What is Charter Party?
2 MT Vector is a tramping motor tanker owned and operated by
Charter party is a contract by which an entire ship or some principal part thereof is let
by the owner to another person for a specified time or use.
Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue
of a demise, the charterer, and not the owner, is liable as carrier on the contract of
affreightment made by himself or by the master with third persons, and is answerable
for loss, damage or non-delivery of goods received for transportation. An owner who
retains possession of the ship, though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading or
unloading of the cargo.
CALTEX (PHILIPPINES), INC VS.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO,
CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO,
EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO
SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAÑEZAL, AND
SOTERA E. CAÑEZAL
G.R. NO. 131166
SEPTEMBER 30, 1999
Is the charterer of a sea vessel liable for damages resulting from a collision between
the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying
petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have
guessed that it would collide with MV Doña Paz, killing almost all the passengers and
crew members of both ships, and thus resulting in one of the country's worst maritime
disasters.
The petition before us seeks to reverse the Court of Appeals decision 1 holding
petitioner jointly liable with the operator of MT Vector for damages when the latter
collided with Sulpicio Lines, Inc.'s passenger ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00
p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by
petitioner Caltex.
Vector Shipping Corporation, engaged in the business of transporting fuel products
such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the
MT Vector carried on board gasoline and other oil products owned by Caltex by virtue
of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the
port of Tacloban headed for Manila with a complement of 59 crew members including
the master and his officers, and passengers totaling 1,493 as indicated in the Coast
Guard Clearance. 4 The MV Doña Paz is a passenger and cargo vessel owned and
operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/
Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea
within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the
crewmembers of MV Doña Paz died, while the two survivors from MT Vector claimed
that they were sleeping at the time of the incident.1âwphi1.nêt
The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in
the passenger manifest. Only 24 survived the tragedy after having been rescued from
the burning waters by vessels that responded to distress calls. 5 Among those who
perished were public school teacher Sebastian Cañezal (47 years old) and his
daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved
to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after
investigation found that the MT Vector, its registered operator Francisco Soriano, and
its owner and actual operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's
wife and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a
complaint for "Damages Arising from Breach of Contract of Carriage" against Sulpicio
Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against
Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio
alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully
well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard
to safe navigation; as a result, it rammed against MV Doña Paz in the open sea setting
MT Vector's highly flammable cargo ablaze.
TRANSPORTAION LAW CASES MIDTERM 1
On September 15, 1992, the trial court rendered decision dismissing, the third party 3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS
complaint against petitioner. The dispositive portion reads: (P300,000.00);

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against 4. Attorney's fees in the concept of actual damages in the amount of FIFTY
defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit: THOUSAND PESOS (P50,000.00);

1. For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G.
Cañezal, including loss of future earnings of said Sebastian, moral and exemplary
damages, attorney's fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and
with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge 7
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally
liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Inc. of the above-mentioned damages, attorney's fees and costs which the latter is
adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being
the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the
charterer that negligently caused the shipping of combustible cargo aboard an
unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, RAMON U. MABUTAS, JR. PORTIA ALIÑO HERMACHUELOS
the Court of Appeal modified the trial court's ruling and included petitioner Caltex as
one of the those liable for damages. Thus: Associate Justice Associate Justice.

WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Hence, this petition.
Trial Court is hereby MODIFIED as follows:
We find the petition meritorious.
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian
E. Cañezal and Corazon Cañezal: First: The charterer has no liability for damages under Philippine Maritime laws.

1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon
Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E.
Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;
The respective rights and duties of a shipper and the carrier depends not on whether
the carrier is public or private, but on whether the contract of carriage is a bill of lading
or equivalent shipping documents on the one hand, or a charter party or similar
contract on the other.
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter.

TRANSPORTAION LAW CASES MIDTERM 2

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

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT- 4. Duration of coverage already paid
Josephine, is liable under Article 1651 of the New Civil Code.39 Although he was never
privy to the contract between PTSC and Concepcion, he remained bound to preserve Please send a Xerox copy of policy to the undersigned as soon as possible.
the chartered vessel for the latter. Despite his non-inclusion in the complaint of
Concepcion, it was deemed amended so as to include him because, despite or in the In no case shall LCT JOSEPHINE sail without any insurance coverage.
absence of that formality of amending the complaint to include him, he still had his day
in court40 as he was in fact impleaded as a third-party defendant by his own son, Hoping for your (prompt) action on this regard.
Roland – the very same person who represented him in the Contract of Agreement
with Larrazabal.1avvphi1 Truly yours,

(S)ince the purpose of formally impleading a party is to assure him a day in court, once
the protective mantle of due process of law has in fact been accorded a litigant,
whatever the imperfection in form, the real litigant may be held liable as a party.41
In any case, all three petitioners are liable under Article 1170 of the New Civil Code.42
The necessity of insuring the LCT-Josephine, regardless of who will share in the
payment of the premium, is very clear under the Preliminary Agreement and the
subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984,
respectively. The August 17, 1984 letter of Concepcion’s representative, Rogelio L.
Martinez, addressed to Roland in his capacity as the president of PTSC inquiring about
the insurance of the LCT-Josephine as well as reiterating the importance of insuring
the said vessel is quite telling.
(sgd)ROGELIO L. MARTINEZ
Owner’s representative43
Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted
as early as the time when it was dry-docked for repairs, were obliged to insure the
same. Unfortunately, they failed to do so in clear contravention of their respective
agreements. Certainly, they should now all answer for the loss of the vessel.
WHEREFORE, the petitions are DENIED.
SO ORDERED.

August 17, 1984

Mr. Roland de la Torre

President
Phil. Trigon Shipyard Corp.

TRANSPORTAION LAW CASES MIDTERM 27

Crew or Sailors of the Vessel
ARTICLE 634
The captain may make up his crew with the number he may consider advisable, and
in the absence of Spanish * sailors he may ship foreigners residing in the country, the
number thereof not to exceed one-fifth of the total crew. If in foreign ports the captain
should not find a sufficient number of Spanish * sailors, he may make up the crew with
foreigners, with the consent of the consul or marine authorities.
The agreements which the captain may make with the members of the crew and others
who go to make up the complement of the vessels, to which reference is made in
Article 612, must be reduced to writing in the account book without the intervention of
a notary public or clerk, signed by the parties thereto, and vised by the marine authority
if they are executed in Spanish * territory, or by the consuls or consular agents of Spain
* if executed abroad, stating therein all the obligations which each one contracts and
all the rights they acquire, said authorities taking care that these obligations and rights
are recorded in a concise and clear manner, which will not give rise to doubts or claims.
The captain shall take care to read to them the articles of this Code, which concern
them, stating that they were read in the said document.
If the book includes the requisites prescribed in Article 612, and there should not
appear any signs of alterations in its clauses, it shall be admitted as evidence in
questions which may arise between the captain and the crew with regard to the
agreements contained therein and the amounts paid on account of the same.
Every member of the crew may request a copy of the captain, signed by the latter, of
the agreement and of the liquidation of his wages, as they appear in the book.
ARTICLE 635
A sailor who has been contracted to serve on a vessel can not rescind his contract nor
fail to comply therewith except by reason of a legitimate impediment which may have
occurred.
Neither can he pass from the service of one vessel to another without obtaining the
written consent of the vessel on which he may be.
If, without obtaining said permission, the sailor who has signed for one vessel should
sign for another one, the second contract shall be void, and the captain may choose
between forcing him to fulfill the service to which he first bound himself or look for a
person to substitute him at his expense.
Said sailor shall furthermore lose the wages earned on his first contract to the benefit
of the vessel for which he may have signed.
A captain who, knowing that a sailor is in the service of another vessel, should have
made a new agreement with him, without having requested the permission referred to
in the foregoing paragraphs, shall be personally liable to the captain of the vessel to
which the sailor first belonged for that part of the indemnity, referred to in the third
paragraph of this article, which the sailor could not pay.
ARTICLE 636
Should a fixed period for which a sailor has signed not be stated, he can not be
discharged until the end of the return voyage to the port where he enrolled.
ARTICLE 637
Neither can the captain discharge a sailor during the time of his contract except for
sufficient cause, the following being considered as such:
The perpetration of a crime which disturbs order on the vessel.
Repeated offenses of insubordination, against discipline, or against the fulfillment of
the service.
Repeated incapacity or negligence in the fulfillment of the service to be rendered.
HABITUAL DRUNKENNESS.
Any occurrence which incapacitates the sailor to carry out the work under his charge,
with the exception of the provisions contained in Article 644.
DESERTION.
The captain may, however, before setting out on a voyage and without giving any
reason whatsoever, refuse to permit a sailor he may have engaged from going on
board and may leave him on land, in which case he will be obliged to pay him his
wages as if he had rendered services.
TRANSPORTAION LAW CASES MIDTERM 28

This indemnity shall be paid from the funds of the vessel if the captain should have
acted for reasons of prudence and in the interest of the safety and good service of the
former. Should this not be the case, it shall be paid by the captain personally.
After the vessel has sailed, and during the voyage and until the conclusion thereof, the
captain cannot abandon any member of his crew on land or on the sea, unless, by
reason of being guilty of some crime, his imprisonment and delivery to the competent
authority is proper in the first port touched, which will be obligatory on the captain.
EFFECTS IF THE CAPTAIN OR THE CREW IS DISCHARGED DURING THE
VOYAGE.
Article 604
If the captain or any other member of the crew should be discharged during the
voyage, they shall receive their salary until the return to the place where the contract
was made, unless there are good reasons for the discharge, all in accordance with
Articles 636 et seq. of this Code.
Discharge during a contract of a definite period of the voyage.
Article 605
If the contracts of the captain and members of the crew with the agent should be for a
definite period or voyage, they cannot be discharged until the fulfillment of their
contracts, except for reasons of insubordination in serious matters, robbery, theft,
habitual drunkenness, and damage caused to the vessel or to its cargo by malice or
manifest or proven negligence.
MADRIGAL SHIPPING COMPANY, INC.
VS. JESUS G. OGILVIE, SALVADOR ORTILE, MIGUEL M. FERMIN, ANTONIO C.
MILITAR AND CA
G.R. NO. L-8431
OCTOBER 30, 1958
Jesus G. Ogilvie, Salvador Ortile, Miguel M. Fermin and Antonio C. Militar brought an
action in the Court of First Instance of Manila to collect from the Madrigal Shipping
Company, Inc., the aggregate sum of P12,104.50 for salaries and subsistence from
19 March to 30 September 1948 (Civil No. 8446, Annex A). The defendant moved for
the dismissal of the complaint on the ground of lack of jurisdiction over the subject
matter of the action (Annex B). The Court denied the motion and directed the
defendant to answer the complaint within ten days from receipt of a copy of the order
(Annex C). As the defendant failed to answer the complaint as directed, upon motion
of the plaintiffs (Annex D) the Court declared it in default and set the case for hearing
on 30 September 1949 (Annex E). The defendant filed a motion to set aside the order
of default (Annex F) which was denied (Annex I). A motion for reconsideration of the
previous order (Annex J) was likewise denied (Annex K). The defendant filed a petition
for a writ of certiorari with preliminary injunction in this Court to annul and set aside the
order of default, which was dismissed for the reason that appeal was the proper
remedy (Annex L).1 The trial court then proceed to hear the plaintiffs' evidence and
after the hearing it rendered judgment dismissing the plaintiffs' complaint upon the sole
ground that the plaintiffs failed to prove that the defendant is a corporation duly
organized and existing under the laws of the Philippines. A motion was filed praying
that plaintiffs be allowed to submit evidence to prove that the defendant is a duly
organized and existing corporation under the laws of the Philippines (Annex O), which
was granted (Annex P). After hearing the additional evidence presented by the
plaintiffs showing that the defendant is an organized and existing juridical entity under
the laws of the Philippines, the trial court dismissed the complaint on the ground that
the evidence was not new but forgotten (Annex Q). The plaintiffs appealed to the Court
of Appeals. The judgment appealed from was reversed and the defendant was ordered
to pay Jesus G. Ogilvie the sum of P3,226.50 and Salvador Ortile, Miguel M. Fermin
and Antonio C. Militar the sum of P2,934 each. The defendant has brought the case
to this Court by way of certiorari to have the judgment of the Court of Appeals reviewed.
The respondents herein, appellants in the Court of Appeals, did not furnish the herein
petitioner, defendant in the court of first instance, with a copy of their brief in the Court
of Appeals for the reason that as the petitioner had been declared in default by the trial
court it had lost its standing in court and hence was not entitled to service of appellants'
brief on appeal. In a special division of five justices of the Court of Appeals, a majority
of four and one dissenting upheld the respondents contention that the case was
TRANSPORTAION LAW CASES MIDTERM 29
deemed submitted and ready for disposition or judgment, and proceeded to determine
the case on appeal without the petitioner's brief, a view now assailed by the petitioner
who claims that it had been deprived of its day in court.
In Lim To Co vs. Go Fay, 80 Phil. 166, interpreting section 9, Rule 27, which provides:
No service of papers shall be necessary on a party in default except when he files a
motion to set aside the order of default, in which event he is entitled to notice of all
further proceedings, this Court held that "a defendant in default is not entitled to notice
of the proceedings until the final termination of the case, and therefore he has no right
to be heard or file brief or memoranda on appeal."2
A defendant in default loses his standing in or is considered out of Court, and
consequently cannot appear in court; adduce evidence; and be heard, and for that
reason he is not entitled to notice. If he is not entitled to notice of the proceedings in
the case and to be heard, he cannot appeal from the judgment rendered by the court
on the merits, because he cannot file a notice of appeal, and file an appeal bond and
the record on appeal, for approval by the court. The only exception provided by law is
when the defendant in default files a motion to set aside the order of default on the
grounds stated in Rule 38 "in which event he is entitled to notice of all further
proceedings." That a defendant in default cannot be heard in the suit, not only in the
trial court but also in the final hearing, that is, on appeal which is part of the
proceedings in a suit, is the ruling laid down for guidance of courts and practitioners
by this Court in the case of Velez vs. Ramos, 40 Phil., 787, . . . . (Lim To Co vs. Go
Fay, supra, p. 169.)
And the remedy available to a party who was declared in default to regain his standing
in court and be entitled once more to notice of the proceedings is to move for the
setting aside of the order of default under section 2, Rule 38 and to appeal therefrom
if denied.
Counsel argue that an order of default being interlocutory, the petitioner could not
appeal therefrom. True, but from a denial of a motion to set aside an order of default,
as the petitioner's "urgent motion to set aside order of default" (Annex F), which may
be deemed to fall under section 2, Rule 38, the petitioner could have appealed. Instead
of taking an appeal from such denial, the petitioner chose to bring the matter to this
Court by petition for a writ of certiorari with a prayer for a writ of preliminary injunction
which was correctly dismissed for the remedy was an appeal from the order denying
the motion to set aside the order of default entered against the petitioner because of
mistake or excusable neglect. Not having appealed from the order denying the motion
to set aside the order of default under section 2, Rule 38, the order of default remained
in force with all the consequences that the party against whom it had been entered
must suffer. One of them is the loss of the right to be served with the brief of the herein
respondents, appellants in the Court of Appeals.
Turning now to the merits of the case, the Court of Appeals found that the services of
Jesus G. Ogilvie, Salvador Ortile, Antonio C. Militar and Miguel M. Fermin were
engaged by Manuel Mascuñana, master or captain employed by the petitioner
Madrigal Shipping Company, Inc., to man and fetch the vessel "S.S. Bridge" from
Sasebu, Japan, as evidenced by a contract executed on 24 December 1947 in Manila
(Exhibit A), the pertinent provision of which is as follows:
(a) The several persons whose names are hereto subscribed, and whose descriptions
are contained herein, engaged as seamen, hereby agree to serve on board the S.S.
Bridge of which M. MASCUÑANA is master, in the several capacities expressed
against their respective names, on a voyage from THE CREW WILL ENPLANE FROM
MANILA TO JAPAN. IN JAPAN THE CREW WILL MAN THE SHIP TO MANILA. THIS
CONTRACT EXPIRES ON THE ARRIVAL OF THIS BOAT AT THE PORT OF
MANILA. EXTENSION OF THIS CONTRACT IS VALID ONLY WHEN SIGNED BY
THE OFFICIAL SKIPPER.
On 7 January 1948, another contract of similar terms and conditions was executed in
Manila before the Consul General of the Republic of Panama (Exhibit A-1) for the
reason that the S.S. Bridge was registered under the laws of that Republic. Pursuant
thereto the respondents were flown to Sasebu, Japan, and they manned the vessel
out of the port of Sasebu. On 16 March 1948, when the vessel reached Hongkong, the
respondents were dismissed and replaced by a crew of Chinese nationality. The
respondents were flown back to Manila and paid their respective salaries up to the
date of their dismissal. The total sum of P12,104.50 which the respondents seek to
collect represents salaries and subsistence allowance from 17 March 1948 to 30
September 1948 when the vessel arrived in the port of Manila.
In its motion to dismiss the complaint the petitioner invoked and relied solely upon lack
of jurisdiction of the court over the subject matter of the action and did not deny
ownership of the S.S. Bridge nor disavow the authority of Manuel Mascuñana, its
captain, to engage the services of the respondents. More, in the answer of the
petitioner (Annex H) attached to its "urgent motion to set aside order of default" (Annex
F), the averments under its special defenses substantially admit the allegations of the
respondents' complaint. The termination of the services of the respondents as
members of the crew was not due to their fault. Upon the ship's arrival in Hongkong it
was found that repairs had to be made on her before she could proceed on her voyage
to Manila. A motion to dismiss an action must include all the grounds available at the
TRANSPORTAION LAW CASES MIDTERM 30
time of its filing, and all grounds not so included are deemed waived, except lack of
jurisdiction over the subject matter.4 In the same motion to dismiss the complaint the
petitioner, defendant in the court of first instance, alleged that "On the date of the
execution of the service contract between the plaintiff and the defendant (January 7,
1948), the subject vessel was in Sasebu, Japan, . . .," thereby implying that the
petitioner in truth and in fact contracted the service of the respondents, plaintiffs in the
court of first instance, to man its vessel. Furthermore, Moises J. Lopez, manager of
the defendant shipping company, testified that he recalled having contracted the
services of several persons to form a crew to man the S.S. Bridge belonging to the
petitioner. How could the latter now disclaim ownership of the S.S. Bridge and the
authority of Manuel Mascuñana, its captain, to engage the services of the
respondents?
Granting that the petitioner may not be sued for lack of juridical personality, as held by
the trial court, and pressed by its counsel in this Court, it is now estopped from denying
the existence of such personality to evade responsibility on the contract it had entered
into, because it has taken advantage of the respondents' services and has profited
thereby. Moreover, the trial court committed an error when it refused to take into
account the evidence presented by the respondents to prove that the petitioner was a
corporation duly organized and existing under the laws of the Philippines, the
documents showing that fact having been reconstituted only after the first hearing of
the case, upon the sole ground that it was not new but forgotten evidence. Such ground
could be relied upon to deny a motion for new trial, but not after the motion had been
granted, for official or public documents presented to show or prove the juridical
personality or entity of a party to an action not known or available at the first hearing
could not be ignored. The trial court could not close its eyes to reality.
Again, granting that it was not the Madrigal Shipping Company, Inc., that owned the
S.S. Bridge but the Madrigal & Company, a corporation with a juridical personality
distinct from the former, yet as the former was the subsidiary of the latter, and that the
former was a business conduit of the latter, as found by the Court of Appeals, the
fiction of corporate existence may be disregarded and the real party ordered to pay
the respondents their just due.
The services of the respondents were engaged by the petitioner to man its vessel for
a determinate time or voyage, with an express stipulation that "this contract expires on
the arrival of this boat at the port of Manila." Article 605 of the Code of Commerce
provides:
If the contracts of the captain and members of the crew with the ship agent should he
for a definite period or voyage, they may not be discharged until after the fulfillment of
their contracts except by reason of insubordination in serious matters, robbery, theft,
habitual drunkenness, or damage caused to the vessel or its cargo through malice or
manifest or proven negligence.
Not having been discharged for any of the causes enumerated in the foregoing article,
the respondents are entitled to the amounts they respectively seek to collect from the
petitioner.
The petition is denied, with costs against the petitioner.
WALLEM PHILIPPINES SHIPPING, INC, VS.
THE HON. MINISTER OF LABOR, IN HIS CAPACITY AS CHAIRMAN OF THE
NATIONAL SEAMEN BOARD PROPER, JAIME CAUNCA, ANTONIO CABRERA,
EFREN GARCIA, JOSE OJEDA AND RODOLFO PAGWAGAN
G.R. NO. L-50734-37
FEBRUARY 20, 1981
Petition for certiorari with preliminary injunction with prayer that the Orders dated
December 19, 1977 and April 3, 1979 of the National Seamen Board (NSB) be
declared null and void. Private respondents were hired by petitioner sometime in May
1975 to work as seamen for a period of ten months on board the M/V Woermann
Sanaga, a Dutch vessel owned and operated by petitioner's European principals.
While their employment contracts were still in force, private respondents were
dismissed by their employer, petitioner herein, and were discharged from the ship on
charges that they instigated the International Transport Federation (ITF) to demand
the application of worldwide ITF seamen's rates to their crew.
Private respondents were repatriated to the Philippines on October 27, 1975 and upon
their arrival in Manila, they instituted a complaint against petitioner for illegal dismissal
and recovery of wages and other benefits corresponding to the five months' unexpired
period of their shipboard employment contract.
In support of their complaint, private respondents submitted a Joint Affidavit 1 stating
the circumstances surrounding their employment and subsequent repatriation to the
Philippines, material averments of which are herein below reproduced:
JOINTAFFIDAVIT
TRANSPORTAION LAW CASES MIDTERM 31
 xxx xxx xxx
5. That aside from our basic monthly salary we are entitled to two (2) month vacation
leave, daily subsistence allowance of US$8.14 each, daily food allowance of US$2.50.
as well as overtime pay which we failed to receive because our Shipboard Employment
Contract was illegally terminated;
6. That while we were in Rotterdam, on or about July 9, 1975, representative of the
ITF boarded our vessel and talked with the Ship's Captain;
7. That the following day, the representatives of the ITF returned and was followed by
Mr. M.S.K. Ogle who is the Company's Administrative Manager, again went to see the
Captain;
8. That at around 7:00 in the evening all the crew members were called in the Mess
Hall where the ITF representatives informed us that they have just entered into a
"Special Agreement" with the Wallem Shipping Management, Ltd., represented by Mr.
M.S.K. Ogle, Administrative Manager, wherein new salary rates was agreed upon and
that we were going to be paid our salary differentials in view of the new rates;
9. That in the same meeting, Mr. M.S.K. Ogle also spoke where he told that a Special
Agreement has been signed and that we will be receiving new pay rate and enjoined
us to work hard and be good boys;
10. That the same evening we received our salary differentials based on the new rates
negotiated for us by the ITF.
11. That while we were in the Port Dubai, Saudi Arabia, we were not receiving our pay,
since the Ship's Captain refused to implement the world-wide rates and insisted on
paying us the Far East Rate;
12. That the Port Dubai is one that is within the Worldwide rates sphere.
13. That on October 22, 1975, Mr. Greg Nacional Operation Manager of respondent
corporation, arrived in Dubai Saudi Arabia and boarded our ship;
14. That on October 23, 1975, Mr. Nacional called all the crew members, including us
to a meeting at the Mess Hall and there he explained that the Company cannot accept
the worldwide rate. The Special Agreement signed by Mr. Ogle in behalf of the
Company is nothing but a scrap of paper. Mr. Jaime Caunca then asked Mr. Nacional,
in view of what he was saying, whether the Company will honor the Special Agreement
and Mr. Nacional answered "Yes". That we must accept the Far East Rates which was
put to a vote. Only two voted for accepting the Far East Rates;
15. That immediately thereafter Mr. Nacional left us;
16. That same evening, Mr. Nacional returned and threatened that he has received a
cable from the Home Office that if we do not accept the Far East Rate, our services
will be terminated and there will be a change in crew;
17. That when Mr. Nacional left, we talked amongst ourselves and decided to accept
the Far East Rates;
18. That in the meeting that evening because of the threat we informed Mr. Nacional
we were accepting the Far East Rate and he made us sign a document to that effect;
19. That we the complainants with the exception of Leopoldo Mamaril and Efren
Garcia, were not able to sign as we were at the time on work schedules, and Mr.
Nacional did not bother anymore if we signed or not;
20. That after the meeting Mr. Nacional cabled the Home Office, informing them that
we the complainants with the exception of Messrs. Mamaril and Garcia were not
accepting the Far East Rates;
21. That in the meeting of October 25, 1975, Mr. Nacional signed a document whereby
he promised to give no priority of first preference in "boarding a vessel and that we are
not blacklisted";
22. That in spite of our having accepted the Far East Rate, our services were
terminated and advised us that there was a change in crew;
23. That on October 27, 1975, which was our scheduled flight home, nobody attended
us, not even our clearance for our group travel and consequently we were not able to
board the plane, forcing us to sleep on the floor at the airport in the evening of October
27, 1975;
24. That the following day we went back to the hotel in Dubai which was a two hours
ride from the airport, where we were to await another flight for home via Air France;
25. That we were finally able to leave for home on November 2, 1975 arriving here on
the 3rd of November;
TRANSPORTAION LAW CASES MIDTERM 32
26. That we paid for all excess baggages;
27. That Mr. Nacional left us stranded, since he went ahead on October 27, 1975;
28. That immediately upon arriving in Manila, we went to respondent Company and
saw Mr. Nacional, who informed us that we were not blacklisted, however, Mr.
Mckenzie, Administrative Manager did inform us that we were all blacklisted;
29. That we were asking from the respondent Company our leave pay, which they
refused to give, if we did not agree to a US$100.00 deduction;
30. That with the exception of Messrs. Jaime Caunca Amado Manansala and Antonio
Cabrera, we received our leave pay with the US$100.00 deduction;
31. That in view of the written promise of Mr. Nacional in Dubai last October 23, 1975
to give us priority and preference in boarding a vessel and that we were not blacklisted
we have on several occasions approached him regarding his promise, which up to the
present he has refused to honor.
xxx xxx xxx
Answering the complaint, petitioner countered that when the vessel was in London,
private respondents together with the other crew insisted on worldwide ITF rate as per
special agreement; that said employees threatened the ship authorities that unless
they agreed to the increased wages the vessel would not be able to leave port or would
have been picketed and/or boycotted and declared a hot ship by the ITF; that the
Master of the ship was left with no alternative but to agree; that upon the vessel's
arrival at the Asian port of Dubai on October 22, 1975, a representative of petitioner
went on board the ship and requested the crew together with private respondents to
desist from insisting worldwide ITF rate and instead accept the Far East rate; that said
respondents refused to accept Far East ITF rates while the rest of the Filipino crew
members accepted the Far East rates; that private respondents were replaced at the
expense of petitioner and it was prayed that respondents be required to comply with
their obligations under the contract by requiring them to pay their repatriation expenses
and all other incidental expenses incurred by the master and crew of the vessel.
After the hearing on the merits, the hearing Officer of the Secretariat rendered a
decision 2 on March 14, 1977 finding private respondents to have violated their
contract of employment when they accepted salary rates different from their contract
verified and approved by the National Seamen Board. As to the issue raised by private
respondents that the original contract has been novated, it was held that:
xxx xxx xxx
For novation to be a valid defense, it is a legal requirement that all parties to the
contract should give their consent. In the instant case only the complainants and
respondents gave their consent. The National Seamen Board had no participation in
the alleged novation of the previously approved employment contract. It would have
been different if the consent of the National Seamen Board was first secured before
the alleged novation of the approved contract was undertaken, hence, the defense of
novation is not in order.
xxx xxx xxx
The Hearing Officer likewise rules that petitioner violated the contract when its
representative signed the Special Agreement and he signed the same at his own risk
and must bear the consequence of such act, and since both parties are in paridelicto,
complaint and counterclaim were dismissed for lack of merit but petitioner was ordered
to pay respondents Caunca and Cabrera their respective leave pay for the period that
they have served M/V Woermann Sanaga plus attorney's fees.
Private respondents filed a motion for reconsideration with the Board which modified
the decision of the Secretariat in an Order 3 of December 19, 1977 and ruled that
petitioner is liable for breach of contract when it ordered the dismissal of private
respondents and their subsequent repatriation before the expiration of their respective
employment contracts. The Chairman of the Board stressed that "where the contract
is for a definite period, the captain and the crew members may not be discharged until
after the contract shall have been performed" citing the case of Madrigal Shipping Co.,
Inc. vs. Ogilvie, et al. (104 Phil. 748). He directed petitioner to pay private respondents
the unexpired portion of their contracts and their leave pay, less the amount they
received as differentials by virtue of the special agreements entered in Rotterdam, and
ten percent of the total amounts recovered as attorney's fees.
Petitioner sought clarification and reconsideration of the said order and asked for a
confrontation with private respondents to determine the specific adjudications to be
made. A series of conferences were conducted by the Board. It was claimed by
petitioner that it did not have in its possession the records necessary to determine the
exact amount of the judgment since the records were in the sole custody of the captain
of the ship and demanded that private respondents produce the needed records. On
this score, counsel for respondents manifested that to require the master of the ship
to produce the records would result to undue delay in the disposition of the case to the
detriment of his clients, some of whom are still unemployed.
TRANSPORTAION LAW CASES MIDTERM 33

Under the circumstances, the Board was left with no alternative but to issue an Order
dated April 3, 1979 4 fixing the amount due private respondents at their three (3)
months' salary equivalent without qualifications or deduction. Hence,the instant
petition before Us alleging grave abuse of discretion on the part of the respondent
official as Chairman of the Board, in issuing said order which allegedly nullified the
findings of the Secretariat and premised adjudication on imaginary conditions which
were never taken up with full evidence in the course of hearing on the merits.
The whole controversy is centered around the liability of petitioner when it ordered the
dismissal of herein private respondents before the expiration of their respective
employment contracts.
In its Order of December 19, 1977 5 the Board, thru its Chairman, Minister Blas F.
Ople, held that there is no showing that the seamen conspired with the ITF in coercing
the ship authorities to grant salary increases, and the Special Agreement was signed
only by petitioner and the ITF without any participation from the respondents who,
accordingly, may not be charged as they were, by the Secretariat, with violation of their
employment contract. The Board likewise stressed that the crew members may not be
discharged until after the expiration of the contract which is for a definite period, and
where the crew members are discharged without just cause before the contract shall
have been performed, they shall be entitled to collect from the owner or agent of the
vessel their unpaid salaries for the period they were engaged to render the services,
applying the case of Madrigal Shipping Co., Inc. vs. Jesus Ogilivie et al. 6
The findings and conclusion of the Board should be sustained. As already intimated
above, there is no logic in the statement made by the Secretariat's Hearing Officer that
the private respondents are liable for breach of their employment contracts for
accepting salaries higher than their contracted rates. Said respondents are not
signatories to the Special Agreement, nor was there any showing that they instigated
the execution thereof. Respondents should not be blamed for accepting higher salaries
since it is but human for them to grab every opportunity which would improve their
working conditions and earning capacity. It is a basic right of all workingmen to seek
greater benefits not only for themselves but for their families as well, and this can be
achieved through collective bargaining or with the assistance of trade unions. The
Constitution itself guarantees the promotion of social welfare and protection to labor.
It is therefore the Hearing Officer that gravely erred in disallowing the payment of the
unexpired portion of the seamen's respective contracts of employment.
Petitioner claims that the dismissal of private respondents was justified because the
latter threatened the ship authorities in acceeding to their demands, and this
constitutes serious misconduct as contemplated by the Labor Code. This contention
is not well-taken. The records fail to establish clearly the commission of any threat. But
even if there had been such a threat, respondents' behavior should not be censured
because it is but natural for them to employ some means of pressing their demands
for petitioner, who refused to abide with the terms of the Special Agreement, to honor
and respect the same. They were only acting in the exercise of their rights, and to
deprive them of their freedom of expression is contrary to law and public policy. There
is no serious misconduct to speak of in the case at bar which would justify respondents'
dismissal just because of their firmness in their demand for the fulfillment by petitioner
of its obligation it entered into without any coercion, specially on the part of private
respondents.
On the other hand, it is petitioner who is guilty of breach of contract when they
dismissed the respondents without just cause and prior to the expiration of the
employment contracts. As the records clearly show, petitioner voluntarily entered into
the Special Agreement with ITF and by virtue thereof the crew men were actually given
their salary differentials in view of the new rates. It cannot be said that it was because
of respondents' fault that petitioner made a sudden turn-about and refused to honor
the special agreement.
In brief, We declare petitioner guilty of breach of contract and should therefore be
made to comply with the directives contained in the disputed Orders of December 19,
1977 and April 3, 1979.
WHEREFORE, premises considered, the decision dated March 14, 1977 of the
Hearing Officer is SET ASIDE and the Orders dated December 19, 1977 and April 3,
1979 of the National Seamen Board are AFFIRMED in toto. This decision is
immediately executory. Without costs. SO ORDERED.
VALID GROUNDS FOR DISMISSAL OF THE CAPTAIN AND HIS CREW.
Article 636
Should a fixed period for which a sailor has signed not be stated, he can not be
discharged until the end of the return voyage to the port where he enrolled.
Article 637
Neither can the captain discharge a sailor during the time of his contract except for
sufficient cause, the following being considered as such:
THE PERPETRATION OF A CRIME WHICH DISTURBS ORDER ON THE VESSEL.
TRANSPORTAION LAW CASES MIDTERM 34

Repeated offenses of insubordination, against discipline, or against the fulfillment of
the service.
Repeated incapacity or negligence in the fulfillment of the service to be rendered.
HABITUAL DRUNKENNESS.
Any occurrence which incapacitates the sailor to carry out the work under his charge,
with the exception of the provisions contained in Article 644.
DESERTION.
The captain may, however, before setting out on a voyage and without giving any
reason whatsoever, refuse to permit a sailor he may have engaged from going on
board and may leave him on land, in which case he will be obliged to pay him his
wages as if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the captain should have
acted for reasons of prudence and in the interest of the safety and good service of the
former. Should this not be the case, it shall be paid by the captain personally.
After the vessel has sailed, and during the voyage and until the conclusion thereof, the
captain can not abandon any member of his crew on land or on the sea, unless, by
reason of being guilty of some crime, his imprisonment and delivery to the competent
authority is proper in the first port touched, which will be obligatory on the captain.
LIMITED LIABILITY RULE
The Doctrine of Limited Liability, also known as the "no vessel, no liability doctrine,"
states that the liability of the shipowner is restricted to only the shipowner's interest in
the vessel. In the case of a total loss, the liability of the shipowner ends. In the case of
the vessel's total destruction, all maritime liens also end.
Limited liability is put in place as a way to protect the personal interests of an investor
from any wrongdoing of a corporation. However, it is possible for the investor to lose
what they have invested in the corporation. Limited liability for a shipowner extends to
the following:
 Appurtenances.
 Equipment.
 Freightage.
 Insurance proceeds.
ADVANTAGES AND DISADVANTAGES OF LIMITED LIABILITY
Limited liability is a legal precedent that was pivotal to the modern corporation and
stock markets. By instituting limited liability, entrepreneurs were given the ability to use
small investments from a large pool of corporate shareholders, rather than just a few
wealthy partners.
In partnerships, the partners are each responsible for any wrongdoing. This is removed
with limited liability. Shareholders have the confidence to invest knowing they will only
lose what they put in, nothing more. With the introduction of limited liability, the
economy boomed from a new way to source investment capital.
A major disadvantage of limited liability is the problem of who is deemed responsible
in the case of wrongdoing. When limited liability is in place, the blame is hard to place
based on the corporate structure. This is especially true when corporate subsidiaries
are not held to the highest standards and perform risky tasks like oil drilling. Parent
corporations use lawyers to legally protect themselves and the assets of their
subsidiaries.
EXCEPTIONS TO THE DOCTRINE OF LIMITED LIABILITY
Typically, the shipowner's liability is limited to what they are entitled to abandon the
vessel. This includes all equipment and freight that was collected on the trip. If the
freight was lost, this can be sufficient for the shipowner's discharge. However, there
are exceptions to consider when reviewing the doctrine of limited liability:
 Repairs and provisioning of the vessel that took place before losing the vessel.
 Any insurance proceeds. Any proceeds will go to the claimant if the vessel is
insured.
 Workmen's Compensation (also called Employees' Compensation) cases.
 If the shipowner is found to be guilty of negligence or fraud.
 Private carrier.
 If the voyage was not maritime in character.
MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC AND
HON. JUDGE AMANTE PURISIMA VS.
CA AND ABOITIZ SHIPPING CORPORATION, RESPONDENTS.
G.R. NO. 92735
TRANSPORTAION LAW CASES MIDTERM 35
 JUNE 8, 2000
X - - - - - - - - - - - - - - - - - - - - - - -X
ALLIED GUARANTEE INSURANCE COMPANY
VS. CA, PRESIDING JUDGE, RTC MANILA, BR. 24 AND ABOITIZ SHIPPING
CORPORATION
G.R. NO. 94867
X - - - - - - - - - - - - - - - - - - - - - - -X
EQUITABLE INSURANCE CORPORATION
VS.
CA, FORMER FIRST DIVISION COMPOSED OF HON. JUSTICES RODOLFO
NOCON, PEDRO RAMIREZ, AND JESUS ELBINIAS AND ABOITIZ SHIPPING
CORPORATION
G.R. NO. 95578
Before us are three consolidated petitions. G.R. No. 92735 is a petition for review filed
under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals
dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which set aside the writ of
execution issued by the lower court for the full indemnification of the claims of the
petitioners, Monarch Insurance Company (hereafter "Monarch") and Tabacalera
Insurance Company, Incorporated (hereafter "Tabacalera") against private
respondent, Aboitiz Shipping Corporation (hereafter "Aboitiz") on the ground that the
latter is entitled to the benefit of the limited liability rule in maritime law; G.R. No. 94867
is a petition for certiorari under Rule 65 of the Rules of Court to annul and set aside
the decision of the Court of Appeals dated August 15, 1990 in CA-G.R. SP No. 20844
which ordered the lower court to stay the execution of the judgment in favor of the
petitioner, Allied Guarantee Insurance Company (hereafter "Allied") against Aboitiz
insofar as it impairs the rights of the other claimants to their pro-rata share in the
insurance proceeds from the sinking of the M/V P. Aboitiz, in accordance with the rule
on limited liability; and G.R. No. 95578 is a petition for review under Rule 45 of the
Rules of Court seeking a reversal of the decision of the Court of Appeals dated August
24, 1990 and its resolution dated October 4, 1990 in C.A. G.R. Civil Case No. 15071
which modified the judgment of the lower court's award of actual damages to petitioner
Equitable Insurance Corporation (hereafter "Equitable") to its pro-rata share in the
insurance proceeds from the sinking of the M/V P. Aboitiz.
All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz,
a common carrier owned and operated by Aboitiz, sank on her voyage from Hong
Kong to Manila on October 31, 1980. Seeking indemnification for the loss of their
cargoes, the shippers, their successors-in-interest, and the cargo insurers such as the
instant petitioners filed separate suits against Aboitiz before the Regional Trial Courts.
The claims numbered one hundred and ten (110) for the total amount of
P41,230,115.00 which is almost thrice the amount of the insurance proceeds of
P14,500,000.00 plus earned freight of 500,000.00 according to Aboitiz. To this day,
some of these claims, including those of herein petitioners, have not yet been settled.
G.R. No. 92735.
Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the
shippers and were consequently subrogated to their rights, interests and actions
against Aboitiz, the cargo carrier. 1 Because Aboitiz refused to compensate Monarch,
it filed two complaints against Aboitiz, docketed as Civil Cases Nos. 82-2767 and 82-
2770. For its part, Tabacalera also filed two complaints against the same defendant,
docketed as Civil Cases Nos. 82-2768 and 82-2769. As these four (4) cases had
common causes of action, they were consolidated and jointly tried. 2
In Civil Case No. 82-2767 where Monarch also named Malaysian International
Shipping Corporation and Litonja Merchant Shipping Agency as Aboitiz's co-
defendants, Monarch sough recovery of P29,719.88 representing the value of three
(3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus attorney's fees of not
less than P5,000.00, litigation expenses, interest at the legal rate on all these amounts,
and the cost of suit. 3 Civil Case. No. 82-2770 was a complaint filed by Monarch
against Aboitiz and co-defendants Compagnie Maritime des Chargeurs Reunis and
F.E. Zuellig (M), Inc. for the recovery of P39,597.00 representing the value of the one
case motor vehicle parts which was lost when the M/V P. Aboitiz sank on her way to
Manila, plus Attorney's fees of not less than P10,000.00 and cost of suit. 4
Tabacalera sought against Franco Belgian Services, F.E. Zuellig and Aboitiz in Civil
Case No. 82-2768 the recovery of P284,218.00 corresponding to the value of nine (9)
cases of Renault spare parts, P213,207.00 for the value of twenty-five (25) cases of
door closers and P42,254.00 representing the value of eighteen (18) cases of plastic
spangle, plus attorney's fees of not less than P50,000.00 and cost of suit. 5 In Civil
Case No. 82-2769, Tabacalera claimed from Hong Kong Island Shipping Co., Ltd.,
Citadel Lines and Aboitiz indemnification in the amount of P75,058.00 for the value of
four (4) cartons of motor vehicle parts foundered with the M/V P. Aboitiz, plus
attorney's fees of not less than P20,000.00 and cost of suit. 6
In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the
ground that the sinking of its cargo vessel was due to force majeure or an act of God.
TRANSPORTAION LAW CASES MIDTERM 36
7 Aboitiz was subsequently declared as in default for its failure to appear during the
pre-trial. Its counsel fried a motion to set aside the order of default with notice of his
withdrawal as such counsel. Before the motion could be acted upon, Judge Bienvenido
Ejercjto, the presiding judge of the trial court, was promoted to the then intermediate
Appellate Court. The cases were thus re-raffled to Branch VII of the RTC of Manila
presided by Judge Amante P. Purisima, the co-petitioner in G.R. No. 92735. Without
resolving the pending motion to set aside the order of default, the trial court set the
cases for hearing. However, since Aboitiz had repeatedly failed to appear in court, the
trial court denied the said motion and allowed Monarch and Tabacalera to present
evidence ex-parte. 8
Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a
surveyor commissioned to investigate the possible cause of the sinking of the cargo
vessel. The survey established that on her voyage to Manila from Hong Kong, the
vessel did not encounter weather so inclement that Aboitiz would be exculpated from
liability for losses. In his note of protest, the master of M/V P. Aboitiz described the
wind force encountered by the vessel as from ten (10) to fifteen (15) knots, a weather
condition classified as typical and moderate in the South China Sea at that particular
time of the year. The survey added that the seaworthiness of the vessel was in
question especially because the breaches of the hull and the serious flooding of two
(2) cargo holds occurred simultaneously in "seasonal weather." 9
In due course, the trial court rendered judgment against Aboitiz but the complaint
against all the other defendants was dismissed. Aboitiz was held liable for the
following: (a) in Civil Case No. 82-2767, P29,719.88 with legal interest from the filing
of the complaint until fully paid plus attorney's fees of P30,000.00 and cost of suit; (b)
in Civil Case No. 82-2768, P539,679.00 with legal interest of 12% per annum from
date of filing of the complaint until fully paid, plus attorney's fees of P30,000.00,
litigation expenses and cost of suit; (c) in Civil Case No. 82-2769, P75,058.00 with
legal interest of 12% per annum from date of filing of the complaint until-fully paid, plus
P5,000.00 attorney's fees, litigation expenses and cost of suit, and (d) in Civil Case
No. 82-2770, P39,579.66 with legal interest of 12% per annum from date of filing of
the complaint until fully paid, plus attorney's fees of P5,000.00, litigation expenses and
cost of suit.
Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift the
order of default. The court denied the motion on August 27, 1986. 10 Aboitiz appealed
to the Court of Appeals but the appeal was dismissed for its failure to file appellant's
brief. It subsequently filed an urgent motion for reconsideration of the dismissal with
prayer for the admission of its attached appellant's brief. The appellate court denied
that motion for lack of merit in a Resolution dated July 8, 1988. 11
Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158,
the petition was denied in the Resolution of October 10, 1988 for being filed out of
time. Aboitiz's motion for the reconsideration of said Resolution was similarly denied.
12 Entry of judgment was made in the case. 13
Consequently, Monarch and Tabacalera moved for execution of judgment. The trial
court granted the motion on April 4, 1989 14 and issued separate writs of execution.
However, on April 12, 1989, Aboitiz, invoking the real and hypothecary nature of
liability in maritime law, filed an urgent motion to quash the writs of execution. 15
According to Aboitiz, since its liability is limited to the value of the vessel which was
insufficient to satisfy the aggregate claims of all 110 claimants, to indemnify Monarch
and Tabacalera ahead of the other claimants would be prejudicial to the latter.
Monarch and Tabacalera opposed the motion to quash. 16
On April 17, 1989, before the motion to quash could be heard, the sheriff levied upon
five (5) heavy equipment owned by Aboitiz for the public auction sale. At said sale,
Monarch was the highest bidder for one (1) unit FL-151 Fork Lift (big) and one (1) unit
FL-25 Fork Lift (small). Tabacalera was also the highest bidder for one (1) unit TCH
TL-251 Hyster Container Lifter, one (1) unit Hyster Top Lifter (out of order), and one
(1) unit ER-353 Crane. The corresponding certificates of sale 17 were issued to
Monarch and Tabacalera.
On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a
supplement to its motion, to add the fact that an auction sale had taken place. On April
19, 1989, Judge Purisima issued an order denying the motion to quash but freezing
execution proceedings for ten (10) days to give Aboitiz time to secure a restraining
order from a higher court. 18 Execution was scheduled to resume to fully satisfy the
judgment when the grace period shall have lapsed without such restraining order
having been obtained by Aboitiz.
Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer
for preliminary injunction and/or temporary restraining order under CA-G.R. No. SP-
17427. 19 On March 29, 1990, the appellate court rendered a Decision the dispositive
portion of which reads:
WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of
execution, auction sale, certificates of sale, and the assailed orders of respondent
Judge dated April 4 and April 19, 1989 insofar as the money value of those properties
of Aboitiz, levied on execution and sold at public auction, has exceeded the pro-rata
TRANSPORTAION LAW CASES MIDTERM 37
shares of Monarch and Tabacalera in the insurance proceeds of Aboitiz in relation to
the pro-rata shares of the 106 other claimants.
The writ of prohibition is also granted to enjoin respondent Judge, Monarch and
Tabacalera from proceeding further with execution of the judgments in question insofar
as the execution would satisfy the claims of Monarch and Tabacalera in excess of their
pro-rata shares and in effect reduce the balance of the proceeds for distribution to the
other claimants to their prejudice.
The question of whether or how much of the claims of Monarch and Tabacalera against
the insurance proceeds has already been settled through the writ of execution and
auction sale in question, being factual issues, shall be threshed out before respondent
judge.
The writ of preliminary injunction issued in favor of Aboitiz, having served its purpose,
is hereby lifted. No pronouncement as to costs.
SO ORDERED. 20
Hence, the instant petition for review on certiorari where petitioners Monarch,
Tabacalera and Judge Purisima raise the following assignment of errors:
1. The appellate court grievously erred in re-opening the Purisima decisions, already
final and executory, on the alleged ground that the issue of real and hypothecary
liability had not been previously resolved by Purisima, the appellate court, and this
Hon. Supreme Court;
2. The appellate court erred when it resolved that Aboitiz is entitled to the limited real
and hypothecary liability of a ship owner, considering the facts on record and the law
on the matter.
3. The appellate court erred when it concluded that Aboitiz does not have to present
evidence to prove its entitlement to the limited real and hypothecary liability.
4. The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v.
CA and Allied Guaranty Insurance Co., Inc. (G.R. No. 88159), decided by this
Honorable Supreme Court as early as November 13, 1989, considering that said case,
now factual and executory, is in pari materia with the instant case.
5. The appellate court erred in not concluding that irrespective of whether Aboitiz is
entitled to limited hypothecary liability or not, there are enough funds to satisfy all the
claimants.
6. The appellate court erred when it concluded that Aboitiz had made an
"abandonment" as envisioned by Art. 587 of the Code of Commerce.
7. The appellate court erred when it concluded that other claimants would suffer if
Tabacalera and Monarch would be fully paid.
8. The appellate court erred in concluding that certiorari was the proper remedy for
Aboitiz. 21
G.R. NOS. 94867 & 95578
Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited, filed
a complaint against Aboitiz for the recovery of P278,536.50 representing the value of
676 bags of PVC compound and 10 bags of ABS plastic lost on board the M/V P.
Aboitiz, with legal interest from the date of filing of the complaint, plus attorney's fees,
exemplary damages and costs. 22 Docketed as Civil Case No. 138643, the case was
heard before the Regional Trial Court of Manila, Branch XXIV, presided by Judge
Sergio D. Mabunay.
On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel
Manufacturing Corporation, filed an amended complaint against Franco Belgian
Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85 representing
the value of 76 drums of synthetic organic tanning substances and 1,000 kilograms of
optical bleaching agents which were also lost on board the M/V P. Aboitiz, with legal
interest from the date of filing of the complaint, plus 25% attorney's fees, exemplary
damages, litigation expenses and costs of suit.23 Docketed as Civil Case No. 138396,
the complaint was assigned to the Regional Trial Court of Manila, Branch VIII.
In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for
the amounts being recovered, alleging that the loss was due to a fortuitous event or
an act of God. It prayed for the dismissal of the cases and the payment of attorney's
fees, litigation expenses plus costs of suit. It similarly relied on the defenses of force
mejeure, seaworthiness of the vessel and exercise of due diligence in the carriage of
goods as regards the cross-claim of its co-defendants. 24
In support of its position, Aboitiz presented the testimonies of Capt. Gerry N. Racines,
master mariner of the M/V P. Aboitiz, and Justo C. Iglesias, a meteorologist of the
TRANSPORTAION LAW CASES MIDTERM 38
Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA). The gist of the testimony of Capt. Racines in the two cases follows:
The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October
29, 1980 after securing a departure clearance from the Hong Kong Port Authority. The
departure was delayed for two hours because he (Capt. Racines) was observing the
direction of the storm that crossed the Bicol Region. He proceeded with the voyage
only after being informed that the storm had abated. At about 8:00 o'clock in the
morning of October 30, 1980, after more than twelve (12) hours of navigation, the
vessel suddenly encountered rough seas with waves about fifteen to twenty-five feet
high. He ordered his chief engineer to check the cargo holds. The latter found that sea
water had entered cargo hold Nos. 1 and 2. He immediately directed that water be
pumped out by means of the vessel's bilge pump, a device capable of ejecting 180
gallons of water per minute. They were initially successful in pumping out the water.
At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his
chief engineer that the water level in the cargo holds was rapidly rising. He altered the
vessel's course and veered towards the northern tip of Luzon to prevent the vessel
from being continuously pummeled by the waves. Despite diligent efforts of the officers
and crew, however, the vessel, which was approximately 250 miles away from the eye
of the storm, began to list on starboard side at 27 degrees. Capt. Racines and his crew
were not able to make as much headway as they wanted because by 12:00 noon of
the same day, the cargo holds were already flooded with sea water that rose from
three to twelve feet, disabling the bilge pump from containing the water.
The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18 degrees
North, longitude 170 degrees East in the South China Sea in between Hong Kong, the
Philippines and Taiwan with the nearest land being the northern tip of Luzon, around
270 miles from Cape Bojeador, Bangui, Ilocos Norte. Responding to the captain's
distress call, the M/V Kapuas (Capuas) manned by Capt. Virgilio Gonzales rescued
the officers and crew of the ill-fated M/V P. Aboitiz and brought them to Waileen,
Taiwan where Capt. Racines lodged his marine protest dated November 3, 1980.
Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, testified in
both cases that during the inclusive dates of October 28-31, 1980, a stormy weather
condition prevailed within the Philippine area of responsibility, particularly along the
sea route from Hong Kong to Manila, because of tropical depression "Yoning." 25
PAGASA issued weather bulletins from October 28-30, 1980 while the storm was still
within Philippine territory. No domestic bulletins were issued the following day when
the storm which hit Eastern Samar, Southern Quezon and Southern Tagalog
provinces, had made its exit to the South China Sea through Bataan.
Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were
lost due to force majeure, relying mainly on the marine protest filed by Capt. Racines
as well as on the Beaufort Scale of Wind. In his marine protest under oath, Capt.
Racines affirmed that the wind force an October 29-30, 1980 was only ten (10) to
fifteen (15) knots. Under the Beaufort Scale of Wind, said wind velocity falls under
scale No. 4 that describes the sea condition as "moderate breeze," and "small waves
becoming longer, fairly frequent white horses." 26
To fortify its position, Equitable presented Rogelio T. Barboza who testified that as
claims supervisor and processor of Equitable, he recommended payment to Axel
Manufacturing Corporation as evidenced by the cash voucher, return check and
subrogation receipt. Barboza also presented a letter of demand to Aboitiz which,
however, the latter ignored. 27
On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No.
138643 as follows:
WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping
Company to pay plaintiff Allied Guarantee Insurance Company, Inc. the sum of
P278,536.50, with legal interest thereon from March 10, 1981, then date of the filing
of the complaint, until fully paid, plus P30,000.00 as attorney's fees, with costs of suit.
SO ORDERED. 28
A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor
of plaintiff and against defendant Aboitiz Shipping Corporation, to pay the sum of
P194,794.85 with legal rate of interest thereon from February 27, 1981 until fully paid;
attorney's fees of twenty-five (25%) percent of the total claim, plus litigation expenses
and costs of litigation.
SO ORDERED. 29
In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV
No. 04121. On March 23, 1987, the Court of Appeals affirmed the decision of the lower
court. A motion for reconsideration of the said decision was likewise denied by the
Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then filed a petition for review
with this Court docketed as G.R. No. 88159 which was denied for lack merit. Entry of
TRANSPORTAION LAW CASES MIDTERM 39
judgment was made and the lower court's decision in Civil Case No. 138643 became
final and executory. Allied prayed for the issuance of a writ of execution in the lower
court which was granted by the latter on April 4, 1990. To stay the execution of the
judgment of the lower court, Aboitiz filed a petition for certiorari and prohibition with
preliminary injunction with the Court of Appeals docketed as CA-G.R. SP No. 20844.
30 On August 15, 1990, the Court of Appeals rendered the assailed decision, the
dispositive portion of which reads as follows.
WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990
granting the execution is hereby set aside. The respondent Judge is further ordered to
stay the execution of the judgment insofar as it impairs the rights of the 100 other
claimants to the insurance proceeds including the rights of the petitioner to pay more
than the value of the vessel or the insurance proceeds and to desist from executing
the judgment insofar as it prejudices the pro-rata share of all claimants to the insurance
proceeds. No pronouncement as to costs.
SO ORDERED. 31
Hence, Allied filed the instant petition for certiorari, mandamus and injunction with
preliminary injunction and/or restraining order before this Court alleging the following
assignment of errors:
1. Respondent Court of Appeals gravely erred in staying the immediate execution of
the judgment of the lower court as it has no authority nor jurisdiction to directly or
indirectly alter, modify, amend, reverse or invalidate a final judgment as affirmed by
the Honorable Supreme Court in G.R. No. 88159.
2. Respondent Court of Appeals with grave abuse of discretion amounting to lack or
excess of jurisdiction, brushed aside the doctrine in G.R. No. 88159 which is now the
law of the case and observance of time honored principles of stare decisis, res
adjudicata and estoppel by judgment.
3. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of
Commerce which is the basis of the questioned decision (Annex "C" hereof) is without
application in the face of the facts found by the lower court, sustained by the Court of
Appeals in CA-G.R. No. 04121 and affirmed in toto by the Supreme Court in G.R. No.
88159.
4. Certiorari as a special remedy is unavailing for private respondent as there was no
grave abuse of discretion nor lack or excess of jurisdiction for Judge Mabunay to issue
the order of April 4, 1990 which was in accord with law and jurisprudence, nor were
there intervening facts and/or supervening events that will justify respondent court to
issue a writ of certiorari or a restraining order on a final and executory judgment of the
Honorable Supreme Court. 32
From the decision of the trial court in Civil Case No. 138396 that favored Equitable,
Aboitiz likewise appealed to the Court of Appeals through CA-G.R. CV No. 15071. On
August 24, 1990, the Court of Appeals rendered the Decision quoting extensively its
Decision in CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the appeal
as follows:
WHEREFORE, we hereby affirm the trial court's awards of actual damages, attorney's
fees and litigation expenses, with the exception of legal interest, in favor of plaintiff-
appellee Equitable Insurance Corporation as subrogee of the consignee for the loss
of its shipment aboard the M/V "P. Aboitiz" and against defendant-appellant Aboitiz
Shipping Corporation. However, the amount and payment of those awards shall be
subject to a determination of the pro-rata share of said appellee in relation to the pro-
rata shares of the 109 other claimants, which determination shall be made by the trial
court. This case is therefore hereby ordered remanded to the trial court which shall
reopen the case and receive evidence to determine appellee's pro-rata share as
aforesaid. No pronouncement as to costs.
SO ORDERED. 33
On September 12, 1990, Equitable moved to reconsider the Court of Appeals'
Decision. The Court of Appeals denied the motion for reconsideration on October 4,
1990. 34 Consequently, Equitable filed with this Court a petition for review alleging the
following assignment of errors:
1. Respondent Court of Appeals, with grave abuse of discretion amounting to lack or
excess of jurisdiction, erroneously brushed aside the doctrine in G.R. No. 88159 which
is now the law of the case as held in G.R. No. 89757 involving the same and identical
set of facts and cause of action relative to the sinking of the M/V "P. Aboitiz" and
observance of the time honored principles of stare decisis, and estoppel by judgment.
2. Real and hypothecary rule under Articles 587, 590 and 837 of the Code of
Commerce which is the basis of the assailed decision and resolution is without
application in the face of the facts found by the trial court which conforms to the
conclusion and finding of facts arrived at in a similar and identical case involving the
same incident and parties similarly situated in G.R. No. 88159 already declared as the
"law of the case" in a subsequent decision of this Honorable Court in G.R. No. 89757
promulgated on August 6, 1990.
TRANSPORTAION LAW CASES MIDTERM 40

3. Respondent Court of Appeals gravely erred in concluding that limited liability rule
applies in case of loss of cargoes when the law itself does not distinguish; fault of the
shipowner or privity thereto constitutes one of the exceptions to the application of
limited liability under Article 587, 590 and 837 of the Code of Commerce, Civil Code
provisions on common carriers for breach of contract of carriage prevails. 35
These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the
Resolution of August 5, 1991 on the ground that the petitioners "have identical causes
of action against the same respondent and similar reliefs are prayed for." 36
The threshold issue in these consolidated petitions is the applicability of the limited
liability rule in maritime law in favor of Aboitiz in order to stay the execution of the
judgments for full indemnification of the losses suffered by the petitioners as a result
of the sinking of the M/V P. Aboitiz. Before we can address this issue, however, there
are procedural matters that need to be threshed out.
First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge
Amante Purisima, whose decision in the Regional Trial Court is sought to be upheld,
is named as a co-petitioner. In Calderon v. Solicitor General, 37 where the petitioner
in the special civil action of certiorari and mandamus was also the judge whose order
was being assailed, the Court held that said judge had no standing to file the petition
because he was merely a nominal or formal party-respondent under Section 5 of Rule
65 of the Rules of Court. He should not appear as a party seeking the reversal of a
decision that is unfavorable to the action taken by him. The Court there said:
Judge Calderon should be-reminded of the well-known doctrine that a judge should
detach himself from cases where his decision is appealed to a higher court for review.
The raison d'etre for such doctrine is the fact that a judge is not an active combatant
in such proceeding and must leave the opposing parties to contend their individual
positions and for the appellate court to decide the issues without his active
participation. By filing this case, petitioner in a way ceased to be judicial and has
become adversarial instead. 38
While the petition in G.R. No. 92735 does not expressly show whether or not Judge
Purisima himself is personally interested in the disposition of this petition or he was
just inadvertently named as petitioner by the real parties in interest, the fact that Judge
Purisima is named as petitioner has not escaped this Court's notice. Judges and
litigants should be reminded of the basic rule that courts or individual judges are not
supposed to be interested "combatants" in any litigation they resolve.
Second. The petitioners contend that the inapplicability of the limited liability rule to
Aboitiz has already been decided on by no less than this Court in G.R. No. 88159 as
early as November 13, 1989 which was subsequently declared as "law of the case" in
G.R. No. 89757 on August 6, 1990. Herein petitioners cite the aforementioned cases
in support of their theory that the limited liability rule based on the real and hypothecary
nature of maritime law has no application in the cases at bar.
The existence of what petitioners insist is already the "law of the case" on the matter
of limited liability is at best illusory. Petitioners are either deliberately misleading this
Court or profoundly confused. As elucidated in the case of Aboitiz Shipping
Corporation vs. General Accident Fire and Life Assurance Corporation, 39
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280-282,
Rollo) shows that the same settles two principal matters, first of which is that the
doctrine of primary administrative jurisdiction is not applicable therein; and second is
that a limitation of liability in said case would render inefficacious the extraordinary
diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not
the same one now in issue at bar, but an altogether different aspect. The limited liability
settled in G.R. No. 88159 is that which attaches to cargo by virtue of stipulations in the
Bill of Lading, popularly known as package limitation clauses, which in that case was
contained in Section 8 of the Bill of Lading and which limited the carrier's liability to
US$500.00 for the cargo whose value was therein sought to be recovered. Said
resolution did not tackle the matter of the Limited Liability Rule arising out of the real
and hypothecary nature of maritime law, which was not raised therein, and which is
the principal bone of contention in this case. While the matters threshed out in G.R.
No. 88159, particularly those dealing with the issues on primary administrative
jurisdiction and the package liability limitation provided in the Bill of Lading are now
settled and should no longer be touched, the instant case raises a completely different
issue. 40
Third. Petitioners asseverate that the judgments of the lower courts, already final and
executory, cannot be directly or indirectly altered, modified, amended, reversed or
invalidated.
The rule that once a decision becomes final and executory, it is the ministerial duty of
the court to order its execution, is not an absolute one: We have allowed the
suspension of execution in cases of special and exceptional nature when it becomes
imperative in the higher interest of justice. 41 The unjust and inequitable effects upon
various other claimants against Aboitiz should we allow the execution of judgments for
TRANSPORTAION LAW CASES MIDTERM 41
the full indemnification of petitioners' claims impel us to uphold the stay of execution
as ordered by the respondent Court of Appeals. We reiterate our pronouncement in
Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance
Corporation on this very same issue.
This brings us to the primary question herein which is whether or not respondent court
erred in granting execution of the full judgment award in Civil Case No. 14425 (G.R.
No. 89757), thus effectively denying the application of the limited liability enunciated
under the appropriate articles of the Code of Commerce. . . . . Collaterally,
determination of the question of whether execution of judgments which have become
final and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand
that the very purpose for its existence is to see the accomplishment of the ends of
justice. Consistent with this view, a number of decisions have originated herefrom, the
tenor of which is that no procedural consideration is sancrosanct if such shall result in
the subverting of justice. The right to execution after finality of a decision is certainly
no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1885]), this Court ruled
that:
xxx xxx xxx
. . . every court having jurisdiction to render a particular judgment has inherent power
to enforce it, and to exercise equitable control over such enforcement. The court has
authority to inquire whether its judgment has been executed, and will remove
obstructions to the enforcement thereof. Such authority extends not only to such
orders and such writs as may be necessary to prevent an improper enforcement of the
judgment. If a judgment is sought to be perverted and made a medium of
consummating a wrong the court on proper application can prevent it. 42
Fourth. Petitioners in G.R. No. 92735 ever that it was error for the respondent Court
of Appeals to allow Aboitiz the benefit of the limited liability rule despite its failure to
present evidence to prove its entitlement thereto in the court below. Petitioners
Monarch and Tabacalera remind this Court that from the inception of G.R. No. 92735
in the lower court and all the way to the Supreme Court, Aboitiz had not presented an
iota of evidence to exculpate itself from the charge of negligence for the simple reason
that it was declared as in default. 43
It is true that for having been declared in default, Aboitiz was precluded from presenting
evidence to prove its defenses in the court a quo. We cannot, however, agree with
petitioners that this circumstance prevents the respondent Court of Appeals from
taking cognizance of Aboitiz' defenses on appeal.
It should be noted that Aboitiz was declared as in default not for its failure to file an
answer but for its absence during pre-trial and the trial proper. In Aboitiz' answer with
counterclaim, it claimed that the sinking of the M/V P. Aboitiz was due to an act of God
or unforeseen event and that the said ship had been seaworthy and fit for the voyage.
Aboitiz also alleged that it exercised the due diligence required by law, and that
considering the real and hypothecary nature of maritime trade, the sinking justified the
extinguishment of its liability for the lost shipment. 44
A judgment of default does not imply a waiver of rights except that of being heard and
presenting evidence in defendant's favor. It does not imply admission by the defendant
of the facts and causes of action of the plaintiff, because the codal section 45 requires
the latter to adduce evidence in support of his allegations as an indispensable
condition before final judgment could be given in his favor. Nor could it be interpreted
as an admission by the defendant that the plaintiff's causes of action find support in
the law or that the latter is entitled to the relief prayed for. 46 This is especially true
with respect to a defendant who had filed his answer but had been subsequently
declared in default for failing to appear at the trial since he has had an opportunity to
traverse, via his answer, the material averments contained in the complaint. Such
defendant has a better standing than a defendant who has neither answered nor
appeared at trial. 47 The former should be allowed to reiterate all affirmative defenses
pleaded in his answer before the Court of Appeals. Likewise, the Court of Appeals may
review the correctness of the evaluation of the plaintiffs evidence by the lower court.
It should also be pointed out that Aboitiz is not raising the issue of its entitlement to the
limited liability rule for the first time on appeal thus, the respondent Court of Appeals
may properly rule on the same.
However, whether or not the respondent Court of Appeals erred in finding, upon
review, that Aboitiz is entitled to the benefit of the limited liability rule is an altogether
different matter which shall be discussed below.1awphi1
Rule on Limited Liability. The petitioners assert in common that the vessel M/V P.
Aboitiz did not sink by reason of force majeure but because of its unseaworthiness
and the concurrent fault and/or negligence of Aboitiz, the captain and its crew, thereby
barring Aboitiz from availing of the benefit of the limited liability rule.
The principle of limited liability is enunciated in the following provisions of the Code of
Commerce:
TRANSPORTAION LAW CASES MIDTERM 42

Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of goods which
he loaded on the vessel; but he may exempt himself therefrom by abandoning the
vessel with all the equipments and the freight it may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in Art.
587.
Each co-owner may exempt himself from his liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section,
shall be understood as limited to the value of the vessel with all its appurtenances and
the freightage served during the voyage.
Art. 837 appeals the principle of limited liability in cases of collision hence, Arts. 587
and 590 embody the universal principle of limited liability in all cases. In Yangco v.
Laserna, 48 this Court elucidated on the import of Art. 587 as follows:
The provision accords a shipowner or agent the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right to
abandon-"the vessel with all her equipments and the freight it may have earned during
the voyage." It is true that the article appears to deal only with the limited liability of the
shipowners or agents for damages arising from the misconduct of the captain in the
care of the goods which the vessel carries, but this is a mere deficiency of language
and in no way indicates the true extent of such liability. The consensus of authorities
is to the effect that notwithstanding the language of the aforequoted provision, the
benefit of limited liability therein provided for, applies in all cases wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the
captain. 49
"No vessel, no liability," expresses in a nutshell the limited liability rule. The
shipowner's or agent's liability is merely co-extensive with his interest in the vessel
such that a total loss thereof results in its extinction. The total destruction of the vessel
extinguishes maritime liens because there is no longer any res to which it can attach.
50 This doctrine is based on the real and hypothecary nature of maritime law which
has its origin in the prevailing conditions of the maritime trade and sea voyages during
the medieval ages, attended by innumerable hazards and perils. To offset against
these adverse conditions and to encourage shipbuilding and maritime commerce, it
was deemed necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance, if any. 51
Contrary to the petitioners' theory that the limited liability rule has been rendered
obsolete by the advances in modern technology which considerably lessen the risks
involved in maritime trade, this Court continues to apply the said rule in appropriate
cases. This is not to say, however, that the limited liability rule is without exceptions,
namely: (1) where the injury or death to a passenger is due either to the fault of the
shipowner, or to the concurring negligence of the shipowner and the captain; 52 (2)
where the vessel is insured; and (3) in workmen's compensation claims. 53
We have categorically stated that Article 587 speaks only of situations where the fault
or negligence is committed solely by the captain. In cases where the ship owner is
likewise to be blamed, Article 587 does not apply. Such a situation will be covered by
the provisions of the Civil Code on common carriers. 54
A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz
would absolve Aboitiz from any and all liability pursuant to Article 1734(1) of the Civil
Code which provides in part that common carriers are responsible for the loss,
destruction, or deterioration of the goods they carry, unless the same is due to flood,
storm, earthquake, lightning, or other natural disaster or calamity. On the other hand,
a finding that the M/V P. Aboitiz sank by reason of fault and/or negligence of Aboitiz,
the ship captain and crew of the M/V P. Aboitiz would render inapplicable the rule on
limited liability. These issues are therefore ultimately questions of fact which have been
subject of conflicting determinations by the trial courts, the Court of Appeals and even
this Court.
In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving Monarch's
and Tabacalera's evidence, the trial court found that the complete loss of the shipment
on board the M/V P. Aboitiz when it sank was neither due to a fortuitous event nor a
storm or natural cause. For Aboitiz' failure to present controverting evidence, the trial
court also upheld petitioners' allegation that the M/V P. Aboitiz was unseaworthy. 55
However, on appeal, respondent Court of Appeals exculpated Aboitiz from fault or
negligence and ruled that:
. . ., even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault (distinguished
from civil liability) cannot be laid on the shipowner's door. Such fault was directly
attributable to the captain. This is so, because under Art. 612 of the Code of
Commerce, among the inherent duties of a captain, are to examine the vessel before
sailing and to comply with the laws on navigation. 56
TRANSPORTAION LAW CASES MIDTERM 43
and that:
. . . although the shipowner may be held civilly liable for the captain's fault . . . having
abandoned the vessel in question, even if the vessel was unseaworthy due to the
captain's fault, Aboitiz is still entitled to the benefit under the rule of limited liability
accorded to shipowners by the Code of Commerce. 57
Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court,
which found that the sinking of the M/V P. Aboitiz was not due to an act of God or force
majeure. It added that the evidence presented by the petitioner Equitable
demonstrated the negligence of Aboitiz Shipping Corporation in the management and
operation of its, vessel M/V P. Aboitiz. 58
However, Aboitiz' appeal was favorably acted upon by the respondent Court of
Appeals which reiterated its ruling in G.R. No. 92735 that the unseaworthiness of the
M/V P. Aboitiz was not a fault directly attributable to Aboitiz but to the captain, and that
Aboitiz is entitled to the benefit of the limited liability rule for having abandoned its ship.
59
Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the
M/V P. Aboitiz was not lost due to a fortuitous event or force majeure, and that Aboitiz
had failed to satisfactorily establish that it had observed extraordinary diligence in the
vigilance over the goods transported by it. 60
In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and found
that the sinking of the vessel was due to its unseaworthiness and the failure of its crew
and master to exercise extraordinary diligence. 61 Subsequently, however, Aboitiz'
petition before the Court of Appeals, docketed as CA-G.R. SP No. 20844 (now G.R.
No. 94867) to annul and set aside the order of execution issued by the lower court was
resolved in favor of Aboitiz. The Court of Appeals brushed aside the issue of Aboitiz'
negligence and/or fault and proceeded to allow the application of the limited liability
rule "to accomplish the aims of justice." 62 It elaborated thus: "To execute the
judgment in this case would prejudice the substantial right of other claimants who have
filed suits to claim their cargoes that was lost in the vessel that sank and also against
the petitioner to be ordered to pay more than what the law requires." 63
It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by
reason of force majeure is not a novel one for that question has already been the
subject of conflicting pronouncements by the Supreme Court. In Aboitiz Shipping
Corporation v. Court of Appeals, 64 this Court approved the findings of the trial court
and the appellate court that the sinking of the M/V P. Aboitiz was not due to the waves
caused by tropical storm "Yoning" but due to the fault and negligence of Aboitiz, its
master and crew. 65 On the other hand, in the later case of Country Bankers Insurance
Corporation v. Court of Appeals, 66 this Court issued a Resolution on August 28, 1991
denying the petition for review on the ground that the Court of Appeals committed no
reversible error, thereby affirming and adopting as its own, the findings of the Court of
Appeals that force majeure had caused the M/V P. Aboitiz to founder.
In view of these conflicting pronouncements, we find that now is the opportune time to
settle once and for all the issue or whether or not force mejeure had indeed caused
the M/V P. Aboitiz to sink. After reviewing the records of the instant cases, we
categorically state that by the facts on record, the M/V P. Aboitiz did not go under water
because of the storm "Yoning."
It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during the
inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within
the Philippine area of responsibility, particularly along the sea route from Hong Kong
to Manila, because of tropical depression "Yoning". 67 But even Aboitiz' own evidence
in the form of the marine protest filed by Captain Racines affirmed that the wind force
when the M/V P. Aboitiz foundered on October 31, 1980 was only ten (10) to fifteen
(15) knots which, under the Beaufort Scale or Wind, falls within scale No. 4 that
describes the wind velocity as "moderate breeze," and characterizes the waves as
"small . . . becoming longer, fairly frequent white horses." 68 Captain Racines also
testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200) miles
away from storm "Yoning" when it sank. 69
The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V P.
Aboitiz has also been subject of conflicting rulings by this Court. In G.R. No. 100373,
Country Bankers Insurance Corporation v. Court of Appeals, this Court found no error
in the findings of the Court of Appeals that the M/V P. Aboitiz sank by reason of force
majeure, and that there was no negligence on the part of its officers and crew. In direct
contradiction is this Court's categorical declaration in Aboitiz Shipping Corporation v.
Court of Appeals," 70 to wit:
The trial court and the appellate court found that the sinking of the M/V P. Aboitiz was
not due to the waves caused by tropical storm "Yoning" but due to the fault and
negligence of petitioner, its master and crew. The court reproduces with approval said
findings . . . . 71
However, in the subsequent case of Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd., 72 this Court exculpated Aboitiz from fault
TRANSPORTAION LAW CASES MIDTERM 44
and/or negligence while holding that the unseaworthiness of the M/V P. Aboitiz was
only attributable to the negligence of its captain and crew. Thus,
On this point, it should be stressed that unseaworthiness is not a fault that can be laid
squarely on petitioner's lap, absent a factual basis for such conclusion. The
unseaworthiness found in some cases where the same has been ruled to exist is
directly attributable to the vessel's crew and captain, more so on the part of the latter
since Article 612 of the Code of Commerce provides that among the inherent duties of
a captain is to examine a vessel before sailing and to comply with the laws of
navigation. Such a construction would also put matters to rest relative to the decision
of the Board of Marine Inquiry. While the conclusion therein exonerating the captain
and crew of the vessel was not sustained for lack of basis, the finding therein contained
to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is
not totally incompatible with the findings of the trial court and the Court of Appeals,
whose finding of "unseaworthiness" clearly did not pertain to the structural condition
of the vessel which is the basis of the BMI's findings, but to the condition it was in at
the time of the sinking, which condition was a result of the acts of the captain and the
crew. 73
It therefore becomes incumbent upon this Court to answer with finality the nagging
question of whether or not it was the concurrent fault and/or negligence of Aboitiz and
the captain and crew of the ill-fated vessel that had caused it to go under water.
Guided by our previous pronouncements and illuminated by the evidence now on
record, we reiterate our findings in Aboitiz Shipping Corporation v. General Accident
Fire and Life Assurance Corporation, Ltd. 74 , that the unseaworthiness of the M/V P.
Aboitiz had caused it to founder. We, however, take exception to the pronouncement
therein that said unseaworthiness could not be attributed to the ship owner but only to
the negligent acts of the captain and crew of the M/V P. Aboitiz. On the matter of
Aboitiz' negligence, we adhere to our ruling in Aboitiz Shipping Corporation v. Court of
Appeals, 75 that found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have
been concurrently negligent.
During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735), petitioners
Monarch and Tabacalera presented a survey from Perfect Lambert, a surveyor based
in Hong Kong that conducted an investigation on the possible cause of the sinking of
the vessel. The said survey established that the cause of the sinking of the vessel was
the leakage of water into the M/V P. Aboitiz which probably started in the forward part
of the No. 1 hull, although no explanation was proffered as to why the No. 2 hull was
likewise flooded. Perfect Lambert surmised that the flooding was due to a leakage in
the shell plating or a defect in the water tight bulk head between the Nos. 1 and 2 holds
which allowed the water entering hull No. 1 to pass through hull No. 2. The surveyor
concluded that whatever the cause of the leakage of water into these hulls, the
seaworthiness of the vessel was definitely in question because the breaches of the
hulls and serious flooding of the two cargo holds occurred simultaneously in seasonal
weather. 76
We agree with the uniform finding of the lower courts that Aboitiz had failed to prove
that it observed the extraordinary diligence required of it as a common carrier. We
therefore reiterate our pronouncement in Aboitiz Corporation v. Court of Appeals 77
on the issue of Aboitiz' liability in the sinking of its vessel, to wit:
In accordance with Article 1732 of the Civil Code, the defendant common carrier from
the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by it according to all circumstances of the case. While the
goods are in the possession of the carrier, it is but fair that it exercise extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law presumes
that it was due to the carrier's fault or negligence; that is necessary to protect the
interest of the shipper which is at the mercy of the carrier . . . In the case at bar, the
defendant failed to prove that the loss of the subject cargo was not due to its fault or
negligence. 78
The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or
negligence in the sinking of its vessel in the face of the foregoing expert testimony
constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the
ship captain and crew of the M/V P. Aboitiz. This is in accordance with the rule that in
cases involving the limited liability of shipowners, the initial burden of proof of
negligence or unseaworthiness rests on the claimants. However, once the vessel
owner or any party asserts the right to limit its liability, the burden of proof as to lack of
privity or knowledge on its part with respect to the matter of negligence or
unseaworthiness is shifted to it. 79 This burden, Aboitiz had unfortunately failed to
discharge. That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence should not
however mean that the limited liability rule will not be applied to the present cases. The
peculiar circumstances here demand that there should be no strict adherence to
procedural rules on evidence lest the just claims of shippers/insurers be frustrated.
The rule on limited liability should be applied in accordance with the latest ruling in
Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd., 80 promulgated on January 21, 1993, that claimants be treated as "creditors in
an insolvent corporation whose assets are not enough to satisfy the totality of claims
against it." 81 To do so, the Court set out in that case the procedural guidelines:
TRANSPORTAION LAW CASES MIDTERM 45
In the instant case, there is, therefore, a need to collate all claims preparatory to their
satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given precedence over the others
by the simple expedience of having completed its action earlier than the rest. Thus,
execution of judgment in earlier completed cases, even these already final and
executory must be stayed pending completion of all cases occasioned by the subject
sinking. Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not enough
to satisfy all claims.
xxx xxx xxx
In fairness to the claimants and as a matter of equity, the total proceeds of the
insurance and pending freightage should now be deposited in trust. Moreover,
petitioner should institute the necessary limitation and distribution action before the
proper admiralty court within 15 days from finality of this decision, and thereafter
deposit with it the proceeds from the insurance company and pending freightage in
order to safeguard the same pending final resolution of all incidents, for final pro-rating
and settlement thereof. 82 (Emphasis supplied.)
There is no record that Aboitiz. has instituted such action or that it has deposited in
trust the insurance proceeds and freightage earned. The pendency of the instant cases
before the Court is not a reason for Aboitiz to disregard the aforementioned order of
the Court. In fact, had Aboitiz complied therewith, even these cases could have been
terminated earlier. We are inclined to believe that instead of filing the suit as directed
by this Court, Aboitiz tolerated the situation of several claimants waiting to gel hold of
its insurance proceeds, which, if correctly handled must have multiplied in amount by
now. By its failure to abide by the order of this Court, it had caused more damage to
the claimants over and above that which they have endured as a direct consequence
of the sinking of the M/V P. Aboitiz. It was obvious that from among the many cases
filed against it over the years, Aboitiz was waiting for a judgment that might prove
favorable to it, in blatant violation of the basic provisions of the Civil Code on abuse of
rights.
Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly
rather than exert effort towards the consolidation of all claims. Consequently, courts
have arrived at conflicting decisions while claimants waited over the years for a
resolution of any of the cases that would lead to the eventual resolution of the rest.
Aboitiz failed to give the claimants their due and to observe honesty and good faith in
the exercise of its rights. 83
Aboitiz' blatant disregard of the order of this Court in Aboitiz Shipping Corporation v.
General Accident Fire and Life Assurance Corporation, Ltd. 84 cannot be anything but,
willful on its part. An act is considered willful if it is done with knowledge of its injurious
effect; it is not required that the act be done purposely to produce the injury. 85 Aboitiz
is well aware that by not instituting the said suit, it caused the delay in the resolution
of all claims against it. Having willfully caused loss or injury to the petitioners in a
manner that is contrary to morals, good customs or public policy, Aboitiz is liable for
damages to the latter. 86
Thus, for its contumacious act of defying the order of this Court to file the appropriate
action to consolidate all claims for settlement, Aboitiz must be held liable for moral
damages which may be awarded in appropriate cases under the Chapter on human
relations of the Civil Code (Articles 19 to 36). 87
On account of Aboitiz' refusal to satisfy petitioners' claims in accordance with the
directive of the Court in Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd., it acted in gross and evident bad faith. Accordingly,
pursuant to Article 2208 of the Civil Code, 88 petitioners should be granted attorney's
fees.
WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The
decisions of the Court of Appeals in CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R.
SP No. 20844 dated August 15, 1990, and CA-G.R. CV No. 15071 dated August 24, 1990 are
AFFIRMED with the MODIFICATION that respondent Aboitiz Shipping Corporation is ordered
to pay each of the respective petitioners the amounts of P100,000.00 as moral damages and
P50,000.00 as attorney's fees, and treble the cost of suit.
Respondent Aboitiz Shipping Corporation is further directed to comply with the Order
promulgated by this Court on January 21, 1993 in Aboitiz Shipping Corporation v. General
Accident Fire and Life Assurance Corporation, Ltd., G.R. No. 100446, January 21, 1993, to (a)
institute the necessary limitation and distribution action before the proper Regional Trial Court,
acting as admiralty court, within fifteen (15) days from the finality of this decision, and (b)
thereafter to deposit with the said court the insurance proceeds from the loss of the vessel, M/V
P. Aboitiz, and the freightage earned in order to safeguard the same pending final resolution of
all incidents relative to the final pro-rating thereof and to the settlement of all claims.1âwphi1.nêt
SO ORDERED.
Dela Torre vs CA | GR No. 160088 July 13, 2011
(see the case under the liability of the charterer to the shipowner in case of bareboat charter)
ABOITIZ SHIPPING CORPORATION VS.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.
TRANSPORTAION LAW CASES MIDTERM 46
 G.R. NO. 100446
JANUARY 21, 1993
This refers to a petition for review which seeks to annul and set aside the decision of
the Court of Appeals dated June 21, 1991, in CA G.R. SP No. 24918. The appellate
court dismissed the petition for certiorari filed by herein petitioner, Aboitiz Shipping
Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court
of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425
granting private respondent's prayer for execution for the full amount of the judgment
award. The trial court in so doing swept aside petitioner's opposition which was
grounded on the real and hypothecary nature of petitioner's liability as ship owner. The
application of this established principle of maritime law would necessarily result in a
probable reduction of the amount to be recovered by private respondent, since it would
have to share with a number of other parties similarly situated in the insurance
proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged
in the business of maritime trade as a carrier. As such, it owned and operated the ill-
fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from Hongkong to
the Philippines on October 31, 1980. Private respondent General Accident Fire and
Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance
company pursuing its remedies as a subrogee of several cargo consignees whose
respective cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost
cargo either by the shippers, their successor-in-interest, or the cargo insurers like
GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine
Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was
due to force majeure and that subject vessel, at the time of the sinking was seaworthy.
This administrative finding notwithstanding, the trial court in said Civil Case No.
144425 found against the carrier on the basis that the loss subject matter therein did
not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was
allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC
was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of
Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering
rough sailing. The attempted execution of the judgment award in said case in the
amount of P1,072,611.20 plus legal interest has given rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of
the BMI that the vessel was seaworthy at the time of the sinking, and that such sinking
was due to force majeure. One such ruling was likewise elevated to this Court in G.R.
No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et al.,
August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore,
is to reconcile the resulting apparent contrary findings in cases originating out of a
single set of facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to the
applicability of the doctrine of limited liability on the totality of the claims vis a vis the
losses brought about by the sinking of the vessel M/V P. ABOITIZ, as based on the
real and hypothecary nature of maritime law. This is an issue which begs to be
resolved considering that a number of suits alleged in the petition number about 110
(p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result
in more confusion than presently attends the instant case.
In support of the instant petition, the following arguments are submitted by the
petitioner:
1. The Limited Liability Rule warrants immediate stay of execution of judgment to
prevent impairment of other creditors' shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the
shipowner; and
3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26,
Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing
that:
1. There is no limited liability to speak of or applicable real and hypothecary rule under
Article 587, 590, and 837 of the Code 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.)
TRANSPORTAION LAW CASES MIDTERM 47

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 may be ancient,
but they are timeless and have remained to be good law. Collaterally, determination
of the question of whether execution of judgments which have become final and
executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand
that the very purpose for its existence is to see to the accomplishment of the ends of
justice. Consistent with this view, a number of decisions have originated herefrom, the
tenor of which is that no procedural consideration is sacrosanct if such shall result in
the subverting of substantial justice. The right to an execution after finality of a decision
is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this
Court ruled that:
. . . It is a truism that every court has the power "to control, in the furtherance of justice,
the conduct of its ministerial officers, and of all other persons in any manner connected
with a case before it, in every manner appertaining thereto. It has also been said that:
. . . every court having jurisdiction to render a particular judgment has inherent power
to enforce it, and to exercise equitable control over such enforcement. The court has
authority to inquire whether its judgment has been executed, and will remove
obstructions to the enforcement thereof. Such authority extends not only to such
orders and such writs as may be necessary to carry out the judgment into effect and
render it binding and operative, but also to such orders and such writs as may be
necessary to prevent an improper enforcement of the judgment. If a judgment is sought
to be perverted and made a medium of consummating a wrong the court on proper
application can prevent it. (at p. 359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]),
this Court found that:
The rule that once a decision becomes final and executory, it is the ministerial duty of
the court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes the imperative in the higher interest of justice to
direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it
is necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when
certain facts and circumstances transpired after the judgment became final which
would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354).
(at p. 201)
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
TRANSPORTAION LAW CASES MIDTERM 48
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.
TRANSPORTAION LAW CASES MIDTERM 49
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in Art.
587.
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section
(on collisions), shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage. (Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for injuries to third
parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited liability
rule, which is a matter of near absolute application in other jurisdictions, so lightly as
to merely "imply" its inapplicability, because as could be seen, the reasons for its being
are still apparently much in existence and highly regarded.
We now come to its applicability in the instant case. In the few instances when the
matter was considered by this Court, we have been consistent in this jurisdiction in
holding that the only time the Limited Liability Rule does not apply is when there is an
actual finding of negligence on the part of the vessel owner or agent (Yango v.
Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32
[1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The
pivotal question, thus, is whether there is a finding of such negligence on the part of
the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425
(pp. 27-33, Rollo) as well as the entirety of the records in the instant case will show
that there has been no actual finding of negligence on the part of petitioner. In its
Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz"
and its cargo were not lost due to fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo)
affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50,
Rollo) since both decisions did not make any new and additional finding of fact. Both
merely affirmed the factual findings of the trial court, adding that the cause of the
sinking of the vessel was because of unseaworthiness due to the failure of the crew
and the master to exercise extraordinary diligence. Indeed, there appears to have
been no evidence presented sufficient to form a conclusion that petitioner shipowner
itself was negligent, and no tribunal, including this Court will add or subtract to such
evidence to justify a conclusion to the contrary.
The qualified nature of the meaning of "unseaworthiness," under the peculiar
circumstances of this case is underscored by the fact that in the Country Banker's
case, supra, arising from the same sinking, the Court sustained the decision of the
Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can be laid
squarely on petitioner's lap, absent a factual basis for such a conclusion. The
unseaworthiness found in some cases where the same has been ruled to exist is
directly attributable to the vessel's crew and captain, more so on the part of the latter
since Article 612 of the Code of Commerce provides that among the inherent duties of
a captain is to examine a vessel before sailing and to comply with the laws of
navigation. Such a construction would also put matters to rest relative to the decision
of the Board of Marine Inquiry. While the conclusion therein exonerating the captain
and crew of the vessel was not sustained for lack of basis, the finding therein contained
to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is
not totally incompatible with the findings of the trial court and the Court of Appeals,
whose finding of "unseaworthiness" clearly did not pertain to the structural condition
of the vessel which is the basis of the BMI's findings, but to the condition it was in at
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
TRANSPORTAION LAW CASES MIDTERM 50
access to the assets of the individual shareholders, but must limit their recovery to
what is left in the name of the corporation. Thus, in the case of Lipana v. Development
Bank of Rizal earlier cited, We held that:
In the instant case, the stay of execution of judgment is warranted by the fact that the
respondent bank was placed under receivership. To execute the judgment would
unduly deplete the assets of respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA
114), after the Monetary Board has declared that a bank is insolvent and has ordered
it to cease operations, the Board becomes the trustee of its assets for the equal benefit
of all creditors, and after its insolvency, one cannot obtain an advantage or preference
over another by an attachment, execution or otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel, the claimants or
creditors are limited in their recovery to the remaining value of accessible assets. In
the case of an insolvent corporation, these are the residual assets of the corporation
left over from its operations. In the case of a lost vessel, these are the insurance
proceeds and pending freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all claims preparatory to their
satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given precedence over the others
by the simple expedience of having filed or completed its action earlier than the rest.
Thus, execution of judgment in earlier completed cases, even those already final and
executory, must be stayed pending completion of all cases occasioned by the subject
sinking. Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not enough
to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all pending
cases (pp. 175 to 183, Rollo), together with the corresponding claims and the pro-rated
share of each. We likewise note that some of these cases are still with the Court of
Appeals, and some still with the trial courts and which probably are still undergoing
trial. It would not, therefore, be entirely correct to preclude the trial courts from making
their own findings of fact in those cases and deciding the same by allotting shares for
these claims, some of which, after all, might not prevail, depending on the evidence
presented in each. We, therefore, rule that the pro-rated share of each claim can only
be found after all the cases shall have been decided.
In fairness to the claimants, and as a matter of equity, the total proceeds of the
insurance and pending freightage should now be deposited in trust. Moreover,
petitioner should institute the necessary limitation and distribution action before the
proper admiralty court within 15 days from the finality of this decision, and thereafter
deposit with it the proceeds from the insurance company and pending freightage in
order to safeguard the same pending final resolution of all incidents, for final pro-rating
and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional
Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated
June 21, 1991 are hereby set aside. The trial court is hereby directed to desist from
proceeding with the execution of the judgment rendered in Civil Case No. 144425
pending determination of the totality of claims recoverable from the petitioner as the
owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and
to deposit the proceeds of the insurance of subject vessel as above-described within
fifteen (15) days from finality of this decision. The temporary restraining order issued
in this case dated August 7, 1991 is hereby made permanent.
SO ORDERED.
Note: Compare and contrast ‘Monarch’ with ‘Aboitiz”.
What is abandonment?
Abandonment is the act by which a thing is voluntarily renounced.
 There is no real intention to abandon a property when, as in the case of a shipwreck
or a fire, things are thrown into the sea or upon the highway. - U.S. vs. Rey, 8 Phil
504
 The physical relinquishment of a thing plus a clear intention not to reclaim or re-
assume ownership or enjoyment thereof. - Yu vs. De Lara, L-16084, November
30, 1962; 6 SCRA 787
 The actual, absolute and irrevocable desertion of one's right or property. - Teodoro
vs. Macaraeg, L-20700, February 27, 1969; 27 SCRA 19
 The relinquishment or surrender of rights or property by one person to another. -
Phil-Asia Tobacco Corporation vs. Arciaga, SP-01360, August 2, 1973.
 The act of giving up, forsaking or deserting. - Bautista vs. Castillo, SP-05944, June
19, 1978.
TRANSPORTAION LAW CASES MIDTERM 51

 The act of forsaking completely or giving up absolutely, with no intent to resume
against one's right or interest over a thing or right. - Cordero vs. Aldeano, 14226-
CAR, February 28, 1983.
The surrender, relinquishment, disclaimer or cession of property rights.
The voluntary relinquishment of all right, title, claim and possession, with the intention
of not reclaiming it.
The giving up of a thing absolutely, without reference to any particular thing or
purpose.
The voluntary relinquishment of possession of a thing by its owner with the intention
of terminating his ownership, but without vesting it in any other person.
 The relinquishing of all title, possession, or claim, or a virtual, intentional throwing
away of property. - Heirs of Ramon Cabrera vs. Cebu Country Club, Inc., CV-
06194, December 11, 1968.
The total physical absence from a given place, either voluntarily or planned. - David v.
San Agustin, 65410-R, November 4, 1980.
Elements of Abandonment
1. Act- abandonment must be done actually, through physical manifestations and not
merely verbal or mental.
2. Intention- the intention to abandon must be present. It must be voluntary and not
forced.
TEODORO R. YANGCO, ETC.
VS. MANUEL LASERNA, ET AL.
G.R. NO. L-47447-47449
OCTOBER 29, 1941
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros,
belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its retun
trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly
advised and his attention thereto called by the passengers themselves before the
vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to
7 inches below the surface of the water. Baggage, trunks and other equipments were
heaped on the upper deck, the hold being packed to capacity. In addition, the vessel
carried thirty sacks of crushed marble and about one hundred sacks of copra and
some lumber. The passengers, numbering about 180, were overcrowded, the vessel's
capacity being limited to only 123 passengers. After two hours of sailing, the boat
encountered strong winds and rough seas between the islands of Banton and Simara,
and as the waves splashed the ladies' dresses, the awnings were lowered. As the sea
became increasingly violent, the captain ordered the vessel to turn left, evidently to
return to port, but in the manuever, the vessel was caught sidewise by a big wave
which caused it to capsize and sink. Many of the passengers died in the mishap,
among them being Antolin Aldaña and his son Victorioso, husband and son,
respectively, of Emilia Bienvenida who, together with her other children and a brother-
in-law, are respondents in G.R. No. 47447; Casiana Laserna, the daughter of
respondents Manuel Laserna and P.A. de Laserna in G.R. 47448; and Genaro
Basaña, son of Filomeno Basaña, respondent in G.R. No. 47449. These respondents
instituted in the Court of First Instance of Capiz separate civil actions against petitioner
here to recover damages for the death of the passengers aforementioned. The court
awarded the heirs of Antolin and Victorioso Aldana the sum of P2,000; the heirs of
Casiana Laserna, P590; and those of Genaro Basana, also P590. After the rendition
of the judgment to this effcet, petitioner, by a verified pleading, sought to abandon th
evessel to the plainitffs in the three cases, together with all its equipments, without
prejudice to his right to appeal. The abandonment having been denied, an appeal was
taken to the Court of Appeals, wherein all the judgmnets were affirmed except that
which sums was increased to P4,000. Petitioner, now deceased, appealed and is here
represented by his legal representative.
Brushing aside the incidental issues, the fundamental question here raised is: May the
shipowner or agent, notwithstanding the total loss of the vessel as a result of the
negligence of its captain, be properly held liable in damages for the consequent death
of its passengers? We are of the opinion and so hold that this question is controlled
by the provisions of article 587 of the Code of Commerce. Said article reads:
TRANSPORTAION LAW CASES MIDTERM 52

The agent shall also be civilly liable for the indemnities in favor of third persons which
arise from the conduct of the captain in the care of the goods which the vessel carried;
but he may exempt himself therefrom by abandoning the vessel with all her
equipments and the freight he may have earned during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right to
abandon — "the vessel with all her equipments and the freight it may have earned
during the voyage." It is true that the article appears to deal only with the limited liability
of shipowners or agents for damages arising from the misconduct of the captain in the
care of the goods which the vessel carries, but this is a mere deficiency of language
and in no way indicates the true extent of such liability. The consensus of authorities
is to the effect that notwithstanding the language of the aforequoted provision, the
benefit of limited liability therein provided for, applies in all cases wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the
captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said article,
said:
The code's handwriting, in article 587, presents a graviestion. The right of
abandonment, if treated as written, only refers to compensation to which the
Captain's conduct in the custody of the effects on the vessel is addressed. Is
that the spirit of the legislator?
Will there be the right of abandonment in the responsibilities arising from
obligations undertaken by the Captain and other acts of the Captain?
We saw it obvious and, to strengthen our opinion, it is sufficient to copy the
following paragraph of the Statement of Reasons: "The project, in applying
these principles, is also inspired by the interests of the maritime trade, which
will be more insured offering to everything the shipowner or captain of the ship,
the actual guarantee thereof, whatever the powers or powers of which they are
invested." (Echavarri, Trade Code, Volume 4, 2. to ed., pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner
or agent is provided for in but three articles of the Code of Commerce — article 587
aforequoted and article 590 and 837. Article 590 merely reiterates the principle
embodied in article 587, applies the same principle in cases of collision, and it has
been observed that said article is but "a necessary consequences of the right to
abandon the vessel given to the shipowner in article 587 of the Code, and it is one of
the many superfluities contained in the Code." (Lorenzo Benito, Lecciones 352, quoted
in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only articles
587 and 590 are the provisions conatined in our Code of Commerce on the matter,
and the framers of said code had intended those provisions to embody the universal
principle of limited liability in all cases. Thus, in the "Exposicon de Motivos" of the Code
of Commerce, we read:
The present code (1829) does not determine the juridical status of the agent where
such agent is not himself the owner of the vessel. This omission is supplied by the
proposed code, which provides in accordance with the principles of maritime law that
by agent it is to be understood the person intrusted with the provisioning of the vessel,
or the one who represents her in the port in which she happens to be. This person is
the only one who represents the vessel — that is to say, the only one who represents
the interests of the owner of the vessel. This provision has therefore cleared the doubt
which existed as to the extent of the liability, both of the agent and of the owner of the
vessel. Such liability is limited by the proposed code to the value of the vessel and
other things appertaining thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed
ourselves in such a comprehensive manner as to leave no room for doubt on the
applicability of our ratio decidendi not only to cases of collision but also to those of
shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful obligations of the
captain and the liability which he incurs on account of any unlawful act committed by
him. In the first case, the lawful acts and obligations of the captain beneficial to the
vessel may be enforced as against the agent for the reason that such obligations arise
from te the contract of agency (provided, however, that the captain does not exceed
his authority), while as to any liability incurred by the captain through his unlawful acts,
the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to
the vessel and it does not extend further. For this reason the Code of Commerce
makes the agent liable to the extent of the value of the vessel, as the codes of the
principal maritime nations provide with the vessel, and not individually. Such is also
the spirit of our Code.
The spirit of our code s accurately set forth in a treatise on maritime law, from which
we deem proper to quote the following as the basis of this decision:lawphil.net
"That which distinguishes the maritime from the civil law and even from the mercantile
law in general is the real and hypothecary nature of the former, and the many securities
of a real nature that maritime customs from time immemorial, the laws, the codes, and
the later jurisprudence, have provided for the protection of the various and conflicting
TRANSPORTAION LAW CASES MIDTERM 53
interests which are ventured and risked in maritime expeditions, such as the interests
of the vessel and of the agent, those of the owners of the cargo and consignees, those
who salvage the ship, those who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a constructor as to repairs made
to the vessel.
"As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2)
the right to retain the cargo and the embargo and detention of the vessel even in cases
where the ordinary civil law would not allow more than a personal action against the
debtor or person liable. It will be observed that these rights are correlative, and
naturally so, because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole fortune in
the business, it is also just that his maritime creditor may for any reason attach the
vessel itself to secure his claim without waiting for a settlement of his rights by a final
judgment, even to the prejudice of a third person.
"This repeals the civil law to such an extent that, in certain cases, where the mortgaged
property is lost no personal action lies against the owner or agent of the vessel. For
instance, where the vessel is lost the sailors and members of the crew cannot recover
their wages; in case of collision, the liability of the agent is limited as aforesaid, and in
case of shipwreck, those who loan their money on the vessel and cargo lose all their
rights and cannot claim reimbursement under the law.
"There are two reasons why it is impossible to do away with these privileges, to wit:
(1) The risk to which the thing is exposed, and (2) the real nature of the maritime law,
exclusively real, according to which the liability of the parties is limited to a thing which
is at the mercy of the waves. If the agent is only liable with the vessel and freight money
and both may be lost through the accidents of navigation it is only just that the maritime
creditor have some means to obviating this precarious nature of his rights by detaining
the ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of
the same would be obliged to respect and recognize are — in addition to those existing
in favor of the State by virtue of the privileges which are granted to it by all the laws —
pilot, tonnate, and port dues and other similar charges, the wages of the crew earned
during the last voyage as provided in article 646 of the Code of Commerce, salvage
dues under article 842, the indemnification due to the captain of the vessel in case his
contract is terminated on account of the voluntary sale of the ship and the insolvency
of the owner as provided in article 608, and all other liabilities arising from collisions
under articles 837 and 838."
We are shared in this conclusion by the eminent commentators on the subject. Agustin
Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929
(pages 374-375), the like principle of limited liability of shipowners or agent in cases
of accidents, collisions, shipwrecks, etc., said:
Of the responsibilities that may prove as a consequence of the maritime trade,
and not only for its own facts but also for those that are caused by those of the
captain and the crew, the shipping company representing the ship responds to
third party; but the maritime law is mostly traditional and following an old
principle of the Middle Ages the responsibility of the shipper is organized in a
specific and particular way that it does not find similar in the general law of
obligations.
A running way to verify the maritime trade during the medieval era, was to lend
an owner his ship to load on the goods a certain person, and to go to sea, going
to the front of the expedition a patron of the ship, who arrived at the port of
destination was responsible for selling them and returned to the departure after
acquiring in that other effects that also resents his return, verified what the
benefits of the expedition were distributed among the owner ...
From the Enciclopedia Juridica Española, Vol. 23, p. 347, we read:
Now, how far does this responsibility of the ship-owner extend?
What assets can creditors compensate themselves on? This is another
specialty of maritime law; common law liability is limited; so was it in ancient
Roman maritime law; it was given the exercitoria actio against the exercitor
navis without any restriction, but in the Middle Ages a new idea was introduced
in the maritime uses.
The charges resulting from the maritime expeditions were considered limited
by the owners of the ships to the values committed by them in each expedition;
the company's assets are fictitiously separated into two parts that are still
designated in a fairly accurate manner; land fortune and sea fortune or floating;
and the theory was admitted that this was the one that responded only from
the debts that came from the acts of the captain or crew, that is, that the whole
of the shipper's estate would escape these charges from the moment ...
The views of these learned commentators, including those of Estasen (Derecho
Mercantil, Vol. 4, 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to
TRANSPORTAION LAW CASES MIDTERM 54
be desired and nothing to be doubted on the principle. It only remains to be noted that
the rule of limited liability provided for in our Code of Commerce reflects merely, or is
but a restatement, imperfect though it is, of the almost universal principle on the
subject. While previously under the civil or common law, the owner of a vessel was
liable to the full amount for damages caused by the misconduct of the master, by the
general maritime law of modern Europe, the liability of the shipowner was
subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans. Co. v. Wright,
80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament
upon the liability of Englosh shipowners through a series of statutes beginning in 1734
with the Act of 7 George II, chapter 15. The legislatures of Massachusetts and Maine
followed suit in 1818 and 1821, and finally, Congress enacted the Limited Liability Act
of March 3, 1851, embodying most of the provisions contained in the British Statutes
(see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit.
46, Code of Laws of U. S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. — The liability of the owner of
any vessel, for any embezzlement, loss, or destruction, by any person, of any property,
goods, or merchandise, shipped or put on board of such vessel, or for any loss,
damage, or injury by collision, or for any act, matter or thing, loss, damage, or
forfeiture, done, occasioned, or incurred without the privity, or knowledge of such
owner or owners, shall in no case exceed the amount or value of the interest of such
owner in such vessel, and her freight then pending.
The policy which the rule is designed to promote is the encouragement of shipbuilding
and investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright,
supra; The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that spirit that
the American courts construed the Limited Liability Act of Congress whereby the
immunities of the Act were applied to claims not only for lost goods but also for injuries
and "loss of life of passengers, whether arising under the general law of admiralty, or
under Federal or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow,
104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig
v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United
States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-
590, accounting for the history of the principle, clinches our exposition of the
supporting authorities:
The history of the limitation of liability of shipowners is matter of common knowledge.
The learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194,
leaves little to be desired on the subject. He shows that it originated in the maritime
law of modern Europe; that whilst the civil, as well as the common law, made the owner
responsible to the whole extent of damage caused by the wrongful act or negligence
of the matter or crew, the maritime law only made then liable (if personally free from
blame) to the amount of their interest in the ship. So that, if they surrendered the ship,
they were discharged.
Grotius, in his law of War and Peace, says that men would be deterred from investing
in ships if they thereby incurred the apprehension of being rendered liable to an
indefinite amount by the acts of the master and, therefore, in Holland, they had never
observed the Roman Law on that subject, but had a regulation that the ship owners
should be bound no farther than the value of their ship and freight. His words are:
Navis et eorum quae in navi sunt," "the ship and goods therein." But he is speaking of
the owner's interest; and this, as to the cargo, is the freight thereon, and in that sense
he is understood by the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p.
276; Book II, c. XI, sec. XIII. The maritime law, as codified in the celebrated French
Ordonance de la Marine, in 1681, expressed the rule thus: 'The proprietors of vessels
shall be responsible for the acts of the master, but they shall be discharged by
abandoning the ship and freight.' Valin, in his commentary on this passage, lib. 2, tit.
8, art. 2, after specifying certain engagements of the master which are binding on the
owners, without any limit of responsibility, such as contracts for the benefit of the
vessel, made during the voyage (except contracts of bottomry) says: "With these
exceptions it is just that the owner should not be bound for the acts of the master,
except to the amount of the ship and freight. Otherwise he would run the risk of being
ruined by the bad faith or negligence of his captain, and the apprehension of this would
be fatal to the interests of navigation. It is quite sufficient that he be exposed to the
loss of his ship and of the freight, to make it his interest, independently of any goods
he may have on board to select a reliable captain." Pardessus says: 'The owner is
bound civilly for all delinquencies committed by the captain within the scope of his
authority, but he may discharge himself therefrom by abandoning the ship and freight;
and, if they are lost, it suffices for his discharge, to surrender all claims in respect of
the ship and its freight," such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3,
sec. 2.
The same general doctrine is laid down by many other writers on maritime law. So that
it is evident that, by this law, the owner's liability was coextensive with his interest in
the vessel and its freight, and ceased by his abandonment and surrender of these to
the parties sustaining loss.
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in
any way be held civilly liable at all for injury to or death of passengers arising from the
negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-
extensive with his interest in the vessel such that a total loss thereof results in its
extinction. In arriving at this conclusion, we have not been unmindful of the fact that
TRANSPORTAION LAW CASES MIDTERM 55
the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common
carrier (De Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in
interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that
the relationship between the petitioner and the passengers who died in the mishap
rests on a contract of carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively "real and hypothecary nature" of maritime law
operates to limit such liability to the value of the vessel, or to the insurance thereon, if
any. In the instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case
was in accordance with law of not, is immaterial. The vessel having totally perished,
any act of abandonment would be an idle ceremony.
Judgement is reversed and petitioner is hereby absolved of all the complaints, without
costs.
Behn, Meyer & Co. v. El Banco Español-Filipino GR 4395 Sept. 9, 1908
The Liability of the Charterer to the Ship-owner in case of bareboat charter
Dela Torre v. CA GR 160088 July 13, 2011
Crew or Sailors of the Vessel CoC Art. 634-637 Effects if the Captain or the
Crew is discharged during the voyage
CoC Art. 604
Discharge during a Contract of a definite period of the voyage
CoC Art. 605
Madrigal Shipping v. Ogilvie GR L-8431 October 30, 1958
Wallem Philippines Shipping v. Minister of Labor GR L-50734-37 February 20,
1981

LIST OF CASES
Valid Grounds for Dismissal of the Captain and his Crew
CoC Art. 636-637

Limited Liability Rule Monarch Insurance v. CA GR 92735 June 8, 2000

What is a charter party?
Dela Torre v. CA GR 160088 July 13, 2011
Caltex v. Sulpicio Lines, Sept. 30, 1999 GR 131166
Aboitiz Shipping v. General Accident Fire and Life Insurance GR 100446
January 21, 1993
Kinds of Charter Party
Coastwise Lighterage v. CA July 12, 1995 GR 114167
(Compare and Contrast “Monarch” with “Aboitiz”) What is abandonment?
Yangco v. Lacerna GR L-47447-49 October 29, 1941
What is a contract of affreightment?
Planters Products v. CA GR 101503 Sept. 15, 1993

Charterer was Liable for the damages suffered by an unjust dismissal of the
engineer before the lapse of the contract
Litonjua v. National Seamen Board GR L-51910 August 10, 1989

Effects of Charter on the character of carrier Persons that are authorized to

make charter
CoC Art. 679, 598, 655

Rights and Obligations of the Charter Party

TRANSPORTAION LAW CASES MIDTERM 56