Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in
her official capacity as City Treasurer of Batangas, respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R.
SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293,
which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and
operate oil pipelines. The original pipeline concession was granted in 1967 1 and renewed by the Energy Regulatory
Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City.
However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local
tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on
the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first
quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion
of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government concession granted
under the Petroleum Act. It is engaged in the business of transporting petroleum products from the
Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133 of the Local Government Code of
1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of contractors under
Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax
"on contractors and other independent contractors" under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized under Section
147 of the Local Government Code. The said section limits the imposition of fees and charges on
business to such amounts as may be commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof

based on gross receipts is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing.
The fee is already a revenue raising measure, and not a mere regulatory imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered
engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government
Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax refund with prayer
for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the
authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the
said tax, thus meriting the immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of
the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included
in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like.
Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by
which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax
exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said
law nor the deed of concession grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local
Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal)
resort to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses only common carriers so as not to
overburden the riding public or commuters with taxes.
Plaintiff is not a common carrier, but a special carrier
extending its services and facilities to a single specific or
"special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to
give more and effective local autonomy to local
governments than the previous enactments, to make them
economically and financially viable to serve the people and
discharge their functions with a concomitant obligation to
accept certain devolution of powers, . . . So, consistent with
this policy even franchise grantees are taxed (Sec. 137)

and contractors are also taxed under Sec. 143 (e) and 151
of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred
the case to the respondent Court of Appeals for consideration and adjudication. 10 On November 29, 1995, the
respondent court rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. 13 Petitioner
moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition
was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or
a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods
for others as a public employment, and must hold himself
out as ready to engage in the transportation of goods for
person generally as a business and not as a casual
occupation;
2. He must undertake to carry goods of the kind to which
his business is confined;
3. He must undertake to carry by the method by which his
business is conducted and over his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in
the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes
to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods
by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a
common carrier. In De Guzman vs. Court of Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) 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 . . . avoids making any distinction between a person
or enterprise offering transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to

the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, "public service" includes:
every person that now or hereafter may own, operate.
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system gas, electric light
heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other
similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code
refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land,
sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to
the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus,
Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe line shall have
the preferential right to utilize installations for the transportation of petroleum
owned by him, but is obligated to utilize the remaining transportation capacity
pro rata for the transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such rates as may
have been approved by the Secretary of Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . .
and everything relating to the manufacture, refining, storage, or transportation
by special methods of petroleum, is hereby declared to be a public utility.
(Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it
declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in
transporting petroleum products, it is considered a common carrier under
Republic Act No. 387 . . . . Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of
transportation contractors and persons
engaged in the transportation of
passengers or freight by hire and
common carriers by air, land or water,
except as provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing
Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation.
This appears to be one of those being deemed to be exempted from the taxing
powers of the local government units. May we know the reason why the
transportation business is being excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121
(now Sec. 131), line 16, paragraph 5. It states that local government units may
not impose taxes on the business of transportation, except as otherwise
provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one
can see there that provinces have the power to impose a tax on business
enjoying a franchise at the rate of not more than one-half of 1 percent of the
gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr.
Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by
local government units on the carrier business. Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of
business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National
Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its transportation of petroleum business would
defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November
29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, Puno and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than
regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk
Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of
Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or
before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his
trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the
other truck which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since
the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by
armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and
holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way
of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth,
be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. ... (Emphasis supplied)
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 back-hauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private 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 fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of
care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration
of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers;
and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common
carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed extraordinary diligence as required
in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case
the hijacking of the carrier's truck does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions
of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part
of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the
instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with
the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the
vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional
specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in
relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of
his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle,
ship, airplane or other equipment used in the contract of carriage. (Emphasis
supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to diminish
such responsibility even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact
acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.
The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina,
Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away
with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with
grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The
robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found
by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous
standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for
the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's
control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated
3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE &
SURETY CORPORATION, respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE &
MARINE INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose
from the same incident, the sinking of the M/S ASIATICA when it caught fire,
resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a
vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to
hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to
Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of
spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both
sets of goods were insured against marine risk for their stated value with
respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128
cartons of garment fabrics and accessories, in two (2) containers, consigned to
Mariveles Apparel Corporation, and two cases of surveying instruments
consigned to Aman Enterprises and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire & Marine Insurance Co.,
for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine
Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in
the total loss of ship and cargo. The respective respondent Insurers paid the

corresponding marine insurance values to the consignees concerned and were

thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation
(Development Insurance, for short), having been subrogated unto the rights of
the two insured companies, filed suit against petitioner Carrier for the recovery of
the amounts it had paid to the insured before the then Court of First instance of
Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development
Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with
legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier
took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN
for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as
subrogees of the insured, filed suit against Petitioner Carrier for the recovery of
the insured value of the cargo lost with the then Court of First Instance of Manila,
Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which
caused the sinking of the ship is an exempting circumstance under Section 4(2)
(b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire
is established, the burden of proving negligence of the vessel is shifted to the
cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN
and DOWA in the amounts of US $46,583.00 and US $11,385.00, respectively,
with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by
petitioner, the then Court of Appeals on September 10, 1984, affirmed with
modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under
the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January
16, 1985 by the First Division, and G. R. No. 71478 on September 25, 1985 by
the Second Division. Upon Petitioner Carrier's Motion for Reconsideration,
however, G.R. No. 69044 was given due course on March 25, 1985, and the
parties were required to submit their respective Memoranda, which they have
done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration
of the Resolution denying the Petition for Review and moved for its consolidation
with G.R. No. 69044, the lower-numbered case, which was then pending
resolution with the First Division. The same was granted; the Resolution of the
Second Division of September 25, 1985 was set aside and the Petition was given
due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the
M/S Asiatica but merely a charterer thereof. We note that in G.R. No. 69044,
Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where
various plaintiffs are represented by various counsel representing various
consignees or insurance companies. The common defendant in these cases is
petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the
facts alleged in a party's pleading are deemed admissions of that party and
binding upon it. 2 And an admission in one pleading in one action may be
received in evidence against the pleader or his successor-in-interest on the trial
of another action to which he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil
Code provisions on Common carriers or the Carriage of Goods by Sea Act? and
(2) who has the burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the
liability of the common carrier in case of their loss, destruction or deterioration. 4
As the cargoes in question were transported from Japan to the Philippines, the
liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in
all matters not regulated by said Code, the rights and obligations of common
carrier shall be governed by the Code of Commerce and by special laws. 6 Thus,
the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code. 7
On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over goods, according to all the circumstances of each case. 8 Common
carriers are responsible for the loss, destruction, or deterioration of the goods
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability
under the phrase "natural disaster or calamity. " However, we are of the opinion
that fire may not be considered a natural disaster or calamity. This must be so as
it arises almost invariably from some act of man or by human means. 10 It does
not fall within the category of an act of God unless caused by lightning 11 or by
other natural disaster or calamity. 12 It may even be caused by the actual fault or
privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases of rural lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to such event, considering
that the law adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734,
supra, Article 1735 of the Civil Code provides that all cases than those mention in
Article 1734, the common carrier shall be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary
deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have
proven that the transported goods have been lost. Petitioner Carrier has also
proved that the loss was caused by fire. The burden then is upon Petitioner
Carrier to proved that it has exercised the extraordinary diligence required by law.
In this regard, the Trial Court, concurred in by the Appellate Court, made the
following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in
hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that
smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was ordered released and the
crew was ordered to open the hatch covers of No, 2 tor commencement of fire
fighting by sea water: that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in
the vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of
fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he
amount of diligence made by the crew, on orders, in the care of the cargoes.

What appears is that after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage. Consequently, the
crew could not have even explain what could have caused the fire. The
defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the
fire. The defendant, as a common carrier, is liable to the consignees for said lack
of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Petitioner Carrier cannot escape liability
for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of
Article 1734 of the Civil Code, it is required under Article 1739 of the same Code
that the "natural disaster" must have been the "proximate and only cause of the
loss," and that the carrier has "exercised due diligence to prevent or minimize the
loss before, during or after the occurrence of the disaster. " This Petitioner Carrier
has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods
by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a
fact, that there was "actual fault" of the carrier shown by "lack of diligence" in that
"when the smoke was noticed, the fire was already big; that the fire must have
started twenty-four (24) hours before the same was noticed; " and that "after the
cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread are such as to show
that Petitioner Carrier or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results
from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per
package as provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, or the equivalent of

that sum in other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in bill of lading. This
declaration if embodied in the bill of lading shall be prima facie evidence, but all
be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In
no event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this
wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the
common carrier to a fixed amount per package although the Code expressly
permits a stipulation limiting such liability. Thus, the COGSA which is suppletory
to the provisions of the Civil Code, steps in and supplements the Code by
establishing a statutory provision limiting the carrier's liability in the absence of a
declaration of a higher value of the goods by the shipper in the bill of lading. The
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a
part of a bill of lading as though physically in it and as much a part thereof as
though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading
(Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or
destruction of the goods. Nor is there a declaration of a higher value of the
goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the goods
lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039
(Exhibit "C"), which was exactly the amount of the insurance coverage by
Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-2")
Multiplying 28 packages by $500 would result in a product of $14,000 which, at
the current exchange rate of P20.44 to US $1, would be P286,160, or "more than
the amount of damage actually sustained." Consequently, the aforestated
amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual
value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the
cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court.

however, multiplying seven (7) cases by $500 per package at the present
prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540
only, which is the amount that should be paid by Petitioner Carrier for those
spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are
concerned, the amount awarded to DOWA which was already reduced to $1,000
by the Appellate Court following the statutory $500 liability per package, is in
order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers
and insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's
liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it
multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the
figure of $64,000, and explained that "since this amount is more than the insured
value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum
limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers
should be considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the
consignees of tin ingots and the shipper of floor covering brought action against
the vessel owner and operator to recover for loss of ingots and floor covering,
which had been shipped in vessel supplied containers. The U.S. District Court
for the Southern District of New York rendered judgment for the plaintiffs, and the
defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act.
Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be
treated as packages, the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5),
46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that
treating a container as a package is inconsistent with the congressional purpose
of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism,
there is, nonetheless, much to commend it. It gives needed

recognition to the responsibility of the courts to construe and

apply the statute as enacted, however great might be the
temptation to "modernize" or reconstitute it by artful judicial
gloss. If COGSA's package limitation scheme suffers from
internal illness, Congress alone must undertake the surgery.
There is, in this regard, obvious wisdom in the Ninth Circuit's
conclusion in Hartford that technological advancements, whether
or not forseeable by the COGSA promulgators, do not warrant a
distortion or artificial construction of the statutory term "package."
A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages at least where, as
here, they were carrier owned and supplied would amount to
just such a distortion.
Certainly, if the individual crates or cartons prepared by the
shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose
that character upon being stowed in a carrier's container. I would
liken these containers to detachable stowage compartments of
the ship. They simply serve to divide the ship's overall cargo
stowage space into smaller, more serviceable loci. Shippers'
packages are quite literally "stowed" in the containers utilizing
stevedoring practices and materials analogous to those
employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on
other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime
cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the
functional economics test. Judge Kellam held that when rolls of polyester goods
are packed into cardboard cartons which are then placed in containers, the
cartons and not the containers are the packages.
xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes,

18

followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper

into cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as
the COGSA packages. However, Eurygenes indicated that a carrier could limit its
liability to $500 per container if the bill of lading failed to disclose the number of
cartons or units within the container, or if the parties indicated, in clear and
unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of
Package Limitations and Third World Delivery Problems by
Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis
supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers

(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the
containers, the number of cartons or units, as well as the nature of the goods,
and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128
cartons, not the two (2) containers should be considered as the shipping unit
subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein
were carrier-furnished or not. Usually, however, containers are provided by the
carrier. 19 In this case, the probability is that they were so furnished for Petitioner
Carrier was at liberty to pack and carry the goods in containers if they were not
so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the
following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers
Only" in the Bill of Lading, meaning that the goods could probably fit in two (2)
containers only. It cannot mean that the shipper had furnished the containers for
if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if
there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the obscurity. 20 This applies with
even greater force in a contract of adhesion where a contract is already prepared
and the other party merely adheres to it, like the Bill of Lading in this case, which
is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R.
No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take
the depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its
evidence but it failed to do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the
time from June 27, 1978, when its answer was prepared and filed in Court, until

September 26, 1978, when the pre-trial conference was conducted for the last
time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in
Japan, served upon the plaintiff on August 25th, just two days before the hearing
set for August 27th, knowing fully well that it was its undertaking on July 11 the
that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that
regard. The defendant has told the Court since February 16, 1979, that it was
going to take the deposition of its witnesses in Japan. Why did it take until August
25, 1979, or more than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in support of its
defenses.
xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It
cannot complain now that it was denied due process when the Trial Court
rendered its Decision on the basis of the evidence adduced. What due process
abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases,
respondent Court affirmed the award by the Trial Court of attorney's fees of
P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00
in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is
believed that the amount of P5,000.00 would be more reasonable in G.R. No.
69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner
Eastern Shipping Lines shall pay the Development Insurance and Surety
Corporation the amount of P256,039 for the twenty-eight (28) packages of
calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with
interest at the legal rate from the date of the filing of the complaint on June 13,
1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

G.R. No. 47004 March 8, 1989

MARITIME COMPANY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and RIZAL SURETY & INSURANCE CO., respondents.
FIRST DIVISION
Rafael Dinglasan for petitioner.
Carlos, Ibarra & Valdez for private respondent.

NARVASA, J.:
In the Court of First Instance of Manila, Rizal Surety & Insurance Co. (hereafter,
simply Rizal Surety) sued the National Development Company (NDC) and
Maritime Co. of the Philippines (hereafter simply Maritime Co.) for the recovery of
a sum of money paid by it as insurer for the value of goods lost in transit on
board vessel known as the SS Doa Nati . 1 After due proceedings and trial, the
complainant was "dismissed with costs against plaintiff ." 2 The Trial Court's
judgment was founded upon the following findings and conclusions, to wit:
1. Rizal Surety 'was the insurer of 800 packages of PVC compound
loaded on the SS Doa Nati at Yokohama and consigned to the
Acme Electrical Manufacturing Company."
2. " The SS Doa Nati was owned by the National Development
Company whereas he Maritime Company of the Philippines was its
Agent. This appears indubitably in the Bill of Lading. Exhibit D."
3. The goods were never delivered to the consignee (Acme
Electrical, etc., supra) so that x x (Rizal) as Insurer, paid x x (said)
consignee the sum of P38,758.50."
4. The cause of the non-delivery of the goods, from the evidence
presented by both Defendants is that in Nagoya Bay, while the SS
Doa Nati was being piloted by a Japanese pilot, the SS Doa Nati

was rammed by M/V Yasushima Maru, causing damage to the hull

of the SS Doa Nati and the resultant flooding of the holds
damaged beyond repair the goods of the consignee in question."
5. There is no doubt that under our Code of Commerce, it would be
the vessel at fault in this collision, that would be responsible for the
damage to the cargo. And the evidence of both Defendants, which
has not been rebutted, is that the M/V Yasushima Maru was at fault
in the collision, so that the cause of action of plaintiff should be
directed to the owners of the negligent vessel. However, as Plaintiff
has brought this action in good faith, attorney's fees are not
recoverable."
Rizal Surety elevated the case to the Court of Appeals. 3 That Court
found merit in its appeal. It thus rendered judgment, 4 setting aside
that of the Trial Court and 'ordering defendants-appellees (NDC and
Maritime Co.) jointly and severally to pay jointly and severally to
plaintiff-appellant (Rizal Surety) the sum of P38,758.50 with legal
rate of interest from the filing of the complaint ." 5
This judgment of the Appellate Tribunal was in turn appealed by
Maritime Company. To that Court Maritime Co. attributes the
following errors, in a bid to have its judgment reversed by this
Court, viz:
1) holding that it was a ship agent under the Code of Commerce
instead of merely an agent under the Civil Code;
2) not holding that under the Bill of Lading sued upon, Rizal Surety
had no cause of action against either impleaded defendant;
3) not holding that the collision between the SS Doa Nati and the
M/V Yasushima Maru which caused the loss of the insured goods
was due solely to the fault or negligence of the complement of the
Yasushima Maru, as well as the character of the goods themselves
and the defect in their packing, and
4) not holding that Rizal Surety's cause of action was barred by
prescription as well as Stipulation No. 19 of the Bill of Lading.
The evidence establishes that NDC had appointed petitioner Maritime Co., as its
agent to manage and operate three vessels owned by it, including the SS Doa
Nati for and in its behalf and account, and for a determinable period (i.e., until full
reimbursement of all moneys advanced and/or full relief from or payment of all
guarantees made by Maritime Co. for account of the vessels). Under their written
agreement, Maritime Co. was bound to "provision and victual" the SS Doa Nati

and the other two vessels, and to render a complete report of the operations of
the vessels within 60 days after conclusion of each voyage; it was also
authorized to appoint sub-agents at any ports or places that it might deem
necessary, remaining however responsible to the shipowner (NDC) for the timely
and satisfactory performance of said sub-agents. These facts preponderantly
demonstrate the character of Maritime Co. as ship agent under the Code of
Commerce, a ship agent, accordingly to that Code, being "the person entrusted
with provisioning or representing the vessel in the port in which it may be found."
6

Maritime Co. however insists that it was not the ship agent of NDC in Japan but
"the Fuji Asano Co., Ltd., which supplied her with provisions, and represented her
therein and which issued the bill of lading for the owner NDC The claim is belied
by the bill of lading referred to. 7 The letterhead of the bill of lading is in two (2)
parts, and is printed in the following manner:
PHILIPPINE NATIONAL LINES
NATIONAL DEVELOPMENT COMPANY
MARITIME COMPANY OF THE PHILIPPINES
AGENT
PHILIPPINES-HONGKONG, JAPAN, U.S. PACIFIC
COAST-GULF PORTS
HONGKONG-COSMOS DEVELOPMENT COMPANY
* JAPAN-FUJI ASANO KAIUN CO, LTD.
* U.S.A-NORTH AMERICAN MARITIME AGENCIES
As will be observed, in what may be described as the main letterhead, Maritime
Co. is indicated as "Agent" for the (1) Philippines, (2) "Hongkong, (3) Japan, and
the (4) U.S. Pacific Coast-Gulf Ports. Underneath this main letterhead is a sort of
secondary sub-head: "Hongkong-Cosmos Development Company; Japan-Fuji
ASANO Kaiun Co., Ltd., U.SA-North American Maritime Agencies." The
necessary connotation is that the firms thus named are sub-agents or secondary
representatives of Maritime Co., Fuji ASANO Kaiun Co., Ltd., particularly, being
the representative of NDC and Maritime Co. in Japan, as distinguished from the
Maritime Co., which is described as AGENT not only in Japan but also in other
places: the Philippines, Hongkong, U.S. Pacific Coast, and the Gulf Ports.
Moreover, the bill shows on its face that it was issued 'FOR THE MASTER' by
"Maritime Company of the Philippines, Agent."

Equally unacceptable is the contention that Acme Electrical Manufacturing,

Manila," was not the consignee of the goods described in the bill of lading and
therefore, payment to it for the loss of said goods did not operate to make Rizal
Surety its subrogee. The contention is in the first place belied by the bill of lading
which states that if the goods are "consigned to the Shipper's Order"-and the bill
is so consigned: "to the order of China Banking Corporation, Manila, or assigns"the "Acme Electrical Manufacturing, Manila," shall be notified. This shows, in the
context of the other documents hereafter adverted to, that Acme was the importer
and China Banking Corporation the financing agency. The contention is also
confuted by the Commercial Invoice of the shipper 8 which recites that it was "by
order and for account of Messrs. Acme Electrical Manufacturing, Manila" that the
800 bags of PVC compound were shipped from Yokohama to Manila. It is also
disaproved by the fact that it was Acme that insured the goods with Rizal Surety
and the latter did insure them 9 on the strength of the former's Marine Risk Note,
10 long before the goods were lost at sea, and it was Acme, thru its broker, that
claimed the proceeds for the loss. 11 The contention is finally discredited by
Maritime Co.'s own certification which states that the "800 packages of PVC
Compound ... consigned to Acme Electrical Manufacturing was 'carried away' to
sea as a result of the accident and same was unrecovered .. . 12
There is thus no question of the entitlement of Acme Electrical Manufacturing to
the proceeds of the insurance against loss of the goods in question, nor about
the fact that it did receive such proceeds from the Rizal Surety, as insurer, which
made payment upon due ascertainment of the actuality of the loss. The legal
effect is inescapable. Rizal Surety was subrogated to Acme's rights against the
shipowner and the ship agent arising from the loss of the goods. 13
Now, according to the Court of Appeals, Acme's rights are to be determined by
the Civil Code, not the Code of Commerce. This conclusion derives from Article
1753 of the Civil Code to the effect that it is the "law of the country to which the
goods are to be transported (which) shall govern the liability of the common
carrier for their loss, destruction or deterioration." It is only in "matters not
regulated by x x (the Civil) Code," according to Article 1766, that "the rights and
obligations of common carriers shall be governed by the Code of Commerce and
by special laws." Since there are indeed specific provisions regulating the matter
of such liability in the Civil Code, these being embodied in Article 1734, as well as
prescribing the period of prescription of actions, it follows that the Code of
Commerce, or the Carriage of Goods by Sea Act, has no relevancy in the
determination of the carrier's liability in the instant case. In American President
Lines v. Klepper, 14 for instance, we ruled that in view of said Articles 1753 and
1766, the provisions of the Carriage of Goods by Sea Act are merely suppletory
to the Civil Code.
Under the established facts, and in accordance with Article 1734 above
mentioned, petitioner Maritime Co. and NDC, as "common carriers," are liable to
Acme for "the loss, destruction or deterioration of the goods," and may be

relieved of responsibility if the loss, etc., "is due to any of the following causes
only: 15
1. Flood, storm, earthquakes, lightning or other natural disaster or
calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority.'
Since none of the specified absolutory causes is present, the carrier's liability is
palpable.
The petitioner's other claim that the loss of the goods was due entirely to the fault
of the Japanese vessel, Yasushima Maru, which rammed into the Doa Nati
cannot be sustained. The Appellate Tribunal found, as a fact, after a review and
study of the evidence, that the Doa Nati "did not exercise even due diligence to
avoid the collision.' In line with the familiar axiom that factual conclusions of the
Court of Appeals are conclusive and may not be reviewed, the petitioners attempt
to shift the blame to the Japanese vessel is futile. Having failed to exercise
extraordinary diligence to avoid any loss of life and property, as commanded by
law, not having in fact exercised "even due diligence to avoid the collision,' it
must be held responsible for the loss of the goods in question. Besides, as
remarked by the Court of Appeals, "the principal cause of action is not derived
from a maritime collision, but rather, from a contract of carriage, as evidenced by
the bill of lading."
WHEREFORE, the Decision of the Court of Appeals subject of the petition for
review is AFFIRMED, with costs against petitioner.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 95582 October 7, 1991
DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y
MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY,
FERNANDO CUDLAMAT, MARRIETA CUDIAMAT, NORMA CUDIAMAT,
DANTE CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA CUDIAMAT, all Heirs
of the late Pedrito Cudiamat represented by Inocencia Cudiamat,
respondents.
Francisco S. Reyes Law Office for petitioners.
Antonio C. de Guzman for private respondents.

REGALADO, J.:p
On May 13, 1985, private respondents filed a complaint 1 for damages against
petitioners for the death of Pedrito Cudiamat as a result of a vehicular accident
which occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet.
Among others, it was alleged that on said date, while petitioner Theodore M.
Lardizabal was driving a passenger bus belonging to petitioner corporation in a
reckless and imprudent manner and without due regard to traffic rules and
regulations and safety to persons and property, it ran over its passenger, Pedrito
Cudiamat. However, instead of bringing Pedrito immediately to the nearest
hospital, the said driver, in utter bad faith and without regard to the welfare of the
victim, first brought his other passengers and cargo to their respective
destinations before banging said victim to the Lepanto Hospital where he
expired.
On the other hand, petitioners alleged that they had observed and continued to
observe the extraordinary diligence required in the operation of the transportation
company and the supervision of the employees, even as they add that they are
not absolute insurers of the safety of the public at large. Further, it was alleged
that it was the victim's own carelessness and negligence which gave rise to the
subject incident, hence they prayed for the dismissal of the complaint plus an
award of damages in their favor by way of a counterclaim.

On July 29, 1988, the trial court rendered a decision, effectively in favor of
petitioners, with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that
Pedrito Cudiamat was negligent, which negligence was the proximate cause of
his death. Nonetheless, defendants in equity, are hereby ordered to pay the heirs
of Pedrito Cudiamat the sum of P10,000.00 which approximates the amount
defendants initially offered said heirs for the amicable settlement of the case. No
costs.
SO ORDERED. 2

Not satisfied therewith, private respondents appealed to the Court of Appeals

which, in a decision 3 in CA-G.R. CV No. 19504 promulgated on August 14, 1990,
set aside the decision of the lower court, and ordered petitioners to pay private
respondents:
1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death
of the victim Pedrito Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;
3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as
actual and compensatory damages;
4. The costs of this suit. 4

Petitioners' motion for reconsideration was denied by the Court of Appeals in its
resolution dated October 4, 1990, 5 hence this petition with the central issue
herein being whether respondent court erred in reversing the decision of the trial
court and in finding petitioners negligent and liable for the damages claimed.
It is an established principle that the factual findings of the Court of Appeals as a
rule are final and may not be reviewed by this Court on appeal. However, this is
subject to settled exceptions, one of which is when the findings of the appellate
court are contrary to those of the trial court, in which case a reexamination of the
facts and evidence may be undertaken. 6
In the case at bar, the trial court and the Court of Appeal have discordant
positions as to who between the petitioners an the victim is guilty of negligence.
Perforce, we have had to conduct an evaluation of the evidence in this case for
the prope calibration of their conflicting factual findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following
findings:
This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a
moving vehicle, especially with one of his hands holding an umbrella. And,
without having given the driver or the conductor any indication that he wishes to

board the bus. But defendants can also be found wanting of the necessary
diligence. In this connection, it is safe to assume that when the deceased
Cudiamat attempted to board defendants' bus, the vehicle's door was open
instead of being closed. This should be so, for it is hard to believe that one would
even attempt to board a vehicle (i)n motion if the door of said vehicle is closed.
Here lies the defendant's lack of diligence. Under such circumstances, equity
demands that there must be something given to the heirs of the victim to
assuage their feelings. This, also considering that initially, defendant common
carrier had made overtures to amicably settle the case. It did offer a certain
monetary consideration to the victim's heirs. 7

However, respondent court, in arriving at a different opinion, declares that:

From the testimony of appellees'own witness in the person of Vitaliano Safarita, it
is evident that the subject bus was at full stop when the victim Pedrito Cudiamat
boarded the same as it was precisely on this instance where a certain Miss
Abenoja alighted from the bus. Moreover, contrary to the assertion of the
appellees, the victim did indicate his intention to board the bus as can be seen
from the testimony of the said witness when he declared that Pedrito Cudiamat
was no longer walking and made a sign to board the bus when the latter was still
at a distance from him. It was at the instance when Pedrito Cudiamat was closing
his umbrella at the platform of the bus when the latter made a sudden jerk
movement (as) the driver commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the appelleedriver in prematurely stepping on the accelerator and in not waiting for the
passenger to first secure his seat especially so when we take into account that
the platform of the bus was at the time slippery and wet because of a drizzle. The
defendants-appellees utterly failed to observe their duty and obligation as
common carrier to the end that they should observe extra-ordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by
them according to the circumstances of each case (Article 1733, New Civil
Code). 8

After a careful review of the evidence on record, we find no reason to disturb the
above holding of the Court of Appeals. Its aforesaid findings are supported by the
testimony of petitioners' own witnesses. One of them, Virginia Abalos, testified on
cross-examination as follows:
Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the
incident, there is a crossing?
A The way going to the mines but it is not being pass(ed) by the bus.
Q And the incident happened before bunkhouse 56, is that not correct?
A It happened between 54 and 53 bunkhouses. 9

The bus conductor, Martin Anglog, also declared:

Q When you arrived at Lepanto on March 25, 1985, will you please inform this
Honorable Court if there was anv unusual incident that occurred?

A When we delivered a baggage at Marivic because a person alighted there between

Bunkhouse 53 and 54.
Q What happened when you delivered this passenger at this particular place in
Lepanto?
A When we reached the place, a passenger alighted and I signalled my driver. When
we stopped we went out because I saw an umbrella about a split second and I
signalled again the driver, so the driver stopped and we went down and we saw
Pedrito Cudiamat asking for help because he was lying down.
Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying
down from the bus how far was he?
A It is about two to three meters.
Q On what direction of the bus was he found about three meters from the bus, was it
at the front or at the back?
A At the back, sir. 10 (Emphasis supplied.)

The foregoing testimonies show that the place of the accident and the place
where one of the passengers alighted were both between Bunkhouses 53 and
54, hence the finding of the Court of Appeals that the bus was at full stop when
the victim boarded the same is correct. They further confirm the conclusion that
the victim fell from the platform of the bus when it suddenly accelerated forward
and was run over by the rear right tires of the vehicle, as shown by the physical
evidence on where he was thereafter found in relation to the bus when it
stopped. Under such circumstances, it cannot be said that the deceased was
guilty of negligence.
The contention of petitioners that the driver and the conductor had no knowledge
that the victim would ride on the bus, since the latter had supposedly not
manifested his intention to board the same, does not merit consideration. When
the bus is not in motion there is no necessity for a person who wants to ride the
same to signal his intention to board. A public utility bus, once it stops, is in effect
making a continuous offer to bus riders. Hence, it becomes the duty of the driver
and the conductor, every time the bus stops, to do no act that would have the
effect of increasing the peril to a passenger while he was attempting to board the
same. The premature acceleration of the bus in this case was a breach of such
duty. 11
It is the duty of common carriers of passengers, including common carriers by
railroad train, streetcar, or motorbus, to stop their conveyances a reasonable
length of time in order to afford passengers an opportunity to board and enter,
and they are liable for injuries suffered by boarding passengers resulting from the
sudden starting up or jerking of their conveyances while they are doing so. 12
Further, even assuming that the bus was moving, the act of the victim in boarding
the same cannot be considered negligent under the circumstances. As clearly
explained in the testimony of the aforestated witness for petitioners, Virginia

Abalos, th bus had "just started" and "was still in slow motion" at the point where
the victim had boarded and was on its platform. 13
It is not negligence per se, or as a matter of law, for one attempt to board a train
or streetcar which is moving slowly. 14 An ordinarily prudent person would have
made the attempt board the moving conveyance under the same or similar
circumstances. The fact that passengers board and alight from slowly moving
vehicle is a matter of common experience both the driver and conductor in this
case could not have been unaware of such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled all the rights and protection pertaining to
such a contractual relation. Hence, it has been held that the duty which the
carrier passengers owes to its patrons extends to persons boarding cars as well
as to those alighting therefrom. 15
Common carriers, from the nature of their business and reasons of public policy,
are bound to observe extraordina diligence for the safety of the passengers
transported by the according to all the circumstances of each case. 16 A common
carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence very cautious persons, with a
due regard for all the circumstances. 17
It has also been repeatedly held that in an action based on a contract of carriage,
the court need not make an express finding of fault or negligence on the part of
the carrier in order to hold it responsible to pay the damages sought by the
passenger. By contract of carriage, the carrier assumes the express obligation to
transport the passenger to his destination safely and observe extraordinary
diligence with a due regard for all the circumstances, and any injury that might be
suffered by the passenger is right away attributable to the fault or negligence of
the carrier. This is an exception to the general rule that negligence must be
proved, and it is therefore incumbent upon the carrier to prove that it has
exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the
Civil Code. 18
Moreover, the circumstances under which the driver and the conductor failed to
bring the gravely injured victim immediately to the hospital for medical treatment
is a patent and incontrovertible proof of their negligence. It defies understanding
and can even be stigmatized as callous indifference. The evidence shows that
after the accident the bus could have forthwith turned at Bunk 56 and thence to
the hospital, but its driver instead opted to first proceed to Bunk 70 to allow a
passenger to alight and to deliver a refrigerator, despite the serious condition of
the victim. The vacuous reason given by petitioners that it was the wife of the
deceased who caused the delay was tersely and correctly confuted by
respondent court:

... The pretension of the appellees that the delay was due to the fact that they
had to wait for about twenty minutes for Inocencia Cudiamat to get dressed
deserves scant consideration. It is rather scandalous and deplorable for a wife
whose husband is at the verge of dying to have the luxury of dressing herself up
for about twenty minutes before attending to help her distressed and helpless
husband. 19

Further, it cannot be said that the main intention of petitioner Lardizabal in going
to Bunk 70 was to inform the victim's family of the mishap, since it was not said
bus driver nor the conductor but the companion of the victim who informed his
family thereof. 20 In fact, it was only after the refrigerator was unloaded that one
of the passengers thought of sending somebody to the house of the victim, as
shown by the testimony of Virginia Abalos again, to wit:
Q Why, what happened to your refrigerator at that particular time?
A I asked them to bring it down because that is the nearest place to our house and
when I went down and asked somebody to bring down the refrigerator, I also asked
somebody to call the family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?
A Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of
Mr. Cudiamat.
Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A No sir. 21

With respect to the award of damages, an oversight was, however, committed by

respondent Court of Appeals in computing the actual damages based on the
gross income of the victim. The rule is that the amount recoverable by the heirs
of a victim of a tort is not the loss of the entire earnings, but rather the loss of that
portion of the earnings which the beneficiary would have received. In other
words, only net earnings, not gross earnings, are to be considered, that is, the
total of the earnings less expenses necessary in the creation of such earnings or
income and minus living and other incidental expenses. 22
We are of the opinion that the deductible living and other expense of the
deceased may fairly and reasonably be fixed at P500.00 a month or P6,000.00 a
year. In adjudicating the actual or compensatory damages, respondent court
found that the deceased was 48 years old, in good health with a remaining
productive life expectancy of 12 years, and then earning P24,000.00 a year.
Using the gross annual income as the basis, and multiplying the same by 12
years, it accordingly awarded P288,000. Applying the aforestated rule on
computation based on the net earnings, said award must be, as it hereby is,
rectified and reduced to P216,000.00. However, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000.00. 23

WHEREFORE, subject to the above modifications, the challenged judgment and

resolution of respondent Court of Appeals are hereby AFFIRMED in all other
respects.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 135645

March 8, 2002

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,

vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.
KAPUNAN, J.:
This petition for review seeks the reversal of the Decision, dated September 23, 1998, of
the Court of Appeals in CA-G.R. CV No. 43915,1 which absolved private respondents
MCG Marine Services, Inc. and Doroteo Gaerlan of any liability regarding the loss of the
cargo belonging to San Miguel Corporation due to the sinking of the M/V Peatheray
Patrick-G owned by Gaerlan with MCG Marine Services, Inc. as agent.
On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an
aggregate value of P5,836,222.80 with petitioner Philippine American General Insurance
Company.2 The cargo were loaded on board the M/V Peatheray Patrick-G to be
transported from Mandaue City to Bislig, Surigao del Sur.
After having been cleared by the Coast Guard Station in Cebu the previous day, the
vessel left the port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The
weather was calm when the vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently
sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo
belonging to San Miguel Corporation was lost.
Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.
Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the
Manila Adjusters and Surveyors Co., went to Taganauan Island, Cortes, Surigao del Sur
where the vessel was cast ashore, to investigate the circumstances surrounding the loss of
the cargo. In his report, Mr. Sayo stated that the vessel was structurally sound and that he
did not see any damage or crack thereon. He concluded that the proximate cause of the
listing and subsequent sinking of the vessel was the shifting of ballast water from

starboard to portside. The said shifting of ballast water allegedly affected the stability of
the M/V Peatheray Patrick-G.
Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80
pursuant to the terms of their insurance contract.1wphi1.nt
On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the
Regional Trial Court (RTC) of Makati City a case for collection against private
respondents to recover the amount it paid to San Miguel Corporation for the loss of the
latter's cargo.
Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking
of the M/V Peatheray Patrick-G to determine whether or not the captain and crew of the
vessel should be held responsible for the incident.3 On May 11, 1989, the Board rendered
its decision exonerating the captain and crew of the ill-fated vessel for any administrative
liability. It found that the cause of the sinking of the vessel was the existence of strong
winds and enormous waves in Surigao del Sur, a fortuitous event that could not have
been for seen at the time the M/V Peatheray Patrick-G left the port of Mandaue City. It
was further held by the Board that said fortuitous event was the proximate and only cause
of the vessel's sinking.
On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision
finding private respondents solidarily liable for the loss of San Miguel Corporation's
cargo and ordering them to pay petitioner the full amount of the lost cargo plus legal
interest, attorney's fees and costs of suit.4
Private respondents appealed the trial court's decision to the Court of Appeals. On
September 23, 1998, the appellate court issued the assailed Decision, which reversed the
ruling of the RTC. It held that private respondents could not be held liable for the loss of
San Miguel Corporation's cargo because said loss occurred as a consequence of a
fortuitous event, and that such fortuitous event was the proximate and only cause of the
loss.5
Petitioner thus filed the present petition, contending that:
(A)
IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF
MAKATI CITY ON THE BASIS OF THE FINDINGS OF THE BOARD OF
MARINE INQUIRY, APPELLATE COURT DECIDED THE CASE AT BAR
NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE HONORABLE COURT;
(B)

IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE

COURT GRAVELY ERRED IN CONTRADICTING AND IN DISTURBING
THE FINDINGS OF THE FORMER;
(C)
THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE
DECISION OF THE TRIAL COURT AND IN DISMISSING THE
COMPLAINT.6
Common carriers, from the nature of their business and for reasons of public policy, are
mandated to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them.7 Owing to this high degree of diligence
required of them, common carriers, as a general rule, are presumed to have been at fault
or negligent if the goods transported by them are lost, destroyed or if the same
deteriorated.8
However, this presumption of fault or negligence does not arise in the cases enumerated
under Article 1734 of the Civil Code:
Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In order that a common carrier may be absolved from liability where the loss, destruction
or deterioration of the goods is due to a natural disaster or calamity, it must further be
shown that the such natural disaster or calamity was the proximate and only cause of the
loss;9 there must be "an entire exclusion of human agency from the cause of the injury of
the loss."10
Moreover, even in cases where a natural disaster is the proximate and only cause of the
loss, a common carrier is still required to exercise due diligence to prevent or minimize
loss before, during and after the occurrence of the natural disaster, for it to be exempt
from liability under the law for the loss of the goods.11 If a common carrier fails to
exercise due diligence--or that ordinary care which the circumstances of the particular
case demand12 -- to preserve and protect the goods carried by it on the occasion of a

natural disaster, it will be deemed to have been negligent, and the loss will not be
considered as having been due to a natural disaster under Article 1734 (1).
In the case at bar, the issues may be narrowed down to whether the loss of the cargo was
due to the occurrence of a natural disaster, and if so, whether such natural disaster was the
sole and proximate cause of the loss or whether private respondents were partly to blame
for failing to exercise due diligence to prevent the loss of the cargo.
The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel
encountered strong winds and huge waves ranging from six to ten feet in height. The
vessel listed at the port side and eventually sunk at Cawit Point, Cortes, Surigao del Sur.
The Court of Appeals, citing the decision of the Board of Marine Inquiry in the
administrative case against the vessel's crew (BMI--646-87), found that the loss of the
cargo was due solely to the existence of a fortuitous event, particularly the presence of
strong winds and huge waves at Cortes, Surigao del Sur on March 3, 1987:
xxx
III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?
Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe,
Cebu for Bislig, Surigao del Sur on March 2, 1987 the Captain had observed the
fair atmospheric condition of the area of the pier and confirmed this good weather
condition with the Coast Guard Detachment of Mandawe City. However, on
March 3, 1987 at about 10:00 o'clock in the evening, when the vessel had already
passed Surigao Strait. the vessel started to experience waves as high as 6 to 7 feet
and that the Northeasterly wind was blowing at about five (5) knot velocity. At
about 11:00 o'clock P.M. when the vessel was already about 4.5 miles off Cawit
Point, Cortes, Surigao del Sur, the vessel was discovered to be listing 15 degrees
to port side and that the strength of the wind had increased to 15 knots and the
waves were about ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately
thereafter, emergency measures were taken by the crew. The officers had
suspected that a leak or crack might had developed at the bottom hull particularly
below one or two of the empty wing tanks at port side serving as buoyancy tanks
resulting in ingress of sea water in the tanks was confirmed when the Captain
ordered to use the cargo pump. The suction valves to the said tanks of port side
were opened in order to suck or draw out any amount of water that entered into
the tanks. The suction pressure of the pump had drawn out sea water in large
quantity indicating therefore, that a leak or crack had developed in the hull as the
vessel was continuously batted and pounded by the huge waves. Bailing out of the
water through the pump was done continuously in an effort of the crew to prevent
the vessel from sinking. but then efforts were in vain. The vessel still continued to
list even more despite the continuous pumping and discharging of sea water from
the wing tanks indicating that the amount of the ingress of sea water was greater
in volume that that was being discharged by the pump. Considering therefore, the

location of the suspected source of the ingress of sea water which was a crack or
hole at the bottom hull below the buoyancy tank's port side which was not
accessible (sic) for the crew to check or control the flow of sea water into the said
tank. The accumulation of sea water aggravated by the continuous pounding,
rolling and pitching of the vessel against huge waves and strong northeasterly
wind, the Captain then had no other recourse except to order abandonship to save
their lives.13
The presence of a crack in the ill-fated vessel through which water seeped in was
confirmed by the Greutzman Divers who were commissioned by the private respondents
to conduct an underwater survey and inspection of the vessel to determine the cause and
circumstances of its sinking. In its report, Greutzman Divers stated that "along the port
side platings, a small hole and two separate cracks were found at about midship."14
The findings of the Board of Marine Inquiry indicate that the attendance of strong winds
and huge waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao
del Norte on March 3, 1987 was indeed fortuitous. A fortuitous event has been defined as
one which could not be foreseen, or which though foreseen, is inevitable.15 An event is
considered fortuitous if the following elements concur:
xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of
the debtor to comply with his obligations, must be independent of human will; (b)
it must be impossible to foresee the event which constitutes the caso fortuito, or if
it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such
as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the obligor must be free from any participation in the aggravation
of the injury resulting to the creditor. xxx16
In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left
the port of Mandaue City, the Captain confirmed with the Coast Guard that the weather
condition would permit the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he
could not be expected to have foreseen the unfavorable weather condition that awaited
the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and
enormous waves which caused the vessel to list, keel over, and consequently lose the
cargo contained therein. The appellate court likewise found that there was no negligence
on the part of the crew of the M/V Peatheray Patrick-G, citing the following portion of
the decision of the Board of Marine Inquiry:
I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE
PORT OF MANDAWE, CEBU AND AT THE TIME OF SINKING?
Evidence clearly shows that the vessel was propelled with three (3) diesel engines
of 250 BHP each or a total of 750 BHP. It had three (3) propellers which were
operating satisfactorily from the time the vessel left the port of Mandawe up to the
time when the hull on the double bottom tank was heavily floaded (sic) by
uncontrollable entry of sea water resulting in the stoppage of engines. The vessel

was also equipped with operating generator pumps for emergency cases. This
equipment was also operating satisfactorily up to the time when the engine room
was heavily floaded (sic) with sea water. Further, the vessel had undergone
emergency drydocking and repair before the accident occurred (sic) on November
9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by the billing for the
Drydocking and Repair and certificate of Inspection No. 2588-86 issued by the
Philippine coast Guard on December 5, 1986 which expired on November 8,
1987.
LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and
experienced licensed Major Patron who had been in command of the vessel for
more than three (3) years from July 1984 up to the time of sinking March 3, 1987.
His Chief Mate Mr. Mariano Alalin also a licensed Major Patron had been the
Chief Mate of " LCT Peatheray Patrick-G" for one year and three months at the
time of the accident. Further Chief Mate Alalin had commanded a tanker vessel
named M/T Mercedes of MGM Corporation for almost two (2) years from 19831985 (Alalin TSN-4-13-88 pp. 32-33).
That the vessel was granted SOLAS clearance by the Philippine Coast Guard on
March 1, 1987 to depart from Mandawe City for Bislig, Surigao del Sur as
evidenced by a certification issued to D.C. Gaerlan Oil Products by Coast Guard
Station Cebu dated December 23, 1987.1wphi1.nt
Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be
considered seaworthy vessel at the time she undertook that fateful voyage on
March 2, 1987.
To be seaworthy, a vessel must not only be staunch and fit in the hull for the
voyage to be undertaken but also must be properly equipped and for that purpose
there is a duty upon the owner to provide a competent master and a crew adequate
in number and competent for their duty and equals in disposition and seamanship
to the ordinary in that calling. (Ralph 299 F-52, 1924 AMC 942). American
President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9 CAL 1924).17
Overloading was also eliminated as a possible cause of the sinking of the vessel, as the
evidence showed that its freeboard clearance was substantially greater than the authorized
freeboard clearance.18
Although the Board of Marine Inquiry ruled only on the administrative liability of the
captain and crew of the M/V Peatheray Patrick-G, it had to conduct a thorough
investigation of the circumstances surrounding the sinking of the vessel and the loss of its
cargo in order to determine their responsibility, if any. The results of its investigation as
embodied in its decision on the administrative case clearly indicate that the loss of the
cargo was due solely to the attendance of strong winds and huge waves which caused the
vessel accumulate water, tilt to the port side and to eventually keel over. There was thus
no error on the part of the Court of Appeals in relying on the factual findings of the Board

of Marine Inquiry, for such factual findings, being supported by substantial evidence are
persuasive, considering that said administrative body is an expert in matters concerning
marine casualties.19
Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on
March 3, 1987 was shown to be the proximate and only cause of the sinking of the M/V
Peatheray Patrick-G and the loss of the cargo belonging to San Miguel Corporation,
private respondents cannot be held liable for the said loss.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED
and the petition is hereby DENIED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Ynares-Santiago, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA
VIRTUDES, ROMEO VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC.,
respondents.
Emilio D. Castellanes for petitioners.
Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of petitioners'
respective children after the shipwreck of MV Pioneer Cebu due to typhoon
"Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by
respondent Court, and which we find supported by the record, read as follows:
When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the
early morning of May 15, 1966 bound for Cebu, it had on board the spouses
Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon
Vasquez, among her passengers. The MV "Pioneer Cebu" encountered typhoon
"Klaring" and struck a reef on the southern part of Malapascua Island, located
somewhere north of the island of Cebu and subsequently sunk. The
aforementioned passengers were unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso
Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of

Filipinas Bagaipo; and plaintiffs Romeo Vasquez and Maxima Cainay are the
parents of the child, Mario Marlon Vasquez. They seek the recovery of damages
due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez
during said voyage.
At the pre-trial, the defendant admitted its contract of carriage with Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the
sinking of the MV "Pioneer Cebu". The issues of the case were limited to the
defenses alleged by the defendant that the sinking of the vessel was caused by
force majeure, and that the defendant's liability had been extinguished by the
total loss of the vessel.
The evidence on record as to the circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV
"Pioneer Cebu" was owned and operated by the defendant and used in the
transportation of goods and passengers in the inter-island shipping. Scheduled to
leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00
a.m. the following day, May 15, 1966. It had a passenger capacity of three
hundred twenty-two (322) including the crew. It undertook the said voyage on a
special permit issued by the Collector of Customs inasmuch as, upon inspection,
it was found to be without an emergency electrical power system. The special
permit authorized the vessel to carry only two hundred sixty (260) passengers
due to the said deficiency and for lack of safety devices for 322 passengers (Exh.
2). A headcount was made of the passengers on board, resulting on the tallying
of 168 adults and 20 minors, although the passengers manifest only listed 106
passengers. It has been admitted, however, that the headcount is not reliable
inasmuch as it was only done by one man on board the vessel.
When the vessel left Manila, its officers were already aware of the typhoon
Klaring building up somewhere in Mindanao. There being no typhoon signals on
the route from Manila to Cebu, and the vessel having been cleared by the
Customs authorities, the MV "Pioneer Cebu" left on its voyage to Cebu despite
the typhoon. When it reached Romblon Island, it was decided not to seek shelter
thereat, inasmuch as the weather condition was still good. After passing Romblon
and while near Jintotolo island, the barometer still indicated the existence of good
weather condition continued until the vessel approached Tanguingui island. Upon
passing the latter island, however, the weather suddenly changed and heavy
rains felt Fearing that due to zero visibility, the vessel might hit Chocolate island
group, the captain ordered a reversal of the course so that the vessel could
'weather out' the typhoon by facing the winds and the waves in the open.
Unfortunately, at about noontime on May 16, 1966, the vessel struck a reef near
Malapascua island, sustained leaks and eventually sunk, bringing with her
Captain Floro Yap who was in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the Court of
First Instance of Manila (Civil Case No. 67139). Respondent defended on the
plea of force majeure, and the extinction of its liability by the actual total loss of
the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay:

(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the
loss of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support,
and P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for
loss of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and
(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by
way of moral damages by reason of the death of Mario Marlon Vasquez.

On appeal, respondent Court reversed the aforementioned judgment and

absolved private respondent from any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being the liability for
damages of private respondent for the presumptive death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due to various
decisive factors, thus:
... It is an admitted fact that even before the vessel left on its last voyage, its
officers and crew were already aware of the typhoon brewing somewhere in the
same general direction to which the vessel was going. The crew of the vessel
took a calculated risk when it proceeded despite the typhoon advisory. This is
quite evident from the fact that the officers of the vessel had to conduct
conferences amongst themselves to decide whether or not to proceed. The crew
assumed a greater risk when, instead of seeking shelter in Romblon and other
islands the vessel passed en route, they decided to take a change on the
expected continuation of the good weather the vessel was encountering, and the
possibility that the typhoon would veer to some other directions. The eagerness
of the crew of the vessel to proceed on its voyage and to arrive at its destination
is readily understandable. It is undeniably lamentable, however, that they did so
at the risk of the lives of the passengers on board.

Contrariwise, respondent Appellate Court believed that the calamity was caused
solely and proximately by fortuitous event which not even extraordinary diligence
of the highest degree could have guarded against; and that there was no
negligence on the part of the common carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial Court. "To
constitute a caso fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the human will; (2) the
occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor." 1 In the language of the law, the event
must have been impossible to foresee, or if it could be foreseen, must have been
impossible to avoid. 2 There must be an entire exclusion of human agency from
the cause of injury or loss. 3

Turning to this case, before they sailed from the port of Manila, the officers and
crew were aware of typhoon "Klaring" that was reported building up at 260 kms.
east of Surigao. In fact, they had lashed all the cargo in the hold before sailing in
anticipation of strong winds and rough waters. 4 They proceeded on their way, as
did other vessels that day. Upon reaching Romblon, they received the weather
report that the typhoon was 154 kms. east southeast of Tacloban and was
moving west northwest. 5 Since they were still not within the radius of the typhoon
and the weather was clear, they deliberated and decided to proceed with the
course. At Jintotolo Island, the typhoon was already reported to be reaching the
mainland of Samar. 6 They still decided to proceed noting that the weather was
still "good" although, according to the Chief Forecaster of the Weather Bureau,
they were already within the typhoon zone. 7 At Tanguingui Island, about 2:00
A.M. of May 16, 1966, the typhoon was in an area quite close to Catbalogan,
placing Tanguingui also within the typhoon zone. Despite knowledge of that fact,
they again decided to proceed relying on the forecast that the typhoon would
weaken upon crossing the mainland of Samar. 8 After about half an hour of
navigation towards Chocolate Island, there was a sudden fall of the barometer
accompanied by heavy downpour, big waves, and zero visibility. The Captain of
the vessel decided to reverse course and face the waves in the open sea but
because the visibility did not improve they were in total darkness and, as a
consequence, the vessel ran aground a reef and sank on May 16, 1966 around
12:45 P.M. near Malapascua Island somewhere north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an inevitable
occurrence, yet, having been kept posted on the course of the typhoon by
weather bulletins at intervals of six hours, the captain and crew were well aware
of the risk they were taking as they hopped from island to island from Romblon
up to Tanguingui. They held frequent conferences, and oblivious of the utmost
diligence required of very cautious persons, 9 they decided to take a calculated
risk. In so doing, they failed to observe that extraordinary diligence required of
them explicitly by law for the safety of the passengers transported by them with
due regard for an circumstances 10 and unnecessarily exposed the vessel and
passengers to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injuries to passengers. 11
While the Board of Marine Inquiry, which investigated the disaster, exonerated
the captain from any negligence, it was because it had considered the question
of negligence as "moot and academic," the captain having "lived up to the true
tradition of the profession." While we are bound by the Board's factual findings,
we disagree with its conclusion since it obviously had not taken into account the
legal responsibility of a common carrier towards the safety of the passengers
involved.
With respect to private respondent's submission that the total loss of the vessel
extinguished its liability pursuant to Article 587 of the Code of Commerce 12 as
construed in Yangco vs. Laserna, 73 Phil. 330 [1941], suffice it to state that even

in the cited case, it was held that the liability of a shipowner is limited to the value
of the vessel or to the insurance thereon. Despite the total loss of the vessel
therefore, its insurance answers for the damages that a shipowner or agent may
be held liable for by reason of the death of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and the judgment
of the then Court of First Instance of Manila, Branch V, in Civil Case No. 67139,
is hereby reinstated. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 52159 December 22, 1989

JOSE PILAPIL, petitioner,
vs.
HON. COURT OF APPEALS and ALATCO TRANSPORTATION COMPANY,
INC., respondents.
Martin Badong, Jr. for petitioner.
Eufronio K. Maristela for private respondent.

PADILLA, J.:
This is a petition to review on certiorari the decision* rendered by the Court of
Appeals dated 19 October 1979 in CA-G.R. No. 57354-R entitled "Jose Pilapil,
plaintiff-appellee versus Alatco Transportation Co., Inc., defendant-appellant,"
which reversed and set aside the judgment of the Court of First Instance of
Camarines Sur in Civil Case No. 7230 ordering respondent transportation
company to pay to petitioner damages in the total sum of sixteen thousand three
hundred pesos (P 16,300.00).
The record discloses the following facts:
Petitioner-plaintiff Jose Pilapil, a paying passenger, boarded respondentdefendant's bus bearing No. 409 at San Nicolas, Iriga City on 16 September

1971 at about 6:00 P.M. While said bus No. 409 was in due course negotiating
the distance between Iriga City and Naga City, upon reaching the vicinity of the
cemetery of the Municipality of Baao, Camarines Sur, on the way to Naga City,
an unidentified man, a bystander along said national highway, hurled a stone at
the left side of the bus, which hit petitioner above his left eye. Private
respondent's personnel lost no time in bringing the petitioner to the provincial
hospital in Naga City where he was confined and treated.
Considering that the sight of his left eye was impaired, petitioner was taken to Dr.
Malabanan of Iriga City where he was treated for another week. Since there was
no improvement in his left eye's vision, petitioner went to V. Luna Hospital,
Quezon City where he was treated by Dr. Capulong. Despite the treatment
accorded to him by Dr. Capulong, petitioner lost partially his left eye's vision and
sustained a permanent scar above the left eye.
Thereupon, petitioner instituted before the Court of First Instance of Camarines
Sur, Branch I an action for recovery of damages sustained as a result of the
stone-throwing incident. After trial, the court a quo rendered judgment with the
following dispositive part:
Wherefore, judgment is hereby entered:
1. Ordering defendant transportation company to pay plaintiff
Jose Pilapil the sum of P 10,000.00, Philippine Currency,
representing actual and material damages for causing a
permanent scar on the face and injuring the eye-sight of the
plaintiff;
2. Ordering further defendant transportation company to pay the
sum of P 5,000.00, Philippine Currency, to the plaintiff as moral
and exemplary damages;
3. Ordering furthermore, defendant transportation company to
reimburse plaintiff the sum of P 300.00 for his medical expenses
and attorney's fees in the sum of P 1,000.00, Philippine
Currency; and
4. To pay the costs.
SO ORDERED 1

From the judgment, private respondent appealed to the Court of Appeals where
the appeal was docketed as CA-G.R. No. 57354R. On 19 October 1979, the
Court of Appeals, in a Special Division of Five, rendered judgment reversing and
setting aside the judgment of the court a quo.
Hence the present petition.

In seeking a reversal of the decision of the Court of Appeals, petitioner contends

that said court has decided the issue not in accord with law. Specifically,
petitioner argues that the nature of the business of a transportation company
requires the assumption of certain risks, and the stoning of the bus by a stranger
resulting in injury to petitioner-passenger is one such risk from which the
common carrier may not exempt itself from liability.
We do not agree.
In consideration of the right granted to it by the public to engage in the business
of transporting passengers and goods, a common carrier does not give its
consent to become an insurer of any and all risks to passengers and goods. It
merely undertakes to perform certain duties to the public as the law imposes, and
holds itself liable for any breach thereof.
Under Article 1733 of the Civil Code, common carriers are required to observe
extraordinary diligence for the safety of the passenger transported by them,
according to all the circumstances of each case. The requirement of
extraordinary diligence imposed upon common carriers is restated in Article
1755: "A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances." Further, in case of
death of or injuries to passengers, the law presumes said common carriers to be
at fault or to have acted negligently. 2
While the law requires the highest degree of diligence from common carriers in
the safe transport of their passengers and creates a presumption of negligence
against them, it does not, however, make the carrier an insurer of the absolute
safety of its passengers. 3
Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance
and precaution in the carriage of passengers by common carriers to only such as
human care and foresight can provide. what constitutes compliance with said
duty is adjudged with due regard to all the circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or negligence on
the part of the common carrier when its passenger is injured, merely relieves the
latter, for the time being, from introducing evidence to fasten the negligence on
the former, because the presumption stands in the place of evidence. Being a
mere presumption, however, the same is rebuttable by proof that the common
carrier had exercised extraordinary diligence as required by law in the
performance of its contractual obligation, or that the injury suffered by the
passenger was solely due to a fortuitous event. 4

In fine, we can only infer from the law the intention of the Code Commission and
Congress to curb the recklessness of drivers and operators of common carriers
in the conduct of their business.
Thus, it is clear that neither the law nor the nature of the business of a
transportation company makes it an insurer of the passenger's safety, but that its
liability for personal injuries sustained by its passenger rests upon its negligence,
its failure to exercise the degree of diligence that the law requires. 5
Petitioner contends that respondent common carrier failed to rebut the
presumption of negligence against it by proof on its part that it exercised
extraordinary diligence for the safety of its passengers.
We do not agree.
First, as stated earlier, the presumption of fault or negligence against the carrier
is only a disputable presumption. It gives in where contrary facts are established
proving either that the carrier had exercised the degree of diligence required by
law or the injury suffered by the passenger was due to a fortuitous event. Where,
as in the instant case, the injury sustained by the petitioner was in no way due to
any defect in the means of transport or in the method of transporting or to the
negligent or willful acts of private respondent's employees, and therefore
involving no issue of negligence in its duty to provide safe and suitable cars as
well as competent employees, with the injury arising wholly from causes created
by strangers over which the carrier had no control or even knowledge or could
not have prevented, the presumption is rebutted and the carrier is not and ought
not to be held liable. To rule otherwise would make the common carrier the
insurer of the absolute safety of its passengers which is not the intention of the
lawmakers.
Second, while as a general rule, common carriers are bound to exercise
extraordinary diligence in the safe transport of their passengers, it would seem
that this is not the standard by which its liability is to be determined when
intervening acts of strangers is to be determined directly cause the injury, while
the contract of carriage Article 1763 governs:
Article 1763. A common carrier is responsible for injuries suffered by a passenger
on account of the wilful acts or negligence of other passengers or of strangers, if
the common carrier's employees through the exercise of the diligence of a good
father of a family could have prevented or stopped the act or omission.

Clearly under the above provision, a tort committed by a stranger which causes
injury to a passenger does not accord the latter a cause of action against the
carrier. The negligence for which a common carrier is held responsible is the
negligent omission by the carrier's employees to prevent the tort from being
committed when the same could have been foreseen and prevented by them.
Further, under the same provision, it is to be noted that when the violation of the

contract is due to the willful acts of strangers, as in the instant case, the degree
of care essential to be exercised by the common carrier for the protection of its
passenger is only that of a good father of a family.
Petitioner has charged respondent carrier of negligence on the ground that the
injury complained of could have been prevented by the common carrier if
something like mesh-work grills had covered the windows of its bus.
We do not agree.
Although the suggested precaution could have prevented the injury complained
of, the rule of ordinary care and prudence is not so exacting as to require one
charged with its exercise to take doubtful or unreasonable precautions to guard
against unlawful acts of strangers. The carrier is not charged with the duty of
providing or maintaining vehicles as to absolutely prevent any and all injuries to
passengers. Where the carrier uses cars of the most approved type, in general
use by others engaged in the same occupation, and exercises a high degree of
care in maintaining them in suitable condition, the carrier cannot be charged with
negligence in this respect. 6
Finally, petitioner contends that it is to the greater interest of the State if a carrier
were made liable for such stone-throwing incidents rather than have the bus
riding public lose confidence in the transportation system.
Sad to say, we are not in a position to so hold; such a policy would be better left
to the consideration of Congress which is empowered to enact laws to protect the
public from the increasing risks and dangers of lawlessness in society.
WHEREFORE, the judgment appealed from is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairperson), Sarmiento and Regalado, concur.
Paras, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16598

October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant,

vs.
MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff-appellant.
Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to
recover the sum of P240 together with interest thereon. The facts are stipulated by the
parties, and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on
board of steamship Bolton Castle, then in the harbor of New York, four cases of
merchandise one of which contained twelve (12) 8-day Edmond clocks properly
boxed and marked for transportation to Manila, and paid freight on said clocks
from New York to Manila in advance. The said steampship arrived in the port of
Manila on or about the 10th day of September, 1919, consigned to the defendant
herein as agent and representative of said vessel in said port. Neither the master of
said vessel nor the defendant herein, as its agent, delivered to the plaintiff the

aforesaid twelve 8-day Edmond clocks, although demand was made upon them
for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New
York was P22 and the market value of the same in the City of Manila at the time
when they should have been delivered to the plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castle contained, among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for
above does not exceed $500 per freight ton, or, in proportion for any part
of a ton, unless the value be expressly stated herein and ad valorem freight
paid thereon.
9. Also, that in the event of claims for short delivery of, or damage
to, cargo being made, the carrier shall not be liable for more than the net
invoice price plus freight and insurance less all charges saved, and any
loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3
cubic feet, and the freight ton value thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the
plaintiff on the aforesaid clocks, and no ad valorem freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36,
the proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks,
in payment of plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted,
rendered judgment in favor of the plaintiff against the defendant for the sum of P226.02,
this being the invoice value of the clocks in question plus the freight and insurance
thereon, with legal interest thereon from November 20, 1919, the date of the complaint,
together with costs. From that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the
market value of the clocks in question, to wit: the sum of P420. The defendant-appellant,
on the other hand, contends that, in accordance with clause 1 of the bill of lading, the
plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton value
of the said clocks. The claim of the plaintiff is based upon the argument that the two
clause in the bill of lading above quoted, limiting the liability of the carrier, are contrary
to public order and, therefore, null and void. The defendant, on the other hand, contends
that both of said clauses are valid, and the clause 1 should have been applied by the lower
court instead of clause 9.

I. The appeal of the plaintiff presents this question; May a common carrier, by
stipulations inserted in the bill of lading, limit its liability for the loss of or damage to the
cargo to an agreed valuation of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to
an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of
Congress of February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs.
Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the
first and second stipulations in a bill of lading are invalid which either exempt the carrier
from liability for loss or damage occasioned by its negligence, or provide for an
unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly
shows that the present case falls within the third stipulation, to wit: That a clause in a bill
of lading limiting the liability of the carrier to a certain amount unless the shipper
declares a higher value and pays a higher rate of freight, is valid and enforceable. This
proposition is supported by a uniform lien of decisions of the Supreme Court of the
United States rendered both prior and subsequent to the passage of the Harter Act, from
the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to
the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance
Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a
contract of carriage, signed by the shipper, is fairly made with a railroad company,
agreeing on a valuation of the property carried, with the rate of freight based on the
condition that the carrier assumes liability only to the extent of the agreed valuation, even
in case of loss or damage by the negligence of the carrier, the contract will be upheld as
proper and lawful mode of securing a due proportion between the amount for which the
carrier may be responsible and the freight he receives, and protecting himself against
extravagant and fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many
cases, from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed.,
717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S.,
439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it
has been declared to be the settled Federal law that if a common carrier gives to a shipper
the choice of two rates, the lower of the conditioned upon his agreeing to a stipulated
valuation of his property in case of loss, even by the carrier's negligence, if the shipper

makes such a choice, understandingly and freely, and names his valuation, he cannot
thereafter recover more than the value which he thus places upon his property. As a
matter of legal distinction, estoppel is made the basis of this ruling, that, having
accepted the benefit of the lower rate, in common honesty the shipper may not repudiate
the conditions on which it was obtained, but the rule and the effect of it are clearly
established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation
agreement with a shipper, limit its liability in case of the loss by negligence of an
interstate shipment to less than the real value thereof, unless the shipper is given a choice
of rates, based on valuation."
A limitation of liability based upon an agreed value to obtain a lower rate
does not conflict with any sound principle of public policy; and it is not
conformable to plain principles of justice that a shipper may understate value in
order to reduce the rate and then recover a larger value in case of loss. (Adams
Express Co. vs. Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C. C.
A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells,
Fargo and Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227
U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of
lading here in question are not contrary to public order. Article 1255 of the Civil Code
provides that "the contracting parties may establish any agreements, terms and conditions
they may deem advisable, provided they are not contrary to law, morals or public order."
Said clauses of the bill of lading are, therefore, valid and binding upon the parties thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or
clause 9 of the bill of lading here in question is to be adopted as the measure of
defendant's liability. Clause 1 provides as follows:
1. It is mutually agreed that the value of the goods receipted for above does
not exceed $500 per freight ton, or, in proportion for any part of a ton, unless the
value be expressly stated herein and ad valorem freight paid thereon. Clause 9
provides:
9. Also, that in the even of claims for short delivery of, or damage to, cargo
being made, the carrier shall not be liable for more than the net invoice price plus
freight and insurance less all charges saved, and any loss or damage for which the
carrier may be liable shall be adjusted pro rata on the said basis.
The defendant-appellant contends that these two clauses, if construed together,
mean that the shipper and the carrier stipulate and agree that the value of the goods
receipted for does not exceed $500 per freight ton, but should the invoice value of the
goods be less than $500 per freight ton, then the invoice value governs; that since in this
case the invoice value is more than $500 per freight ton, the latter valuation should be

adopted and that according to that valuation, the proportionate value of the clocks in
question is only P76.36 which the defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied
undertaking to settle in case of loss on the basis of not exceeding $500 per freight ton,
clause 9 contains an express undertaking to settle on the basis of the net invoice price
plus freight and insurance less all charges saved. "Any loss or damage for which the
carrier may be liable shall be adjusted pro rata on the said basis," clause 9 expressly
provides. It seems to us that there is an irreconcilable conflict between the two clauses
with regard to the measure of defendant's liability. It is difficult to reconcile them without
doing violence to the language used and reading exceptions and conditions into the
undertaking contained in clause 9 that are not there. This being the case, the bill of lading
in question should be interpreted against the defendant carrier, which drew said contract.
"A written contract should, in case of doubt, be interpreted against the party who has
drawn the contract." (6 R. C. L. 854.) It is a well-known principle of construction that
ambiguity or uncertainty in an agreement must be construed most strongly against the
party causing it. (6 R. C. L., 855.) These rules as applicable to contracts contained in bills
of lading. "In construing a bill of lading given by the carrier for the safe transportation
and delivery of goods shipped by a consignor, the contract will be construed most
strongly against the carrier, and favorably to the consignor, in case of doubt in any matter
of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep.,
119.)
It follows from all of the foregoing that the judgment appealed from should be
affirmed, without any finding as to costs. So ordered.
Araullo, street, Avancea and Villamor, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 156278

March 29, 2004

PLANTERS PRODUCTS, INC., petitioner,

vs.
FERTIPHIL CORPORATION, respondent.
DECISION
PUNO, J.:
Before us is a petition for review under Rule 45 assailing the Decision dated July 19,
20021 of the Court of Appeals in CA-G.R. SP No. 67434, and its Resolution dated
December 4, 2002 denying petitioners motion for reconsideration.
Petitioner Planters Products, Inc. ("PPI") and respondent Fertiphil Corporation
("Fertiphil") are domestic corporations engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals. On the strength of Letter of Instruction
No. 1465 issued by then President Ferdinand E. Marcos on June 3, 1985, Fertiphil and
other domestic corporations engaged in the fertilizer business paid P10.00 for every bag
of fertilizer sold in the country to the Fertilizer and Pesticide Authority (FPA), the
government agency governing the fertilizer industry. FPA in turn remitted the amount to
PPI for its rehabilitation, according to the express mandate of LOI No. 1465.2
After the EDSA I revolution in 1986, the imposition of P10.00 by the FPA on every bag
of fertilizer sold was voluntarily stopped. Fertiphil demanded from PPI the refund of
P6,698,144.00 which it paid under LOI No. 1465. PPI refused. Hence, on September 14,

1987, Fertiphil filed a collection and damage suit against FPA and PPI before the
Regional Trial Court of Makati City docketed as Civil Case No. 17835 demanding refund
of the P6,698,144.00. Fertiphil contended that LOI No. 1465 was void and
unconstitutional for being a glaring example of crony capitalism as it favored PPI only.
PPI filed its answer but for failure to attend the pre-trial conference, it was declared in
default and Fertiphil was allowed to present evidence ex-parte.
On November 20, 1991, the RTC of Makati City, Branch 147, decided in favor of
Fertiphil declaring LOI No. 1465 void and unconstitutional. It ordered PPI to return the
amount which Fertiphil paid thereunder, with twelve percent (12%) interest from the time
of judicial demand. PPIs motion for reconsideration was denied in an Order dated
February 13, 1992. Hence, it filed notice of appeal on February 20, 1992. At the same
time, Fertiphil moved for execution of the decision pending appeal. The trial court
granted the motion and a writ of execution pending appeal was issued upon the posting of
a surety bond by Fertiphil in the amount of P6,698,000.00. PPI assailed the propriety of
the execution pending appeal before the Court of Appeals and, thereafter, to this Court.
We resolved the case in its favor in our Decision dated October 22, 1999 in G.R. No.
106052.3 Fertiphil was ordered to return all the properties of PPI taken in the course of
execution pending appeal or the value thereof, if return is no longer possible. After the
decision became final and executory, PPI moved for execution before the trial court and
Fertiphils bank deposits were accordingly garnished.
On January 5, 2001, Fertiphil moved to dismiss PPIs appeal from the trial courts
Decision dated November 20, 1991 citing as grounds the non-payment of the appellate
docket fee and alleged failure of PPI to prosecute the appeal within a reasonable time.
The trial court denied the motion in an Order dated April 3, 2001 ruling that the payment
of the appellate docket fee within the period for taking an appeal is a new requirement
under the 1997 Rules of Civil Procedure which was not yet applicable when PPI filed its
appeal in 1992. Moreover, the court found that PPI did not fail to prosecute the appeal
within a reasonable time.
On April 5, 2001, the court issued another order, upon PPIs motion, directing Fertiphils
banks to deliver to the Deputy Sheriff the garnished deposits maintained with them and
for the levying upon of the surety bond posted by Fertiphil.
Fertiphil moved to reconsider the Orders dated April 3 and 5, 2001, to no avail. Hence, on
October 30, 2001, it filed a special civil action for certiorari with the Court of Appeals
imputing grave abuse of discretion on the part of the trial court in issuing the two orders.4
The Court of Appeals partially granted the petition and set aside the Order dated April 3,
2001. It ruled that although PPI filed its appeal in 1992, the 1997 Rules of Civil
Procedure should nevertheless be followed since it applies to actions pending and
undetermined at the time of its passage. Due to PPIs failure to pay the appellate docket
fee for three (3) years from the time the 1997 Rules of Civil Procedure took effect on July
1, 1997 until Fertiphil moved to dismiss the appeal in 2001, the trial courts decision
became final and executory. The Court of Appeals thus disposed of the petition, viz:

WHEREFORE, the instant petition is PARTIALLY GRANTED and the Order of 03 April
2001 of the Regional Trial Court of Makati City, Branch 147, is SET ASIDE. The
decision of 20 November 1991 of the said court is hereby declared final and executory.
The Clerk of Court is directed to return to the Regional Trial Court of Makati City,
Branch 147, the record of Civil Case No. 17385 (sic) entitled "Fertiphil Corporation vs.
Planters Product(s) Inc., and Fertilizer and Pesticide Authority," for the computation of
the amount due the petitioner Fertiphil Corporation pursuant to the 20 November 1991
decision.
SO ORDERED.5
Hence, this petition by PPI.
As a general rule, rules of procedure apply to actions pending and undetermined at the
time of their passage, hence, retrospective in nature. However, the general rule is not
without an exception. Retrospective application is allowed if no vested rights are
impaired.6 Thus, in Land Bank of the Philippines v. de Leon7 our ruling that the
appropriate mode of review from decisions of Special Agrarian Courts is a petition for
review under Sec. 60 of R.A. No. 6657 and not an ordinary appeal as Sec. 61 thereof
seems to imply, was not given retroactive application. We held that to give our ruling a
retrospective application would prejudice petitioners pending appeals brought under said
Sec. 61 before the Court of Appeals at a time when there was yet no clear pronouncement
as to the proper interpretation of the seemingly conflicting Secs. 60 and 61. In fine, to
apply the Courts ruling retroactively would prejudice LBPs right to appeal because its
pending appeals would then be dismissed outright on a mere technicality thereby
sacrificing the substantial merits of the cases.
In the instant case, at the time PPI filed its appeal in 1992, all that the rules required for
the perfection of its appeal was the filing of a notice of appeal with the court which
rendered the judgment or order appealed from, within fifteen (15) days from notice
thereof.8 PPI complied with this requirement when it filed a notice of appeal on February
20, 1992 with the RTC of Makati City, Branch 147, after receiving copy of its Order
dated February 13, 1992 denying its motion for reconsideration of the adverse Decision
dated November 20, 1991 rendered in Civil Case No. 17835. PPIs appeal was therefore
already perfected at that time.
Thus, the 1997 Rules of Civil Procedure which took effect on July 1, 1997 and which
required that appellate docket and other lawful fees should be paid within the same period
for taking an appeal,9 can not affect PPIs appeal which was already perfected in 1992.
Much less could it be considered a ground for dismissal thereof since PPIs period for
taking an appeal, likewise the period for payment of the appellate docket fee as now
required by the rules, has long lapsed in 1992. While the right to appeal is statutory, the
mode or manner by which this right may be exercised is a question of procedure which
may be altered and modified only when vested rights are not impaired.10 Thus, failure to
pay the appellate docket fee when the 1997 Rules of Procedure took effect cannot operate

to deprive PPI of its right, already perfected in 1992, to have its case reviewed on appeal.
In fact the Court of Appeals recognized such fact when it gave PPI a fresh period to pay
the appellate docket fee in an Order dated April 9, 2002 issued in UDK-CV-No. 030411
directing it to pay the fee within fifteen (15) days from receipt thereof.
This is not all. We have also previously ruled that failure to pay the appellate docket fee
does not automatically result in the dismissal of an appeal, dismissal being discretionary
on the part of the appellate court.12 And in determining whether or not to dismiss an
appeal on such ground, courts have always been guided by the peculiar legal and
equitable circumstances attendant to each case. Thus, in Pedrosa v. Hill13 and Gegare v.
Court of Appeals,14 the appeals were dismissed because appellants failed to pay the
appellate docket fees despite timely notice given them by the Court of Appeals and
despite its admonitions that the appeals would be dismissed in case of non-compliance.
On the other hand, the appeal in Mactan Cebu International Airport Authority v.
Mangubat15 was not dismissed because we took into account the fact that the 1997 Rules
of Civil Procedure had only been in effect for fourteen (14) days when the Office of the
Solicitor General appealed from the decision of the RTC of Lapu-Lapu City on July 14,
1997 without paying the appellate court docket fees as required by the new rules.
Considering the recency of the changes and appellants immediate payment of the fees
when required to do so, the appeal was not dismissed. We can do no less in the instant
case where PPI was not even required under the rules in 1992 to pay the appellate docket
fees at the time it filed its appeal. We note moreover that PPI, like the appellant in
Mactan, promptly paid the fees when required to do so for the first time by the RTC of
Makati in its Order dated April 3, 2001, and informed the Court of Appeals of such
compliance when it in turn notified PPI that the fees were due, in an Order dated April 9,
2002. The remedy of appeal being an essential part of our judicial system, caution must
always be observed so that every party-litigant is not deprived of its right to appeal, but
rather, given amplest opportunity for the proper and just disposition of his cause, freed
from the constraints of technicalities.16
Having so ruled, we shall refrain from delving into the merits of petitioners other
contentions, discussion of one being the proper subject of the appeal before the Court of
Appeals,17 and the other, being premature at this point.18
IN VIEW WHEREOF, the petition is GRANTED. The questioned Decision dated July
19, 2002 of the Court of Appeals in CA-G.R. SP No. 67434 and its Resolution dated
December 4, 2002 denying petitioners motion for reconsideration are SET ASIDE.
The Order dated April 3, 2001 of the Regional Trial Court of Makati City, Branch 147, in
Civil Case No. 17835 is reinstated, and the Court of Appeals is ordered to proceed with
the resolution of petitioners appeal docketed as CA-G.R. CV No. 75501 entitled
"Fertiphil Corporation v. Planters Products, Inc."
SO ORDERED.
Puno, J.,(Chairman) Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ. concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to
reverse and set aside the following: (a) the 30 January 1997 decision 1 of the
Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4
October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case No.
85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co.
(hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the
compliant until fully paid, P8,000 as attorney's fees, and the costs of the suit; and
(b) its resolution of 19 November 1997, 3 denying LOADSTAR's motion for
reconsideration of said decision.
The facts are undisputed.1wphi1.nt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee"
(hereafter, the vessel) the following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with
MIC against various risks including "TOTAL LOSS BY TOTAL OF THE LOSS
THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with
its cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR which, however, ignored the same.
As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim,
and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI,
alleging that the sinking of the vessel was due to the fault and negligence of
LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss the vessel directly to MIC, said amount to be
deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods
and claimed that sinking of its vessel was due to force majeure. PGAI, on the
other hand, averred that MIC had no cause of action against it, LOADSTAR
being the party insured. In any event, PGAI was later dropped as a party
defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC,
prompting LOADSTAR to elevate the matter to the court of Appeals, which,
however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following
observations:
1) LOADSTAR cannot be considered a private carrier on the sole
ground that there was a single shipper on that fateful voyage.
The court noted that the charter of the vessel was limited to the
ship, but LOADSTAR retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil
Code, which should be applied in determining the rights and
liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned
on the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate.
The vessel sank, not because of force majeure, but because it

was not seaworthy. LOADSTAR'S allegation that the sinking was

probably due to the "convergence of the winds," as stated by a
PAGASA expert, was not duly proven at the trial. The "limited
liability" rule, therefore, is not applicable considering that, in this
case, there was an actual finding of negligence on the part of the
carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of
Lading do not apply because said provisions bind only the
shipper/consignee and the carrier. When MIC paid the shipper
for the goods insured, it was subrogated to the latter's rights as
against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's
defense of "diligence of a good father of a family" in the training
and selection of its crew is unavailing because this is not a
proper or complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially
construed to mean that when goods are delivered on board a
ship in good order and condition, and the shipowner delivers
them to the shipper in bad order and condition, it then devolves
upon the shipowner to both allege and prove that the goods were
damaged by reason of some fact which legally exempts him from
liability." Transportation of the merchandise at the risk and
venture of the shipper means that the latter bears the risk of loss
or deterioration of his goods arising from fortuitous events, force
majeure, or the inherent nature and defects of the goods, but not
those caused by the presumed negligence or fault of the carrier,
unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following

issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in
these premises.

Regarding the first issue, LOADSTAR submits that the vessel was a private
carrier because it was not issued certificate of public convenience, it did not have
a regular trip or schedule nor a fixed route, and there was only "one shipper, one
consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V
"Cherokee" was not timely raised below; hence, it is barred by estoppel. While it
is true that the vessel had on board only the cargo of wood products for delivery
to one consignee, it was also carrying passengers as part of its regular business.
Moreover, the bills of lading in this case made no mention of any charter party
but only a statement that the vessel was a "general cargo carrier." Neither was
there any "special arrangement" between LOADSTAR and the shipper regarding

the shipment of the cargo. The singular fact that the vessel was carrying a
particular type of cargo for one shipper is not sufficient to convert the vessel into
a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it
cannot be presumed to have been negligent, and the burden of proving
otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful
voyage on 19 November 1984, the vessel was allegedly dry docked at Keppel
Philippines Shipyard and was duly inspected by the maritime safety engineers of
the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably
competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring
the vessel's seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo,
such loss being due to force majeure. It points out that when the vessel left
Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the
next day when the vessel sank due to strong waves. MCI's witness, Gracelia
Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November
1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa
Island. Tapel also testified that the convergence of winds brought about by these
two typhoons strengthened wind velocity in the area, naturally producing strong
waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting
its liability, such as what transpired in this case, is valid. Since the cargo was
being shipped at "owner's risk," LOADSTAR was not liable for any loss or
damage to the same. Therefore, the Court of Appeals erred in holding that the
provisions of the bills of lading apply only to the shipper and the carrier, and not
to the insurer of the goods, which conclusion runs counter to the Supreme
Court's ruling in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9
and National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Phils.,
Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case
having been instituted beyond the period stated in the bills of lading for instituting
the same suits based upon claims arising from shortage, damage, or nondelivery of shipment shall be instituted within sixty days from the accrual of the
right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that
the loss of the cargo was due to force majeure, because the same concurred
with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below;
hence, the same must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because
LOADSTAR was at fault or negligent, and because it failed to maintain a
seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a
typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is
not necessary that the carrier be issued a certificate of public convenience, and
this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance
Co. v. American Steamship Agencies, Inc., 11 where this Court held that a
common carrier transporting special cargo or chartering the vessel to a special
person becomes a private carrier that is not subject to the provisions of the Civil
Code. Any stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at is not
involved, as in the case of a ship totally chartered for the use of a single party.
LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court
of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld
the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the
simple reason that the factual settings are different. The records do not disclose
that the M/V "Cherokee," on the date in question, undertook to carry a special
cargo or was chartered to a special person only. There was no charter party. The
bills of lading failed to show any special arrangement, but only a general
provision to the effect that the M/V"Cherokee" was a "general cargo carrier." 14
Further, the bare fact that the vessel was carrying a particular type of cargo for
one shipper, which appears to be purely coincidental, is not reason enough to
convert the vessel from a common to a private carrier, especially where, as in
this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the
definition of a common carrier under Article 1732 of the Civil Code. In the case of
De Guzman v. Court of Appeals, 15 the Court juxtaposed the statutory definition of
"common carriers" with the peculiar circumstances of that case, viz.:

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 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 ancillary activity (in local idiom, as "a sideline". Article 1732 also
carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public,"
i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.
xxx xxx xxx
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
or occasional rather than regular or scheduled manner, and eventhough private
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 fee frequently fell below commercial freight rates is not relevant
here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations
and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he
has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements The
business of a common carrier impinges directly and intimately upon the safety
and well being and property of those members of the general community who
happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such duties and liabilities
merely facultative by simply failing to obtain the necessary permits and
authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel
was not even sufficiently manned at the time. "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 its vessel involved in a contract of carriage is a
clear breach of its duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory
should be applied in this case. The doctrine of limited liability does not apply
where there was negligence on the part of the vessel owner or agent. 17
LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and
in having allowed its vessel to sail despite knowledge of an approaching typhoon.
In any event, it did not sink because of any storm that may be deemed as force
majeure, inasmuch as the wind condition in the performance of its duties,
LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the
loss of the goods, in utter disregard of this Court's pronouncements in St. Paul
Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire
Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after
paying the claim of the insured for damages under the insurance policy, the
insurer is subrogated merely to the rights of the assured, that is, it can recover
only the amount that may, in turn, be recovered by the latter. Since the right of
the assured in case of loss or damage to the goods is limited or restricted by the
provisions in the bills of lading, a suit by the insurer as subrogee is necessarily
subject to the same limitations and restrictions. We do not agree. In the first
place, the cases relied on by LOADSTAR involved a limitation on the carrier's
liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750).
On the other hand, the stipulation in the case at bar effectively reduces the
common carrier's liability for the loss or destruction of the goods to a degree less
than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for
any loss or damage to shipments made at "owner's risk." Such stipulation is
obviously null and void for being contrary to public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by
its own negligence. The second is one providing for an unqualified limitation of
such liability to an agreed valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper declares a higher value and
pays a higher rate of. freight. According to an almost uniform weight of authority,
the first and second kinds of stipulations are invalid as being contrary to public
policy, but the third is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC
paid the shipper, it was subrogated to all the rights which the latter has
against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MIC's cause of action had not yet prescribed at the time it was

concerned. Inasmuch as neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of Goods by Sea
Act (COGSA) which provides for a one-year period of limitation on claims for
loss of, or damage to, cargoes sustained during transit may be applied
suppletorily to the case at bar. This one-year prescriptive period also applies to
the insurer of the goods. 22 In this case, the period for filing the action for recovery
has not yet elapsed. Moreover, a stipulation reducing the one-year period is null
and void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30
January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED.
Costs against petitioner.1wphi1.nt
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-51910 August 10, 1989

LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.
Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.
Estratonico S. Anano for private respondent.

FELICIANO, J.:
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 oceangoing vessel of foreign registry owned by the R.D. Mullion Ship Broking Agency
Ltd. ("Mullion"). On 11 September 1976, while the Dufton Bay was in the port of
Cebu and while under charter by Fairwind, the vessel's master contracted the
services of, among others, private respondent Gregorio Candongo to serve as
Third Engineer for a period of twelve (12) months with a monthly wage of
US$500.00. This agreement was executed before the Cebu Area Manning Unit of
the NSB. Thereafter, private respondent boarded the vessel. On 28 December

1976, before expiration of his contract, private respondent was required to

disembark at Port Kelang, Malaysia, and was returned to the Philippines on 5
January 1977. The cause of the discharge was described in his Seaman's Book
as 'by owner's arrange". 1
Shortly after returning to the Philippines, private respondent filed a complaint
before public respondent NSB, which complaint was docketed as NSB-1331-77,
for violation of contract, against Mullion as the shipping company and petitioner
Litonjua as agent of the shipowner and of the charterer of the vessel.
At the initial hearing, the NSB hearing officer held a conference with the parties,
at which conference petitioner Litonjua was represented by one of its
supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that the hearing be
postponed for a 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.
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 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.
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.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146426

June 27, 2006

CARGOLIFT SHIPPING, INC.Petitioner,

vs.
L. ACUARIO MARKETING CORP. and SKYLAND BROKERAGE, INC.,
Respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the July 6, 2000 Decision1 of the Court of
Appeals in CA-G.R. CV No. 55664, which affirmed the judgment2 of the Regional Trial
Court of Caloocan City, Branch 121, in Civil Case No. C-16120 in so far as it found
petitioner Cargolift Shipping, Inc. ("Cargolift") liable, as third-party defendant, for actual
damages in the sum of P97,021.20, as well as the November 28, 2000 Resolution3
denying the motion for reconsideration.
The antecedent facts of the case are as follows:
Sometime in March 1993, respondent L. Acuario Marketing Corp., ("Acuario") and
respondent Skyland Brokerage, Inc., ("Skyland") entered into a time charter agreement4
whereby Acuario leased to Skyland its L. Acuario II barge for use by the latter in
transporting electrical posts from Manila to Limay, Bataan. At the same time, Skyland

also entered into a separate contract5 with petitioner Cargolift, for the latters tugboats to
tow the aforesaid barge.
In accordance with the foregoing contracts, petitioners tugboat M/T Beejay left the
Manila South Harbor on April 1, 1993 with Acuarios barge in tow. It reached the port of
Limay, Bataan on April 3, 1993, whereupon M/T Beejay disengaged and once again set
sail for Manila. Petitioners other tugboat, the M/T Count, remained in Bataan to secure
the barge for unloading.
Off-loading operations went underway until April 7, 1993, when operations were
interrupted for the next two days to give way to the observance of the lenten season. The
unloading of the cargo was concluded on April 12, 1993, by which time M/T Beejay had
gone back to Bataan for the return trip. The M/T Beejay and the barge returned to the port
of Manila on April 13, 1993.
On the same day, the barge was brought to Acuarios shipyard where it was allegedly
discovered by Acuarios dry-docking officer, Guillermo Nacu, Jr., that the barge was
listing due to a leak in its hull. According to Nacu, he was informed by the skipper of the
tugboat that the damage was sustained in Bataan. To confirm the same, Nacu ordered an
underwater survey of the barge and prepared a damage report dated April 14, 1993. No
representative of Skyland was present during the inspection although it was furnished
with a copy of the said report.
The barge was consequently dry-docked for repairs at the Western Shipyard from April
16 to April 26, 1993. Acuario spent the total sum of P97,021.20 for the repairs.6
Pursuant to its contract with Skyland which provided that "(a)ny damage or loss on the
barge due to the fault or negligence of charterers shall be the responsibility of the
(c)harterer or his representative,"7 Acuario wrote Skyland seeking reimbursement of its
repair costs, failing which, it filed a complaint for damages against Skyland before the
Regional Trial Court of Caloocan City, where the case was docketed as Civil Case No. C16120 and raffled to Branch 121.
Skyland, in turn, filed a third-party complaint8 against petitioner alleging that it was
responsible for the damage sustained by the barge.
According to Acuario and its witnesses, the weather in Bataan shifted drastically at dawn
of April 7, 1993 while the barge was docked at the Limay port eight meters away from
the stone wall. Due to strong winds and large waves, the barge repeatedly hit its hull on
the wall, thus prompting the barge patron to alert the tugboat captain of the M/T Count to
tow the barge farther out to sea. However, the tugboat failed to pull the barge to a safer
distance due to engine malfunction, thereby causing the barge to sustain a hole in its hull.
Fortunately, no part of the cargo was lost even if only half of it had been unloaded at that
time.9

On the other hand, petitioner and Skyland denied that the barge had been damaged. One
of its witnesses, Salvador D. Ocampo, claimed that he was involved in all aspects of the
operation and that no accident of any sort was brought to his knowledge. He alleged that
the barge patron and tug master made no mention of any maritime casualty during the
clearing of the vessels at the Philippine Ports Authority in Limay, Bataan. The barge was
in good condition and was not damaged when it was turned over to Acuario on April 13,
1993.10
In due course, the trial court promulgated its decision dated June 10, 1996, the dispositive
part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant Skyland Brokerage to pay to the plaintiff L. Acuario
Marketing Corporation the cost of repairs of the barge L. Acuario II in the amount
of P97,021.20 and to seek reimbursement from the third-party defendant Cargolift
Shipping;
2. Ordering the defendant to pay attorneys fees in the amount of P24,255.30 and
to seek reimbursement thereof from the third-party defendant; and
3. Ordering the defendant to pay the costs of suit subject to reimbursement from
the third-party defendant.
SO ORDERED.11
The trial court gave credence to the testimonies of Acuarios witnesses that the barge
sustained damage while it was being chartered by Skyland. It held that the positive
testimonies of Acuarios witnesses, coupled with documentary evidence detailing the
nature and extent of the damage as well as the repairs done on the barge, should prevail
over the bare denials of Skyland and petitioner. It also noted that two of the latters three
witnesses were not in Limay, Bataan when the incident happened.
The trial court further held that Skyland was liable under its time charter agreement with
Acuario pursuant to Article 1159 of the Civil Code which states that "contracts have the
force of law between the contracting parties." Skyland must bear the consequences of the
tugboats incapacity to respond to the barges request for assistance because Acuario had
no control in the selection of the tugboats used by Skyland. But since the ultimate fault
lies with petitioner, justice demands that the latter reimburse Skyland for whatever it may
be adjudged to pay Acuario.12
Both Skyland and petitioner elevated the matter to the Court of Appeals which, on July 6,
2000, rendered the assailed Decision affirming the trial court, but deleting the award of
attorneys fees. Upon denial of its motion for reconsideration,13 petitioner brought the
instant petition raising the following issues:

I
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDING OF
THE TRIAL COURT THAT L. ACUARIO II SUSTAINED DAMAGE AND THAT IT
WAS SUSTAINED DURING ITS CHARTER TO RESPONDENT SKYLAND.
II
ASSUMING THAT L. ACUARIO II SUFFERED DAMAGE, WHETHER THE COURT
OF APPEALS ERRED IN UPHOLDING THE TRIAL COURT DECISION HOLDING
PETITIONER LIABLE THEREFOR.14
The petition lacks merit.
On the first assigned error, petitioner is asking this Court to resolve factual issues that
have already been settled by the courts below. The question of whether the barge had
been damaged during its charter to Skyland is a factual matter, the determination of
which may not be generally disturbed on appeal. Questions of fact are not reviewable by
this Court except under certain exceptional circumstances.15 No such exceptional
circumstance exists in the case at bar.
On the contrary, the factual conclusions reached by the courts below are consistent with
the evidence on record. Acuarios witnesses testified that strong winds and waves caused
the barge to bump into the walls of the pier where it was berthed for unloading.
Petitioners tugboat failed to tow it farther away due to engine breakdown, thus causing
the barge to sustain a hole in its hull. These testimonies were duly supported and
corroborated by documentary evidence detailing the damage and repairs done on the
barge.16
On the other hand, petitioner and Skylands denial that there was inclement weather in
the early hours of April 7, 1993 and that the barge sustained no damage on this occasion
were not supported by evidence to overcome the positive allegations of Acuarios
witnesses who were present at the place and time of the incident. The categorical
declaration of Acuarios witnesses regarding the events which led to the damage on the
barge shifted the burden of evidence on petitioner and Skyland. They could have easily
disproved Acuarios claims by presenting competent proof that there was no weather
disturbance on that day or, by presenting the testimony of individuals who have personal
knowledge of the events which transpired.
Moreover, the inability of petitioners and Skylands witnesses to unequivocally declare
that it was still the M/T Count that secured the barge during the resumption of off-loading
operations casts suspicion on their credibility. As aptly observed by the trial court, such
hesitation on the part of its witnesses is indicative of uncertainty, if not a propensity to
withhold information that could be unfavorable to their cause.17 To our mind, therefore,
the trial court rightly concluded that petitioners M/T Count indeed encountered
mechanical trouble, as asserted by Acuario. The fact that petitioner did not categorically

deny the allegation of mechanical trouble only serves to strengthen the trial courts
conclusion.
Petitioners assertion that it is contrary to human experience for the barge to have made
the return trip to Manila if it sustained the alleged damage deserves short shrift. The trial
court found that the damage on the barge was not too extensive as to render it incapable
of staying afloat and being used in operation. Neither was it impossible for the barges
cargo to remain intact and undamaged during the weather disturbance. Apart from the
fact that the cargo which consisted of wooden electric poles are, by nature, not easily
damaged by adverse weather,18 part of it had already been unloaded when the unfortunate
incident occurred.
Consequently, we find no cogent reason to disturb the lower courts finding that the barge
sustained a hole in its hull when petitioners tugboat failed to tow it to a safer distance as
the weather changed in the port of Limay. This Court is bound by the factual
determinations of the appellate court especially when these are supported by substantial
evidence and merely affirm those of the trial court,19 as in this case. There is no showing
here that the inferences made by the Court of Appeals were manifestly mistaken, or that
the appealed judgment was based on a misapprehension of facts, or that the appellate
court overlooked certain relevant, undisputed facts which, if properly considered, would
justify a different conclusion.20 Thus, a reversal of the factual findings in this case is
unwarranted.
As for the second assigned error, petitioner asserts that it could not be held liable for the
damage sustained by Acuarios barge because the latter sought to recover upon its
contract with Skyland, to which petitioner was not a party. Since it had no contractual
relation with Acuario, only Skyland should be held liable under the contract. Besides,
Skyland contractually assumed the risk that the tugboat might encounter engine trouble
when it acknowledged in its contract with petitioner that the latters vessels were in good
order and in seaworthy condition. At any rate, it was neither negligent in the performance
of its obligation nor the proximate cause of the damage.
We do not agree.
It was not Acuario that seeks to hold petitioner liable for the damage to the barge, as the
former in fact sued only Skyland pursuant to their charter agreement. It was Skyland that
impleaded petitioner as third-party defendant considering that Skyland was being held
accountable for the damage attributable to petitioner. In other words, petitioner was not
sued under Skylands charter agreement with Acuario, but pursuant to its separate
undertaking with Skyland. Strictly speaking, therefore, petitioner is not being held liable
under any charter agreement with Acuario.
Consequently, it is not correct for petitioner to assert that Acuario could not recover
damages from it due to lack of privity of contract between them. It is not Acuario that is
seeking damages from petitioner but Skyland, with whom it undoubtedly had a juridical
tie. While Acuario could hold Skyland liable under its charter agreement, Skyland in turn

could enforce liability on petitioner based on the latters obligation to Skyland. In other
words, petitioner is being held liable by Skyland and not by Acuario.
Thus, in the performance of its contractual obligation to Skyland, petitioner was required
to observe the due diligence of a good father of the family. This much was held in the old
but still relevant case of Baer Senior & Co.s Successors v. La Compania Maritima21
where the Court explained that a tug and its owners must observe ordinary diligence in
the performance of its obligation under a contract of towage. The negligence of the
obligor in the performance of the obligation renders him liable for damages for the
resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his
failure to exercise due care and prudence in the performance of the obligation as the
nature of the obligation so demands.22
In the case at bar, the exercise of ordinary prudence by petitioner means ensuring that its
tugboat is free of mechanical problems. While adverse weather has always been a real
threat to maritime commerce, the least that petitioner could have done was to ensure that
the M/T Count or any of its other tugboats would be able to secure the barge at all times
during the engagement. This is especially true when considered with the fact that
Acuarios barge was wholly dependent upon petitioners tugboat for propulsion. The
barge was not equipped with any engine and needed a tugboat for maneuvering.23
Needless to say, if petitioner only subjected the M/T Count to a more rigid check-up or
inspection, the engine malfunction could have been discovered or avoided. The M/T
Count was exclusively controlled by petitioner and the latter had the duty to see to it that
the tugboat was in good running condition. There is simply no basis for petitioners
assertion that Skyland contractually assumed the risk of any engine trouble that the
tugboat may encounter. Skyland merely procured petitioners towing service but in no
way assumed any such risk.
That petitioners negligence was the proximate cause of the damage to the barge cannot
be doubted. Had its tugboat been serviceable, the barge could have been moved away
from the stone wall with facility. It is too late in the day for petitioner to insist that the
proximate cause of the damage was the barge patrons negligence in not objecting to the
position of the barge by the stone wall. Aside from the fact that the position of the barge
is quite understandable since off-loading operations were then still underway,24 the
alleged negligence of the barge patron is a matter that is also being raised for the first
time before this Court.
Thus, the damage to the barge could have been avoided had it not been for the tugboats
inability to tow it away from the stone wall. Considering that a barge has no power of its
own and is totally defenseless against the ravages of the sea, it was incumbent upon
petitioner to see to it that it could secure the barge by providing a seaworthy tugboat.
Petitioners failure to do so did not only increase the risk that might have been reasonably
anticipated during the shipside operation but was the proximate cause of the damage.25
Hence, as correctly found by the courts below, it should ultimately be held liable therefor.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of
Appeals in CA-G.R. CV No. 55664 dated July 6, 2000 and the Resolution dated
November 28, 2000, finding petitioner Cargolift Shipping, Inc. liable, as third-party
defendant, for actual damages in the sum of P97,021.20, are AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 161539

June 27, 2008

INTERNATIONAL CONTAINERTERMINAL SERVICES, INC., petitioner,

vs.
FGU INSURANCE CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the Regional Trial Court
(RTC) of Manila, Branch 30, ordered International Container Terminal Services, Inc.
(petitioner) to pay FGU Insurance Corporation (respondent) the following sums: (1)
P1,875,068.88 with 12% interest per annum from January 3, 1995 until fully paid; (2)
P50,000.00 as attorney's fees; and (3) P10,000.00 as litigation expenses.1
Petitioner's liability arose from a lost shipment of "14 Cardboards 400 kgs. of Silver
Nitrate 63.53 FCT Analytically Pure (purity 99.98 PCT)," shipped by Hapag-Lloyd AG
through the vessel Hannover Express from Hamburg, Germany on July 10, 1994, with
Manila, Philippines as the port of discharge, and Republic Asahi Glass Corporation
(RAGC) as consignee. Said shipment was insured by FGU Insurance Corporation (FGU).
When RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the shipment,
petitioner, which was the arrastre contractor, could not find it in its storage area. At the
behest of petitioner, the National Bureau of Investigation (NBI) conducted an
investigation. The AAREMA Marine and Cargo Surveyors, Inc. also conducted an

inquiry. Both found that the shipment was lost while in the custody and responsibility of
petitioner.
As insurer, FGU paid RAGC the amount of P1,835,068.88 on January 3, 1995.2 In turn,
FGU sought reimbursement from petitioner, but the latter refused. This constrained FGU
to file with the RTC of Manila Civil Case No. 95-73532 for a sum of money.
After trial, the RTC rendered its Decision dated July 1, 1999 finding petitioner liable.
Petitioner appealed to the Court of Appeals (CA), which, in the assailed Decision3 dated
October 22, 2003, affirmed the RTC Decision. Petitioner filed a motion for
reconsideration which the CA denied in its Resolution dated January 8, 2004.4
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court,
with the following assignment of errors:
1. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO APPLY
THE LIMITATION OF LIABILITY OF P3,5000 PER PACKAGE WHICH
LIMITS PETITIONER'S LIABILITY, IF ANY, TO A TOTAL OF ONLY
P49,000.00 PURSUANT TO PPA ADMINISTRATIVE ORDER NO. 10-81.
2. THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE
MARINE OPEN POLICY DESPITE THE FACT THAT THE SAME WAS NO
LONGER IN FORCE AT THE TIME THE SHIPMENT WAS LOADED ON
BOARD THE CARRYING VESSEL.
3. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO DISMISS
THE COMPLAINT ON THE GROUND OF RESPONDENT'S FAILURE TO
OFFER THE INSURANCE POLICY IN EVIDENCE PURSUANT TO THIS
HONORABLE COURT'S DECISION IN HOME INSURANCE
CORPORATION VS. COURT OF APPEALS (225 SCRA 411) AND THE
FAIRLY RECENT DECISION IN WALLEM PHILIPPINES SHIPPING, INC.
AND SEACOAST MARITIME CORP. VS. PRUDENTIAL GUARANTEE AND
ASSURANCE, INC. AND COURT OF APPEALS, G.R. NO. 152158, 07
FEBRUARY 2003.
4. ASSUMING ARGUENDO THAT PETITIONER IS LIABLE, THE COURT
OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE AWARD OF 12%
INTEREST DESPITE THE FACT THAT THE OBLIGATION PURPORTEDLY
BREACHED DOES NOT CONSTITUTE A LOAN OF FORBEARANCE OF
MONEY AND DESPITE THE CLEAR GUIDELINES SET FORTH BY THIS
HONORABLE COURT IN EASTERN SHIPPING LINES, INC. VS. COURT OF
APPEALS. (234 SCRA 78).5
The rule in our jurisdiction is that only questions of law may be entertained by this Court
in a petition for review on certiorari. This rule, however, is not ironclad and admits

certain exceptions, such as when (1) the conclusion is grounded on speculations, surmises
or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is
grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact are conflicting; (6) there is no citation of specific evidence on which
the factual findings are based; (7) the findings of absence of facts are contradicted by the
presence of evidence on record; (8) the findings of the CA are contrary to those of the
trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the CA are
beyond the issues of the case; and (11) such findings are contrary to the
admissions of both parties.6 In the present case, there is nothing on record which will
show that it falls within the exceptions. Hence, the petition must be denied.
Petitioner posits that its liability for the lost shipment should be limited to P3,500.00 per
package as provided in Philippine Ports Authority Administrative Order No. 10-81 (PPA
AO 10-81), under Article VI, Section 6.01 of which provides:
Section 6.01. Responsibility and Liability for Losses and Damages; Exceptions The CONTRACTOR shall at its own expense handle all merchandise in all work
undertaken by it hereunder deligently [sic] and in a skillful, workman-like and
efficient manner; that the CONTRACTOR shall be solely responsible as an
independent CONTRACTOR, and hereby agrees to accept liability and to
promptly pay to the shipping company consignees, consignors or other interested
party or parties for the loss, damage, or non-delivery of cargoes to the extent of
the actual invoice value of each package which in no case shall be more than
THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) (for import cargo) x
x x for each package unless the value of the cargo importation is otherwise
specified or manifested or communicated in writing together with the
declared bill of lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge x x x
of the goods, as well as all damage that may be suffered on account of loss,
damage, or destruction of any merchandise while in custody or under the control
of the CONTRACTOR in any pier, shed, warehouse facility or other designated
place under the supervision of the AUTHORITY x x x.7 (Emphasis supplied)
The CA summarily ruled that PPA AO 10-81 is not applicable to this case without laying
out the reasons therefor.
PPA AO 10-81 is the management contract between by the Philippine Ports Authority and
the cargo handling services providers. In Summa Insurance Corporation v. Court of
Appeals,8 the Court ruled that:
In the performance of its job, an arrastre operator is bound by the management
contract it had executed with the Bureau of Customs. However, a management
contract, which is a sort of a stipulation pour autrui within the meaning of Article
1311 of the Civil Code, is also binding on a consignee because it is incorporated

in the gate pass and delivery receipt which must be presented by the consignee
before delivery can be effected to it. The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract. Indeed, upon taking
delivery of the cargo, a consignee (and necessarily its successor-in- interest)
tacitly accepts the provisions of the management contract, including those which
are intended to limit the liability of one of the contracting parties, the arrastre
operator.
However, a consignee who does not avail of the services of the arrastre operator is
not bound by the management contract. Such an exception to the rule does not
obtain here as the consignee did in fact accept delivery of the cargo from the
arrastre operator.9
While it appears in the present case that the RAGC availed itself of petitioner's services
and therefore, PPA AO 10-81 should apply, the Court finds that the extent of petitioner's
liability should cover the actual value of the lost shipment and not the P3,500.00 limit per
package as provided in said Order.
It is borne by the records that when Desma Cargo Handlers was negotiating for the
discharge of the shipment, it presented Hapag-Lloyd's Bill of Lading,10 Degussa's
Commercial Invoice, which indicates that value of the shipment, including seafreight
charges, was DM94.960,00 (CFR Manila);11 and Degussa's Packing List, which likewise
notes that the value of the shipment was DM94.960,00.12 It is highly unlikely that
petitioner was not made aware of the actual value of the shipment, since it had to
examine the pertinent documents for stripping purposes and, later on, for the discharge of
the shipment to the consignee or its representative. In fact, the NBI Report dated
September 26, 1994 on the investigation conducted by it regarding the loss of the
shipment shows that petitioner's Admeasurer Rosco Esquibal was shown the Bill of
Lading by Desma Brokerage's representative, Rey Villanueva.13 Esquibal also stated that
another representative of Desma Brokerage, Joey Laurente, went to their office and
furnished him a copy of the "processed papers of the fourteen cartons of Asahi Glass
cargoes."14
By its own act of not charging the corresponding arrastre fees based on the value of the
shipment after it came to know of such declared value from the marine insurance policy,
petitioner cannot escape liability for the actual value of the shipment. The value of the
merchandise or shipment may be declared or stated not only in the bill of lading or
shipping manifest, but also in other documents required by law before the shipment is
cleared from the piers.15
Petitioner insists that Marine Open Policy No. MOP-12763 under which the shipment
was insured was no longer in force at the time it was loaded on board the Hannover
Express on June 10, 1994, as provided in the Endorsement portion of the policy, which
states: "IT IS HEREBY DECLARED AND AGREED that effective June 10, 1994, this
policy is deemed CANCELLED."16 FGU, on the other hand, insists that it was under

Marine Risk Note No. 9798, which was executed on May 26, 1994, that said shipment
was covered.
It must be emphasized that a marine risk note is not an insurance policy. It is only an
acknowledgment or declaration of the insurer confirming the specific shipment covered
by its marine open policy, the evaluation of the cargo and the chargeable premium.17 It is
the marine open policy which is the main insurance contract. In other words, the marine
open policy is the blanket insurance to be undertaken by FGU on all goods to be shipped
by RAGC during the existence of the contract, while the marine risk note specifies the
particular goods/shipment insured by FGU on that specific transaction, including the sum
insured, the shipment particulars as well as the premium paid for such shipment. In any
event, as it stands, it is evident that even prior to the cancellation by FGU of Marine
Open Policy No. MOP-12763 on June 10, 1994, it had already undertaken to insure the
shipment of the 400 kgs. of silver nitrate, specially since RAGC had already paid the
premium on the insurance of said shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in
evidence before the trial court or even belatedly before the appellate court. In Malayan
Insurance Co., Inc. v. Regis Brokerage Corp.,18 the Court stated that the presentation of
the marine insurance policy was necessary, as the issues raised therein arose from the
very existence of an insurance contract between Malayan Insurance and its consignee,
ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc.
v. Prudential Guarantee and Assurance, Inc.,19 the Court ruled that the insurance contract
must be presented in evidence in order to determine the extent of the coverage. This was
also the ruling of the Court in Home Insurance Corporation v. Court of Appeals.20
However, as in every general rule, there are admitted exceptions. In Delsan Transport
Lines, Inc. v. Court of Appeals,21 the Court stated that the presentation of the insurance
policy was not fatal because the loss of the cargo undoubtedly occurred while on board
the petitioner's vessel, unlike in Home Insurance in which the cargo passed through
several stages with different parties and it could not be determined when the damage to
the cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred
while in petitioner's custody. Moreover, there is no issue as regards the provisions of
Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is
necessary for perusal, not to mention that its existence was already admitted by petitioner
in open court.22 And even though it was not offered in evidence, it still can be considered
by the court as long as they have been properly identified by testimony duly recorded and
they have themselves been incorporated in the records of the case.23
Finally, petitioner questions the imposition of a 12% interest rate, instead of 6%, on its
adjudged liability. The ruling in Prudential Guarantee and Assurance Inc. v. Trans-Asia
Shipping Lines, Inc.,24 to wit:

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, inscribed the rule
of thumb in the application of interest to be imposed on obligations, regardless of
their source. Eastern emphasized beyond cavil that when the judgment of the
court awarding a sum of money becomes final and executory, the rate of legal
interest, regardless of whether the obligation involves a loan or forbearance of
money, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of
credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per
annum from the finality of judgment until the full satisfaction thereof must be
imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear
that the interim period from the finality of judgment until the satisfaction of
the same is deemed equivalent to a forbearance of credit, hence, the
imposition of the aforesaid interest.25 (Emphasis supplied)
is instructive. The CA did not commit any error in applying the same.
The Court notes, however, an apparent clerical error made in the dispositive portion of
the RTC Decision. While it appears that FGU paid RAGC the amount of P1,835,068.88,
as shown in the Subrogation Receipt,26 as prayed for in its Complaint,27 the RTC awarded
the sum of P1,875,068.88. Thus, a necessary modification should be made on this score.
WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003 and
Resolution dated January 8, 2004 of the Court of Appeals are AFFIRMED, with the
modification that the award in the RTC Decision dated July 1, 1999 should be
P1,835,068.88 instead of P1,875,068.88.
Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 132284

February 28, 2006

TELENGTAN BROTHERS & SONS, INC., Petitioner,

vs.
UNITED STATES LINES, INC. and the COURT OF APPEALS, Respondents.
DECISION
GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Telengtan Brothers & Sons, Inc. (Telengtan) seeks the reversal and setting aside of the
decision1 dated January 8, 1998 of the Court of Appeals (CA) in CA-G.R. CV No. 18349
which affirmed in toto the decision dated January 10, 19852 of the Regional Trial Court of
Manila, Branch 38, finding petitioner liable to respondent United States Lines, Inc. (U.S.
Lines) for demurrage and damages.
Petitioner Telengtan is a domestic corporation doing business under the name and style
La Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign corporation

engaged in the business of overseas shipping. During the period material, the provisions
of the Far East Conference Tariff No. 12 were specifically made applicable to Philippine
containerized cargo from the U.S. and Gulf Ports, effective with vessels arriving at
Philippine ports on and after December 15, 1978. After that date, consignees who fail to
take delivery of their containerized cargo within the 10-day free period are liable to pay
demurrage charges.
As recited in the decision under review, the factual antecedents may be summarized as
follows:
On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking
payment of demurrage charges plus interest and damages. Docketed as Civil Case No. R81-1196 of the Regional Trial Court of Manila and raffled to Branch 38 thereof, the
complaint alleged that between the years 1979 and 1980, goods belonging to petitioner
loaded on containers aboard its (respondents) vessels arrived in Manila from U.S. ports.
After the 10-day free period, petitioner still failed to withdraw its goods from the
containers wherein the goods had been shipped. Continuing, respondent U.S. Lines
alleged that petitioner incurred on all those shipments a demurrage in the total amount of
P94,000.00 which the latter refused to pay despite repeated demands.
In its amended answer with compulsory counterclaim, petitioner Telengtan, as defendant
a quo, disclaims liability for the demanded demurrage, alleging that it has never entered
into a contract nor signed an agreement to be bound by any rule on demurrage. It likewise
maintains that, absent an obligation to pay respondent who made no proper or legal
demands in the first place, there is justifiable reason to refuse payment of the latters
unwarranted claims. By way of counterclaim, petitioner states that, upon arrival of the
conveying vessels, it presented the Bills of Lading (B/Ls) and all other pertinent
documents covering seven (7) shipments and demanded from respondent delivery of all
the goods covered by the aforesaid B/Ls, only to be informed that respondent had already
unloaded the goods from the container vans, stripped them of their contents which
contents were then stored in warehouses. Petitioner further states that respondent had
refused to deliver the goods covered by the B/Ls and required petitioner to pay the
amount of P123,738.04 before the goods can be released. It thus prays that respondent be
ordered to pay the aforestated amount with interest.
After due proceedings, the trial court found for respondent U.S. Lines, as plaintiff therein,
and accordingly rendered judgment, as follows:
WHEREFORE, in view of all the foregoing, the Court finds [petitioner] liable to
[respondent] for demurrage incurred in the amount of P99,408.00 which sum will bear
interest at the legal rate from the date of the filing of the complaint till full payment
thereof plus attorneys fees in the amount of 20% of the total sum due, all of which shall
be recomputed as of the date of payment in accordance with the provisions of Article
1250 of the Civil Code. Exemplary damages in the amount of P80,000.00 are also
granted. The counterclaim is dismissed. Costs against [petitioner]. (Words in bracket
ours)3

Party explains the trial court in its decision:4

In other words, contrary to [petitioners] contentions, both the provisions of the contract
between the parties, in this case the bill of lading, and the interpretation given by the
higher courts to these provisions are to the effect that demurrage may be lawfully
collected. As a matter of fact, [respondent U.S. Lines] has submitted official receipts
showing that on many other and previous occasions, [petitioner] paid demurrage to
[respondent] (Exhibits "F", "F-1" to "F-4", "G", "G-1" to "G-4", "H", "H-1" to "H-4", and
"I", "I-1" to "I-3"). [Petitioner] is, therefore, in estoppel to claim that it did not know of
demurrage being charged by [respondent] and that it had not agreed to it since these
exhibits show that [petitioner] knew of this demurrage and by paying for the same, it in
effect, agreed to the collection of demurrage.
xxxxxxxxx
On the other hand, [petitioner] claims that [respondent] company owes them the far larger
sum of P123,738.04 by way of damages allegedly suffered by their goods when
[respondent] company removed these goods from its cargo vans and deposited them in
bonded warehouses without its consent. It is not disputed that [respondent] company did
not [sic] in fact remove these goods belonging to [petitioner] from its vans and deposited
them in warehouses. However, this was done by authority of the Bureau of Customs and
for that purpose, [respondent] addressed a letter-request to the Collector of Customs, for
permission to remove the goods of defendant from its vans (Exhibit "L"). xxx.
xxxxxxxxx
The Court finds that the charges for warehousing were necessary expenses covered by the
terms of the bill of lading which the consignee was responsible for. There is therefore
now no necessity of discussing whether or not the counterclaim of [petitioner] had
prescribed or not. Neither is there any question of bad faith on the part of [respondent].
When it requested for authority to remove [petitioners] consigned goods from its vans
and deposited them in warehouses, [respondent] had already given consignee sufficient
time to take delivery of the shipment. This, [petitioner] chose not to do. Instead, it sat pat
by the telephone calling without making any positive effort to check up on the shipment
or arrange for its delivery to its factory. Once arrived at the port, the shipment was
available to consignee for its proper delivery and receipt and the carrier discharged of its
responsibility therefor. Rather, by its inaction, [petitioner] was guilty of bad faith. Once it
had received the notice of arrival of the carrier in port, it was incumbent on consignee to
put wheels in motion in order that the shipment could be delivered to it. The inaction of
[petitioner] would only indicate that it had no intention of taking delivery except at its
own convenience thus preventing carrier from taking on other shipments and from
leaving port. Such unexplained and unbusiness-like delay smacks highly of bad faith on
the part of [petitioner] rather than of the [respondent]. (Words in bracket, added).
Appealing to the CA, whereat its recourse was docketed as CA-G.R. CV No. 18349,
petitioner contended that the trial court erred in (1) holding it liable for demurrage, (2)

dismissing its counterclaim, and (3) awarding exemplary damages and attorneys fees to
respondent.
As stated at the outset, however, the CA, in its assailed Decision dated January 8,
1998,5 affirmed in toto the judgment of the trial court.
Undaunted, petitioner is now with this Court via the present recourse, imputing to the CA
the following errors:
A. xxx in concluding that it [petitioner] was the one at fault in not withdrawing its cargo
from the container vans in which the goods were originally shipped despite documentary
evidence and written admissions of private respondent to the contrary.
B. xxx in affirming the trial courts order for the recomputation of the judgment award in
accordance with Article 1250 of the Civil Code contrary to existing jurisprudence and
without any evidence at all to support it.6
The petition is partly meritorious.1avvphil.net
It is undisputed that the goods subject of petitioners counterclaim and covered by seven
(7) B/Ls with Shippers Reference Nos. S-16844, S-16846, S-16848, S-17748, S-17750,
S-17749 and S-177517 were loaded for shipment to Manila on respondents vessels in
container vans on a "House/House Containers-Shippers Load, Stowage and Count" basis.
This shipping arrangement means that the shipping companys container vans are to be
brought to the shipper for loading of its goods; that from the shippers warehouse, the
goods in container vans are brought to the shipping company for shipment; that the
shipping company, upon arrival of its ship at the port of destination, is to deliver the
container vans to the consignees compound or warehouse; and that the shipper
(consignee) is supposed to load, stow and count the goods from the container van.8
Likewise undisputed is the fact that the container vans containing the goods covered by
three (3) of the aforesaid B/Ls, particularly those with Shippers Reference Nos. S-17748,
S-17750 and S-17751,9 were delivered to a warehouse, stripped of their contents and the
contents deposited thereat.10
On the argument that the respondent, upon the foregoing undisputed facts, violated its
contractual obligation to deliver when, instead of delivering the goods to the petitioner as
consignee thereof, it deposited the same in bonded warehouse/s, petitioner would now
score the CA for finding it at fault for non-withdrawal of its cargo from the container
vans within the 10-day free demurrage period. Pressing the point, petitioner argues that,
since the CA drew an erroneous conclusion from an undisputed set of facts, petitioner
now asserts that the matter of who is at fault - its first assigned error - could be treated as
a legal issue and not a question of fact.
After careful consideration, the Court sustain the CAs stance faulting the petitioner for
not taking delivery of its cargo from the container vans within the 10-day free period, an
inaction which led respondent to deposit the same in warehouse/s.

It may be that, when the relevant facts are undisputed, the question of whether or not the
conclusion deduced therefrom by the CA is correct is a question of law properly
cognizable by this Court.11 However, it has also been held that all doubts as to the
correctness of such conclusions will be resolved in favor of the disposing court.12 So it
must be in this case.
At any rate, the Court finds that petitioners first contention raises a question of fact
rather than of law. And settled is the rule that factual findings of the CA, particularly
those confirmatory of that of the trial court, as here, are binding on this Court,13 save for
the most compelling of reasons, like when they are reached arbitrarily.14
As it were, however, the conclusion of the CA on who contextually is the erring party
was not exactly drawn from a vacuum, supported as such conclusion is by the records of
the case. What the CA wrote with some measure of logic commends itself for
concurrence:
However, ... We find that [petitioner] was the one at fault in not withdrawing its cargo
from the containers wherein the goods were shipped within the ten (10)-day free period.
Had it done so, then there would not have been any need of depositing the cargo in a
warehouse.
It is incumbent upon the carrier to immediately advise the consignee of the arrival of the
goods for if it does not, it continues to be liable for the same until the consignee has had
reasonable opportunity to remove them.
Sound business practice dictates that the consignee, upon notification of the arrival of the
goods, should immediately get the cargo from the carrier especially since it has need of it.
xxx.
Appellant tries to shift the blame on the [respondent] by stating that it was not informed
beforehand of the latters intention to deliver the goods to a warehouse. It likewise alleges
that it does not know where to contact [respondent] for it argues that the person manning
the latters office would only hold office for a few hours, if not always out. But had it
taken the necessary steps of inquiring for the address of [respondent] from the proper
government offices, then it would have succeeded in finding the latters address.
Judging from the [petitioners] way of conducting business in the past, We come to the
conclusion that it is used to paying demurrage charges. Exhibits "H" and "I" are certainly
proofs of appellants practice of not getting its cargo from the carrier immediately upon
notification of the goods arrival. 15 (Words in bracket added.)
It cannot be over-emphasized that the container vans were stripped of their cargo with the
prior authorization of the Bureau of Customs. The trial court said as much, thus:
It is not disputed that [respondent] company did not [sic] in fact remove these goods
belonging to [petitioner] from its vans and deposited them in warehouses. However, this

was done by authority of the Bureau of Customs and for that purpose, [respondent]
addressed a letter-request to the Collector of Customs, for permission to remove the
goods of [petitioner] from its vans (Exhibit "L"). The corresponding authority was
granted by the Bureau of Customs to do so as evidenced by a van permit (Exhibit
"M"). In other words, while [respondent] admits that it removed the goods of [petitioner]
from its vans and deposited them in various warehouses, there is no question that this was
done by authority of the Bureau of Customs which is the proper agency of the
government charged with the supervision and regulation of maritime commerce.
Verily, the authority secured from the Bureau of Customs is indicative of the bona fides
of respondents intention. And as held below, the authority thus acquired relieved
respondent of its obligations under the B/Ls when it caused the containers to be stripped
and the goods stored in bonded warehouses.
Not lost on this Court is the fact that the B/Ls under which petitioner anchors its
counterclaim allow the goods carried to be delivered to bonded warehouses for the
shippers and/or consignees account if it does not take possession or delivery thereof as
soon as they are at its disposal for removal. Section 17 of the Regular Long Form Inward
B/L of the respondent16 which is incorporated by reference to the Short Form of B/L17
provides:
17. The carrier shall not be required to give any notification whatsoever of arrival,
discharge or any disposition of or action taken with respect to the goods, even though
the goods are consigned to order with provision for notice to a named person.
The carrier or master may appoint a stevedore or any other persons to unload and take
delivery of the goods and such delivery from ship's tackle shall be considered complete
and all responsibility of the carrier shall then terminate.
It is agreed that when possession of the goods is received or taken by the customs or
other authorities or by any operator of any lighter, craft, or other facilities whether
selected by the carrier or master, shipper of consignee, whether public or private, such
authority or person shall be considered as having received possession and delivery of the
goods solely as agent of and on behalf of the shipper and consignee, . Also if the
consignee does not take possession or delivery of the goods as soon as the goods are
at the disposal of the consignee for removal, the goods shall be at their own risk and
expense, delivery shall be considered complete and the carrier may, subject to
carrier's liens, send the goods to store, warehouse, put them on lighters or other
craft, put them in possession of authorities, dump, permit to lie where landed or
otherwise dispose of them, always at the risk and expense of the goods, and the
shipper and consignee shall pay and indemnify the carrier for any loss, damage, fine,
charge or expense whatsoever suffered or incurred in so dealing with or disposing of the
goods, or by reason of the consignee's failure or delay in taking possession and delivery
as provided herein. (Emphasis Ours)

On the second issue raised, the Court finds as erroneous the trial courts decision, as
affirmed by the CA, for the recomputation of the judgment award as of the date of
payment in accordance with Article 1250 of the Civil Code.
In calling for the application of the aforementioned provision, respondent urged that
judicial notice be taken of the succeeding devaluations of the peso vis--vis the US dollar
since the time the proceedings began in 1981. According to respondent, the computation
of the amount thus due from the petitioner should factor in such peso devaluations.18
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Extraordinary inflation or deflation, as the case may be, exists when there is an unusual
increase or decrease in the purchasing power of the Philippine peso which is beyond the
common fluctuation in the value of said currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly beyond the contemplation of the parties
at the time of the establishment of the obligation.19 Extraordinary inflation can never be
assumed; he who alleges the existence of such phenomenon must prove the same.20
The Court holds that there has been no extraordinary inflation within the meaning of
Article 1250 of the Civil Code. Accordingly, there is no plausible reason for ordering the
payment of an obligation in an amount different from what has been agreed upon because
of the purported supervention of extraordinary inflation.
As it were, respondent was unable to prove the occurrence of extraordinary inflation
since it filed its complaint in 1981. Indeed, the record is bereft of any evidence,
documentary or testimonial, that inflation, nay, an extraordinary one, existed. Even if the
price index of goods and services may have risen during the intervening period,21 this
increase, without more, cannot be considered as resulting to "extraordinary inflation" as
to justify the application of Article 1250. The erosion of the value of the Philippine peso
in the past three or four decades, starting in the mid-sixties, is, as the Court observed in
Singson vs. Caltex (Phil), Inc., 22 characteristics of most currencies. And while the Court
may take judicial notice of the decline in the purchasing power of the Philippine currency
in that span of time, such downward trend of the peso cannot be considered as the
extraordinary phenomenon contemplated by Article 1250 of the Civil Code. Furthermore,
absent an official pronouncement or declaration by competent authorities of the existence
of extraordinary inflation during a given period, as here, the effects of extraordinary
inflation, if that be the case, are not to be applied.
Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the
value of the peso at the time of the establishment of the obligation shall control and be
the basis of payment of the contractual obligation, unless there is "agreement to the
contrary." It is only when there is a contrary agreement that extraordinary inflation will

make the value of the currency at the time of payment, not at the time of the
establishment of obligation, the basis for payment.23 The Court, in Mobil Oil Philippines,
Inc. vs. Court of Appeals and Fernando A. Pedrosa,[24 formulated the same rule in the
following wise:
In other words, an agreement is needed for the effects of an extraordinary inflation to be
taken into account to alter the value of the currency at the time of the establishment of the
obligation which, as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of extraordinary inflation or
deflation.
To be sure, neither the trial court, the CA nor respondent has pointed to any provision of
the covering B/Ls whence respondent sourced its contractual right under the premises
where the defining "agreement to the contrary" is set forth. Needless to stress, the Court
sees no need to speculate as to the existence of such agreement, the burden of proof on
this regard being on respondent.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the order for recomputation as of the date of payment in
accordance with the provisions of Article 1250 of the Civil Code is deleted.
Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 152040

March 31, 2006

MARIKINA AUTO LINE TRANSPORT CORPORATION and FREDDIE L.

SUELTO, Petitioners,
vs.
PEOPLE OF THE PHILIPPINES and ERLINDA V. VALDELLON, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a Petition for Review on Certiorari of the Decision1 of the Court of
Appeals (CA) in CA-G.R. CR No. 16739 affirming the Joint Decision of the Regional
Trial Court (RTC) in Criminal Case No. Q-93-42629 and Civil Case No. Q-93-16051,
where Freddie Suelto was convicted of reckless imprudence resulting in damages to
property.
Erlinda V. Valdellon is the owner of a two-door commercial apartment located at No. 31
Kamias Road, Quezon City. The Marikina Auto Line Transport Corporation (MALTC) is
the owner-operator of a passenger bus with Plate Number NCV-849. Suelto, its
employee, was assigned as the regular driver of the bus.2

At around 2:00 p.m. on October 3, 1992, Suelto was driving the aforementioned
passenger bus along Kamias Road, Kamuning, Quezon City, going towards Epifanio de
los Santos Avenue (EDSA). The bus suddenly swerved to the right and struck the terrace
of the commercial apartment owned by Valdellon located along Kamuning Road.3 Upon
Valdellons request, the court ordered Sergio Pontiveros, the Senior Building Inspection
Officer of the City Engineers Office, to inspect the damaged terrace. Pontiveros
submitted a report enumerating and describing the damages:
(1) The front exterior and the right side concrete columns of the covered terrace
were vertically displaced from its original position causing exposure of the
vertical reinforcement.
(2) The beams supporting the roof and parapet walls are found with cracks on top
of the displaced columns.
(3) The 6 CHB walls at [the] right side of the covered terrace were found with
cracks caused by this accident.
(4) The front iron grills and concrete balusters were found totally damaged and
the later [sic] beyond repair.4
He recommended that since the structural members made of concrete had been displaced,
the terrace would have to be demolished "to keep its monolithicness, and to insure the
safety and stability of the building."5
Photographs6 of the damaged terrace were taken. Valdellon commissioned Engr. Jesus R.
Regal, Jr. to estimate the cost of repairs, inclusive of labor and painting, and the latter
pegged the cost at P171,088.46.7
In a letter dated October 19, 1992 addressed to the bus company and Suelto, Valdellon
demanded payment of P148,440.00, within 10 days from receipt thereof, to cover the cost
of the damage to the terrace.8 The bus company and Suelto offered a P30,000.00
settlement which Valdellon refused.9
Valdellon filed a criminal complaint for reckless imprudence resulting in damage to
property against Suelto. After the requisite preliminary investigation, an Information was
filed with the RTC of Quezon City. The accusatory portion of the Information reads:
That on or about the 3rd day of October 1992, in Quezon City, Philippines, the said
accused, being then the driver and/or person in charge of a Marikina Auto Line bus
bearing Plate No. NVC-849, did then and there unlawfully, and feloniously drive,
manage, and operate the same along Kamias Road, in said City, in a careless, reckless,
negligent, and imprudent manner, by then and there making the said vehicle run at a
speed greater than was reasonable and proper without taking the necessary precaution to
avoid accident to person/s and damage to property, and considering the condition of the
traffic at said place at the time, causing as a consequence of his said carelessness,

negligence, imprudence and lack of precaution, the said vehicle so driven, managed and
operated by him to hit and bump, as in fact it hit and bump a commercial apartment
belonging to ERLINDA V. VALDELLON located at No. 31 Kamias Road, this City,
thereby causing damages to said apartment in the total amount of P171,088.46, Philippine
Currency, to her damage and prejudice in the total amount aforementioned.
CONTRARY TO LAW.10
Valdellon also filed a separate civil complaint against Suelto and the bus company for
damages. She prayed that after due proceedings, judgment be rendered in her favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court to issue a writ of
preliminary attachment against the defendants upon approval of plaintiffs bond, and after
trial on the merits, to render a decision in favor of the plaintiff, ordering the defendants,
jointly and severally, to pay
a) the total sum of P171,088.46 constituting the expenses for the repair of the
damaged apartment of plaintiff, with interests to be charged thereon at the legal
rate from the date of the formal demand until the whole obligation is fully paid;
b) the sum of not less than P20,000.00 each as compensatory and exemplary
damages;
c) the sum of P20,000.00 as attorneys fees and the sum of P1,000.00 for each
appearance of plaintiffs counsel; and costs of suit;
PLAINTIFF further prays for such other reliefs as may be just and equitable in the
premises.11
A joint trial of the two cases was ordered by the trial court.12
The trial court conducted an ocular inspection of the damaged terrace, where defendants
offered to have it repaired and restored to its original state. Valdellon, however, disagreed
because she wanted the building demolished to give way for the construction of a new
one.13
During the trial, Valdellon testified on the damage caused to the terrace of her apartment,
and, in support thereof, adduced in evidence a receipt for P35,000.00, dated October 20,
1993, issued by the BB Construction and Steel Fabricator for "carpentry, masonry,
welding job and electrical [work]."14
Pontiveros of the Office of the City Engineer testified that there was a need to change the
column of the terrace, but that the building should also be demolished because "if
concrete is destroyed, [one] cannot have it restored to its original position."15

Engr. Jesus Regal, Jr., the proprietor of the SSP Construction, declared that he inspected
the terrace and estimated the cost of repairs, including labor, at P171,088.46.
Suelto testified that at 2:00 p.m. on October 3, 1992, he was driving the bus on its way to
Ayala Avenue, Makati, Metro Manila. When he reached the corner of K-H Street at
Kamias Road, Quezon City, a passenger jeepney suddenly crossed from EDSA going to
V. Luna and swerved to the lane occupied by the bus. Suelto had to swerve the bus to the
right upon which it hit the side front of the terrace of Valdellons two-door apartment.16
Based on his estimate, the cost to the damage on the terrace of the apartment amounted to
P40,000.00.17 On cross-examination, Suelto declared that he saw the passenger jeepney
when it was a meter away from the bus. Before then, he had seen some passenger
jeepneys on the right trying to overtake one another.18
Architect Arnulfo Galapate testified that the cost of the repair of the damaged terrace
amounted to P55,000.00.19
On April 28, 1994, the trial court rendered judgment finding Suelto guilty beyond
reasonable doubt of reckless imprudence resulting in damage to property, and ordered
MALTC and Suelto to pay, jointly and severally, P150,000.00 to Valdellon, by way of
actual and compensatory damages, as well as attorneys fees and costs of suit. The fallo
of the decision reads:
WHEREFORE, finding the accused FREDDIE SUELTO Y LIWAG guilty beyond
reasonable doubt of the crime of Reckless Imprudence Resulting in Damage to Property,
said accused is hereby sentenced to suffer imprisonment of ONE (1) YEAR.
With respect to the civil liability, judgment is hereby rendered in favor of plaintiff Erlinda
Valdellon and against defendant Marikina Auto Line Transport Corporation and accused
Freddie Suelto, where both are ordered, jointly and severally, to pay plaintiff:
a. the sum of P150,000.00, as reasonable compensation sustained by plaintiff for
her damaged apartment;
b. the sum of P20,000.00, as compensatory and exemplary damages;
c. the sum of P20,000.00, as attorneys fees; and,
d. the costs of suit.
SO ORDERED.20
MALTC and Suelto, now appellants, appealed the decision to the CA, alleging that the
prosecution failed to prove Sueltos guilt beyond reasonable doubt. They averred that the
prosecution merely relied on Valdellon, who testified only on the damage caused to the
terrace of her apartment which appellants also alleged was excessive. Appellant Suelto
further alleged that he should be acquitted in the criminal case for the prosecutions

failure to prove his guilt beyond reasonable doubt. He maintained that, in an emergency
case, he was not, in law, negligent. Even if the appellate court affirmed his conviction, the
penalty of imprisonment imposed on him by the trial court is contrary to law.
In its Brief for the People of the Philippines, the Office of the Solicitor General (OSG)
submitted that the appealed decision should be affirmed with modification. On Sueltos
claim that the prosecution failed to prove his guilt for the crime of reckless imprudence
resulting in damage to property, the OSG contended that, applying the principle of res
ipsa loquitur, the prosecution was able to prove that he drove the bus with negligence and
recklessness. The OSG averred that the prosecution was able to prove that Sueltos act of
swerving the bus to the right was the cause of damage to the terrace of Valdellons
apartment, and in the absence of an explanation to the contrary, the accident was
evidently due to appellants want of care. Consequently, the OSG posited, the burden was
on the appellant to prove that, in swerving the bus to the right, he acted on an emergency,
and failed to discharge this burden. However, the OSG averred that the trial court erred in
sentencing appellant to a straight penalty of one year, and recommended a penalty of fine.
On June 20, 2000, the CA rendered judgment affirming the decision of the trial court, but
the award for actual damages was reduced to P100,000.00. The fallo of the decision
reads:
WHEREFORE, premises considered, the decision dated April 28, 1994, rendered by the
court a quo is AFFIRMED with the modification that the sum of P150,000.00 as
compensation sustained by the plaintiff-appellee for her damaged apartment be reduced
to P100,000.00 without pronouncement as to costs.
SO ORDERED.21
Appellants filed a Motion for Reconsideration, but the CA denied the same.22
MALTC and Suelto, now petitioners, filed the instant petition reiterating its submissions
in the CA: (a) the prosecution failed to prove the crime charged against petitioner Suelto;
(b) the prosecution failed to adduce evidence to prove that respondent suffered actual
damages in the amount of P100,000.00; and (c) the trial court erred in sentencing
petitioner Suelto to one (1) year prison term.
On the first issue, petitioners aver that the prosecution was mandated to prove that
petitioner Suelto acted with recklessness in swerving the bus to the right thereby hitting
the terrace of private respondents apartment. However, the prosecution failed to
discharge its burden. On the other hand, petitioner Suelto was able to prove that he acted
in an emergency when a passenger jeepney coming from EDSA towards the direction of
the bus overtook another vehicle and, in the process, intruded into the lane of the bus.
On the second issue, petitioners insist that private respondent was able to prove only the
amount of P35,000.00 by way of actual damages; hence, the award of P100,000.00 is
barren of factual basis.

On the third issue, petitioner Suelto posits that the straight penalty of imprisonment
recommended by the trial court, and affirmed by the CA, is contrary to Article 365 of the
Revised Penal Code.
The petition is partially granted.
On the first issue, we find and so resolve that respondent People of the Philippines was
able to prove beyond reasonable doubt that petitioner Suelto swerved the bus to the right
with recklessness, thereby causing damage to the terrace of private respondents
apartment. Although she did not testify to seeing the incident as it happened, petitioner
Suelto himself admitted this in his answer to the complaint in Civil Case No. Q-9316051, and when he testified in the trial court.
Suelto narrated that he suddenly swerved the bus to the right of the road causing it to hit
the column of the terrace of private respondent. Petitioners were burdened to prove that
the damage to the terrace of private respondent was not the fault of petitioner Suelto.
We have reviewed the evidence on record and find that, as ruled by the trial court and the
appellate court, petitioners failed to prove that petitioner acted on an emergency caused
by the sudden intrusion of a passenger jeepney into the lane of the bus he was driving.
It was the burden of petitioners herein to prove petitioner Sueltos defense that he acted
on an emergency, that is, he had to swerve the bus to the right to avoid colliding with a
passenger jeep coming from EDSA that had overtaken another vehicle and intruded into
the lane of the bus. The sudden emergency rule was enunciated by this Court in Gan v.
Court of Appeals,23 thus:
[O]ne who suddenly finds himself in a place of danger, and is required to act without time
to consider the best means that may be adopted to avoid the impending danger, is not
guilty of negligence if he fails to adopt what subsequently and upon reflection may
appear to have been a better method unless the emergency in which he finds himself is
brought about by his own negligence.
Under Section 37 of Republic Act No. 4136, as amended, otherwise known as the Land
Transportation and Traffic Code, motorists are mandated to drive and operate vehicles on
the right side of the road or highway:
SEC. 37. Driving on right side of highway. Unless a different course of action is
required in the interest of the safety and the security of life, person or property, or
because of unreasonable difficulty of operation in compliance herewith, every person
operating a motor vehicle or an animal-drawn vehicle on a highway shall pass to the right
when meeting persons or vehicles coming toward him, and to the left when overtaking
persons or vehicles going the same direction, and when turning to the left in going from
one highway to another, every vehicle shall be conducted to the right of the center of the
intersection of the highway.

Section 35 of the law provides, thus:

Sec. 35. Restriction as to speed.(a) Any person driving a motor vehicle on a highway
shall drive the same at a careful and prudent speed, not greater nor less than is reasonable
and proper, having due regard for the traffic, the width of the highway, and of any other
condition then and there existing; and no person shall drive any motor vehicle upon a
highway at such a speed as to endanger the life, limb and property of any person, nor at a
speed greater than will permit him to bring the vehicle to a stop within the assured clear
distance ahead (emphasis supplied).
In relation thereto, Article 2185 of the New Civil Code provides that "unless there is
proof to the contrary, it is presumed that a person driving a motor vehicle has been
negligent, if at the time of mishap, he was violating any traffic regulation." By his own
admission, petitioner Suelto violated the Land Transportation and Traffic Code when he
suddenly swerved the bus to the right, thereby causing damage to the property of private
respondent.
However, the trial court correctly rejected petitioner Sueltos defense, in light of his
contradictory testimony vis--vis his Counter-Affidavit submitted during the preliminary
investigation:
It is clear from the photographs submitted by the prosecution (Exhs. C, D, G, H & I) that
the commercial apartment of Dr. Valdellon sustained heavy damage caused by the bus
being driven by Suelto. "It seems highly improbable that the said damages were not
caused by a strong impact. And, it is quite reasonable to conclude that, at the time of the
impact, the bus was traveling at a high speed when Suelto tried to avoid the passenger
jeepney." Such a conclusion finds support in the decision of the Supreme Court in People
vs. Ison, 173 SCRA 118, where the Court stated that "physical evidence is of the highest
order. It speaks more eloquently than a hundred witnesses." The pictures submitted do not
lie, having been taken immediately after the incident. The damages could not have been
caused except by a speeding bus. Had the accused not been speeding, he could have
easily reduced his speed and come to a full stop when he noticed the jeep. Were he more
prudent in driving, he could have avoided the incident or even if he could not avoid the
incident, the damages would have been less severe.
In addition to this, the accused has made conflicting statements in his counter-affidavit
and his testimony in court. In the former, he stated that the reason why he swerved to the
right was because he wanted to avoid the passenger jeepney in front of him that made a
sudden stop. But, in his testimony in court, he said that it was to avoid a passenger
jeepney coming from EDSA that was overtaking by occupying his lane. Such glaring
inconsistencies on material points render the testimony of the witness doubtful and
shatter his credibility. Furthermore, the variance between testimony and prior statements
renders the witness unreliable. Such inconsistency results in the loss in the credibility of
the witness and his testimony as to his prudence and diligence.

As already maintained and concluded, the severe damages sustained could not have
resulted had the accused acted as a reasonable and prudent man would. The accused was
not diligent as he claims to be. What is more probable is that the accused had to swerve to
the right and hit the commercial apartment of the plaintiff because he could not make a
full stop as he was driving too fast in a usually crowded street.24
Moreover, if the claim of petitioners were true, they should have filed a third-party
complaint against the driver of the offending passenger jeepney and the owner/operator
thereof.
Petitioner Sueltos reliance on the sudden emergency rule to escape conviction for the
crime charged and his civil liabilities based thereon is, thus, futile.
On the second issue, we agree with the contention of petitioners that respondents failed to
prove that the damages to the terrace caused by the incident amounted to P100,000.00.
The only evidence adduced by respondents to prove actual damages claimed by private
respondent were the summary computation of damage made by Engr. Jesus R. Regal, Jr.
amounting to P171,088.46 and the receipt issued by the BB Construction and Steel
Fabricator to private respondent for P35,000.00 representing cost for carpentry works,
masonry, welding, and electrical works. Respondents failed to present Regal to testify on
his estimation. In its five-page decision, the trial court awarded P150,000.00 as actual
damages to private respondent but failed to state the factual basis for such award. Indeed,
the trial court merely declared in the decretal portion of its decision that the "sum of
P150,000.00 as reasonable compensation sustained by plaintiff for her damaged
apartment." The appellate court, for its part, failed to explain how it arrived at the amount
of P100,000.00 in its three-page decision. Thus, the appellate court merely declared:
With respect to the civil liability of the appellants, they contend that there was no urgent
necessity to completely demolish the apartment in question considering the nature of the
damages sustained as a result of the accident. Consequently, appellants continue, the
award of P150,000.00 as compensation sustained by the plaintiff-appellee for her
damaged apartment is an unconscionable amount.
The damaged portions of the apartment in question are not disputed.
Considering the aforesaid damages which are the direct result of the accident, the
reasonable, and adequate compensation due is hereby fixed at P100,000.00.25
Under Article 2199 of the New Civil Code, actual damages include all the natural and
probable consequences of the act or omission complained of, classified as one for the loss
of what a person already possesses (dao emergente) and the other, for the failure to
receive, as a benefit, that which would have pertained to him (lucro cesante). As
expostulated by the Court in PNOC Shipping and Transport Corporation v. Court of
Appeals:26

Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded
in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a
sense of natural justice and are designed to repair the wrong that has been done, to
compensate for the injury inflicted and not to impose a penalty. In actions based on torts
or quasi-delicts, actual damages include all the natural and probable consequences of the
act or omission complained of. There are two kinds of actual or compensatory damages:
one is the loss of what a person already possesses (dao emergente), and the other is the
failure to receive as a benefit that which would have pertained to him (lucro cesante).27
The burden of proof is on the party who would be defeated if no evidence would be
presented on either side. The burden is to establish ones case by a preponderance of
evidence which means that the evidence, as a whole, adduced by one side, is superior to
that of the other. Actual damages are not presumed. The claimant must prove the actual
amount of loss with a reasonable degree of certainty premised upon competent proof and
on the best evidence obtainable. Specific facts that could afford a basis for measuring
whatever compensatory or actual damages are borne must be pointed out. Actual
damages cannot be anchored on mere surmises, speculations or conjectures. As the Court
declared:
As stated at the outset, to enable an injured party to recover actual or compensatory
damages, he is required to prove the actual amount of loss with reasonable degree of
certainty premised upon competent proof and on the best evidence available. The burden
of proof is on the party who would be defeated if no evidence would be presented on
either side. He must establish his case by a preponderance of evidence which means that
the evidence, as a whole, adduced by one side is superior to that of the other. In other
words, damages cannot be presumed and courts, in making an award, must point out
specific facts that could afford a basis for measuring whatever compensatory or actual
damages are borne.28
The Court further declared that "where goods are destroyed by the wrongful act of
defendant, the plaintiff is entitled to their value at the time of the destruction, that is,
normally, the sum of money which he would have to pay in the market for identical or
essentially similar goods, plus in a proper case, damages for the loss of the use during the
period before replacement.29
While claimants bare testimonial assertions in support of their claims for damages
should not be discarded altogether, however, the same should be admitted with extreme
caution. Their testimonies should be viewed in light of claimants self-interest, hence,
should not be taken as gospel truth. Such assertion should be buttressed by independent
evidence. In the language of the Court:
For this reason, Del Rosarios claim that private respondent incurred losses in the total
amount of P6,438,048.00 should be admitted with extreme caution considering that,
because it was a bare assertion, it should be supported by independent evidence.
Moreover, because he was the owner of private respondent corporation whatever
testimony he would give with regard to the value of the lost vessel, its equipment and

cargoes should be viewed in the light of his self-interest therein. We agree with the Court
of Appeals that his testimony as to the equipment installed and the cargoes loaded on the
vessel should be given credence considering his familiarity thereto. However, we do not
subscribe to the conclusion that his valuation of such equipment, cargo, and the vessel
itself should be accepted as gospel truth. We must, therefore, examine the documentary
evidence presented to support Del Rosarios claim as regards the amount of losses.30
An estimate of the damage cost will not suffice:
Private respondents failed to adduce adequate and competent proof of the pecuniary loss
they actually incurred. It is not enough that the damage be capable of proof but must be
actually proved with a reasonable degree of certainty, pointing out specific facts that
afford a basis for measuring whatever compensatory damages are borne. Private
respondents merely sustained an estimated amount needed for the repair of the roof of
their subject building. What is more, whether the necessary repairs were caused only by
petitioners alleged negligence in the maintenance of its school building, or included the
ordinary wear and tear of the house itself, is an essential question that remains
indeterminable.31
We note, however, that petitioners adduced evidence that, in their view, the cost of the
damage to the terrace of private respondent would amount to P55,000.00.32 Accordingly,
private respondent is entitled to P55,000.00 actual damages.
We also agree with petitioner Sueltos contention that the trial court erred in sentencing
him to suffer a straight penalty of one (1) year. This is so because under the third
paragraph of Article 365 of the Revised Penal Code, the offender must be sentenced to
pay a fine when the execution of the act shall have only resulted in damage to property.
The said provision reads in full:
ART. 365. Imprudence and negligence. Any person who, by reckless imprudence, shall
commit any act which, had it been intentional, would constitute a grave felony, shall
suffer the penalty of arresto mayor in its maximum period, to prision correccional in its
medium period; if it would have constituted a less grave felony, the penalty of arresto
mayor in its minimum and medium periods shall be imposed; if it would have constituted
a light felony, the penalty of arresto menor in its maximum period shall be imposed.
Any person who, by simple imprudence or negligence, shall commit an act which would,
otherwise, constitute a grave felony, shall suffer the penalty of arresto mayor in its
medium and maximum periods; if it would have constituted a less serious felony, the
penalty of arresto mayor in its minimum period shall be imposed.
When the execution of the act covered by this article shall have only resulted in damage
to the property of another, the offender shall be punished by a fine ranging from an
amount equal to the value of said damages to three times such value, but which shall in
no case be less than 25 pesos.

A fine not exceeding two hundred pesos and censure shall be imposed upon any person
who, by simple imprudence or negligence, shall cause some wrong which, if done
maliciously, would have constituted a light felony.
In the imposition of these penalties, the courts shall exercise their sound discretion,
without regard to the rules prescribed in Article 64 (Emphasis supplied).
In the present case, the only damage caused by petitioner Sueltos act was to the terrace
of private respondents apartment, costing P55,000.00. Consequently, petitioners
contention that the CA erred in awarding P100,000.00 by way of actual damages to
private respondent is correct. We agree that private respondent is entitled to exemplary
damages, and find that the award given by the trial court, as affirmed by the CA, is
reasonable. Considering the attendant circumstances, we rule that private respondent
Valdellon is entitled to only P20,000.00 by way of exemplary damages.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
joint decision of the Regional Trial Court of Quezon City is AFFIRMED WITH THE
MODIFICATION that petitioner Suelto is sentenced to pay a fine of P55,000.00 with
subsidiary imprisonment in case of insolvency. Petitioners are ORDERED to pay to
Erlinda V. Valdellon, jointly and severally, the total amount of P55,000.00 by way of
actual damages, and P20,000.00 by way of exemplary damages.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 111202-05

January 31, 2006

COMMISSIONER OF CUSTOMS, Petitioner,

vs.
THE COURT OF APPEALS; Honorable Arsenio M. Gonong, Presiding Judge
Regional Trial Court, Manila, Branch 8; Honorable MAURO T. ALLARDE,
Presiding Judge, REGIONAL TRIAL COURT Kalookan City, Branch 123;
AMADO SEVILLA and ANTONIO VELASCO, Special Sheriffs of Manila;
JOVENAL SALAYON, Special Sheriff of Kalookan City, DIONISIO J.
CAMANGON, Ex-Deputy Sheriff of Manila and CESAR S. URBINO, SR., doing
business under the name and style "Duraproof Services," Respondents.
DECISION
AZCUNA, J.:
These Petitions for Certiorari and Prohibition, with Prayers for a Writ of Preliminary
Injunction and/or Temporary Restraining Order, are the culmination of several court cases
wherein several resolutions and decisions are sought to be annulled. Petitioner
Commissioner of Customs specifically assails the following:

A) Decision of the Regional Trial Court (RTC) of Manila dated February 18, 1991
in Civil Case No. 89-51451;
B) Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case No.
C-234;
C) Resolution of the Court of Appeals (CA) dated March 6, 1992 in CA-G.R. SP
No. 24669;
D) Resolution of the CA dated August 6, 1992 in CA-G.R. SP No. 28387;
E) Resolution of the CA dated November 10, 1992 in CA-G.R. SP No. 29317;
F) Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746; and
G) Decision of the CA dated July 19, 1993 in the consolidated petitions of CAG.R. SP Nos. 24669, 28387 and 29317.
Petitioner also seeks to prohibit the CA and the RTC of Kalookan1 from further acting in
CA-G.R. CV No. 32746 and Civil Case No. 234, respectively.
The whole controversy revolves around a vessel and its cargo. On January 7, 1989, the
vessel M/V "Star Ace," coming from Singapore laden with cargo, entered the Port of San
Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had an
appraised value, at that time, of more or less Two Hundred Million Pesos (P200,000,000).
When the Bureau of Customs later became suspicious that the vessels real purpose in
docking was to smuggle its cargo into the country, seizure proceedings were instituted
under S.I. Nos. 02-89 and 03-89 and, subsequently, two Warrants of Seizure and
Detention were issued for the vessel and its cargo.1awph!l.net
Respondent Cesar S. Urbino, Sr., does not own the vessel or any of its cargo but claimed
a preferred maritime lien under a Salvage Agreement dated June 8, 1989. To protect his
claim, Urbino initially filed two motions in the seizure and detention cases: a Motion to
Dismiss and a Motion to Lift Warrant of Seizure and Detention.2 Apparently not content
with his administrative remedies, Urbino sought relief with the regular courts by filing a
case for Prohibition, Mandamus and Damages before the RTC of SFLU3 on July 26,
1989, seeking to restrain the District Collector of Customs from interfering with his
salvage operation. The case was docketed as Civil Case No. 89-4267. On January 31,
1991 the RTC of SFLU dismissed the case for lack of jurisdiction because of the pending
seizure and detention cases. Urbino then elevated the matter to the CA where it was
docketed as CA-G.R. CV No. 32746. The Commissioner of Customs, in response, filed a
Motion to Suspend Proceedings, advising the CA that it intends to question the
jurisdiction of the CA before this Court. The motion was denied on May 31, 1993. Hence,
in this petition the Commissioner of Customs assails the Resolution "F" recited above
and seeks to prohibit the CA from continuing to hear the case.

On January 9, 1990, while Civil Case No. 89-4267 was pending, Urbino filed another
case for Certiorari and Mandamus with the RTC of Manila, presided by Judge Arsenio M.
Gonong,4 this time to enforce his maritime lien. Impleaded as defendants were the
Commissioner of Customs, the District Collector of Customs, the owners of the vessel
and cargo, Vlason Enterprises, Singkong Trading Company, Banco do Brazil, Dusit
International Company Incorporated, Thai-Nam Enterprises Limited, Thai-United
Trading Company Incorporated and Omega Sea Transport Company, and the vessel M/V
"Star Ace." This case was docketed as Civil Case No. 89-51451. The Office of the
Solicitor General filed a Motion to Dismiss on the ground that a similar case was pending
with the RTC of SFLU. The Motion to Dismiss was granted on July 2, 1990, but only
insofar as the Commissioner of Customs and the District Collector were concerned. The
RTC of Manila proceeded to hear the case against the other parties and received evidence
ex parte. The RTC of Manila later rendered a decision on February 18, 1991 finding in
favor of Urbino (assailed Decision "A" recited above).
Thereafter, on March 13, 1991, a writ of execution was issued by the RTC of Manila.
Respondent Camangon was appointed as Special Sheriff to execute the decision and he
issued a notice of levy and sale against the vessel and its cargo. The Commissioner of
Customs, upon learning of the notice of levy and sale, filed with the RTC of Manila a
motion to recall the writ, but before it could be acted upon, Camangon had auctioned off
the vessel and the cargo to Urbino for One Hundred and Twenty Million Pesos
(P120,000,000). The following day, Judge Gonong issued an order commanding Sheriff
Camangon to cease and desist from implementing the writ. Despite the order, Camangon
issued a Certificate of Sale in favor of Urbino. A week later, Judge Gonong issued
another order recalling the writ of execution. Both cease and desist and recall orders of
Judge Gonong were elevated by Urbino to the CA on April 12, 1991 where it was
docketed as CA-G.R. SP No. 24669. On April 26, 1991, the CA issued a Temporary
Restraining Order (TRO) enjoining the RTC of Manila from enforcing its cease and
desist and recall orders. The TRO was eventually substituted by a writ of preliminary
injunction. A motion to lift the injunction was filed by the Commissioner of Customs but
it was denied. Hence, in this petition the Commissioner of Customs assails Resolution
"C" recited above.
On May 8, 1991, Urbino attempted to enforce the RTC of Manilas decision and the
Certificate of Sale against the Bureau of Customs by filing a third case, a Petition for
Certiorari, Prohibition and Mandamus with the RTC of Kaloocan.5 The case was
docketed as Civil Case No. 234. On May 28, 1991, the RTC of Kaloocan ordered the
issuance of a writ of preliminary injunction to enjoin the Philippine Ports Authority and
the Bureau of Customs from interfering with the relocation of the vessel and its cargo by
Urbino (assailed Order "B" recited above).1awph!l.net
Meanwhile, on June 5, 1992, Camangon filed his Sheriffs Return with the Clerk of
Court. On June 26, 1992, the Executive Judge for the RTC of Manila, Judge Bernardo P.
Pardo,6 having been informed of the circumstances of the sale, issued an order nullifying
the report and all proceedings taken in connection therewith. With this order Urbino filed
his fourth case with the CA on July 15, 1992, a Petition for Certiorari, Prohibition and

Mandamus against Judge Pardo. This became CA-G.R. SP No. 28387. The CA issued a
Resolution on August 6, 1992 granting the TRO against the Executive Judge to enjoin the
implementation of his June 26, 1992 Order. Hence, in this petition the Commissioner of
Customs assails Resolution "D" recited above.
Going back to the seizure and detention proceedings, the decision of the District
Collector of Customs was to forfeit the vessel and cargo in favor of the Government. This
decision was affirmed by the Commissioner of Customs. Three appeals were then filed
with the Court of Tax Appeals (CTA) by different parties, excluding Urbino, who claimed
an interest in the vessel and cargo. These three cases were docketed as CTA Case No.
4492, CTA Case No. 4494 and CTA Case No. 4500. Urbino filed his own case, CTA Case
No. 4497, but it was dismissed for want of capacity to sue. He, however, was allowed to
intervene in CTA Case No. 4500. On October 5, 1992, the CTA issued an order
authorizing the Commissioner of Customs to assign customs police and guards around
the vessel and to conduct an inventory of the cargo. In response, on November 3, 1992,
Urbino filed a fifth Petition for Certiorari and Prohibition with the CA to assail the order
as well as the jurisdiction of the Presiding Judge and Associate Judges of the CTA in the
three cases. That case was docketed as CA G.R. SP No. 29317. On November 10, 1992,
the CA issued a Resolution reminding the parties that the vessel is under the control of
the appellate court in CA-G.R. SP No. 24669 (assailed Resolution "E" recited above).
CA-G.R. SP Nos. 24669, 28387 and 29317 were later consolidated and the CA issued a
joint Decision in July 19, 1993 nullifying and setting aside: 1) the Order recalling the writ
of execution by Judge Gonong of the the RTC of Manila; 2) the Order of Executive Judge
Pardo of the RTC of Manila nullifying the Sheriffs Report and all proceedings connected
therewith; and 3) the October 19, 1993 Order of the CTA, on the ground of lack of
jurisdiction. Hence, in these petitions, which have been consolidated, the Commissioner
of Customs assails Decision "G" recited above.1awph!l.net
For purposes of deciding these petitions, the assailed Decisions and Resolutions will be
divided into three groups:
1. The Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746 with
the additional prayer to enjoin the CA from deciding the said case.
2. The Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case
No. C-234 with the additional prayer to enjoin the RTC of Kalookan from
proceeding with said case.
3. The Decision of the RTC of Manila dated February 18, 1991 in Civil Case No.
89-51451, the Resolutions of the CA dated March 6, 1992, August 6, 1992,
November 10, 1992 and the Decision of the CA dated July 19, 1993 in the
consolidated petitions CA-G.R. SP Nos. 24669, 28387 and 29317.
First Group

The Commissioner of Customs seeks to nullify the Resolution of the CA dated May 31,
1993 denying the Motion to Suspend Proceedings and to prohibit the CA from further
proceeding in CA-G.R. No. CV-32746 for lack of jurisdiction. This issue can be easily
disposed of as it appears that the petition has become moot and academic, with the CA
having terminated CA-G.R. No. CV-32746 by rendering its Decision on May 13, 2002
upholding the dismissal of the case by the RTC of SFLU for lack of jurisdiction, a finding
that sustains the position of the Commissioner of Customs. This decision became final
and entry of judgment was made on June 14, 2002.7
Second Group
The Court now proceeds to consider the Order granting an injunction dated May 28, 1991
in Civil Case No. C-234 issued by the RTC of Kalookan. The Commissioner of Customs
seeks its nullification and to prohibit the RTC of Kalookan from further proceeding with
the case.
The RTC of Kalookan issued the Order against the Philippine Ports Authority and Bureau
of Customs solely on the basis of Urbinos alleged ownership over the vessel by virtue of
his certificate of sale. By this the RTC of Kalookan committed a serious and reversible
error in interfering with the jurisdiction of customs authorities and should have dismissed
the petition outright. In Mison v. Natividad,8 this Court held that the exclusive jurisdiction
of the Collector of Customs cannot be interfered with by regular courts even upon
allegations of ownership.
To summarize the facts in that case, a warrant of seizure and detention was issued against
therein plaintiff over a number of
vehicles found in his residence for violation of customs laws. Plaintiff then filed a
complaint before the RTC of Pampanga alleging that he is the registered owner of certain
vehicles which the Bureau of Customs are threatening to seize and praying that the latter
be enjoined from doing so. The RTC of Pampanga issued a TRO and eventually,
thereafter, substituted it with a writ of preliminary injunction. This Court found that the
proceedings conducted by the trial court were null and void as it had no jurisdiction over
the res subject of the warrant of seizure and detention, holding that:
A warrant of seizure and detention having already been issued, presumably in the regular
course of official duty, the Regional Trial Court of Pampanga was indisputably precluded
from interfering in said proceedings. That in his complaint in Civil Case No. 8109 private
respondent alleges ownership over several vehicles which are legally registered in his
name, having paid all the taxes and corresponding licenses incident thereto, neither
divests the Collector of Customs of such jurisdiction nor confers upon said trial court
regular jurisdiction over the case. Ownership of goods or the legality of its acquisition
can be raised as defenses in a seizure proceeding; if this were not so, the procedure
carefully delineated by law for seizure and forfeiture cases may easily be thwarted and set
to naught by scheming parties. Even the illegality of the warrant of seizure and detention
cannot justify the trial courts interference with the Collectors jurisdiction. In the first
place, there is a distinction between the existence of the Collectors power to issue it and

the regularity of the proceeding taken under such power. In the second place, even if
there be such an irregularity in the latter, the Regional Trial Court does not have the
competence to review, modify or reverse whatever conclusions may result therefrom x x
x.
The facts in this case are like those in that case. Urbino claimed to be the owner of the
vessel and he sought to restrain the PPA and the Bureau of Customs from interfering with
his rights as owner. His remedy, therefore, was not with the RTC but with the CTA where
the seizure and detention cases are now pending and where he was already allowed to
intervene.
Moreover, this Court, on numerous occasions, cautioned judges in their issuance of
temporary restraining orders and writs of preliminary injunction against the Collector of
Customs based on the principle enunciated in Mison v. Natividad and has issued
Administrative Circular No. 7-99 to carry out this policy.9 This Court again reminds all
concerned that the rule is clear: the Collector of Customs has exclusive jurisdiction over
seizure and forfeiture proceedings and trial courts are precluded from assuming
cognizance over such matters even through petitions for certiorari, prohibition or
mandamus.
Third Group
The Decision of the RTC of Manila dated February 18, 1991 has the following
dispositive portion:
WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations, prayer and
evidence adduced, both testimonial and documentary, the Court is convinced, that,
indeed, defendants/respondents are liable to plaintiff/petitioner in the amount prayed for
in the petition for which [it] renders judgment as follows:
1. Respondent M/V Star Ace, represented by Capt. Nahum Rada, Relief Captain
of the vessel and Omega Sea Transport Company, Inc., represented by Frank
Cadacio is ordered to refrain from alienating or transfer[r]ing the vessel M/V Star
Ace to any third parties;
2. Singko Trading Company to pay the following:
a. Taxes due the Government;
b. Salvage fees on the vessel in the amount of $1,000,000.00 based on the
Lloyds Standard Form of Salvage Agreement;
c. Preservation, securing and guarding fees on the vessel in the amount of
$225,000.00;

d. Salaries of the crew from August 16, 1989 to December, in the amount
of $43,000.00 and unpaid salaries from January 1990 up to the present;
e. Attorneys fees in the amount of P656,000.00;
3. Vlazon Enterprises to pay plaintiff in the amount of P3,000,000.00 for
damages;
4. Banco do Brazil to pay plaintiff in the amount of $300,000.00 in damages; and
finally,
5. Costs of suit.
SO ORDERED.
On the other hand, the CA Resolutions are similar orders for the issuance of a writ of
preliminary injunction to enjoin Judge Gonong and Judge Pardo from enforcing their
recall and nullification orders and the CTA from exercising jurisdiction over the case, to
preserve the status quo pending resolution of the three petitions.
Finally, the Decision of the CA dated July 19, 1993 disposed of all three petitions in favor
of Urbino, and has the following dispositive portion:
ACCORDINGLY, in view of the foregoing disquisitions, all the three (3) consolidated
petitions for certiorari are hereby GRANTED.
THE assailed Order of respondent Judge Arsenio Gonong of the Regional Trial Court of
Manila, Branch 8, dated, April 5, 1991, in the first assailed petition for certiorari (CAG.R. SP No. 24669); the assailed Order of Judge Bernardo Pardo, Executive Judge of the
Regional Trial Court of Manila, Branch 8, dated July 6, 1992, in the second petition for
certiorari (CA-G.R. SP No. 28387); and Finally, the assailed order or Resolution en banc
of the respondent Court of Tax Appeals[,] Judges Ernesto Acosta, Ramon de Veyra and
Manuel Gruba, under date of October 5, 1992, in the third petition for certiorari (CAG.R. SP No. 29317) are all hereby NULLIFIED and SET ASIDE thereby giving way to
the entire decision dated February 18, 1991 of the respondent Regional Trial Court of
Manila, Branch 8, in Civil Case No. 89-51451 which remains valid, final and executory,
if not yet wholly executed.
THE writ of preliminary injunction heretofore issued by this Court on March 6, 1992 and
reiterated on July 22, 1992 and this date against the named respondents specified in the
dispositive portion of the judgment of the respondent Regional Trial Court of Manila,
Branch 8, in the first petition for certiorari, which remains valid, existing and
enforceable, is hereby MADE PERMANENT without prejudice (1) to the petitioners
remaining unpaid obligations to herein party-intervenor in accordance with the
Compromise Agreement or in connection with the decision of the respondent lower court
in CA-G.R. SP No. 24669 and (2) to the government, in relation to the forthcoming

decision of the respondent Court of Tax Appeals on the amount of taxes, charges,
assessments or obligations that are due, as totally secured and fully guaranteed payment
by petitioners bond, subject to relevant rulings of the Department of Finance and other
prevailing laws and jurisprudence.
We make no pronouncement as to costs.
SO ORDERED.
The Court rules in favor of the Commissioner of Customs.
First of all, the Court finds the decision of the RTC of Manila, in so far as it relates to the
vessel M/V "Star Ace," to be void as jurisdiction was never acquired over the vessel.10 In
filing the case, Urbino had impleaded the vessel as a defendant to enforce his alleged
maritime lien. This meant that he brought an action in rem under the Code of Commerce
under which the vessel may be attached and sold.11 However, the basic operative fact for
the institution and perfection of proceedings in rem is the actual or constructive
possession of the res by the tribunal empowered by law to conduct the proceedings.12
This means that to acquire jurisdiction over the vessel, as a defendant, the trial court must
have obtained either actual or constructive possession over it. Neither was accomplished
by the RTC of Manila.
In his comment to the petition, Urbino plainly stated that "petitioner has actual[sic]
physical custody not only of the goods and/or cargo but the subject vessel, M/V Star Ace,
as well."13 This is clearly an admission that the RTC of Manila did not have jurisdiction
over the res. While Urbino contends that the Commissioner of Customs custody was
illegal, such fact, even if true, does not deprive the Commissioner of Customs of
jurisdiction thereon. This is a question that ought to be resolved in the seizure and
forfeiture cases, which are now pending with the CTA, and not by the regular courts as a
collateral matter to enforce his lien. By simply filing a case in rem against the vessel,
despite its being in the custody of customs officials, Urbino has circumvented the rule
that regular trial courts are devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings conducted in the Bureau of Customs, on
his mere assertion that the administrative proceedings were a nullity.14
On the other hand, the Bureau of Customs had acquired jurisdiction over the res ahead
and to the exclusion of the RTC of Manila. The forfeiture proceedings conducted by the
Bureau of Customs are in the nature of proceedings in rem15 and jurisdiction was obtained
from the moment the vessel entered the SFLU port. Moreover, there is no question that
forfeiture proceedings were instituted and the vessel was seized even before the filing of
the RTC of Manila case.
The Court is aware that Urbino seeks to enforce a maritime lien and, because of its
nature, it is equivalent to an attachment from the time of its existence.16 Nevertheless,
despite his liens constructive attachment, Urbino still cannot claim an advantage as his
lien only came about after the warrant of seizure and detention was issued and

implemented. The Salvage Agreement, upon which Urbino based his lien, was entered
into on June 8, 1989. The warrants of seizure and detention, on the other hand, were
issued on January 19 and 20, 1989. And to remove further doubts that the forfeiture case
takes precedence over the RTC of Manila case, it should be noted that forfeiture retroacts
to the date of the commission of the offense, in this case the day the vessel entered the
country.17 A maritime lien, in contrast, relates back to the period when it first attached,18
in this case the earliest retroactive date can only be the date of the Salvage Agreement.
Thus, when the vessel and its cargo are ordered forfeited, the effect will retroact to the
moment the vessel entered Philippine waters.
Accordingly, the RTC of Manila decision never attained finality as to the defendant
vessel, inasmuch as no jurisdiction was acquired over it, and the decision cannot be
binding and the writ of execution issued in connection therewith is null and void.
Moreover, even assuming that execution can be made against the vessel and its cargo, as
goods and chattels to satisfy the liabilities of the other defendants who have an interest
therein, the RTC of Manila may not execute its decision against them while, as found by
this Court, these are under the proper and lawful custody of the Bureau of Customs.19
This is especially true when, in case of finality of the order of forfeiture, the execution
cannot anymore cover the vessel and cargo as ownership of the Government will retroact
to the date of entry of the vessel into Philippine waters.
As regards the jurisdiction of the CTA, the CA was clearly in error when it issued an
injunction against it from deciding the forfeiture case on the basis that it interfered with
the subject of ownership over the vessel which was, according to the CA, beyond the
jurisdiction of the CTA. Firstly, the execution of the Decision against the vessel and
cargo, as aforesaid, was a nullity and therefore the sale of the vessel was invalid. Without
a valid certificate of sale, there can be no claim of ownership which Urbino can present
against the Government. Secondly, as previously stated, allegations of ownership neither
divest the Collector of Customs of such jurisdiction nor confer upon the trial court
jurisdiction over the case. Ownership of goods or the legality of its acquisition can be
raised as defenses in a seizure proceeding.20 The actions of the Collectors of Customs are
appealable to the Commissioner of Customs, whose decision, in turn, is subject to the
exclusive appellate jurisdiction of the CTA.21 Clearly, issues of ownership over goods in
the custody of custom officials are within the power of the CTA to
determine.1awphi1.net
WHEREFORE, the consolidated petitions are GRANTED. The Decision of the
Regional Trial Court of Manila dated February 18, 1991 in Civil Case No. 89-51451,
insofar as it affects the vessel M/V "Star Ace," the Order of the Regional Trial Court of
Kalookan dated May 28, 1991 in Special Civil Case No. C-234, the Resolution of the
Court of Appeals dated March 6, 1992 in CA-G.R. SP No. 24669, the Resolution of the
Court of Appeals dated August 6, 1992 in CA-G.R. SP No. 28387, the Resolution of the
Court of Appeals dated November 10, 1992 in CA-G.R. SP No. 29317 and the Decision
of the Court of Appeals dated July 19, 1993 in the consolidated petitions in CA-G.R. SP
Nos. 24669, 28387 and 29317 are all SET ASIDE. The Regional Trial Court of Kalookan

is enjoined from further acting in Special Civil Case No. C-234. The Order of respondent
Judge Arsenio M. Gonong dated April 5, 1991 and the Order of then Judge Bernardo P.
Pardo dated June 26, 1992 are REINSTATED. The Court of Tax Appeals is ordered to
proceed with CTA Case No. 4492, CTA Case No. 4494 and CTA Case No. 4500. No
pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SPECIAL SECOND DIVISION
G.R. No. 143866

May 19, 2006

POLIAND INDUSTRIAL LIMITED, Petitioner,

vs.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE
PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth
Division), Respondents.
x-----------------------------x
G.R. No. 143877

May 19, 2006

NATIONAL DEVELOPMENT COMPANY, Petitioner,

vs.
POLIAND INDUSTRIAL LIMITED, Respondent.
RESOLUTION
TINGA, J.:
For resolution is the "Motion For Leave to File And To Admit The Attached Second
Motion For Partial Reconsideration" filed by Poliand Industrial Limited (POLIAND),

seeking the partial review of the Courts Resolution dated November 23, 2005. Poliand is
the petitioner in G.R. No. 143866 and the respondent in G.R. No. 143877. On August 22,
2005, the Court promulgated a consolidated Decision in G.R. Nos. 143866 & 143877, the
dispositive portion of which reads:
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED.
The Decision of the Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the
extent that National Development Company is liable to Poliand Industrial Limited for the
amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety Eight
US Dollars and Fifty Six US Cents (US$ 1, 193, 298.56), plus interest of 12% per annum
computed from 25 September 1991 until fully paid. In other respects, said Decision is
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Both POLIAND and National Development Company (NDC) separately filed motions
for partial reconsideration. Poliand, for its part, asserted that the computation of interest
should be reckoned from September 12, 1984, the date of the last foreclosure sale of the
vessels, in conformity with the dispositive portion of the Court of Appeals Decision. The
Court denied the separate motions of Poliand and NDC in its November 23, 2005
Resolution. More than simply denying Poliands motion for reconsideration, said
Resolution passed upon for the first time the issue on the computation of interest and,
thus, modified the August 22, 2005 Decision by reckoning the computation of interest
from the date of the finality of judgment. Not satisfied with the Courts ruling, Poliand
filed the instant subsequent motion for reconsideration with leave of court, praying in the
alternative that the interest rate should be computed from September 25, 1991, the date of
extrajudicial demand, that is, in conformity with the tack ordered in the Decision dated
August 22, 2005.
Ordinarily, no second motion for reconsideration of a judgment or final resolution by the
same party shall be entertained.1 Essentially, however, the instant motion is not a second
motion for reconsideration since the viable relief it seeks calls for the review, not of the
Decision dated August 22, 2005, but the November 23, 2005 Resolution which delved for
the first time on the issue of the reckoning date of the computation of interest. In
resolving the instant motion, the Court will be reverting to the Decision dated August 22,
2005. In so doing, the Court will be shunning further delay so as to ensure that finis is
written to this controversy and the adjudication of this case attains finality at the earliest
possible time as it should.
After going over the instant motion, the Court is persuaded to take a fresh scrutiny of the
facts and circumstances obtaining herein and accordingly modify its finding that
Poliands claim cannot be considered due and demandable until the finality of the Courts
Decision. Indeed, there are certain factual premises which the Court glossed over in
arriving at such pronouncement. First, the trial court had already made a factual finding
to the effect that extrajudicial demands had been made by Poliand on September 25, 1991
on NDC, Galleon Shipping Corporation and Development Bank of the Philippines, not

only with respect to the alleged loan accommodations granted to Galleon but also, in the
alternative, with respect to the maritime lien. Second, the extrajudicial demand on NDC
for the payment of the maritime lien was for a specified amount, which was the same
amount prayed for in the complaint and eventually upheld by the trial court. This fact
indicates that upon extrajudicial demand, Poliands claim for the satisfaction of the
maritime lien had already been ascertained. An account that has been "liquidated" can
also mean that the item has been made certain as to what, and how much, is deemed to be
owing.2 The amount claimed and the date of demand being both certain, to arrive at the
liquidated amount would merely be a matter of mathematical computation.31avvphil.net
The finding of the trial court that an extrajudicial demand was made by Poliand on
September 25, 1991 on NDC for the payment of a determinate amount equivalent to its
maritime lien, unmodified as it was by the appellate court, constitutes adequate basis to
conclude that as of said date, Poliands claim was already due and demandable. Such
factual finding of the trial court, duly supported as it is by the evidence on record,
deserves great weight and respect and is binding on the Court.
Poliands main stance that the interest payment on its maritime lien should be reckoned
from the date of the last foreclosure sale of the vessels has no merit, apart from being
barred by the rule against second motions for reconsideration.
Poliand contends that the Courts finding that the institution of the extrajudicial
foreclosure proceedings was tainted with bad faith provides the basis to reckon the
computation of legal interest from the date of the foreclosure sale. Suffice it to say, this
theory has no basis in law. An act done in bad faith may be the basis of some other award
but not the award of legal interest.
Next, Poliand argues that the payment of legal interest should be reckoned from the date
of the last foreclosure sale of the vessels or on September 12, 1984 on the basis of
Section 17 (a) of Presidential Decree No. 1521.4 The provision is inapplicable to the
question of interest payment as it merely enumerates the prioritized liens which are
entitled to satisfaction upon the sale of a mortgaged vessel.
WHEREFORE, the instant "second" Motion for Partial Reconsideration dated December
30, 2005 is GRANTED. The dispositive portion of the Decision dated August 22, 2005 in
G.R. No. 143866 and G.R. No. 143877 is REINSTATED in full.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-74811 December 14, 1988

CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO and DOMINADOR
OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hostanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:
Before us is a Motion for Reconsideration of our Decision dated 30 September
1988 affirming the judgment of the Court of Appeals dismissing the complaint
against private respondents and absolving them from any and all liability arising
from the loss of 1000 sacks of copra shipped by petitioner aboard private
respondents' vessel. Private respondents filed an opposition thereto.

Petitioner argues that this Court failed to consider the Trial Court's finding that the
loss of the vessel with its cargo was due to the fault of the shipowner or to the
concurring negligence of the shipowner and the captain.
The Appellate Court Decision, however, mentions only the ship captain as having
been negligent in the performance of his duties (p. 3, Court of Appeals Decision,
p. 15, Rollo). This is a factual finding binding on this Court. For the exception to
the limited liability rule (Article 587, Code of Commerce) to apply, the loss must
be due to the fault of the shipowner, or to the concurring negligence of the
shipowner and the captain. As we held, there is nothing in the records showing
such negligence (p. 6, Decision.)
The invocation by petitioners of Articles 1733 and 1735 of the Civil Code is
misplaced. As was stated in the Decision sought to be reconsidered, while the
primary law governing the instant case is the Civil Code, in all matters not
regulated by said Code, the Code of Commerce and other special laws shall
govern. Since the Civil Code contains no provisions regulating liability of
shipowners or agents in the event of total loss or destruction of the vessel, it is
the provisions of the Code of Commerce, particularly Article 587, that governs.
Petitioner further contends that the ruling laid down in Eastern Shipping Lines vs.
IAC, et al. (150 SCRA 464 [1987]) should be made to apply in the instant case.
That case, however, involved foreign maritime trade while the present case
involves local
inter-island shipping. The environmental set-up in the two cases, therefore, is not
on all fours.
ACCORDINGLY, petitioner's Motion for Reconsideration is hereby DENIED and
this denial is FINAL.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17411

May 19, 1966

LUZON STEVEDORING CORPORATION, petitioner,

vs.
THE COURT OF INDUSTRIAL RELATIONS and LUSTEVECO EMPLOYEES
ASSOCIATION-CCLU, respondents.
----------------------------G.R. No. L-18681

May 19, 1966

LUSTEVECO EMPLOYEES ASSOCIATION-CCLU, ET AL., petitioners,

vs.
LUZON STEVEDORING CO., ET AL., respondents.
----------------------------G.R. No. L-18683

May 19, 1966

LUZON STEVEDORING CORPORATION, petitioner,

vs.

THE COURT OF INDUSTRIAL RELATIONS and LUSTEVECO EMPLOYEES

ASSOCIATION-CCLU, respondents.
No. L-17411.
Jamir San Luis and Morabe for petitioner.
Paredes, Rafael, Ty, Gesmundo and Velasco for respondent Union.
Mariano D. Tuason for respondent Court of Industrial Relations.
Rey and Santos counsel for respondent Union de Estevedores de Filipinas.
No. L-18681.
Leon O. Ty, Gesmundo and Velasco for petitioner.
Jalandoni and Jamir for respondent Luzon Stevedoring Company.
Vidal Magbanua for respondent Court of Industrial Relations.
Rey and Santos counsel for respondent Union de Estevedores de Filipinas.1wph1.t
No. L-18683.
Jamir and Jalandoni for petitioner.
Leon O. Ty, Gesmundo and Rino for respondent Union.
Vidal Magbanua for respondent Court of Industrial Relations.
Rey and Santos for respondent Union de Estevedores de Filipinas.

BENGZON, J.P., J.:

Petitioner Lusteveco Employees Association-CCLU (LEA) moved for reconsideration of
our decision of December 31, 1965. It also filed a motion which we granted that all
exhibits in Case 21-IPA Incident 4 (L 18681) be forwarded to this Court for perusal in
resolving the motion for reconsideration. Said exhibits have now been elevated to Us.
Respondent Luzon Stevedoring Corporation (LUZON) filed an opposition to the motion
for reconsideration. And a reply to said opposition was likewise filed.
1. It is movant's view that the nature of its strike underwent, a change from
economic to unfair labor practice strike from the moment respondent LUZON
refused its alleged unconditional offer to return to work for 300 workers, dated
June 2, 1959, and thereby committed unfair labor practice. After the first strike
staged in June, 1958, LUZON gave LEA up to January 6, 1959 to return to work.
None returned to work within that period. Four strikers, however, were allowed to
return to work on January 26, 1959. Subsequently, on June 2, 1959, LEA, through
a letter of its President, offered to return to work "under the status quo as directed
by the Court of Industrial Relations in its order of June 21, 1958 without
prejudice to whatever the decision of said Court may make on the issues involved
in the second strike". (Exh. Q-1, Case 21-IPA[4]; emphasis supplied). In a letter
dated June 9, 1959 (Exh. Q-2, Case 21-IPA [4] LUZON through its General
Manager replied "We feel that inasmuch as the question of the legality or
illegality of the second strike is now before that Court [CIR], and the Secretary of

Labor has taken the initiative of conciliating the labor dispute between the parties,
your aforesaid offer should be held in abeyance." In his letter of June 12, 1959,
LEA's President reiterated the afore-stated offer to return to work.
In this Court's view LEA's return-to-work offer was not unconditional. It provided
for a return to work "as directed by the Court of Industrial Relations in its order of
June 21, 1958". And said CIR order in turn provided, among other things, for
payment of strike-duration pay. (See p. 11 of CIR Record, Vol. I, 21-IPA.) As the
records disclose, LEA's return-to-work offer, therefore, imposed as a condition,
among others, the payment of strike-duration pay. Accordingly, LEA, cannot
invoke Consolidated Labor Association of the Philippines vs. Marsman & Co.
Inc., L-17038 and L-17057, July 31, 1964 and similar cases to the effect that
refusal of the company to accept an unconditional offer of the strikers to return to
work constitutes unfair labor practice so as to convert the strike into a lawful one.
And as regards the four strikers allowed to return to work, their acceptance cannot
be deemed an act of discrimination, it not having been shown in the records that
their offer to return to work imposed any condition as did that of LEA with
respect to the 300 other strikers.
2. Anent the reduction of Christmas bonus, LEA contends that there is no
evidence on decrease in percentage of profit as of December 31, 1958 to justify
said reduction. This point was already passed upon in the decision. The Christmas
bonus not having been included in the Collective Bargaining Agreement, it cannot
be demanded by the union. And even assuming that Christmas bonus is a
concession within the purview of Article 10 of the Collective Bargaining
Agreement, providing that "the Company agrees to maintain in effect all
concessions presently being extended to its employees, whenever practicable,"
still the same cannot demanded in view of the phrase "whenever practicable."
Furthermore, the Collective Bargaining Agreement expired sometime in
September 1958 whereas the Christmas bonus in question was granted in
December 1958, three months after. Philippine Education Co. vs. CIR, 92 Phil.
385 is not in point for there the bonus had already been previously set aside.
3. Regarding the Exhibits A, A-1 and A-2, LEA maintains that the CIR erred in
discrediting them under the impression that they were found on top of the table of
the union Secretary after office hours. It is claimed that they were found inside the
log book which was on the table of the information police. This really makes no
difference. It is just as improbable, if not more so, for company officials to put
inside said log book, notes confidential and damaging as Exhibits A, A-1 and A-2,
the log book being accessible to all the guards, who were the persons concerned.
4. As to the reasons for the strike, this Court, contrary to LEA's impression,
considered not only the suspension of the 7 security guards; in fact, our decision
stated the acts complained against by the union.

5. Regarding the charge that the CIR did not view the over-all attitude of the
company towards the union, this too is not correct. The CIR even discussed the
factual background of the strike in page 2 of its decision.
6. LEA would again press the argument in its brief that it could legally declare a
strike even as the causes for it were pending in the CIR. We still find it
unnecessary to discuss the question whether LEA could have thus legally gone on
strike. The fact is that in view of other circumstances, apart from the above
question, its strike was illegal.
7. The necessity of a strike notice is again challenged. Suffice it to reiterate that,
as the CIR found, LUZON not having engaged in unfair labor practice, the strike
was but an economic one, requiring a strike notice.
8. Seeking to exclude from those whose dismissals were authorized by the CIR,
strikers with pending criminal cases, movant states anew its contention that what
was involved were isolated acts of violence imputable to both the company and
the strikers. We find no reason, however to disturb the CIR's finding that the
violence Committed during the strike was not provoked by LUZON.
9. LEA further contends that the CIR decision dismisses 13 LEA members for
having been "active unionists" and thus is discriminatory and illegal. Said
dismissals, authorized by the CIR's decision, however, are not for lawful union
activity but precisely for participation in an illegal strike. They are therefore in
order.
10. Similarly, the CIR rightly held the strike of the Lusteveco Bulk Oil Union
(LBOU) illegal, as a sympathetic strike to LEA's illegal strike. It was not in
adjudication of the pending suit in the CIR as to the legality of the certification
election in the Sta. Mesa Slipways and Engineering Company and the inclusion of
the Bulk Oil Terminal at Pandacan in said election.
11. As to the notices sent by LUZON to the strikers, the same were not threats of
dismissal levelled directly at the strikers, but a publication calling all strikers to
return to work by January 6, 1959 or an offer to accept the strikers back to their
jobs.
12. Anent the alleged permission by the CIR for the Secretary of Labor to
intervene in the case while the same was pending in court, the same has no
relevance to the legality or illegality of LEA's strike.
13. It is asserted that the strike should be deemed as one against an unfair labor
practice in view of LEA's "good faith" that LUZON's acts constituted unfair labor
practice. In Interwood Employees Association vs. International Hardwood &
Veneer Co., L-7409, May 18, 1956. 52 O.G. 3936, 3941, the Court has ruled that
if the strikers act from an unlawful, illegitimate, unjust, unreasonable, or trivial

ground, reason or motive, even if they do so in good faith, and the Court of
Industrial Relations so finds, the strike may be declared illegal notwithstanding
their good faith.
14. Finally, LEA insists that the CIR misapprehended facts and arbitrarily thrust
aside the evidence presented by the union. This argument has been raised in the
brief and was already passed upon by us in the decision. Substantial evidence
supports the findings and conclusions of facts of the CIR, and for this reason the
same are affirmed. Preponderance of evidence, invoked by LEA, is not the
criterion in these cases (National Fastener Corporation of the Philippines vs. CIR,
L-15834, January 20, 1961).
Wherefore, the motion for reconsideration is hereby denied for lack of merit. So ordered.
Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal,
Zaldivar and Sanchez, JJ., concur.
Bengzon, J., reserved his vote.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G..R. No. 156978

May 2, 2006

ABOITIZ SHIPPING CORPORATION, Petitioner,

vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 dated August 29, 2002 of the Court of Appeals
in CA-G.R. CV No. 28770 and its Resolution2 dated January 23, 2003 denying
reconsideration. The Court of Appeals affirmed the Decision3 dated November 20, 1989
of the Regional Trial Court of Manila in Civil Case No. 82-1475, in favor of respondent
New India Assurance Company, Ltd.
This petition stemmed from the action for damages against petitioner, Aboitiz Shipping
Corporation, arising from the sinking of its vessel, M/V P. Aboitiz, on October 31, 1980.

The pertinent facts are as follows:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from
France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was
consigned to General Textile, Inc., in Manila and insured by respondent New India
Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V P.
Aboitiz for transshipment to Manila.4
Before departing, the vessel was advised by the Japanese Meteorological Center that it
was safe to travel to its destination.5 But while at sea, the vessel received a report of a
typhoon moving within its general path. To avoid the typhoon, the vessel changed its
course. However, it was still at the fringe of the typhoon when its hull leaked. On October
31, 1980, the vessel sank, but the captain and his crew were saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating
that the wind force was at 10 to 15 knots at the time the ship foundered and described the
weather as "moderate breeze, small waves, becoming longer, fairly frequent white
horses."6
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the
vessel and all of its cargoes. General Textile, lodged a claim with respondent for the
amount of its loss. Respondent paid General Textile and was subrogated to the rights of
the latter.8
Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of
the sinking. In its report,9 the surveyor concluded that the cause was the flooding of the
holds brought about by the vessels questionable seaworthiness. Consequently,
respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian
Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that
the proximate cause of the loss of the shipment was the fault or negligence of the master
and crew of the vessel, its unseaworthiness, and the failure of defendants therein to
exercise extraordinary diligence in the transport of the goods. Hence, respondent added,
defendants therein breached their contract of carriage.101avvphil.net
Franco-Belgian Services and Zuellig responded, claiming that they exercised
extraordinary diligence in handling the shipment while it was in their possession; its
vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous
event. They also filed a cross-claim against petitioner alleging that the loss occurred
during the transshipment with petitioner and so liability should rest with petitioner.
For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged
that the sinking of M/V P. Aboitiz was due to an unforeseen event and without fault or
negligence on its part. It also alleged that in accordance with the real and hypothecary
nature of maritime law, the sinking of M/V P. Aboitiz extinguished its liability on the loss
of the cargoes.11

Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to
determine whether the captain and crew were administratively liable. However, petitioner
neither informed respondent nor the trial court of the investigation. The BMI exonerated
the captain and crew of any administrative liability; and declared the vessel seaworthy
and concluded that the sinking was due to the vessels exposure to the approaching
typhoon.
On November 20, 1989, the trial court, citing the Court of Appeals decision in General
Accident Fire and Life Assurance Corporation v. Aboitiz Shipping Corporation12
involving the same incident, ruled in favor of respondent. It held petitioner liable for the
total value of the lost cargo plus legal interest, thus:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of
New India and against Aboitiz ordering the latter to pay unto the former the amount of
P142,401.60, plus legal interest thereon until the same is fully paid, attorneys fees
equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed and their counterclaim
against New India is likewise dismissed
SO ORDERED.131avvphil.net
Petitioner elevated the case to the Court of Appeals and presented the findings of the
BMI. However, on August 29, 2002, the appellate court affirmed in toto the trial courts
decision. It held that the proceedings before the BMI was only for the administrative
liability of the captain and crew, and was unilateral in nature, hence not binding on the
courts. Petitioner moved for reconsideration but the same was denied on January 23,
2003.
Hence, this petition for review, alleging that the Court of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT
ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER
ARTICLE 587, 590 AND 837 OF THE CODE OF COMMERCE TO CASES
INVOLVING THE SINKING OF THE M/V "P. ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE
CO., INC. ET AL. V. COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING
CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD.;
B.

x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON

LIMITED LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF
COMMERCE HAD BEEN CONSIDERED AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRORATA SHARES IN THE INSURANCE PROCEEDS FROM THE SINKING OF THE
M/V "P. ABOITIZ".14
Stated simply, we are asked to resolve whether the limited liability doctrine, which limits
respondents award of damages to its pro-rata share in the insurance proceeds, applies in
this case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that
respondents claim for damages should only be against the insurance proceeds and
limited to its pro-rata share in view of the doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary nature of maritime law is
not applicable in the present case because petitioner was found to have been negligent.
Hence, according to respondent, petitioner should be held liable for the total value of the
lost cargo.
It bears stressing that this Court has variedly applied the doctrine of limited liability to
the same incident the sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the
latest ruling, tried to settle the conflicting pronouncements of this Court relative to the
sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel was not due
to force majeure, but to its unseaworthy condition.16 Therein, we found petitioner
concurrently negligent with the captain and crew.17 But the Court stressed that the
circumstances therein still made the doctrine of limited liability applicable.18
Our ruling in Monarch may appear inconsistent with the exception of the limited liability
doctrine, as explicitly stated in the earlier part of the Monarch decision. An exception to
the limited liability doctrine is when the damage is due to the fault of the shipowner or to
the concurrent negligence of the shipowner and the captain. In which case, the shipowner
shall be liable to the full-extent of the damage.19 We thus find it necessary to clarify now
the applicability here of the decision in Monarch.
From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence over the goods they transport according to all
the circumstances of each case.20 In the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible, unless they can prove that the loss,
destruction or deterioration was brought about by the causes specified in Article 1734 of
the Civil Code.21 In all other cases, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed extraordinary diligence.22
Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be

negligent since it is tasked with the maintenance of its vessel. Though this duty can be
delegated, still, the shipowner must exercise close supervision over its men.23
In the present case, petitioner has the burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to invoke the limited
liability doctrine. Differently put, to limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was
not due to its fault or negligence. Considering the evidence presented and the
circumstances obtaining in this case, we find that petitioner failed to discharge this
burden. It initially attributed the sinking to the typhoon and relied on the BMI findings
that it was not at fault. However, both the trial and the appellate courts, in this case, found
that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on
record showed that the weather was moderate when the vessel sank. These factual
findings of the Court of Appeals, affirming those of the trial court are not to be disturbed
on appeal, but must be accorded great weight. These findings are conclusive not only on
the parties but on this Court as well.24
In contrast, the findings of the BMI are not deemed always binding on the courts.25
Besides, exoneration of the vessels officers and crew by the BMI merely concerns their
respective administrative liabilities.26 It does not in any way operate to absolve the
common carrier from its civil liabilities arising from its failure to exercise extraordinary
diligence, the determination of which properly belongs to the courts.27
Where the shipowner fails to overcome the presumption of negligence, the doctrine of
limited liability cannot be applied.28 Therefore, we agree with the appellate court in
sustaining the trial courts ruling that petitioner is liable for the total value of the lost
cargo.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August
29, 2002 and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV
No. 28770 are AFFIRMED.
Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 92735 June 8, 2000

MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC
and Hon. Judge AMANTE PURISIMA, petitioners,
vs.
COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents.

G.R. No. 94867 June 8, 2000

ALLIED GUARANTEE INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ
SHIPPING CORPORATION, respondents.

G.R. No. 95578 June 8, 2000

EQUITABLE INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, Former First Division Composed of Hon. Justices
RODOLFO NOCON, PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ
SHIPPING CORPORATION, respondents.

DE LEON, JR., J.:

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 codefendants, 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. 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 CAG.R. No. SP-17427. 19 On March 29, 1990, the appellate court rendered a
Decision the dispositive portion of which reads:
WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs
of execution, auction sale, certificates of sale, and the assailed orders of
respondent Judge dated April 4 and April 19, 1989 insofar as the money value of
those properties of Aboitiz, levied on execution and sold at public auction, has
exceeded the pro-rata shares of Monarch and Tabacalera in the insurance
proceeds of Aboitiz in relation to the pro-rata shares of the 106 other claimants.
The writ of prohibition is also granted to enjoin respondent Judge, Monarch and
Tabacalera from proceeding further with execution of the judgments in question
insofar as the execution would satisfy the claims of Monarch and Tabacalera in
excess of their pro-rata shares and in effect reduce the balance of the proceeds
for distribution to the other claimants to their prejudice.
The question of whether or how much of the claims of Monarch and Tabacalera
against the insurance proceeds has already been settled through the writ of
execution and auction sale in question, being factual issues, shall be threshed
out before respondent judge.
The writ of preliminary injunction issued in favor of Aboitiz, having served its
purpose, is hereby lifted. No pronouncement as to costs.1wphi1.nt
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 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 CAG.R. CV No. 04121. On March 23, 1987, the Court of Appeals affirmed the
decision of the lower court. A motion for reconsideration of the said decision was
likewise denied by the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then
filed a petition for review with this Court docketed as G.R. No. 88159 which was
denied for lack merit. Entry of judgment was made and the lower court's decision
in Civil Case No. 138643 became final and executory. Allied prayed for the
issuance of a writ of execution in the lower court which was granted by the latter
on April 4, 1990. To stay the execution of the judgment of the lower court, Aboitiz
filed a petition for certiorari and prohibition with preliminary injunction with the
Court of Appeals docketed as CA-G.R. SP No. 20844. 30 On August 15, 1990, the
Court of Appeals rendered the assailed decision, the dispositive portion of which
reads as follows.
WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990
granting the execution is hereby set aside. The respondent Judge is further
ordered to stay the execution of the judgment insofar as it impairs the rights of
the 100 other claimants to the insurance proceeds including the rights of the
petitioner to pay more than the value of the vessel or the insurance proceeds and
to desist from executing the judgment insofar as it prejudices the pro-rata share
of all claimants to the insurance proceeds. No pronouncement as to costs.
SO ORDERED. 31

Hence, Allied filed the instant petition for certiorari, mandamus and injunction with
preliminary injunction and/or restraining order before this Court alleging the
following assignment of errors:
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.
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 partyrespondent 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 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.
Rule on Limited Liability. The petitioners assert in common that the vessel M/V P.
Aboitiz did not sink by reason of force majeure but because of its
unseaworthiness and the concurrent fault and/or negligence of Aboitiz, the
captain and its crew, thereby barring Aboitiz from availing of the benefit of the
limited liability rule.
The principle of limited liability is enunciated in the following provisions of the
Code of Commerce:
Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of
goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all the equipments and the freight it may have earned
during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to
in Art. 587.
Each co-owner may exempt himself from his liability by the abandonment, before
a notary, of the part of the vessel belonging to him.
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

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 illfated M/V P. Aboitiz was two hundred (200) miles away from storm "Yoning"
when it sank. 69
The issue of negligence on the part of Aboitiz, and the captain and crew of the
M/V P. Aboitiz has also been subject of conflicting rulings by this Court. In G.R.
No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, this
Court found no error in the findings of the Court of Appeals that the M/V P. Aboitiz
sank by reason of force majeure, and that there was no negligence on the part of
its officers and crew. In direct contradiction is this Court's categorical declaration
in Aboitiz Shipping Corporation v. Court of Appeals," 70 to wit:
The trial court and the appellate court found that the sinking of the M/V P. Aboitiz
was not due to the waves caused by tropical storm "Yoning" but due to the fault
and negligence of petitioner, its master and crew. The court reproduces with
approval said findings . . . . 71

However, in the subsequent case of Aboitiz Shipping Corporation v. General

Accident Fire and Life Assurance Corporation, Ltd., 72 this Court exculpated
Aboitiz from fault and/or negligence while holding that the unseaworthiness of the

M/V P. Aboitiz was only attributable to the negligence of its captain and crew.
Thus,
On this point, it should be stressed that unseaworthiness is not a fault that can be
laid squarely on petitioner's lap, absent a factual basis for such conclusion. The
unseaworthiness found in some cases where the same has been ruled to exist is
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 hat the loss of the
subject cargo was not due to its fault or negligence. 78

The failure of Aboitiz to present sufficient evidence to exculpate itself from fault
and/or negligence in the sinking of its vessel in the face of the foregoing expert
testimony constrains us to hold that Aboitiz was concurrently at fault and/or
negligent with the ship captain and crew of the M/V P. Aboitiz. This is in
accordance with the rule that in cases involving the limited liability of shipowners,
the initial burden of proof of negligence or unseaworthiness rests on the
claimants. However, once the vessel owner or any party asserts the right to limit
its liability, the burden of proof as to lack of privity or knowledge on its part with
respect to the matter of negligence or unseaworthiness is shifted to
it. 79 This burden, Aboitiz had unfortunately failed to discharge. That Aboitiz failed
to discharge the burden of proving that the unseaworthiness of its vessel was not
due to its fault and/or negligence should not however mean that the limited
liability rule will not be applied to the present cases. The peculiar circumstances
here demand that there should be no strict adherence to procedural rules on
evidence lest the just claims of shippers/insurers be frustrated. The rule on
limited liability should be applied in accordance with the latest ruling in Aboitiz
Shipping Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd., 80 promulgated on January 21, 1993, that claimants be treated as "creditors
in an insolvent corporation whose assets are not enough to satisfy the totality of
claims against it." 81 To do so, the Court set out in that case the procedural
guidelines:
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.1wphi1.nt
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-47447-47449

October 29, 1941

TEODORO R. YANGCO, ETC., petitioner,

vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.

MORAN, J.:
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 Aldaa 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
Basaa, son of Filomeno Basaa, 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:
The agent shall also be civilly liable for the indemnities in favor of third
persons which arise from the conduct of the captain in the care of the goods which
the vessel carried; but he may exempt himself therefrom by abandoning the vessel
with all her equipments and the freight he may have earned during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by
necessary implication, his liability is confined to that which he is entitled as of right to
abandon "the vessel with all her equipments and the freight it may have earned during
the voyage." It is true that the article appears to deal only with the limited liability of
shipowners or agents for damages arising from the misconduct of the captain in the care
of the goods which the vessel carries, but this is a mere deficiency of language and in no
way indicates the true extent of such liability. The consensus of authorities is to the effect
that notwithstanding the language of the aforequoted provision, the benefit of limited
liability therein provided for, applies in all cases wherein the shipowner or agent may
properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma.
Gonzalez de Echavarri y Vivanco, commenting on said article, said:
La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El
derecho de abandono, si se atiende a lo escrito, solo se refiere a las
indemnizaciones a que dierQe lugar la conducta del Capitan en la custodia de
los efectos que cargo en el buque.

Es ese el espiritu del legislador? No; habra derecho de abandono en las

responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros
actos de este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta
copiar el siguiente parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en los
intereses del comercio maritimo, que quedaran mas asegurados ofreciendo
a todo el que contrata con el naviero o Capitan del buque, la garantia real
del mismo, cualesquiera que sean las facultades o atribuciones de que se
hallen investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a ed., pags.
483-484.)
A cursory examination will disclose that the principle of liomited liability of a
shipowner or agent is provided for in but three articles of the Code of Commerce
article 587 aforequoted and article 590 and 837. Article 590 merely reiterates the
principle embodied in article 587, applies the same principle in cases of collision, and it
has been observed that said article is but "a necessary consequences of the right to
abandon the vessel given to the shipowner in article 587 of the Code, and it is one of the
many superfluities contained in the Code." (Lorenzo Benito, Lecciones 352, quoted in
Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only articles
587 and 590 are the provisions conatined in our Code of Commerce on the matter, and
the framers of said code had intended those provisions to embody the universal principle
of limited liability in all cases. Thus, in the "Exposicon de Motivos" of the Code of
Commerce, we read:
The present code (1829) does not determine the juridical status of the agent
where such agent is not himself the owner of the vessel. This omission is supplied
by the proposed code, which provides in accordance with the principles of
maritime law that by agent it is to be understood the person intrusted with the
provisioning of the vessel, or the one who represents her in the port in which she
happens to be. This person is the only one who represents the vessel that is to
say, the only one who represents the interests of the owner of the vessel. This
provision has therefore cleared the doubt which existed as to the extent of the
liability, both of the agent and of the owner of the vessel. Such liability is limited
by the proposed code to the value of the vessel and other things appertaining
thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed
ourselves in such a comprehensive manner as to leave no room for doubt on the
applicability of our ratio decidendi not only to cases of collision but also to those of
shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful
obligations of the captain and the liability which he incurs on account of any
unlawful act committed by him. In the first case, the lawful acts and obligations of
the captain beneficial to the vessel may be enforced as against the agent for the

reason that such obligations arise from te the contract of agency (provided,
however, that the captain does not exceed his authority), while as to any liability
incurred by the captain through his unlawful acts, the ship agent is simply
subsidiarily civilly liable. This liability of the agent is limited to the vessel and it
does not extend further. For this reason the Code of Commerce makes the agent
liable to the extent of the value of the vessel, as the codes of the principal
maritime nations provide with the vessel, and not individually. Such is also the
spirit of our Code.
The spirit of our code s accurately set forth in a treatise on maritime law,
from which we deem proper to quote the following as the basis of this
decision:lawphil.net
"That which distinguishes the maritime from the civil law and even
from the mercantile law in general is the real and hypothecary nature of
the former, and the many securities of a real nature that maritime customs
from time immemorial, the laws, the codes, and the later jurisprudence,
have provided for the protection of the various and conflicting interests
which are ventured and risked in maritime expeditions, such as the
interests of the vessel and of the agent, those of the owners of the cargo
and consignees, those who salvage the ship, those who make loans upon
the cargo, those of the sailors and members of the crew as to their wages,
and those of a constructor as to repairs made to the vessel.
"As evidence of this real nature of the maritime law we have (1) the
limitation of the liability of the agents to the actual value of the vessel and
the freight money, and (2) the right to retain the cargo and the embargo
and detention of the vessel even in cases where the ordinary civil law
would not allow more than a personal action against the debtor or person
liable. It will be observed that these rights are correlative, and naturally so,
because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole
fortune in the business, it is also just that his maritime creditor may for
any reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third
person.
"This repeals the civil law to such an extent that, in certain cases,
where the mortgaged property is lost no personal action lies against the
owner or agent of the vessel. For instance, where the vessel is lost the
sailors and members of the crew cannot recover their wages; in case of
collision, the liability of the agent is limited as aforesaid, and in case of
shipwreck, those who loan their money on the vessel and cargo lose all
their rights and cannot claim reimbursement under the law.

"There are two reasons why it is impossible to do away with these

privileges, to wit: (1) The risk to which the thing is exposed, and (2) the
real nature of the maritime law, exclusively real, according to which the
liability of the parties is limited to a thing which is at the mercy of the
waves. If the agent is only liable with the vessel and freight money and
both may be lost through the accidents of navigation it is only just that the
maritime creditor have some means to obviating this precarious nature of
his rights by detaining the ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and which
a purchaser of the same would be obliged to respect and recognize are
in addition to those existing in favor of the State by virtue of the privileges
which are granted to it by all the laws pilot, tonnate, and port dues and
other similar charges, the wages of the crew earned during the last voyage
as provided in article 646 of the Code of Commerce, salvage dues under
article 842, the indemnification due to the captain of the vessel in case his
contract is terminated on account of the voluntary sale of the ship and the
insolvency of the owner as provided in article 608, and all other liabilities
arising from collisions under articles 837 and 838."
We are shared in this conclusion by the eminent commentators on the subject.
Agustin Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil
Comparado" 1929 (pages 374-375), the like principle of limited liability of shipowners or
agent in cases of accidents, collisions, shipwrecks, etc., said:
De las responsabilities que pueden resultar como consequencia del
comercio maritimo, y no solo por hechos propios sino tambien por las que se
ocasionen por los del capitan y la tripulacion, responde frente a tercero el naviero
que representa el buque; pero el derecho maritimo es sobre todo tradicional y
siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se
organiza de un modo especifico y particularisimo que no encuentra similar en el
derecho general de las obligaciones.
Una forma corrientisima de verificarse el comercio maritimo durante la
epoca medieval, era prestar un propietario su navio para que cargase en el
mercancias determinada persona, y se hiciese a la mar, yendo al frente de la
expedicion un patron del buque, que llegado al puerto de destino se encargaba de
venderlas y retornaba al de salida despues de adquirir en aquel otros efectos que
igualmente revendia a su regreso, verificado lo cual los beneficios de la
expedicion se repartian entre el dueo del buque, el cargador y el capitan y
tripulantes en la proporcion estipulada. El derecho maritimo empezo a considerar
la asociacion asi formada como una verdadera sociedad mercantil, de
responsabilidad limitada, y de acuerdo con los principios que gobiernan aquella
en los casos de accidentes, abordajes, naufragios, etc., se resolvia que el dueo del
buque perdia la nave, el cargador las mercancias embarcadas y el capitan y la
tripulacion su trabajo, sin que en ningun caso el tercer acreedor pudiese reclamar

mayor cantidad de ninguno de ellos, porque su responsabilidad quedaba limitada a

lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho
comercial de tiempos posteriores, la responsabilidad del naviero se edifico sobre
aquellos principios, y derogando la norma general civil de que del cumplimiento
de sus obligaciones responde el deudor con todos sus bienes presentes y futuros,
la responsabilidad maritima se considero siempre limitada ipso jure al patrimonio
de mar. Y este es el origen de la regla trascendental de derecho maritimo segun la
cual el naviero se libera de toda responsabilidad abandonando el buque y el flete a
favor de los acreedores.
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
Ahora bien: hasta donde se extiende esta responsabilidad del naviero?
sobre que bienes pueden los acreedores resarcirse? Esta es otra especialidad del
Derecho maritimo; en el Derecho comun la responsabilidad es limitada; tambien
lo era en el antiguo Derecho maritimo romano; es daba la actio exercitoria contra
el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva
se introdujo en los usos maritimos. Las cargas resultantes de las expediciones
maritimas se consideraron limitadas por los propietarios de las naves a los valores
comprometidos por ellos en cada expedicion; se separo ficticiamente el
patrimonio de los navieros en dos partes que todavia se designan de una manera
bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la teoria
de que esta era la que respondia solo de las deudas provinientes de los actos del
capitan o de la tripulacion, es decir, que el conjunto del patrimonio del naviero
escaparia a estas cargas desde el momento en que abandonara la nave y los fletes
a los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38,
observes:
La responsabilidad del naviero, en el caso expuesto, se funda en el principio
de derecho comun de ser responsable todo el que pone al frente de un
establecimiento a una persona, de los daos o perjuicios que ocasionare esta
desempeando su cometido, y en que estando facultado el naviero para la eleccion
de capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos
de este que o casionaron daos o perjuicios, puesto que no se aseguro de su
pericia o buena fe. Limitase, sin embargo, la responsabilidad del naviero a la
perdida de la nave, sus aparejos, y fletes devengados durante el viaje; porque no
pudiendo vigilar de un modo directo e inmediato la conducta del capitan, hubiera
sido duro hacerla extensiva a todos sus bienes que podria comprometer el capitan
con sus faltas o delitos.
The views of these learned commentators, including those of Estasen (Derecho
Mercantil, Vol. 4, 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be
desired and nothing to be doubted on the principle. It only remains to be noted that the
rule of limited liability provided for in our Code of Commerce reflects merely, or is but a

restatement, imperfect though it is, of the almost universal principle on the subject. While
previously under the civil or common law, the owner of a vessel was liable to the full
amount for damages caused by the misconduct of the master, by the general maritime law
of modern Europe, the liability of the shipowner was subsequently limited to his interest
in the vessel. (Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A
similar limitation was placed by the British Parliament upon the liability of Englosh
shipowners through a series of statutes beginning in 1734 with the Act of 7 George II,
chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and 1821,
and finally, Congress enacted the Limited Liability Act of March 3, 1851, embodying
most of the provisions contained in the British Statutes (see 24 R. C. L. pp. 1387-1389).
Section 4283 of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability
of the owner of any vessel, for any embezzlement, loss, or destruction, by any
person, of any property, goods, or merchandise, shipped or put on board of such
vessel, or for any loss, damage, or injury by collision, or for any act, matter or
thing, loss, damage, or forfeiture, done, occasioned, or incurred without the
privity, or knowledge of such owner or owners, shall in no case exceed the
amount or value of the interest of such owner in such vessel, and her freight then
pending.
The policy which the rule is designed to promote is the encouragement of
shipbuilding and investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co.
v. Wright, supra; The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that
spirit that the American courts construed the Limited Liability Act of Congress whereby
the immunities of the Act 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
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.