover the perilous situation of the launch in time to avoid the accident by the exercise of ordinary
care, it is very clear that under the above set out limitation to the rule, the plaintiff cannot escape the
legal consequences of the contributory negligence of his launch, even were we to hold that the
doctrine is applicable in the jurisdiction, upon which point we expressly reserve our decision at this
time.

The judgment of the court below in favor of the plaintiff and against the defendant should be
reserved, and the plaintiff's complaint should be dismissed without day, without costs to either party
in this instance. So ordered.

Arellano, C.J., Moreland, Trent and Araullo, JJ., concur.

AUGUSTO LOPEZ, plaintiff-appellant,
vs.
JUAN DURUELO, ET AL., defendants.
ALBINO JISON, appellee.

Angel S. Gamboa for appellant.

Feria and La O for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for
the purpose of recovering damages for personal injuries inflicted upon him by reason of the
negligence of the defendants, Juan Duruelo and Albino Jison. The defendants demurred to the
complaint, and the demurrer having been sustained, the plaintiff elected to stand upon his complaint,
which was accordingly dismissed; and the plaintiff appealed.

The facts necessary to an understanding of the case as set out in the complaint are briefly these: On
February 10, 1927, the plaintiff, who is a resident of the municipality of Silay, Occidental Negros,
was desirous of embarking upon the interisland steamer San Jacinto in order to go to Iloilo. This
boat was at the time in the anchoring-ground of the port of Silay, some half a mile distant from the
port. The plaintiff therefore embarked at the landing in the motor boat Jison, which was then
engaged in conveying passengers and luggage back and forth from the landing to boats at anchor,
and which was owned and operated by the defendant Albino Jison, with Juan Duruelo as patron.
The engineer (maquinista) aboard on this trip was one Rodolin Duruelo, a boy of only 16 years of
age. He is alleged to have been a mere novice without experience in the running of motor boats; and
the day of the occurrence now in contemplation is said to have been the third day of his
apprenticeship in this capacity. It is alleged that the Jison, upon this trip, was grossly overladen,
having aboard fourteen passengers, while its capacity was only for eight or nine. As the motor boat
approached the San Jacinto in a perfectly quiet sea, it came too near to the stern of the ship, and as
the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the motor boat
and sank it at once. It is alleged in the complaint that the approach of the Jison to this dangerous
proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill of the
defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the
water against the propeller, and the revolving blades inflicted various injuries upon him, consisting of
a bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture of
the left femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the
City of Manila from the 28th of February until October 19 of the year 1927, or approximately eight
months. In the conclusion of his complaint the plaintiff sets out the various items of damage which he
suffered, amounting in all to something more than P120,000. These damages he seeks to recover of
the defendants in this action.

As a general ground of demurrer it is assigned by the defendants that the complaint does not show a
right of action, and in the course of the argument submitted with the demurrer attention is directed to
the fact that the complaint does not allege that a protest had been presented by the plaintiff, within
twenty-four hours after the occurrence, to the competent authority at the port where the accident
occured. It is accordingly insisted that, under article 835 of the Code of Commerce, the plaintiff has
shown no cause of action.

Assuming that the article of the Code of Commerce relied upon states a condition precedent to the
maintenance of an action in case where protest is required and that the making of protest must be
alleged in the complaint in order to show a good cause of action — an assumption that is possibly
without basis, for the reason that lack of protest in a case where protest is necessary would seem to
supply matter of defense proper to be set up in the answer, — we nevertheless are of the opinion
that protest was not necessary in the case now before us. The article in question (835, Code of
Com.) is found in the section dealing with collisions, and the context shows the collisions intended
are collisions of sea-going vessels. Said article cannot be applied to small boats engaged in river
and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime Commerce, of
which the section of Collisions forms a part, was evidently intended to define the law relative to
mechant vessels and marine shipping; and, as appears from said Code, the vessels intended in that
Book are such as are run by masters having special training, with the elaborate apparatus of crew
and equipment indicated in the Code. The word "vessel" (Spanish "buque," "nave"), used in the
section referred to was not intended to include all ships, craft or floating structures of every kind
without limitation, and the provisions of that section should not be held to include minor craft
engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce,
or commerce by sea, whether in foreign or coastwise trade, are no doubt regulated by Book III of the
Code of Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as
river boats and those carrying passengers from ship to shore, must be governed, as to their liability
to passengers, by the provisions of the Civil Code or other appropriate special provisions of law.

This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel"
to the following effect:

When the mercantile codes speak of vessels, they refer solely and exclusively to merchant
ships, as they do not include war ships furthermore, they almost always refer to craft which
are not accessory to another as is the case of launches, lifeboats, etc. Moreover, the
mercantile laws, in making use of the words ship, vessels, boat, embarkation, etc., refer
exclusively to those which are engaged in the transportation of passengers and freight from
one port to another or from one place to another; in a word, they refer to merchant vessels
 and in no way can they or should they be understood as referring to pleasure craft, yachts,
pontoons, health service and harbor police vessels, floating storehouses, warships or patrol
vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other
uses, such as for instance coast and geodetic survey, those engaged in scientific research
and exploration, craft engaged in the loading and discharge of vessels from same to shore or
docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets,
coves and anchorages are engaged in transporting passengers and baggage. (Estasen, Der.
Mer., vol IV, p. 195.)

In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of
merchandise by sea and for the making of voyages from one port to another of these Islands,
equipped and victualed for this purpose by its owner, is a vessel, within the purview of the Code of
Commerce, for the determination of the character and effect of the relations created between the
owners of the merchandise laden on it and its owner. In the case before us the Jison, as we are
informed in the complaint, was propelled by a second-hand motor, originally used for a tractor plow;
and it had a capacity for only eight persons. The use to which it was being put was the carrying of
passengers and luggage between the landing at Silay and ships in the harbor. This was not such a
boat as is contemplated in article 835 of the Code of Commerce, requiring protest in case of
collision.

In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treaties on Mercantile
Law by Blanco. We now have before us the latest edition of Blanco, and we reproduced here, in both
Spanish and English, not only the passage thus quoted but also the sentence immediately following
said passage; and this latter part of the quotation is quite pertinent to the point now under
consideration.

Says Blanco:

Las palabras "nave" y "buque", en su sentido gramatical se aplican para designar cualquier
clase de embarcaciones, grandes o pequenas, mercantes o de guerra, significacion que no
difiere esencialmente de la juridica, con arreglo a la cual se consideran buques para los
efectos del Codigo y del Reglamento para la organizacion del Registro mencantile, no solo
las embarcaciones destinadas a la navegacion de cabo taje o altura, sino tambien los diques
flotantes, pontones, dragas, ganguiles y cualquier otro aparato flotante destinado a servicios
de la industria o del comercio maritimo. "Aun cuando, corforme a este concepto legal,
parece que todo aparato flotante que sirve directamente para el trasporte de cosas o
personas, o que inderectamente se relacionen con esta industria, han de sujertarse a los
preceptos del Codigo sobre propiedad, transmision, derechos, inscripciones, etc.,
entendemos con el Sr. Benito (obra cit.) y asi ocurre en la practica, que no son aplicables a
las pequeñas embarcaciones, que solo estan sujetas a los de la administracion de marina
para el servicio de los puertos o ejercicio de la industria de la pesca. (Blanco, Der. Mer., vol.
II, pag. 22.)

The words "ship" (nave) and "vessel" (buque), in their grammatical sense, are applied to designate
every kind of craft, large or small, merchant vessels or war vessels, a signification which does not
differ essentially from its juridical meaning, according to which vessels for the purposes of the Code
and Regulations for the organization of the Mercantile Registry, are considered not only those
engaged in navigation, whether coastwise or on the high seas, but also floating docks, pantoons,
dredges, scows and any other floating apparatus destined for the service of the industry or maritime
commerce.

Yet notwithstanding these principles from which it would seem that any
 floating apparatus which serves directly for the transportation of things or persons or which
inderectly is related to this industry, ought to be subjected to the principles of the Code with
reference to ownership, transfer, rights, registration, etc., we agre with Benito (obra cit.) and
it so happens in practice that they are not aplicable to small which are subject to
administrative (customs) regulations in the matter of port service and in the fishing industry. 1awph!l.net

We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the
Code of Commerce, means, according to the Spanish-English Dictionary complied by Edward R.
Bensley and published at Paris in the year 1896, "Ship, a vessel with decks and sails." Particularly
significant in this definition is the use of the word "decks" since a deck is not a feature of the smallest
types of water craft.

In this connection a most instructive case from a Federal Court in the United States is that of the
Mamie (5 Fed., 813), wherein it was held that only vessels engaged in what is ordinarily known as
maritime commerce are within the provisions of law conferring limited liability on the owner in case
maritime disaster. In the course of the opinion in that case the author cites the analogous provisions
in the laws of foreign maritime, nations, especially the provisions of the Commercial Code of France;
and it is observed that the word "vessel" in these codes is limited to ships and other sea-going
vessels. "Its provisions are not applicable," said the court, "to vessels in inland navigation, which are
especially designated by the name of boats." Quoting from the French author Dufour (1 Droit Mer.,
121), the writer of the opinion in the case cited further says: "Thus, as a general rule, it appears to
me clearly, both by the letter and spirit of the law, that the provisions of the Second Book of the
Commercial Code [French] relate exclusively to maritime and not to fluvial navigation; and that
consequently the word 'ship' when it is found in these provisions, ought to be understand in the
sense of a vessel serving the purpose of maritime navigation of seagoing vessel, and not in the
sense of a vessel devoted to the navigation of rivers."

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to
make protest as a condition precedent to his right of action for the injury suffered by him in the
collision described in the complaint. In other words, article 835 of the Code of Commerce does not
apply. But even if said provision had been considered applicable to the case in hand, a fair
interpretation of the allegations of the complaint indicates, we think, that the injuries suffered by the
plaintiff in this case were of such a nature as to excuse protest; for, under article 836, it is provided
that want to protest cannot prejudice a person not in a condition to make known his wishes. An
individual who has suffered a compound fracture of the femur and received other physical injuries
sufficient to keep him in a hospital for may months, cannot be supposed to have in a condition to
make protest within twenty-four hours of such occurrence. It follows that the demurrer in this case
was not well taken and should have been overruled.

In their brief in this court the attorneys for the defendant have criticised the complaint for a general
lack of certainty and precision in more than one respect. However, we have read the document
attentively and, in our opinion, it states a good cause of action upon a civil liability arising from tort
under articles 1902 and 1903 of the Civil Code, and our attention has not been drawn to any
provision of law which would constitute an obstacle to the maintenance of the action.

We have repeatedly called the attention of trial courts to the general rule that a case should not be
dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of
action can be made out; and the fact that a complaint is inartificially drawn or in a certain degree
lacking in precision constitutes no sufficient reason for dismissing it. In passing upon a demurrer,
every reasonable intendment is to be taken in favor of the pleader. In this connection it should be
borne in mind that if a complaint does not show a good cause of action, the action can be dismissed
at a later stage of the proceedings; and even where no objection has been previously made, the
point can be raised in the Supreme Court under section 93 of the Code of Civil Procedure (Abiera
vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the defendant will therefore ordinarily
result from overruling a demurrer, and no harm is done to anyone by requiring the defendant to
answer. On the contrary, grave prejudice may result to a plaintiff from the erroneous sustaining of a
demurrer, because of the delay and even expense necessary to set the matter right upon appeal.

The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to
answer the complaint within five days after notification of the return of this decision to the court of
origin. So ordered, with costs against the appellee.

Johnson, Malcolm, Villamor and Romualdez, JJ., concur.

Ostrand, J., concurs in the result.

People v. Quasha DIGEST
DECEMBER 21, 2016  ~ VBDIAZ

People v. Quasha (1953)

G.R. No. L-6055            

June 12, 1953
FACTS:
 William H. Quasha
 a member of the Philippine bar, committed a crime of
falsification of a public and commercial document for causing it
to appear that Arsenio Baylon, a Filipino citizen, had subscribed
to and was the owner of 60.005 % of the subscribed capital stock
of Pacific Airways Corp. (Pacific) when in reality the money
paid belongs to an American citizen whose name did not appear
in the article of incorporation,
o to circumvent the constitutional mandate that no corp.
shall be authorize to operate as a public utility in the
Philippines unless 60% of its capital stock is owned by
Filipinos.
 Found guilty after trial and sentenced to a term of imprisonment
and a fine
 Quasha appealed to this Court
  Primary purpose: to carry on the business of a common carrier by air, land
or water
 Baylon did not have the controlling vote because of the difference in voting
power between the preferred shares and the common shares
ISSUE: For a corporation to be entitled to operate a public utility is it necessary that it
be organized with 60 per cent of its capital owned by Filipinos from the start?
HELD: No. For a corporation to be entitled to operate a public utility it is not
necessary that it be organized with 60 per cent of its capital owned by Filipinos from
the start. A corporation formed with capital that is entirely alien may subsequently
change the nationality of its capital through transfer of shares to Filipino citizens.
Conversely, a corporation originally formed with Filipino capital may subsequently
change the national status of said capital through transfer of shares to foreigners. What
need is there then for a corporation that intends to operate a public utility to have, at
the time of its formation, 60 per cent of its capital owned by Filipinos alone? That
condition may anytime be attained thru the necessary transfer of stocks. The moment
for determining whether a corporation is entitled to operate as a public utility is when
it applies for a franchise, certificate, or any other form of authorization for that
purpose. And that can be done after the corporation has already come into being and
not while it is still being formed. And at that moment, the corporation must show that
it has complied not only with the requirement of the Constitution as to the nationality
of its capital, but also with the requirements of the Civil Aviation Law if it is a
common carrier by air, the Revised Administrative Code if it is a common carrier by
water, and the Public Service Law if it is a common carrier by land or other kind of
public service.
Tatad v. Garcia, Jr.
G.R. No. 114222, 6 April 1995, 243 SCRA 436

FACTS:

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was
intended to provide a mass transit system along EDSA and alleviate the congestion and growing
transportation problem in the metropolis. RA 6957 was enacted allowing for the financing,
construction and operation of government projects through private initiative and investment.
Accordingly, prequalification and bidding was made and EDSA LRT Corporation (organized under
HK laws) was recommended to be awarded with the contract. The President approved the awarding
of the contract. Petitioners are senators praying for the prohibition of respondents from further
implementing and enforcing the contract.

ISSUE:

Whether the agreement granting EDSA LRT Corporation LTD, a foreign corporation, the ownership
of EDSA LRT III, a public utility, violates constitution.

RULING:

No. What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations,
terminals and the power plant, not a public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a
public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v.
Public Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.

The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may
not necessarily be the owner thereof.

In law, there is a clear distinction between the “operation” of a public utility and the ownership of the
facilities and equipment used to serve the public. Ownership is defined as a relation in law by virtue
of which a thing pertaining to one person is completely subjected to his will in everything not
prohibited by law or the concurrence with the rights of another. The exercise of the rights
encompassed in ownership is limited by law so that a property cannot be operated and used to
serve the public as a public utility unless the operator has a franchise. The operation of a rail system
as a public utility includes the transportation of passengers from one point to another point, their
loading and unloading at designated places and the movement of the trains at pre-scheduled times.

Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of authorization for
that purpose (People v. Quasha, 93 Phil. 333 [1953]).

A. . L. AMMEN TRANSPORTATION CO. INC., Plaintiff-Appellant, v. VICENTE

GOLINGCO, Defendant-Appellee.

Gibbs, McDonough & Johnson for Appellant.

Ambrisio A. Calleja for Appellee.

 SYLLABUS

1. COURTS; CONCURRENT JURISDICTION WITH PUBLIC UTILITY COMMISSIONER. —

Under Philippine organic law, in relation to Philippine statutory law, at least concurrent
jurisdiction with the Public Utility commissioner remains in the courts to the end that
special proceedings, such as injunctions, may be heard and tried in the courts.

2. ACTIONS; PARTIES PLAINTIFF; PUBLIC UTILITY AS COMPLAINANT. — If the right

which any public utility is existing pursuant to lawful order of the Public Utility
Commissioner has been invaded by another public utility, it is not essential that an
action be maintained by the Government of the Philippine Islands under section 197 of
the Code of Civil Procedure, but in appropriate cases, actions may be maintained by the
complainant public utility.

3. ID.; ID.; ID. — Owners of public utilities operating under the supervision of the
Public Utility Commissioner have the right to maintain appropriate actions against other
public utilities who have not been authorized to operate in competition with the
complainant.

4. PUBLIC UTILITIES; AUTHORIZATION BY PUBLIC UTILITY COMMISSIONER

ESSENTIAL. — All public utilities which desire to operate in the Philippine Islands must
first obtain from the Public Utility Commissioner a certificate to the effect that the
operation of said public utility, and the authorization to do business, will promote the
public interest in a proper and suitable way, unless the business was in operation by
the public utility at the time the Public Utility Law went into effect.

5. ID.; ID.; INSTANT CASE. — Defendant public utility was in existence prior to the
passage of Act No. 2694. After the passage of said Act, it began to operate on new
routes without first securing the certificate provided by section 14 of the Act. Held: That
an action lies to enjoin the defendant from engaging in the business of transporting
goods and passengers, and the demurer to the amended complaint should not have
been sustained.

DECISION

MALCOLM, J. :

The fundamental question in this case is whether or not the amended complaint filed in
the Court of First Instance of Albay, on February 2, 1920, states a cause of action.
Judge Mina, of the Court of First Instance, held that it did not, and, accordingly,
sustained the demurer, and dismissed the action, with costs against the plaintiff. Said
complaint reads as follows: jgc:chanrobles.com.ph

"Now comes the plaintiff, by its undersigned attorneys, and to the court respectfully
shows that on this same date, February 2, 1920, it was notified of the order of this
court dated February 24, 1920, sustaining the demurer and ordering the amendment to
the complaint, and in compliance therewith it now amends its complaint and alleges: jgc:chanrobles.com.ph

"(1) That the plaintiff is a corporation duly organized and constituted and register in
accordance with the existing laws of the Philippine Islands and is exploiting, conducting
and managing for itself a public utility business for the transportation of passengers and
freight by means of trucks between towns of this Province of Albay, and the defendant
is of legal age, resident of the municipality of Tabaco, Province of Albay, Philippine
Islands, and both have the legal capacity to sue and be sued.

"(2) That the plaintiff corporation has been engaged in the said business of transporting
passengers and freight in this province since the year 1912, having invested in said
business the capital of one hundred fifty thousand pesos (P150,000) and is now
possessed of twenty-six (26) White trucks besides the required equipment and
accessories necessary to give service to the public; the plaintiff having complied fully
with the requirements of Act. No. 2307, as amended, which is the law that creates the
Board of Public Utility Commissioners and provides for its duties and rights and for
other purposes, having complied also with all the regulations and requisites prescribed
by the said Board of Public Utility Commissioners since the creation of said Board.

"(3) That the defendant Vicente Golingco for several years now has been still is the
owner of a public utility business and the said Vicente Golingco possessed, exploited,
managed and conducted the said public utility business, consisting of twelve (12) White
11/2-ton trucks and has placed the said public utility business, from the date of its
organization until January 21, 1919, to the purpose of public transportation of
passengers and freight by means of the said trucks, exclusively between the districts of
Legaspi, municipality of Albay, the municipality of Tiui of this Province of Albay, with the
exception stated in paragraph 7 of this amended complaint.

"(4) That on the said 21st of January, 1919, the defendant Vicente Golingco transferred
three of the trucks pertaining to his public utility business to the route Legaspi, Albay,
to Naga, Ambos Camarines, P. I., and began to operate one of said 3 trucks between
Legaspi and Guinobatan; one truck to Legaspi-Ligao and the other to Legaspi-Polangui,
all within the Province of Albay and situated in the route between Legaspi, Albay, and
Naga, Ambos Camarines; the said trucks, from the aforesaid date until the preliminary
injunction in this case was issued, were making regular and continuos trips between the
said towns and transporting passengers and freight in such a way that the defendant
was illegally competing with the plaintiff’s business which has been legally in operation
between the towns mentioned since the year 1912 and since that time until now has
been giving the public a regular, constant, adequate, and permanent service for the
transportation of passengers and freight.

"(5) That since January 29, 1920, the defendant again resumed the operation illegally
of more than three trucks of his public utility business by placing them in the routes of
different towns situated in the line between Legaspi, Albay, and Naga, Ambos
Camarines.

"(6) That before operating the aforesaid trucks of his public utility business referred to
in the two foregoing paragraphs, between the municipalities already mentioned, the
defendant had not obtained previously from the Public Utility Commission a certificate
to the effect that the operation of his trucks between the municipalities aforesaid or
between any other municipalities in the line from Legaspi, Albay, to Naga, Ambos
Camarines, and the authority to operate some or all of the trucks of his business will
promote adequately and conveniently the public interests as required by Act No. 2694.

"(7) That it is true that the defendant on or about the year 1914 before Act No. 2694
became a law on March 9, 1917, had some of his trucks operating in the line from
Legaspi, Albay, to Naga, Ambos Camarines, but later, about the beginning of the year
1916, the defendant entirely abandoned said route and stopped operating his trucks on
the same and since then he has not operated any of his public utility trucks between
the towns aforementioned by making regular and continuos trips so as to establish
again and maintain a permanent service of transporting passengers and freight in illegal
competition with the herein plaintiff, as said defendant is now trying to do in the
manner and form above described and that on the said 9th day of March 1917, the
defendant was not operating any public utility business for the transportation of
passengers and freight in the aforesaid route from Legaspi, Albay, to Naga, Ambos
Camarines.

"(8) That in view of the abandonment in the beginning of the year 1918 on the part of
the defendant of the line from Legaspi, Albay, to Naga, Ambos Camarines, the
defendant since the month of February, 1916, has been increasing the number of
trucks of his public utility business for the purpose of meeting the requirements of
traffic and in order to promote conveniently and adequately the public interests and at
the present time he has in operation fourteen trucks more than he had in February,
1916.

"(9) That the defendant having abandoned any right that he had might have had to
operate his trucks in said line by virtue of the existing laws priors to March 9, 1917, and
not having obtained later the required certificate of public necessity from the Public
Utility Commission authorizing him to own, exploit, manage and conduct a business of
public utility between the towns situated in the line from Legaspi, Albay, to Naga,
Ambos Camarines, the operation by the defendant of his trucks or any of them is illegal
and contrary to law.

"(10) That the legal operation by the defendant of his aforesaid trucks of public utility,
that is, the transportation of passengers and freight between the different towns
situated in the line from Legaspi, Albay, to Naga, Ambos Camarines, has caused and is
causing damages to the plaintiff corporation in the amount of not less than thirty pesos
(P30) per day of operation per truck and will continue causing damages to the plaintiff
in the said sum each day that the defendant may be continuing the operation of his
aforesaid trucks of public utility.

"For all the foregoing, the plaintiff prays that the court render judgment against the
defendant and that a preliminary injunction issue immediately against the said
defendant, his attorneys, agents, or representatives prohibiting them from continuing
the operation of the defendant’s trucks of public utility or any of them between the
towns of the Province of Albay situated in the line or main road from Legaspi, Albay,
and Naga, Ambos Camarines, also prohibiting them during the pendency of this action
from transporting passengers and freight and that after due trial, the injunction be
made permanent, enjoining the defendant, his attorneys, agents, and representatives,
from operating the said trucks or any truck of his public utility business between the
towns of the Province of Albay situated in the line or main road from Legaspi, Albay, to
Naga, Ambos Camarines; and prohibiting them further to engage theirs trucks or any of
them for the transportation of passengers and freight in the aforesaid route until the
said defendant may obtain from the Public Utility Commission the certificate required by
section 14 of Act No. 2694; and that the defendant be also sentenced to pay to the
plaintiff as damages an amount of not less than thirty pesos (P30) per day per truck in
operation since January 21, 1919, until the day on which the defendant cease to
operate the said trucks of public utility; and that he be sentenced furthermore to pay
the costs of this action and that the plaintiff be granted any other relief that may seem
to the court just and equitable."cralaw virtua1aw library

In considering the appeal perfected by the plaintiff, we believe that the following
propositions can be accepted without debate: chanrob1es virtual 1aw library

(1) Under Philippine organic law, in relation to Philippine statutory law, at least
concurrent jurisdiction with the Public Utility Commissioner remains in the courts to the
end that special proceedings, such as injunctions, may be heard and tried in the courts.

(2) If the right which any public utility is exercising pursuant to lawful orders of the
Public Utility Commissioner, has been invaded by another public utility, it is not
essential that an action be maintained by the Government of the Philippine Islands
under section 197 of the Code of Civil Procedure, but, in appropriate cases, actions,
may be maintained by the complainant public utility.

(3) Owners of public utilities operating under the supervision of the Public Utility
Commissioner have the right to maintain appropriate actions against other public
utilities who have not been authorized to operate in competition with the complainant.

(4) All public utilities which desire to operate in the Philippine Islands must first obtain
from the Public Utility Commissioner a certificate to the effect that the operation of said
utility, and the authorization to do business, will promote the public interest in a proper
and suitable way, unless the business was in operation by the public utility at the time
the Public Utility Law went into effect which is not the case before us, because while the
defendant public utility was in existence prior to the passage of Act No. 2694, it began
to operate on new routes after the passage of said Act without first securing the
certificate provided by section 14 of the Act.

In conformity with the foregoing, we find reversible error in the judgment of the trial
court dismissing the action. The amended complaint states a cause of action and the
demurer to the same should not have been sustained.

Judgment is reversed, and the record shall be returned to the court of origin for further
proceedings as provided by law. Without finding as to costs in this instance, it is so
ordered.

PAL vs. Civil Aeronautics Board

 Philippine Airlines, Inc. vs. Civil Aeronautics Board and Grand International Airways
G.R. No. 119528, March 26, 1997
207 SCRA 538
FACTS:
Private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with
the Civil Aeronautics Board (CAB). This application was opposed by petitioner PAL which is a
holder of a legislative franchise to operate air transport services alleging that that the CAB had
no jurisdiction to hear the petitioner’s application until GrandAir has first obtained a franchise to
operate from Congress.
ISSUE:
WON the CAB had the jurisdiction to hear the application because GrandAir did not possess a
legislative franchise.
WON Congress, in enacting Republic Act 776, has delegated the authority to authorize the
operation of domestic air transport services to the respondent Board, such that Congressional
mandate for the approval of such authority is no longer necessary.

RULING:
Yes. The Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience
and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements prescribed by the law.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is
an indispensable requirement for an entity to operate as a domestic air transport operator.
Although Section 11 of Article XII recognizes Congress’ control over any franchise, certificate
or authority to operate a public utility, it does not mean Congress has exclusive authority to issue
the same. Franchises issued by Congress are not required before each and every public utility
may operate. In many instances, Congress has seen it fit to delegate this function to government
agencies, specialized particularly in their respective areas of public service.

Congress, gave CAB the power to issue permits for the operation of domestic transport services.
It has delegated to the said body the authority to determine the capability and competence of a
prospective domestic air transport operator to engage in such venture.

NOTES:
 The use of the word “necessity”, in conjunction with “public convenience” in a
certificate of authorization to a public service entity to operate –
Many and varied are the definitions of certificates of public convenience which
courts and legal writers have drafted. Some statutes use the terms “convenience
and necessity” while others use only the words “public convenience.” The terms
“convenience and necessity”, if used together in a statute, are usually held not to
be separable, but are construed together. Both words modify each other and must
be construed together. The word ‘necessity’ is so connected, not as an additional
requirement but to modify and qualify what might otherwise be taken as the strict
significance of the word necessity. Public convenience and necessity exists when
the proposed facility will meet a reasonable want of the public and supply a need
which the existing facilities do not adequately afford. It does not mean or require
an actual physical necessity or an indispensable thing. “The terms ‘convenience’
 and ‘necessity’ are to be construed together, although they are not synonymous,
and effect must be given both. The convenience of the public must not be
circumscribed by according to the word ‘necessity’ its strict meaning or an
essential requisites.” The use of the word “necessity”, in conjunction with “public
convenience” in a certificate of authorization to a public service entity to operate,
does not in any way modify the nature of such certification, or the requirements
for the issuance of the same. It is the law which determines the requisites for the
issuance of such certification, and not the title indicating the certificate.
 KILUSANG MAYO UNO LABOR CENTER, petitioner,
 vs.
 HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL
BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES, respondents.
 FACTS: 
 In 1990, DOTC Sec. Oscar Orbos issued Memo Circular to LTFRB
Chair Remedios Fernando to allow provincial bus to change passenger
rates w/in a fare range of 15% above or below the LTFRB official rate
for a 1yr. period. This is in line with the liberalization of regulation in the
transport sector which the government intends to implement and to
make progress towards greater reliance on free market forces.
 Fernando respectfully called attention of DOTC Sec. that the Public
Service Act requires publication and notice to concerned parties and
public hearing. In Dec. 1990, Provincial Bus Operators Assoc. of the
Phils. (PBOAP) filed an application for across the board fare rate
increase, which was granted by LTFRB. In 1992, then DOTC Sec.
Garcia issued a memo to LTFRB suggesting a swift action on adoption
of procedures to implement the Department Order & to lay down
deregulation policies. Pursuant to LTFRB Guideline, PBOAP, w/o
benefit of public hearing announced a 20% fare rate increase.
 Petitioner Kilusang Mayo Uno (KMU) opposed the move and filed a
petition before LTFRB w/c was denied. Hence the instant petition for
certiorari w/ urgent prayer for a TRO, w/c was readily granted by the
Supreme Court.
 ISSUE: 
 Whether the authority granted by LTFB to provincial buses to set a fare
range above existing authorized fare range is unconstitutional and
invalid.
 HELD:
 The grant of power by LTFRB of its delegated authority is
unconstitutional. The doctrine of Potestas delegate non delegari (what has
been delegated cannot be delegated) is applicable because a delegated
 power constitutes not only a right but a duty to be performed by the
delegate thru instrumentality of his own judgment. To delegate this
power is a negation of the duty in violation of the trust reposed in the
delegate mandated to discharge such duty. Also, to give provincial
buses the power to charge their fare rates will result to a chaotic state of
affairs ad this would leave the riding public at the mercy of transport
operators who can increase their rates arbitrarily whenever it pleases or
when they deem it necessary.

SURIGAO ELECTRIC CO., INC. and ARTURO LUMANLAN, SR., Petitioners,
v. MUNICIPALITY OF SURIGAO and HON. PUBLIC SERVICE
COMMISSION, Respondents.

David G. Nitafan, for Petitioners.

Provincial Fiscal Bernardo Ll. Salas for respondent Municipality of

Surigao.

Solicitor General for respondent Public Service Commission.


 SYLLABUS

 1. POLITICAL LAW; MUNICIPAL CORPORATIONS; EXTENSIONS OF THE
NATIONAL GOVERNMENT; EXEMPT FROM PSC JURISDICTION; EXCEPTION. — A
municipal government or a municipal corporation such as the municipality of
Surigao is a government entity recognized, supported and utilized by the
National Government as a part of its government machinery and functions; a
municipal government actually functions as an extension of the national
government and, therefore, it is an instrumentality of the latter; and by express
provisions of Section 14(e) of Act 2677, an instrumentality of the national
government is exempted from the jurisdiction of the PSC except with respect to
the fixing of the rates.

2. ID.; ID.; DUAL CHARACTER OF MUNICIPAL CORPORATIONS. — As early as

1916, in Mendoza v. de Leon, 33 Phil. 508, there has been a recognition by this
Court of the dual character of a municipal corporation, one as governmental,
being a branch of the general administration of the state, and the other as quasi-
private and corporate.

3. ID.; ID.; MUNICIPALITIES MAY ENGAGE IN SUPPLYING PUBLIC SERVICES

WITHOUT NEED OF CERTIFICATE OF PUBLIC CONVENIENCE. — A municipal
corporation, by virtue of C.A. No. 2677, may further promote community welfare
by itself engaging in supplying public services, without the need of a certificate
of public convenience. If at all then, the exercise of this governmental
prerogative comes within the broad, well-nigh, undefined scope of police power.
It is not here, of course, the ordinary case of restraint on property or liberty, by
the imposition of a regulation. What the amendatory act in effect accomplishes is
to lend encouragement and support for the municipal corporation itself
undertaking an activity as a result of which, profits of a competing private firm
 would be adversely affected. Clearly, then, the relevancy of Act 2677 providing
for the taking or operation of the government of public utilities, appears, to put it
at its mildest, far from clear. Petitioners’ contention as to this alleged error being
committed, therefore, far from being strengthened by such a reference, suffers
from a fate less auspicious.

4. CONSTITUTIONAL LAW; LEGISLATIVE FRANCHISES; SPECIFIC

CONSTITUTIONAL RESTRICTION THEREON. — Whatever privilege may be
claimed by petitioners cannot override the specific constitutional restriction that
no franchise or right shall be granted to any individual or corporation except
under a condition that it shall be subject to amendment, alteration or repeal by
Congress. Such amendment or alteration need not be express; it may be implied
from a latter act of general applicability, such as the amendment now under
consideration.

5. ID.; ID.; EXERCISE OF POLICE POWER CANNOT BE DEFEATED THEREBY. —

Under a well-settled principle of American origin, one upon which the
establishment of the Philippine Government under American tutelage was
adopted here and continued under our Constitution, no such franchise or right
can be availed of to defeat the proper exercise of police power.


 DECISION


 FERNANDO, J.:


 On June 18, 1960, Congress further amended the Public Service Act, one of the
changes introduced doing away with the requirement of a certificate of public
convenience and necessity from the Public Service Commission for "public
services owned or operated by government entities or government-owned or
controlled corporations," but at the same time affirming its power of regulation,
1 more specifically as set forth in the next section of the law, which while
exempting public services owned or operated by any instrumentality of the
government or any government owned or controlled corporations from its
supervision, jurisdiction and control stops short of including "the fixing of rates."
2

In this petition for review, a case of first impression, petitioner Surigao Electric
Co., Inc., a legislative franchise holder, and petitioner Arturo Lumanlan, to
whom, on February 16, 1962, the rights and privileges of the former as well as
its plant and facilities were transferred, challenge the validity of the order of
respondent Public Service Commission, dated July 11, 1963, wherein it held that
it had "no other alternative but to approve as [it did approve] the tentative
schedule of rates submitted by the applicant," the other respondent herein, the
Municipality of Surigao. 3

In the above order, the issue, according to respondent Commission, "boils down
to whether or not a municipal government can directly maintain and operate an
electric plant without obtaining a specific franchise for the purpose and without a
certificate of public convenience and necessity duly issued by the Public Service
Commission." 4 Citing the above amendments introduced by Republic Act No.
2677, respondent Commission answered the question thus: "A municipal
government or a municipal corporation such as the municipality of Surigao is a
government entity recognized, supported and utilized by the National
Government as a part of its government machinery and functions; a municipal
government actually functions as an extension of the national government and,
therefore, it is an instrumentality of the latter; and by express provisions of
Section 14(e) of Act 2677, an instrumentality of the national government is
exempted from the jurisdiction of the PSC except with respect to the fixing of
rates. This exemption is even clearer in Section 13(a)." 5

The above formulation of respondent Commission could be worded differently.

There is need for greater precision as well as further elaboration. Its conclusion,
however, can stand the test of scrutiny. We sustain the Public Service
Commission.

The question involved is one of statutory interpretation. We have to ascertain the

intent of Congress in introducing the above amendments, more specifically, in
eliminating the requirement of the certificate of public convenience and necessity
being obtained by government entities, or by government-owned or controlled
corporations operating public services. Here, the Municipality of Surigao is not a
government-owned or controlled corporation. It cannot be said, however, that it
is not a government entity.

As early as 1916, in Mendoza v. de Leon, 6 there has been a recognition by this

Court of the dual character of a municipal corporation, one as governmental,
being a branch of the general administration of the state, and the other as quasi-
private and corporate. A well-known authority, Dillon, was referred to by us to
stress the undeniable fact that "legislative and governmental powers" are
"conferred upon a municipality, the better to enable it to aid a state in properly
governing that portion of its people residing within its municipality, such powers
[being] in their nature public, . . ." 7 As was emphasized by us in the Mendoza
decision: "Governmental affairs do not lose their governmental character by
being delegated to the municipal governments. Nor does the fact that such
duties are performed by officers of the municipality which, for convenience, the
state allows the municipality to select, change their character. To preserve the
peace, protect the morals and health of the community and so on is to
administer government, whether it be done by the central government itself or is
shifted to a local organization." 8

It would, therefore, be to erode the term "government entities" of its meaning if

we are to reverse the Public Service Commission and to hold that a municipality
is to be considered outside its scope. It may be admitted that there would be no
ambiguity at all had the term "municipal corporations" been employed. Our
function, however, is to put meaning to legislative words, not to denude them of
their contents. They may be at times, as Cohen pointed out, frail vessels in
which to embark legislative hopes, but we do not, just because of that, allow
them to disappear perpetually from sight to find eternal slumber in the deep. It
would be far from manifesting fidelity to the judicial task of construing statutes if
we were to consider the order under review as a failure to abide by what the law
commands.

The above construction gives significance to every word of the statue. It makes
the entire scheme harmonious. Moreover, the conclusion to which we are thus
led is reinforced by a manifestation of public policy as expressed in a legislative
act of well-nigh contemporaneous vintage. We refer to the Local Autonomy Act,
9 approved a year earlier. It would be to impute to Congress a desire not to
extend further but to cut short what the year before it considered a laudatory
scheme to enlarge the scope of municipal power, if the amendatory act now
under scrutiny were to be so restrictively construed. Municipal corporations
should not be excluded from the operation thereof.

There would be no warrant for such a view. Logic and common sense would be
affronted by such a conclusion, let alone the sense of esteem which under the
theory of separation of powers is owed a coordinate branch. Again, this is one
instance where assuming the ambiguity of the words employed in a statue, its
overriding principle, to paraphrase Holmes, fixes the reach of statutory language.

With the view we thus take of the amendatory statute, the errors assigned by
petitioner, which would seek to fasten, mistakenly to our mind, an unwarranted
restriction to the amendatory language of Republic Act No. 2677, need not be
passed upon.

As alleged error imputed to respondent Commission, however, needs further

discussion. Petitioners seek refuge in the legislative franchise granted them. 10
Whatever privilege may be claimed by petitioners cannot override the specific
constitutional restriction that no franchise or right shall be granted to any
individual or corporation except under a condition that it shall be subject to
amendment, alteration or repeal by Congress. 11 Such amendment or alteration
need not be express; it may be implied from a latter act of general applicability,
such as the one now under consideration.

Moreover, under a well-settled principle of American origin, one which upon the
establishment of the Philippine Government under American tutelage was
adopted here and continued under our Constitution, no such franchise or right
can be availed of to defeat the proper exercise of the police power. An early
expression of this view is found in the leading American case of Charles River
Bridge v. Warren Bridge, 12 an 1837 decision, the opinion being penned by Chief
Justice Taney: "The continued existence of a government would be of no great
value, if by implications and presumptions it was disarmed of the powers
necessary to accomplish the ends of its creation; and the functions it was
designed to perform, transferred to the hands of privileged corporations . . .
While the rights to private property are sacredly guarded, we must not forget
that the community also have rights, and that the happiness and well-being of
every citizen depends on their faithful preservation." 13

Reference by petitioners to the statute providing the procedure for the taking
over and operation by the government of public utilities, 14 in their view "to
 further strengthen [their] contention", as to the commission of this alleged error
is unavailing, even if such statue were applicable, which it is not. In the language
of their own brief: "This Act provides for the procedure to be followed whenever
the Government or any political subdivision thereof decides to acquire and
operate a public utility owned and operated by any individual or private
corporation." 15 What is to be regulated, therefore, by this enactment is the
exercise of eminent domain, which is a taking of private property for public use
upon the payment of just compensation. There is here no taking. There is here
no appropriation. What was owned before by petitioners continue to remain
theirs. There is to be no transfer of ownership.

Rather, a municipal corporation, by virtue of Commonwealth Act No. 2677, may

further promote community welfare by itself engaging in supplying public
services, without the need of a certificate of public convenience. If at all then,
the exercise of this governmental prerogative comes within the broad, well-nigh,
undefined scope of the police power. It is not here, of course, the ordinary case
of restraint on property or liberty, by the imposition of a regulation. What the
amendatory act in effect accomplishes is to lend encouragement and support for
the municipal corporation itself undertaking an activity as a result of which,
profits of a competing private firm would be adversely affected.

Clearly, then, the relevancy of the statute providing for the taking or operation of
the government of public utilities, appears, to put it at its mildest, far from clear.
Petitioners’ contention as to this alleged error being committed, therefore, far
from being strengthened by such a reference, suffers from a fate less auspicious.

No other alleged error committed need be considered.

WHEREFORE, the order of respondent Public Service Commission of July 11,

1963, as well as the order of February 7, 1964, denying the motion for
reconsideration, are affirmed. Costs against petitioners.

CHAMBER OF FILIPINO RETAILERS, INC., NATIONAL MARKET VENDORS
ASSOCIATION, INC., AMBROSIO ILAO, and CRISPIN DE
GUZMAN, Petitioners-Appellants, v. HON. ANTONIO J. VILLEGAS, as
Mayor of the City of Manila, CITY TREASURER and THE CITY OF
MANILA, Respondents-Appellees.

Ramon A. Avanceña for Petitioners-Appellants.

Gregorio Ejercito and Felix C Chavez for Respondents-Appellees.


 SYLLABUS

 1. POLITICAL LAW; MUNICIPAL CORPORATIONS; POWER TO IMPOSE FEES UPON
MARKET VENDORS OR RETAILERS. — Republic Act No. 2264 (Local Autonomy
Act) confers upon all chartered cities, municipalities and municipal districts and,
in this case, the City of Manila to impose upon market vendors or retailers fees
designed to obtain revenue for the city, above or in addition to the amount
needed to reimburse it for strictly supervisory services.
 2. ID.; ID.; PUBLIC MARKETS; LICENSE TO SELL IN THE PUBLIC MARKET AND
PRIVILEGE OF DOING BUSINESS AT DEFINITE LOCATION IN THE MARKET
DISTINGUISHED. — There is a clear difference between the license to sell within
the premises of public markets and the privilege of doing business at a definite
location or stall in said market for a definite period of time. The permit to
exercise the latter privilege partakes of the nature of a lease of the area
occupied by the market stall, which is patrimonial property of the City of Manila.
The character of the transaction between the City and the stall occupant is
acknowledged by Section 52, paragraph 2, of the Manila City Charter.

3. ID.; ID.; ID.; LEASE OF MARKET STALL. — The renting by the City of its
private property is a patrimonial activity or proprietary function, and in this
sphere, as pointed out by this Court in Esteban v. City of Cabanatuan, 108 Phil.
374, by Justice Concepcion (now Chief Justice), the city like any private owner is
free to charge such sums as it may deem best, and the prospective lessees are
free to enter or not to enter into contract. And in the absence of stipulated lease
period, its duration is fixed by the period for which the fee is paid, from day to
day if the rent is to be paid daily; or from month to month if the rent is payable
monthly.

4. ID.; ID.; ID.; NOT FOR PUBLIC USE IN SO FAR AS STALL MARKET VENDORS
ARE CONCERNED. — Under the City Charter of Manila, public markets are
certainly not for public use so far as the appellant stall market vendors are
concerned, the city charter authorizing a charge for their use of public markets

5. PUBLIC SERVICE COMMISSION; JURISDICTION; PUBLIC MARKETS NOT

SUBJECT TO THE JURISDICTION OF THE PUBLIC SERVICE COMMISSION. —
While a public market is a public service or utility, it is not one that falls under
the jurisdiction of the Public Service Commission, not being ejusdem generis with
those public services enumerated in Section 13(b) of the Public Service Act over
which the Commission has jurisdiction. Hence the approval by the Commission of
the fees fixed by the City of Manila for the use of its markets is not covered by
Section 20 of the Public Service Act.

6. ID.; ID.; ID.; ID.; REPUBLIC ACT NO. 2677. — Even if appellants had cited
(which they did not) Republic Act 2677, amending the Public Service Act, by
exempting any instrumentality of the National Government from securing a
certificate of Public convenience and necessity, but affirming the Commission’s
power of regulation over public utilities operated by government entities, except
with respect to fixing of rates, the amendatory statute could not have helped the
theory of the appellants (that Manila cannot fix fees for the use of its public
markets without the approval of the Commission), for the reason that public
markets, are not among (or not similar to) those utilities over which the
Commission was vested with jurisdiction.


 DECISION

  REYES, J.B.L., J.:


 Direct appeal, on pure questions of law, from the decision of the Court of First
Instance of Manila (Branch XIV), upholding the validity of Ordinance No. 6767 of
the City of Manila (in its Civil Case No, 73902), for prohibition with preliminary
injunction instituted by the petitioners Chamber of Filipino Retailers, Inc.,
National Market Vendors Association, Inc., Ambrosio Ilao and Crispin de Guzman
to prohibit the respondents Antonio Villegas, Mayor of the City of Manila, City
Treasurer and the City of Manila from enforcing the said ordinance.

The facts of the case, which was submitted for decision on the pleadings, are
recited in the appealed decision, as follows: jgc:chanrobles.com.ph

"On July 25, 1968, City Ordinance No, 6696 was approved raising the Market
Stall fees to be charged in all City Markets. Petitioners brought action
questioning the legality of this ordinance on the ground that the City Charter of
Manila only authorizes the collection of ‘fees’ and the rise in market stall fees
would make this a source of revenue. On October 4, 1968, while this case was
pending, the Municipal Board approved Ordinance No. 6767 lowering the market
stall fees as provided for by Ordinance No. 6696, but still much higher than the
old rate.

"By Supplemental Petition, the legality of this new Ordinance No. 6767 is now
the subject of the same attack. When this case was filed and before the raffle of
the same, the Executive Judge issued a restraining order against Respondents
from enforcing the ordinance in question. This Court, after the raffle, maintained
this restraining order on the ground that a resolution of the same would go into
the merits of the case. This case was submitted on the pleadings and Petitioners
and Respondents given ample time to file their respective memoranda." cralaw virtua1aw library

The primary issue here, per the first-assigned error, is whether the enactment of
Ordinance No. 6767 was in the exercise of the governmental or the proprietary
function of the city, it being agreed by the parties that if the enactment was
"governmental", the city may only collect such fees as would cover supervision
of the market stalls, but, if "proprietary", the city may charge said fees for
revenue purposes.

The language of Section 18 (cc) of the Charter of the City of Manila (Republic Act
No. 409), which provides, as follows:jgc:chanrobles.com.ph

"SEC. 18. Legislative powers. — The Municipal Board shall have the following
legislative powers;

"x       x       x

"(cc) Subject to the provisions of ordinances issued by the Department of Health

in accordance with law, to provide for the establishment and maintenance and fix
the fees for the use of, and regulate public stables, laundries, and baths and
public markets and slaughterhouses, and prohibit or permit the establishment or
operation within the city limits of public markets . . . by any person, entity,
association or corporation other than the city." (Emphasis supplied)

is pointed out by the appellants as expressly indicative of the governmental

nature of the power of the city to charge fees for the use of public markets. The
words "legislative powers", "establishment and maintenance and fix the fees for
the use of" and "regulate" are said to show such classification of the power of the
city.

We see no merit in this appeal. For assuming, ad arguendo, the correctness of

appellant’s view that under its section 18 (cc) the Manila Charter only authorizes
the City of Manila to charge reasonable fees for the use of public markets, in an
amount sufficient to cover the cost of supervision, maintenance and regulation,
still this power was broadened by the subsequent Republic Act No. 2264 (the so-
called Local Autonomy Act) section 2 of which grants all chartered cities,
municipalities and municipal districts —

"authority to impose municipal license taxes or fees upon persons engaged in

any occupation or ‘business or exercising privileges in chartered cities,
municipalities or municipal districts . . ."
cralaw virtua1aw library

Since it is not deniable that persons selling in public markets are engaged in
occupation or business (in the sense of engaging human activity for gain), it
becomes plain that the city can impose at present upon market vendors or
retailers fees designed to obtain revenue for the city, above or in addition to the
amount needed to reimburse it for strictly supervisory services. This was pointed
out in Nin Bay Mining Co. v. Municipality of Roxas (L-20125, 20 July 1965, 14
SCRA p. 660).

In the second place, there is a clear difference between the license to sell within
the premises of public markets and the privilege of doing business at a definite
location or stall in said market for a definite period of time. The permit to
exercise the latter privilege partakes of the nature of a lease of the area
occupied by the market stall which is patrimonial property of the City of Manila.
The character of the transaction between the City and the stall occupant is
acknowledged by section 52, Paragraph 2, of the Manila City Charter, to the
effect that —

"The city treasurer . . . shall collect all taxes and assessments due the city, all
licenses authorized by law or ordinance, and all rents due for lands, markets,
and other property owned by the city; . . ." (Emphasis supplied)

The renting by the City of its private property is a patrimonial activity or

proprietary function, and in this sphere, as pointed out by this Court in Esteban
v. City of Cabanatuan, 108 Phil. 374, by Justice Concepcion (now Chief Justice),
the city —

"like any private owner, it is . . . free to charge such sums as it may deem best,
regardless of the reasonableness of the amount fixed, for the prospective lessees
are free to enter into the corresponding contract of lease, if they are agreeable
to the terms thereof, or, otherwise, not enter into such contract." cralaw virtua1aw library

Of course, in the absence of a stipulated lease period, its duration is fixed by the
period for which the fee is paid, from day to day it’ the rent is to be paid daily; or
from month to month if the rent is payable monthly (See Article 1687 of the Civil
Code of the Philippines, Republic Act No. 386).

And it is idle for appellants to contend that public markets are for public use,
hence not patrimonial property susceptible of lease. It is not certainly for public
use so far as the appellant stall market vendors are concerned, the city charter
authorizing a charge for their use of public markets (ante).

The other error assigned in the present appeal is that the lower court allegedly
erred in holding that the City of Manila can charge fees for the use of its public
markets without the approval of the Public Service Commission. The appellants’
argument is that a public market is a public service or public utility, and,
pursuant to Section 20 of the Public Service Act, it is —

"unlawful for any public service or for the owner, lessee or operator thereof
without the approval of the Commission previously had — (a) To adopt,
establish, impose, maintain, collect or carry into effect any individual or joint
rates, commutation, mileage or other special rate, toll, fare, charge,
classification or itinerary."
cralaw virtua1aw library

While a public market is a public service or utility, 1 it is not one that falls under
the jurisdiction of the Public Service Commission, not being ejusdem generis with
those public services enumerated in Section 13(b) of the Public Service Act 2
over which the Commission has jurisdiction. Hence the approval by the
Commission of the fees fixed by the City of Manila for the use of its markets is
not covered by Section 20 of the Public Service Act. And even if appellants had
cited (which they did not) Republic Act 2677, amending the Public Service Act,
by exempting any instrumentality of the National Government from securing a
certificate of public convenience and necessity, but affirming the Commission’s
power of regulation over public service utilities operated by government entities,
except with respect to fixing of rates, 3 the amendatory statute could not have
helped the theory of the appellants (that Manila cannot fix fees for the use of its
public markets without the approval of the Commission), for the reason that
public markets are not among (or not similar to) those utilities over which the
Commission was vested with jurisdiction.

FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with
costs against the Petitioners-Appellants.