G.R. No. 91228. March 22, 1993.
escape from his obligation under the arbitration clause as stated therein. Arbitration has been held valid
PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC.,
respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING FROM CARRIAGE AND
DELIVERY. — We agree with the court a quo that the sales contract is comprehensive enough to
include claims for damages arising from carriage and delivery of the goods. As a general rule, the seller
has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier
to deliver the same.
2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME COMMERCE; CHARTER
PARTIES, CONSTRUED. — American jurisprudence defines charter party as a contract by which an
entire ship or some principal part thereof is let by the owner to another person for a specified time or use.
Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of affreightment.
3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. — Under the demise or bareboat
charter of the vessel, the charterer will generally be considered as owner for the voyage or service
stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac
vice, subject to liability to others for damages caused by negligence. To create a demise the owner of a
vessel must completely and exclusively relinquish possession, anything short of such a complete transfer
is a contract of affreightment (time or voyage charter party) or not a charter party at all.
4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED. — A contract of
affreightment is in which the owner of the vessel leases part or all of its space to haul goods for others. It
is a contract for a special service to be rendered by the owner of the vessel and under such contract the
general owner retains the possession, command and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his payment of the charter hire. If the charter is
a contract of affreightment, which leaves the general owner in possession of the ship as owner for the
voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from
liability to third persons in respect of the ship.
5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS SHIPPED ON BOARD A
VESSEL. — Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue of a demise, the
charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or by
the master with third persons, and is answerable for loss, damage or non-delivery of goods received for
transportation. An owner who retains possession of the ship, though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading or
unloading of the cargo.
6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION THEREOF, CONSIDERED
AND RESPECTED. — Whether the liability of respondent should be based on the same contract or that
of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the
sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot
and constitutional. Even before the enactment of Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. The rule now is that unless the agreement is such as absolutely
to close the doors of the courts against the parties, which agreement would be void, the courts will look
with favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. As pointed out in the case of Mindanao Portland Cement Corp. v.
McDough Construction Company of Florida 18 wherein the plaintiff sued defendant for damages arising
from a contract, the Court said: "Since there obtains herein a written provision for arbitration as well as
failure on respondent's part to comply therewith, the court a quo rightly ordered the parties to proceed to
their arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's
arguments touching upon the merits of the dispute are improperly raised herein. They should be
addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to
arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to
determine if they should proceed to arbitration or not. And although it has been ruled that a privolous or
patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact that a
defense exist against a claim does not make it frivolous or baseless."
7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT; ANNEXES ATTACHED
THEREOF, PART OF THE RECORD. — Petitioner contend that the arbitration provision in the bills of
lading should not have been discussed as an issue in the decision of the Court of Appeals since it was not
raised as a special or affirmative defense. The three bills of lading were attached to the complaint as
Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as evidence although
not introduced as such. Hence, it was then proper for the court a quo to discuss the contents of the bills of
lading, having been made part of the record.
DECISION
NOCON, J p:
This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the
respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and
dismissing petitioner's compliant in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime
Factors, Inc. and Philipp Brothers Oceanic, Inc.
Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for
brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private
respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract No.
S151.8.01018 provided, among others an arbitration clause which states, thus:
"9. Arbitration
"Any disputes arising under this contract shall be settled by arbitration in London in accordance with the
Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to appoint an
Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by them to be final.
The Arbitrators and Umpire are all to be commercial men and resident in London. This submission may
be made a rule of the High Court of Justice in England by either party." 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for
transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the ship-
agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. dated May 12, 1988 covering
10,000 metric tons for discharge Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons for
unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering 1,500 metric tons
likewise for discharged in Manila
The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order
and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were discharged in
Manila in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust
and dirt. Damages were valued at P683, 056. 29 including additional discharging expenses.
Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage
against Maritime Factors Inc. (which was not included as respondent in this petition) as ship-agent in the
Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp
Brothers Oceanic Inc., was impleaded as charterer of the said vessel and proper party to accord petitioner
complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private respondent filed
a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states no cause of action;
that it was prematurely filed; and that petitioner should comply with the arbitration clause in the sales
contract. 6
The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration clause
inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but rather
for claims of cargo damages where there is no arbitration agreement. On April 26, 1989, the trial court
denied respondent's motion to dismiss in this wise:
"The sales contract in question states in part:
'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis supplied)
"A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of
action of the complaint arose from a breach of contract of carriage by the vessel chartered by the
defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to the
dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from breach
of contract of carriage.
"That the defendant is not the ship owner or common carrier and therefore plaintiff does not have legal
right against it since every action must be brought against the real party in interest has no merit either for
by the allegations in the complaint the defendant herein has been impleaded as charterer of the vessel,
hence, a proper party." 7
Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate court
found that the arbitration provision in the sales contract and/or the bills of lading is applicable in the
present case. Said the court:
"An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the
claim for damages arising from the carriage and delivery of the goods subject-matter thereof.
"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the complaint state, in part,
'any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime Arbitration
Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str., Moscow, USSR,
in accordance with the rules of procedure of said commission.'
Considering that the private respondent was one of the signatories to the sales contract . . . all parties are
obliged o respect the terms and conditions of the said sales contract, including the provision thereof on
'arbitration.' "
Hence, this petition The issue raised is: Whether the phrase "any dispute arising under this contract" in
the arbitration clause of the sales contract covers a cargo claim against the vessel (owner and/or
charterers) for breach of contract of carriage.
Petitioner states in its complainants that Philipp Brothers "was the charterer of the vessel MV 'Liliana
Dimitrova' which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged that
the caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged
portions of the shipment were due to the improper ventilation and inadequate storage facilities of the
vessel; that the wetting of the cargo was attributable to the failure of the crew to close the hatches before
and when it rained while the shipment was being unloaded in the Port of Manila; and that as a direct and
natural consequence of the unseaworthiness and negligence of the vessel (sic), petitioner suffered
damages in the total amount of P683, 056.29 Philippine currency." 8 (Emphasis supplied)
Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the
complaint arose from breach of contract of carriage by the vessel that was chartered by defendant Philipp
Brothers." 9
In the present petition, petitioner argues that the sales contract does not include the contract of carriage
which is a different contract entered into by the carrier with the cargo owners. That it was an error for the
respondent court to touch upon the arbitration provision of the bills lading in its decision inasmuch as the
same was not raised as an issue by private respondent who was not a party in the bills of lading
(emphasis Ours). Petitioner contradicts itself.
We agree with the court a quo that the sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation
to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the
same. Art. 1523 of the Civil Code provides:
"Art. 1523. Where in pursuance of a contract of sale, the seller in authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases
provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appear.
"Unless otherwise authorized by the buyer, the seller must take such contract with the carrier on behalf of
the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may
decline to treat the delivery to the carrier as a delivery to himself,, or may hold the seller responsible in
damages."
xxx xxx xxx
The disputed sales contact provides for conditions relative to the delivery of goods, such as date of
shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the
following provisions:
"3. Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines and approximately
15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as partial shipment or
co-shipment in addition to above. In the event of co-shipment to a third party within Philippines same to
be discussed with and acceptable to both Puromines and Makati Agro.
"4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first discharge
port and final survey at last discharge port. Surveyors results to be binding and final. In the event draft
survey results show a quantity less than the combined Bills of Lading quantity for both Puromines and
Makati Agro, Sellers to refund the difference. In the event that draft survey results show a quantity in
excess of combined Bills of Lading of quantity of both Puromines and Makati Agro then Buyers to
refund the difference.
"5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to
separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on
individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local
requirements and it is Buyer's responsibility to separate individual quantities required by each of them at
each port during or after discharged."
As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from the
bill of lading which is the contract of affreightment together with the sales contract. Consequently, the
(petitioner) is bound by the provisions and terms of said bill of lading and of the arbitration clause
incorporated in the sales contract."
Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on the
contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be
material to show what kind of charter party the respondent had with the shipowner to determine
respondent's liability.
American jurisprudence defines charter party as a contract by which an entire ship or some principal part
thereof is let by the owner to another person for a specified time or use. 10 Charter or charter parties are
of two kinds. Charter of demise or bareboat and contracts of affreightment.
Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. 11 To
create a demise the owner of a vessel must completely and exclusively relinquish possession, anything
short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a
charter party at all.
On the other hand, a contract of affreightment is in which the owner of the vessel leases part or all of its
space to haul goods for others. It is a contract for a special service to be rendered by the owner of the
vessel 12 and under such contract the general owner retains the possession, command and navigation of
the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment
of the charter hire. 13 If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the owner
and the charterer is usually free from liability to third persons in respect of the ship. 14
Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and
employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not
the owner, is liable as carrier on the contract of affreightment made by himself or by the master with
third persons, and is answerable for loss, damage or non-delivery of goods received for transportation.
An owner who retains possession of the ship, though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the cargo.
15
Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp Brothers
is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the other hand, if
the contract between respondent and the owner of the vessel MV "Liliana Dimitrova" was merely that of
affreightment, then it cannot be held liable for the damages caused by the breach of contract of carriage,
the evidence of which is the bills of lading
In any case, whether the liability of respondent should be based on the same contract or that of the bill of
lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract
and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from
his obligation under the arbitration clause as stated therein.
Neither can petitioner contend that the arbitration provision in the bills of lading should not have been
discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or
affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and
"C," and are therefore parts thereof and may be considered as evidence although not introduced as such.
16 Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having been
made part of the record.
Going back to the main subject of this case, arbitration has been held valid and constitutional. Even
before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes
through arbitration. The rule now is that unless the agreement is such as absolutely to close the doors of
the courts against the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator. 17
As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction Company of
Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the Court said:
"Since there obtains herein a written provision for arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance
with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the
merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in
this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to
arbitration or not. And although it has been ruled that a frivolous or patently baseless claim should not be
ordered to arbitration it is also recognized that the mere fact that a defense exist against a claim does not
make it frivolous or baseless." 19

In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties to
submit their disputes to arbitration and We held as follows:

"The trial court sensibly said that 'all the causes of action alleged in the plaintiffs amended complaint are
based upon the supposed violations committed by the defendants of the 'Contract of Construction of a
Building' and that 'the provisions of paragraph 15 hereof leave a very little room for doubt that the said
causes of action are embraced within the phrase 'any and all questions, disputes or differences between
the parties hereto relative to the construction of the building,' which must be determined by arbitration of
two persons and such determination by the arbitrators shall be 'final, conclusive and binding upon both
parties unless they to court, in which the case the determination by arbitration is a condition precedent
'for taking any court action."

xxx xxx xxx

"We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes
between them should first be arbitrated before court action can be taken by the aggrieved party." 21

Premises considered, We uphold the validity and applicability of the arbitration clause as stated in Sales
Contract No. S151.8.01018 to the present dispute.

WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED.

SO ORDERED.
G.R. No. 95900 July 23, 1992
JULIUS C. OUANO, petitioner,
vs.
COURT OF APPEALS, MARKET DEVELOPERS, INC., JULIAN O. CHUA, SUPREME
MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and
FLORENTINO RAFOLS, JR., respondent.
REGALADO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No.
12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu,
Branch XI, in Civil Case No. R-20037 wherein judgment had been rendered for petitioner, as well as the
resolution of said respondent court, dated October 15, 1990, denying petitioner's motion for
reconsideration. 1
As found by respondent court, petitioner is the registered owner and operator of the motor vessel known
as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols
under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month,
with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after
actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer
should operate the vessel for his own benefit and should not sublet or sub-charter to the same without the
knowledge and written consent of the owner.
On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE)
through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture
Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to
respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of
P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is,
P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of
loading and receipt of the cement cargo by the consignee. The fixture note did not have the written
consent of petitioner.
Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from
Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination.
On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to
strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due
M/V Don Julio Ouano until Mr. Florentino Rafols makes goods his commitment" to petitioner.
On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the last
installment of the freightage for the aforestated cargo of cement.
The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee,
herein respondent SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano
or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City
Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage.
Neither was there any demand made on any of the respondents for a bond to secure payment of the
freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving
notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its
customers in October and November, 1980.
On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as
shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the
freight charges for the cement cargo, aside from moral and exemplary damages in the sum of
P150,000.00, attorney's fees and expenses of litigation.
On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May
31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of
summons.
On account of the subsequent dropping and impleading of parties defendant, the complaint underwent
several amendments until the case was eventually tried on the third amended complaint, which alleged
three causes of action against the aforenamed respondents as answering defendants therein.
On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following
disposition:
WHEREFORE, premises considered, this Court render(s) judgment 1) under
plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.),
Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise
known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and
severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to
the first 50% freight installment on plaintiff's vessel "M/V Don Julio Ouano"
included as part of the purchase price paid by defendant SMCSI to defendant MADE,
plus legal interest from January 6, 1981 date of filing of the original complaint; 2)
under the second cause of action, sentencing MADE (Market Developers), Julian O.
Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in
concept of moral and exemplary damages, and P5,000.00 attorney's fees; and 3)
under the third cause of action, sentencing defendant Supreme Merchant
Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and
severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation,
P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City
to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return
of service (Exhibit 'S'), with costs against all the defendants. 2
On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows:
In the light of the foregoing, appellee Ouano has no cause of action against appellants
MADE and SMCSI, but only against defendant Rafols. Their principals not being
liable to appellee for the payment of the freightage in question, the agents, appellants
Julian O. Chua and Johnny Ang alias Chua Pek Giok who had acted within the scope
of their authority, would accordingly not be liable to appellee.
 For the same reason that the defendants-appellants are not liable to pay the appellee
the freightage in question, the award of moral and exemplary damages, attorney 's
fees and expenses of litigation in favor of appellee has no factual and legal basis.
WHEREFORE, premises considered, the decision appealed from is reversed and set
aside with respect to the defendants-appellants who are hereby absolved from the
complaint. The decision is affirmed with respect to defendant Florentino Rafols. 3
Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of
Appeals, 4 hence the present petition with the following assignment of errors:
1. The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages
to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate
contract under Art. 1314 thereof.
2. The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which
are the natural and probable consequences of their act or omission, the term "all damages" being broad
enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as
P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.).
3. The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily
(Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of
P23,075.00 representing unpaid freight on petitioner's vessel.
4. The Court of Appeals erred in not holding that in contracts and quasi-delicts the defendants shall be
liable for all damages which are the natural and probable consequences of the act or omission
complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202,
N.C.C.).
5. The Court of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors,
Inc. vs. South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the
carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua
and respondents Supreme Merchant Construction Supply, Inc. and Chua Pek Giok. 5
We find no merit in this petition.
Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was
in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly
confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of
transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and
management of the vessel was not transferred to MADE but remained with Rafols as the lessee or
charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the
cargo of cement for a fixed price. 6 On the other hand, even indulging petitioner in his argument that
there was a sublease or sub-charter by reason of that one particular cargo of MADE, still no right of
recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall
hereunder demonstrate.
It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can
only bind the parties who had entered into it or their successors who assumed their personalities or their
juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third
person. 7 It is undisputed that the charter contract was entered into only by and between petitioner and
respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of
the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the
contract against the sublease or sub-charter of the vessel without his knowledge and written consent,
even if true, does not give rise to a cause of action against the supposed sublease or sub-charterer. The act
of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the
contract, but the owner's right of recourse is against the original charterer, either for rescission or
fulfillment, with the payment of damages in either case. 8
The obligation of contracts is limited to the parties making them and, ordinarily, only those who are
parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on
one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person
contractually, an expression of assent by such person is necessary. 9
We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages
for a quasi-delict under Article 2176 of the Civil Code for having failed to obtain his consent before
entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to
violate the charter party.
The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel
was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance
therewith.
Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the
original charter party. Firstly, there is no evidence on record to show that said respondents had
knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel.
Secondly, at the time the fixture note was entered into between Rafols and MADE, a written
authorization signed by the wife of petitioner in his behalf, authorizing Rafols to execute contracts,
negotiate for cargoes and receive freight payments, 10 was shown by the former to the latter. Although the
said authorization may have been made by the wife, the same, however, can evidently be proof of good
faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the
agreement between Rafols and MADE was for the former to transport the cement of the latter using
either the "M/V Don Julio Ouano or substitute vessel at his discretion." 11 Hence, the decision to use the
M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols.
Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by
MADE and Rafols when he demanded the payment of the second freight installment as provided in the
agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in
Civil Case No. R-19845, an interpleader case filed by MADE. 12
Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is
not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment shall be
made to the person in whose favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it." Consequently, MADE, under the fixture note, was under obligation to
pay the freight to Rafols.
Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease
arrangement, the basic principles of which are applicable in the present case, there are two distinct leases
involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist
and are intimately related to each other, but which are nonetheless distinct one from the other. In such
arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-
vis the lessor are not passed on to nor acquired by the sublessee. The lessor is, in the main and except
only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-
sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of
the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said
rentals being due and payable to the lessee-sublessor. 13 MADE was, therefore, under no obligation to
pay petitioner since the freightage was payable to Rafols.
Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the
lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent
due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the
lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated
October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio
Ouano until respondent Rafols had made good his obligations to him.
In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of
the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon
arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before
October 9, 1980, 14 hence on that date the first freight installment was already due and demandable. To
further withhold the payment of said installment would constitute a breach of MADE's obligation under
the foregoing contract.
In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in
the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a)
two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third
postdated check for P32,000.00 issued on November 9, 1980. 15 The fact that the said checks bounced for
insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability
which petitioner seeks to impute to respondents MADE, SMCSI and their agents.
Anent the issue on maritime lien on the cargo, it is the theory of petitioner that the first freight
installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the
cargo subsists. The said contention is specious and untenable.
Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other
classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer
agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the
charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and
provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the
owner and becomes the owner for the voyage. 16 This second type is also known as a bareboat charter or
otherwise referred to as a demise of the vessel. 17
In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and
the possession is passed to the charterer. The entire control and management of it is given up to him. The
general owner loses his lien for freight, but the lien itself is not destroyed; the charterer is substituted in
his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner,
however, has no remedy for the charter of his vessel but his personal action on the covenants of the
charter party. It is a contract in which he trusts in the personal credit of the charterer. 18
Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the
voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on
the cargo for the hire of the vessel, in the absence of an express provision therefor 19 as in the case at bar.
Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was
deemed waived when the goods were unconditionally released to the consignee at the port of destination.
A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the
consignee or a third person terminates, or constitutes a waiver of, the lien. 20 The lien of a carrier for the
payment of freight charges is nothing more than the right to withhold the goods, and is inseparably
associated with its possession and dependent upon it. 21
The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon
the goods after he has parted with possession, but is simply the right to retain them until the freight is
paid, and is therefore lost by an unconditional delivery of the goods to the consignee. 22
Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist
is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof
provides that credits for transportation of the goods carried, for the price of the contract and incidental
expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty
(30) days thereafter. During this period, the sale of the goods may be requested, even though there are
other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of
where the goods have been delivered and were turned over to a third person without malice on the part of
the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded
from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or
demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of
thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien
for unpaid freight.
Petitioner's invocation of Overseas Factors, Inc., et al. v. South Sea Shipping Co., et al., 23 therefore, is
ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers
and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the
cargo had already been unconditionally delivered to the consignee SMCI without protest.
WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is
hereby AFFIRMED.
SO ORDERED.
 [G.R. No. 112287. December 12, 1997] The Facts
NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo
SHIPPING, INC., respondents. or shipment for the general public. Its services are available only to specific persons who enter into a
special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is
in this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract
of voyage charter hire with National Steel Corporation.
[G.R. No. 112350. December 12, 1997] The facts as found by Respondent Court of Appeals are as follows:
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents. (1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit
1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products
DECISION
at Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, viz:
PANGANIBAN, J.:
1. x x x x x x.
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees. The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
are binding on this Court.
3. x x x x x x

The Case 4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading
within fifteen (15) days.
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of 5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing
the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim
as follows: 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the
legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED. [2]
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED. [3]
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for Freight In and Out including Stevedoring and Trading, which means that
the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to
make the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and
to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the
cargo; insufficiency of packing; xxx; latent defects not discoverable by due diligence; any other cause
arising without the actual fault or privity of Owners or without the fault of the agents or servants of
owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric
tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed
the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessels three (3) hatches containing the shipment were opened
by plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet
and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain
which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated
March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection conducted on the cargo, both
while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila
where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the packages
of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at
various extents; that container/metal casings of the skids were rusting all over. MASCO ventured the
opinion that rusting of the tinplates was caused by contact with SEA WATER sustained while still on
board the vessel as a consequence of the heavy weather and rough seas encountered while en route to
destination (Exhibit F). It was also reported that MASCOs surveyors drew at random samples of bad
order packing materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for
analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit I) which
in part, states, The analysis of bad order samples of packing materials xxx shows that wetting was caused
by contact with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount
of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but
defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976
which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and crew in the management of the vessel as well as
the want of due diligence on the part of the defendant to make the vessel seaworthy and to make the
holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception,
carriage and preservation -- all in violation of defendants undertaking under their Contract of Voyage
Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I
was seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common
carrier inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter
party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I encountered very
rough seas, strong winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch covers; that under
the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the officers of said MV VLASONS I
exercised due diligence and proper seamanship and were not willfully negligent; that furthermore the
Voyage Charter Party provides that loading and discharging of the cargo was on FIOST terms which
means that the vessel was free of risk and expense in connection with the loading and discharging of the
cargo; that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to the
insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any
other cause arising without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who
discharged the cargo in Manila were negligent and did not exercise due care in the discharge of the
cargo; and that the cargo was exposed to rain and seawater spray while on the pier or in transit from the
pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs claim was highly
speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that it had
complied with all its duties and obligations under the Voyage Charter Hire Contract and had no
responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter
Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands
made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum
of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting
for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage
in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is
available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV
VLASONS I was covered by the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4);
Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate from the
Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine
Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of Customs
(Exh. 9). That being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter
Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the
Philippine Coast Guard. In fact, subject voyage was the vessels first voyage after the drydocking. The
evidence shows that the MV VLASONS I was seaworthy and properly manned, equipped and supplied
when it undertook the voyage. It had all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were
water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage to
the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of
witness Vicente Angliongto that tinplates sweat by themselves when packed even without being in
contract (sic) with water from outside especially when the weather is bad or raining. The rust caused by
sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be
held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility
for loss or damage arising from the character of the goods x x x. All the 1,769 skids of the tinplates could
not have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the
tinplates themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected
by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing
the hatch openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus
allowing rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents
to cover the hatch openings in case of rain so that it would be easy for them to resume work when the
rains stopped by just removing the tent or canvas.Because of this improper covering of the hatches by the
stevedores during the discharging and unloading operations which were interrupted by rains, rainwater
drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant
carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route from
Iligan City to Manila causing sea water to splash on the ships deck on account of which the master of the
vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be
invoked by defendant as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement,
then it could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party
contract when it loaded not only steel products, i.e. steel bars, angular bars and the like but also tinplates
and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to
ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof,
fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of
lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands. The evidence also showed that the plaintiff was required and bound under paragraph 7 of the
same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading of
the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant for
demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character
of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration.In a Resolution[5] dated October 20,
1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions for
review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation of II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
these petitions.[6] Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:

The Issues 1. Questions of Fact

In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12)
were admissible in evidence and constituted evidence of the vessels seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability
for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs
cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on
their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs
tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors by the Regional Trial Court, it carried passengers or goods only for those it chose under a special contract
of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to
which there exist[s] a presumption of negligence against the common carrier in case of loss or damage to
the cargo are applicable to a private carrier.
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.
The Courts Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as
a private carrier. The resolution of this preliminary question determines the law, standard of diligence and
burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as 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. It has been held that the true test of a common
carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of
its transportation service for a fee. [11] A carrier which does not qualify under the above test is deemed a
private carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold
himself out to carry goods for the general public. The most typical, although not the only form of private
carriage, is the charter party, a maritime contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found
of charter party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a common
but a private carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their
respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party. [15] Recently, in Valenzuela Hardwood and Industrial Supply,
Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, [16] the Court ruled:
x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage
does not involve the general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship transporting commercial
goods as a private carrier. Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by law in contracts involving
common carriers.[17]
 Extent of VSIs Responsibility and Liability Over NSCs Cargo burden of proving proper care and diligence on its part or that the loss occurred from an excepted cause
in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee,
be responsible for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI and since the carrier is in a better position to know the cause of the loss and that it was not one involving
Charter Party, which was incorporated in the parties contract of transportation, further provided that the its liability, the law requires that it come forward with the information available to it, and its failure to do
shipowner shall not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness, so warrants an inference or presumption of its liability. However, such inferences and presumptions,
unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the while they may affect the burden of coming forward with evidence, do not alter the burden of proof
same was properly manned, equipped and supplied, and to make the holds and all other parts of the vessel which remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or
in which cargo [was] carried, fit and safe for its reception, carriage and preservation. [18] The NANYOZAI damage, the burden of going forward with the evidence is again on plaintiff.
Charter Party also provided that [o]wners shall not be responsible for split, chafing and/or any damage
unless caused by the negligence or default of the master or crew.[19]
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach
thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the
goods were lost or damaged while in the carriers possession does not cast on it the burden of proving
Burden of Proof seaworthiness. x x x Where the contract of carriage exempts the carrier from liability for unseaworthiness
not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its diligence to make the vessel seaworthy. [20]
shipment was caused by VSIs willful negligence or failure to exercise due diligence in making MV Vlasons
I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position
placed on NSC by the parties agreement. in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause
10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation
This view finds further support in the Code of Commerce which pertinently provides: of Clause 12 is not even correct), it argues that a careful examination of the evidence will show that VSI
miserably failed to comply with any of these obligations as if defendant-appellee [VSI] had the burden of
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not proof.[21]
been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous First Issue: Questions of Fact
event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of
the shipper. Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended
The burden of proof of these accidents is on the carrier. purpose under the charter party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the
rusting of the tinplates was caused by its own sweat or by contact with seawater.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his These questions of fact were threshed out and decided by the trial court, which had the firsthand
omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The
findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings
in the bill of lading, making him to believe that the goods were of a class or quality different from what
they really were. of both the trial court and the Court of Appeals coincide, the same are binding on this Court. [22] We stress
that, subject to some exceptional instances, [23] only questions of law -- not questions of fact -- may be
Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the raised before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places review of the case at bar, we find no reason to disturb the lower courts factual findings, as indeed NSC has
the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that: not successfully proven the application of any of the aforecited exceptions.

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove
that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in
the carriers custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of
the goods committed to its care, the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carriers possession does not cast on it the
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit
for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under
the contract of voyage charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first
voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and
andequipped; it met all requirements for trading as cargo vessel. [25] The Court of Appeals itself sustained we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a
the conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse stopper so that the canvas could not be removed.
this finding of both the trial and the appellate courts.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch
Who Were Negligent: Seamen or Stevedores? opening.

As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the A: Forty-five feet by thirty-five feet, sir.
negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the xxxxxxxxx
carriage of tinplates. NSC failed to discharge this burden.
Q: How was the canvas supported in the middle of the hatch opening?
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults A: There is a hatch board.
the Court of Appeals for failing to consider such claim as an uncontroverted fact [26] and denies that MV
Vlasons I was equipped with new canvas covers in tandem with the old ones as indicated in the Marine ATTY DEL ROSARIO
Protest xxx. [27] We disagree. Q: What is the hatch board made of?
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition A: It is made of wood, with a handle.
to the new one used primarily to make the ships hatches watertight. The foregoing are clear from the
marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships Q: And aside from the hatch board, is there any other material there to cover the hatch?
boatswain, Jose Pascua. The salient portions of said marine protest read:
A: There is a beam supporting the hatch board.
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded Q: What is this beam made of?
with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation;
that before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or A: It is made of steel, sir.
about August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
rough seas and strong winds and Manila office was advised by telegram of the adverse weather
conditions encountered; that in the morning of August 10, 1974, the weather condition changed to worse A: No, sir.
and strong winds and big waves continued pounding the vessel at her port side causing sea water to
overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give Q: How many hatch beams were there placed across the opening?
way while the new canvass covering still holding on;
A: There are five beams in one hatch opening.

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re- ATTY DEL ROSARIO
secured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put
Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same on top?
canvass to give way and leaving the new canvass holding on; A: Plenty, sir, because there are several pieces on top of the hatch beam.
xxx xxx xxx [28] Q: And is there a space between the hatch boards?
And the relevant portions of Jose Pascuas deposition are as follows: A: There is none, sir.
Q: What is the purpose of the canvas cover? Q: They are tight together?
A: So that the cargo would not be soaked with water. A: Yes, sir.
A: And will you describe how the canvas cover was secured on the hatch opening? Q: How tight?
WITNESS A: Very tight, sir.
 Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas
covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give
way and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based on overwhelming evidence,
that the MV VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on
board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets
or a total of 1,769 packages from NSCs pier in Iligan City arriving safely at North Harbor, Port Area,
Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were
negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned
by a passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly
inadequate for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer
of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on
board the vessel upon notice from the National Steel Corporation in order to conduct the
inspection of the cargo. During the course of the investigation, did you chance to see the
discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on
the pier but majority of the tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed
at the opening of the hatches to protect the cargo from the rain. Now, will you describe
[to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at
the middle with the whole side separated down to the hatch, the size of the hatch and it
is soaks [sic] at the middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the
hatch tent was not good enough to hold all of it to prevent the water soaking through the
canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and
soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure
adopted by its stevedores in discharging the cargo particularly in this tent covering of the
hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores
did not mind at all, so, I called the attention of the representative of the National Steel
but nothing was done, just the same. Finally, I wrote a letter to them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores negligence on the first day of unloading, pointing out that he wrote his
letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the
attention of the stevedores, then the NSCs representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with
common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the
stevedores attention first and then the NSCs representative on location before formally informing NSC of
the negligence he had observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired
by NSC were negligent in the unloading of NSCs shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV
VLASONS I when rains occurred during the discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores
merely set up temporary tents or canvas to cover the hatch openings when it rained during the unloading 3. International Load Line Certificate from the Philippine Coast Guard
operations so that it would be easier for them to resume work after the rains stopped by just removing
said tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto 4. Coastwise License from the Board of Transportation
wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on 5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]
rainy days and the improper closing of the hatches which allowed continuous heavy rain water to leak
through and drip to the tinplates covers and [Vicente Angliongto] also suggesting that due to four (4) NSC argues that the certificates are hearsay for not having been presented in accordance with the
days continuos rains with strong winds that the hatches be totally closed down and covered with canvas Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public
and the hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22 August 1974 while officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true
discharging operations were still going on (Exhibit 13-A). [33] copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be noted are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates
that the NSC may seek indemnification, subject to the laws on prescription, from the stevedoring company issued by private parties, but they have not been proven by one who saw the writing executed, or by
at fault in the discharge operations. A stevedore company engaged in discharging cargo xxx has the duty evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7,
to load the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its 8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been demonstrated.
negligence xxx and where the officers and members and crew of the vessel do nothing and have no
responsibility in the discharge of cargo by stevedores xxx the vessel is not liable for loss of, or damage to, We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule
the cargo caused by the negligence of the stevedores xxx [34] as in the instant case. per Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in
the performance of a duty by a public officer of the Philippines, or by a person in the performance of a
duty specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an
original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores
Do Tinplates Sweat? to the effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for
inspection x x x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel
The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by VLASONS I, a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for
themselves when packed even without being in contact with water from outside especially when the trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10,
weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding. 1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation
which the stevedores negligently allowed to seep in during the unloading. of a common carrier to show that it was seaworthy.Indeed, NSC glaringly failed to discharge its duty of
proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its
cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel
was not seaworthy.
Second Issue: Effect of NSCs Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, Fourth Issue: Demurrage and Attorneys Fees
therefore, NSCs failure to insure the cargo will not affect its right, as owner and real party in interest, to The contract of voyage charter hire provides inter alia:
file an action against VSI for damages caused by the latters willful negligence. We do not find anything in
the charter party that would make the liability of VSI for damage to the cargo contingent on or affected in xxx xxx xxx
any manner by NSCs obtaining an insurance over the cargo.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of 6. Loading/Discharging Rate : 750 tons per WWDSHINC.
the certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu 7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

2. Certificate of Inspection from the Philippine Coast Guard

 The Court defined demurrage in its strict sense as the compensation provided for in the contract of transport price which is determined not only by the actual costs but also by the risks and burdens assumed
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading by the shipper in regard to possible loss or damage to the cargo. In recognition of such factors, the parties
and unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the vessel. On the even stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under
other hand, the following is well-settled: the charter party. That NSC failed or neglected to protect itself with such insurance should not adversely
affect VSI, which had nothing to do with such failure or neglect.
Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
running days, this means days when the ship would be run continuously, and holidays are not questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage
excepted. A qualification of weather permitting excepts only those days when bad weather reasonably awarded to VSI is deleted. No pronouncement as to costs.
prevents the work contemplated. [41]
SO ORDERED.
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable weather
interfered with the unloading of cargo. [43] Consequently, NSC may not be held liable for demurrage as the
four-day laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of
the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the
Court of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days,
specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable
weather or rain which was August 22, 1974. Based on our previous discussion, such finding is a reversible
error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for
demurrage, even if it reduced the amount by half.

Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness
of his cause x x x. [44] Moreover, attorneys fees may not be awarded to a party for the reason alone that the
judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on ones right
to litigate or seek judicial redress of legitimate grievances. [45]

Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the
cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage
was brought about during the unloading process when rain and seawater seeped through the cargo due to
the fault or negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial
court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled
exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between
the parties -- the Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage
upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid
because the parties entered into a contract of private charter, not one of common carriage. Basic too is the
doctrine that courts cannot relieve a party from the effects of a private contract freely entered into, on the
ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial
contract and its stipulations are agreed upon in consideration of many factors, not the least of which is the
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents. not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its
implied warranty on the vessels seaworthiness. Resultantly, the payment made by PHILAMGEN to the
DECISION assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give
PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee.
BELLOSILLO, J.:
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe respondent appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as
the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the
subrogated to the rights of the insured upon payment of the insurance claim. vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the
structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate court
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned denied the claim of PHILAMGEN on the ground that the assureds implied warranty of seaworthiness was
and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca- not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of
Cola softdrink bottles to be transported from Zamboanga Cityto Cebu City for consignee Coca- the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the
Cola Bottlers Philippines, Inc., Cebu.[1] The shipment was insured with petitioner Philippine American shipowner/agent from liability under the limited liability rule.
General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.
The issues for resolution in this petition are: (a) whether MV Asilda was seaworthy when it left the
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should
day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter shipper had against FELMAN, the shipowner.
Coca-Cola softdrink bottles.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with well as the chief mate of the vessel confirmed that the weather was fine when they left the port of
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles,
that sank with MV Asilda. Respondent denied the claim thus prompting the consignee to file an insurance 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh
claim with PHILAMGEN which paid its claim of P755,250.00. eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck.[4] The ship
captain stated that around four oclock in the morning of 7 July 1983 he was awakened by the officer on
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the
shipowner for sum of money and damages.
vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and
In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was
due to the vessels unseaworthiness as she was put to sea in an unstable condition. It further alleged balanced. At about seven oclock in the morning, the master of the vessel stopped the engine because the
that the vessel was improperly manned and that its officers were grossly negligent in failing to take vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The
appropriate measures to proceed to a nearby port or beach after the vessel started to list. shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no
right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event,
FELMAN had abandoned all its rights, interests and ownership over MV Asilda together with her freight
and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce.[2]
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide
on his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room
and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon
ship. Shortly thereafter, MV Asilda capsized and sank. He ascribed the sinking to the entry of seawater
through a hole in the hull caused by the vessels collision with a partially submerged log. [5]

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which
of Appeals set aside the dismissal and remanded the case to the lower court for trial on the was adopted by the Court of Appeals, reads -
merits. FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13
February 1989. We found in the course of our investigation that a reasonable explanation for the series of lists
experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. [3] It ruled that MV
heavy which is to say that while the vessel may not have been overloaded, yet the distribution or stowage
Asilda was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the
of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time of
Philippine Coast Guard and the shipowners surveyor attesting to its seaworthiness. Thus the loss of the
her departure and which condition rendered her unstable and unseaworthy for that particular voyage.
vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability
should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew,
in which case, Art. 587 of the Code of Commerce should apply.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through the
x x x and it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
believe strongly that had her cargo been confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel would not have been in any danger of Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for
capsizing, even given the prevailing weather conditions at that time of sinking. reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them,according to all the circumstances of each case x
x x x" In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN,
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered the shipowner, was not able to rebut this presumption.
unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so
decreased the vessels metacentric height as to cause it to become unstable. In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy
with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN
ships are precisely designed to be able to navigate safely even during heavy weather and frequently we paid the claim of the bottling firm there was in effect a voluntary payment and no right of subrogation
hear of ships safely and successfully weathering encounters with typhoons and although they may sustain accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.
some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer
likely to occur unless they are inherently unstable and unseaworthy x x x x that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on
the face of the policy.[12] Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V Asilda was her upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty
condition of unseaworthiness arising from her having been top-heavy when she departed from the Port of is implied that the ship is seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform
Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the
category of an inevitable occurrence (underscoring supplied).[6] policy. Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate the selection of the common carrier that will transport his goods. He also has full discretion in the choice
cause of the sinking of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, of assurer that will underwrite a particular venture.
evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days
after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly
of the sinking. Considering that the ships hatches were properly secured, the empty Coca-Cola cases pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law
recovered could have come only from the vessels deck cargo. It is settled that carrying a deck cargo raises will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy
the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the in the clearest language.[13] And where the policy stipulates that the seaworthiness of the vessel as between
proper management of the ship. However, in this case it was established that MV Asilda was not designed the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer
to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease without showing concealment or misrepresentation by the assured. [14]
of the vessels metacentric height[7] thus making it unstable. The strong winds and waves encountered by
the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)
unstable and unseaworthy condition. instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy
No. 100367-PAG reads (t)he liberties as per Contract of Affreightment the presence of the Negligence
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.[8] Simply Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of
put, the ship agent is liable for the negligent acts of the captain in the care of Affreightment as between the Assured and the Company shall not prejudice the insurance. The
goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted.[15]
equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances
wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
[9]
was due to the fault of the shipowner and the captain. The international rule is to the effect that the right (t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x"[16]
of abandonment of vessels, as a legal limitation of a shipowners liability, does not apply to cases where The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two
the injury or average was occasioned by the shipowners own fault. [10] It must be stressed at this point that things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where unseaworthiness is assumed by the insurance company.[17] The insertion of such waiver clauses in cargo
the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus
provisions of the Civil Code on common carrier.[11] it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness
It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action
cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer
to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may
have against the third party whose negligence orwrongful act caused the loss. The right of subrogation is
not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance
company of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity
and good conscience ought to pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against
FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to
pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29
November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20]
SO ORDERED.
G.R. No. L-30805 December 26, 1984 period of prescription for quasi-delicts prescribed in article 1146 (2) of the Civil Code or ten years for
violation of a written contract as provided for in article 1144 (1) of the same Code.
DOMINGO ANG, plaintiff-appellant,
vs. As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it has
COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L. not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest with a cause of action
DIOKNO, defendants-appellees. for damages.

WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the trial court
AQUINO, J.: for further proceedings. Costs against the defendants.

This case involves the recovery of damages by the consignee from the carrier in case of misdelivery of SO ORDERED.
the cargo which action was dismissed by the trial court on the grounds of lack of cause of action and
prescription.

It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of plaintiff-
appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543 and 125 Phil. 1040,
three cases. As observed by Ang's counsel, the facts of those cases and the instant case are the
same mutatis mutandis. It was held that Ang has a cause of action against the carrier which has not
prescribed

In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue
Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the Philippines
and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the sum of
US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages.

Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain
conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on May 25,
1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the defendants, to be
transported to Manila and consigned "to order" of the shipper, Tokyo Boeki, Ltd., which indorsed the bill
of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank.

Ang further alleged that the defendants, by means of a permit to deliver imported articles, authorized the
delivery of the cargo to Teves who obtained delivery from the Bureau of Customs without the surrender
of the bill of lading and in violation of the terms thereof. Teves dishonored the draft drawn by Yau Yue
against him.

The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft's
dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang.

The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action. Ang
opposed the motion. As already stated, the trial court on May 22, 1964 dismissed the complaint on the
grounds of lack of cause of action and prescription since the action was filed beyond the one-year period
provided in the Carriage of Goods by Sea Act.

In the American Steamship Agencies cases, it was held that the action of Ang is based on misdelivery of
the cargo which should be distinguished from loss thereof. The one-year period provided for in section 3
(6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the four-year
G.R. No. L-27798 June 15, 1977
UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.), plaintiff-
appellant,
vs.
MANILA RAILROAD CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA
PORT SERVICE and AMERICAN STEAMSHIP AGENCIES, INC., defendants- appellees.
Solicitor General Antonio P. Barredo and Solicitor Buenaventura J. Guerrero for appellants.
Salcedo, Del Rosario, Bito & Misa for appellee.
AQUINO, J.:
This is an admiralty and arrastre case. On December 18, 1961 the vessel Daishin Maru arrived in Manila
with a cargo of 1,000 bags of synthetic resin consigned to General Base Metals, Inc. which later sold the
cargo to Union Carbide Philippines, Inc.
On the following day, December 19, that cargo was delivered to the Manila Port Service in good order
and condition except for twenty- five bags which were in bad order (Par. IV and Annexes C to C-25 of
Stipulation of Facts).
On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the
1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were missing.
The contents of twenty-five bags were damaged or pilfered while they were in the custody of the arrastre
operator (Par. XII and Annexes D and H of Stipulation of Facts All in all fifty bags out of the 898 bags
were damaged (Annex D-5).
The 152 bags of resin (102 missing and 50 damaged) were valued at $12.65 a bag or a total value of
$1,992.80, which amount at the prevailing rate of exchange of P3.85 to the American dollar, is equivalent
to P7,402.78 (Annex I of Stipulation of Facts).
The consignee, through the customs broker, filed on January 3, 1962 with the Manila Port Service, as
arrastre operator, and the American Steamship Agencies, Inc., as agent of the carrier, a provisional claim
advising them that the shipment in question was "shorthanded, short delivered and/or landed in bad
order" (Annexes E and F of Stipulation of Facts).
Formal claims dated June 11, 1962 were made by the consignee with the arrastre operator and the agent
of the carrier (Annexes I and I-1 of Stipulation of Facts The claims were reiterated by the consignee's
lawyer in his letters dated September 26, 1962 which were received by the carrier's agent and the arrastre
operator on October 4, 1962 (Annexes J and J-1 of Stipulation of Facts).
As the claims were not paid, Union Carbide Philippines, Inc. filed a complaint on December 21, 1962 in
the Court of First Instance of Manila against the Manila Railroad Company, the Manila Port Service and
the American Steamship Agencies, Inc. for the recovery of damages amounting to P7,402.78 as the value
of the undelivered 102 bags of resin and the damaged 50 bags plus legal rate of interest from the filing of
the complaint and P1,000 as attorney's fees.
Union Carbide's complaint was a double-barrelled action or a joinder of two causes of action. One was an
action in admiralty under the Carriage of Goods by Sea Act against the carrier's agent for the recovery of
P1,217.56 as the value of twenty-five bags of resin which were damaged before they were landed (Annex
C-25).
The other was an action under the management contract between the Bureau of Customs and the Manila
Port Service, a subsidiary of the Manila Railroad Company, for the recovery of P6,185.22 as the value of
the undelivered 102 bags of resin and twenty-five bags, the contents of which were damaged or pilfered
while in the custody of the arrastre operator.
The case was submitted for decision on the basis of a stipulation of facts. The trial court in its decision of
January 15, 1964 dismissed the case as to the carrier's agent on the ground that the action had already
prescribed because it was not "brought within one year after delivery of the goods", as contemplated in
section 3(6) of the Carriage of Goods by Sea Act. The one-year period was counted from December 19,
1961 when the cargo was delivered to the arrastre operator. As above stated, the action was brought on
December 21, 196'2 or two days late, according to the trial court's reckoning (Civil Case No. 52562).
With respect to the consignee's claim against the arrastre operator, the trial court found that the
provisional claim was filed within the fifteen-day period fixed in paragraph 15 of the arrastre contract.
Yet, in spite of that finding, the trial court dismissed the action against the arrastre operator (p. 65,
Record on Appeal).
Union Carbide appealed to the Court of Appeals on questions of fact and of law, That Appellate Court
elevated the case to this Court because in its opinion the appeal raises only the legal issue of prescription
(Resolution of May 10, 1967 in CA-G. R. No. 33743-R).
Union Carbide contends that the trial court erred (1) in finding that its action was barred by the statute of
limitations and (2) in not holding that the carrier and the arrastre operator were liable for the value of the
undelivered and damaged cargo.
Claim against the carrier's agent.-There is no question that, as shown in the twenty-five tally sheets, 975
bags of resin were delivered by the carrier in good order to the arrastre operator and that only twenty-five
(25) bags were damaged while in the carrier's custody (Annexes C to C-25 and K-1 of Stipulation of
Facts).
The one-year period within which the consignee should sue the carrier is computed from "the delivery of
the goods or the date when the goods should have been delivered". The Carriage of Goods by Sea Act
provides:
RESPONSIBILITIES AND LIABILITIES
SEC. 3. xxx xxx xxx
 (6) Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier or hi agent at the port of discharge before or at the time
of the removal of the goods into the custody of the person entitled to delivery thereof
under the contract of carriage, such removal shall be prima facie evidence of
the delivery by the carrier of the goods as described in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given
by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of
their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the goods or the date
when the goods should have been delivered.
In the case of any actual or apprehended loss or damage the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods.
(Commonwealth Act No. 65, adopting U.S. Public Act No. 521 of April 16,1936).
What is the meaning of "delivery" in section 3(6) of the Carriage of Goods by Sea Act The trial court
construed delivery as referring to the discharge or landing of the cargo.
Union Carbide contends that "delivery" does not mean the discharge of goods or the delivery thereof to
the arrastre operator but the actual delivery of the goods to the consignee by the customs broker.
The carrier contends that delivery means discharge from the vessel into the custody of the customs
arrastre operator because under sections 1201 and 1206 of the Tariff and Customs Code merchandise
cannot be directly delivered by the carrier to the consignee but should first pass through the customhouse
at a port of entry for the collection of customs duties.
The carrier cites the following provisions of the bill of lading to support its contention:
9. Delivery. The Carrier retains the option of delivery at all times from ship's side or
from craft, hulk, custom house, warehouse, wharf or quay at the risk of the shippers,
consignees or owners of the goods, and all expenses incurred by delivery otherwise
than from ship's side shall be borne by the shippers, consignee or owners of the
goods.
11. Discharge of Goods. The goods may be discharge without notice, as soon as the
ship is ready to unload, continuously day and night, Sundays and holidays included,
on to wharf or quay or into warehouse, or into hulk, lazaretto or craft or on any other
place and be stored there at the risk and expense of the shippers, consignees or
owners of the goods, any custom of the port to the contrary notwithstanding. In any
case, the Carrier's liability is to cease as soon as the goods are lifted from ship's deck
or leave the ship's tackle, any custom of the port to the contrary notwithstanding.
Consignees to pay charges for sorting and stocking the goods on wharf or in shed.
If the consignees fail to take delivery of their goods immediately the ship is ready to
discharge them, the Carrier shall be at liberty to land and warehouse or discharge the
said goods into hulk or craft, or at any other place at the risk and expense of the
shippers, consignees or owners of the goods without notice.
15. Notice of Claim. Any claim for loss of or damage to the goods must be preferred
in writing to the Carrier's Agents at the place of delivery within 3 days after the
ship's discharge thereof, and before the goods are removed from the quay or ship's "
or place of discharge, and in the event of such claim not being preferred as above
specified, the claim shall be deemed as waived, and the Carrier shall be discharged
therefrom.
Suit for the recovery of loss or damage shall not in any event be maintainable against
the Carrier or the ship unless instituted within one year after the delivery of the
written notice above specified. The amount of claim shall be restricted to the Cash
Value of the goods at the place and time of original shipment plus all charges
actually paid thereon, and all claims for either partial or total loss or damage shall be
entertained and adjusted upon this basis of value. (Annex B).
In this connection, it is pertinent to state that the Tarifff and Customs Code allows the delivery of
imported merchandise to the arrastre operator:
SEC. 1213. Receiving Handling Custody and Delivery of Articles. — The Bureau of
Customs shall have "elusive supervision and control over the receiving, handling,
custody and delivery of articles on the wharves and piers at all ports of entry and in
the exercise of its functions it is hereby authorized to acquire, take over, operate and
superintend such plants and facilities as may be necessary for the receiving, handling,
custody and delivery of articles, and the convenience and comfort of passengers and
the handling of baggage, as well as to acquire fire protection equipment for use in the
piers:
Provided, That whenever in his judgment the receiving, handling, custody and
delivery of articles can be carried on by private parties with greater efficiency, the
Commissioner may, after public bidding and subject to the approval of the
department head, contract with any private party for the service of receiving,
handling, custody and delivery of articles, and in such event, the contract may
include the sale or lease of government-owned equipment and facilities used in such
service.
The sensible and practical interpretation is that delivery within the meaning of section 3(6) of the
Carriage of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by
tally sheets which show whether the goods were landed in good order or in bad order, a fact which the
consignee or shipper can easily ascertain through the customs broker.
To use as basis for computing the one-year period the delivery to the consignee would be unrealistic and
might generate confusion between the loss or damage sustained by the goods while in the carrier's
custody and the loss or damage caused to the goods while in the arrastre operator's possession.
Apparently, section 3(6) adheres to the common-law rule that the duty imposed water carriers was
merely to transport from wharf to wharf and that the carrier was not bound to deliver the goods at the
warehouse of the consignee (Tan Hi vs. United States, 94 Fed. Supp. 432,435).
In the Tan Hi case, it was held that a requirement of Philippine law that all cargo unloaded at Manila be
delivered to the consignee through the arrastre operator acting as customs' agent was not unreasonable.
The common-law requirements as to the proper delivery of goods by water carrier apply only when
customs regulations at the port of destination do not otherwise provide. The delivery must be in
accordance with the usages of the port in order that such delivery would discharge the carrier of
responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58 C. J. 372 note 24. See 70 Am. Jur 2nd 613, note 19).
Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court
from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the cargo
was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year period
expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred by
the statute of limitations.
Defendant American Steamship Agencies, Inc., as agent of the carrier, has no more liability to the
consignee's assignee, Union Carbide Philippines, Inc., in connection with the damaged twenty-five bags
of resin.
Prescription was duly pleaded by the said defendant in its answer and motion to dismiss. That defense
was correctly entertained by trial court.
Claim against the arrastre operator. — The liability of the arrastre contractor has a factual and legal
basis different from that of the carrier's. The management contract between the Manila Port Service and
the Bureau of Customs provides:
15. ... ; in any event the CONTRACTOR hall be relieved and released of any and all
responsibility or liability for loss, damage, misdelivery, and/or non-delivery of
goods, unless suit in the court of proper jurisdiction is brought within a period of one
(1) year from the date of the discharge of the goods, or from the date when the claim
for the value of such goods have been rejected or denied by the CONTRACTOR,
provided that such claim shall have been filed with the CONTRACTOR within
fifteen (15) days from the date of discharge of the last package from the carrying
vessel. ... (Annex A of Stipulation of Facts
Under the foregoing contractual provisions, the action against the arrastre operator to enforce liability for
loss of the cargo or damage thereto should be filed within one year from the date of the discharge of the
goods or from the date when the claim for the value of such goods has been rejected or denied by the
arrastre operator.
However, before such action can be filed a condition precedent should be complied with and that is, that
a claim (provisional or final) shall have been previously filed with the arrastre operator within fifteen
days from the date of the discharge of the last package from the carrying vessel (Continental Insurance
Company vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).
In this case, the consignee's customs broker filed with the Manila Port Service as provisional claim
advising the latter that the cargo was "short, short delivered and/or landed in bad order". That claim was
filed on January 3, 1962 or on the fifteenth day following December 19, 1961, the date of the discharge
of the last package from the carrying vessel. That claim was never formally rejected or denied by the
Manila Port Service.
Having complied with the condition precedent for the filing of a claim within the fifteen- day period,
Union Carbide could file the court action within one year, either from December 19, 1961 or
from December 19, 1962. This second date is regarded as the expiration of the period within which the
Manila Port Service should have acted on the claim (Philippine Education Co., Inc. vs. Manila Port
Service, L-24091, 21 SCRA, 174, 178).
In other words, the claimant or consignee has a two-year prescriptive period, counted from the date of
the discharge of the goods, within which to file the action in the event that the arrastre contractor, as in
this case, has not rejected nor admitted liability (Continental Insurance Company vs. Manila Port
Service, supra. Philippine Education Company vs. Manila Port Service, L-23444, October 29, 1971, 42
SCRA 31).
Since the action in this case against the arrastre operator was filed on December 21, 1962, or within the
two-year period expiring on December 19, 1963, that action was filed on time. The trial court erred in
dismissing the action against the Manila Port Service and its principal, the Manila Railroad Company.
As shown in the statement of facts, the arrastre operator is responsible for the value of 102 bags of resin
which were not delivered, and twenty-five bags, which were damaged, or a total of one hundred twenty-
seven bags valued at P6,185.22.
The arrastre operator should pay attorney's fees to the plaintiff for not having satisfied its plainly valid,
just and demandable claim (Art. 2208, Civil Code). We fix the attorney's fees and the litigation expenses
in the sum of one thousand pesos.
WHEREFORE, the trial court's judgment is affirmed insofar as it dismissed plaintiff-appellant's claim
against defendant American Steamship Agencies, Inc. on the ground of prescription.
The trial court's decision is reversed insofar as it dismissed plaintiff's claim against the Manila Railroad
Company, as arrastre operator. The Philippine National Railways, as the successor of the Manila
Railroad Company (See. 22, Republic Act No. 4156), is hereby ordered to pay plaintiff Union Carbide
Philippines, Inc. the sum of P6,185.22, as the value of the 127 bags of resin (102 bags missing and 25
bags damaged), with legal rate of interest from the filing of the complaint on December 21, 1962 up to
the date of payment, Plus P1,000 as attorney's fees and litigation expenses, and the costs.

SO ORDERED.
G.R. No. 88092 April 25, 1990
CITADEL LINES, INC., petitioner,
vs.
COURT OF APPEALS* and MANILA WINE MERCHANTS, INC., respondents.
Del Rosario & Del Rosario Law Offices for petitioner.
Limqueco and Macaraeg Law Office for private respondent.
REGALADO, J.:
Through this petition, we are asked to review the decision of the Court of Appeals dated December 20,
1988, in CA-G.R. No. CV-10070, 1 which affirmed the August 30, 1985 decision of the Regional Trial
Court of Manila, Branch 27, in Civil Case No. 126415, entitled Manila Wine Merchants, Inc. vs. Citadel
Lines, Inc. and E. Razon, Inc., with a modification by deleting the award of attorney's fees and costs of
suit.
The following recital of the factual background of this case is culled from the findings in the decision of
the court a quo and adopted by respondent court based on the evidence of record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of the vessel
"Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants, Inc. (hereafter, the
CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at
Southampton, England, for carriage to Manila, 180 Filbrite cartons of mixed British manufactured
cigarettes called "Dunhill International Filter" and "Dunhill International Menthol," as evidenced by Bill
of Lading No. 70621374 2 and Bill of Lading No. 70608680 3 of the Ben Line Containers Ltd. The
shipment arrived at the Port of Manila Pier 13, on April 18, 1979 in container van No. BENU 204850-9.
The said container was received by E. Razon, Inc. (later known as Metro Port Service, Inc. and referred
to herein as the ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979. 4
On April 30, 1979, the container van, which contained two shipments was stripped. One shipment was
delivered and the other shipment consisting of the imported British manufactured cigarettes was
palletized. Due to lack of space at the Special Cargo Coral, the aforesaid cigarettes were placed in two
containers with two pallets in container No. BENU 204850-9, the original container, and four pallets in
container No. BENU 201009-9, with both containers duly padlocked and sealed by the representative of
the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van No. BENU
201009-9 had a different padlock and the seal was tampered with. The matter was reported to Jose G.
Sibucao, Pier Superintendent, Pier 13, and upon verification, it was found that 90 cases of imported
British manufactured cigarettes were missing. This was confirmed in the report of said Superintendent
Sibucao to Ricardo Cosme, Assistant Operations Manager, dated May 1, 1979 5 and the Official
Report/Notice of Claim of Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979. 6 Per investigation
conducted by the ARRASTRE, it was revealed that the cargo in question was not formally turned over to
it by the CARRIER but was kept inside container van No. BENU 201009-9 which was padlocked and
sealed by the representatives of the CARRIER without any participation of the ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May 21,
1979, 7 with the CARRIER, demanding the payment of P315,000.00 representing the market value of the
missing cargoes. The CARRIER, in its reply letter dated May 23, 1979, 8 admitted the loss but alleged
that the same occurred at Pier 13, an area absolutely under the control of the ARRASTRE. In view
thereof, the CONSIGNEE filed a formal claim, dated June 4, 1979, 9 with the ARRASTRE, demanding
payment of the value of the goods but said claim was denied.
After trial, the lower court rendered a decision on August 30, 1985, exonerating the ARRASTRE of any
liability on the ground that the subject container van was not formally turned over to its custody, and
adjudging the CARRIER liable for the principal amount of P312,480.00 representing the market value of
the lost shipment, and the sum of P30,000.00 as and for attorney's fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the award of
attorney's fees and costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc. or of
Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is binding on
the consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that, on the basis
of the evidence presented, the subject cargo which was placed in a container van, padlocked and sealed
by the representative of the CARRIER was still in its possession and control when the loss occurred,
there having been no formal turnover of the cargo to the ARRASTRE. Besides, there is the categorical
admission made by two witnesses, namely, Atty. Lope M. Velasco and Ruben Ignacio, Claims Manager
and Head Checker, respectively, of the CARRIER, 10 that for lack of space the containers were not turned
over to and as the responsibility of E. Razon Inc. The CARRIER is now estopped from claiming
otherwise.
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. 11 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 extra ordinary diligence as required in Article 1733 of the Civil Code. 12 The duty of the
consignee is to prove merely that the goods were lost. Thereafter, the burden is shifted to the carrier to
prove that it has exercised the extraordinary diligence required by law. And, its extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of, and received
by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to
the consignee or to the person who has the right to receive them. 13
Considering, therefore, that the subject shipment was lost while it was still in the custody of herein
petitioner CARRIER, and considering further that it failed to prove that the loss was occasioned by an
excepted cause, the inescapable conclusion is that the CARRIER was negligent and should be held liable
therefor.

The cases cited by petitioner in support of its allegations to the contrary do not find proper application in
the case at bar simply because those cases involve a situation wherein the shipment was turned over to
the custody and possession of the arrastre operator.

We, however, find the award of damages in the amount of P312,800.00 for the value of the goods lost,
based on the alleged market value thereof, to be erroneous. It is clearly and expressly provided under
Clause 6 of the aforementioned bills of lading issued by the CARRIER that its liability is limited to $2.00
per kilo. Basic is the rule, long since enshrined as a statutory provision, that a stipulation limiting the
liability of the carrier to the value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding. 14 Further, a contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been fairly and freely agreed upon. 15

The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not appear
in the bills of lading. 16 Hence, the stipulation on the carrier's limited liability applies. There is no
question that the stipulation is just and reasonable under the circumstances and have been fairly and
freely agreed upon. In Sea-land Service, Inc.vs. Intermediate Appellate Court, et al. 17 we there explained
what is a just and reasonable, and a fair and free, stipulation, in this wise:

. . . That said stipulation is just and reasonable arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in
the bill of lading. To hold otherwise would amount to questioning the justice and fairness of
that law itself, and this the private respondent does not pretend to do. But over and above that
consideration the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading. And since the shipper here has not been heard to complain of having been "rushed,"
imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill of
lading carrying such a stipulation — in fact, it does not appear, that said party has been heard
from at all insofar as this dispute is concerned — there is simply no ground for assuming that
its agreement thereto was not as the law would require, freely and fairly sought and well.

The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90 cartons
were lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the CARRIER's liability
amounts to only US$4,467.60.

WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel Lines,
Inc. is ordered to pay private respondent Manila Wine Merchants, Inc. the sum of US$4,465.60. or its
equivalent in Philippine currency at the exchange rate obtaining at the time of payment thereof. In all
other respects, said judgment of respondent Court is AFFIRMED.

SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision appealed
from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts
that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by
the insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama,
Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern
Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance
Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Service, Inc. The latter excepted to one
drum, said to be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment
from defendant Metro Port Service, Inc., one drum opened and without seal (per
"Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries
of the shipment to the consignee's warehouse. The latter excepted to one drum which
contained spillages, while the rest of the contents was adulterated/fake (per "Bad
Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to pay
the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it
became subrogated to all the rights of action of said consignee against defendants
(per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O).
(pp. 85-86, Rollo.)
Defendants filed their respective answers, traversing the material allegations of the
complaint contending that: As for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel unto the custody of Metro
Port Service so that any damage/losses incurred after the shipment was incurred after
the shipment was turned over to the latter, is no longer its liability (p. 17, Record);
Metroport averred that although subject shipment was discharged unto its custody,
portion of the same was already in bad order (p. 11, Record); Allied Brokerage
alleged that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when received by it,
but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was
received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in
the custody of defendants (in whose respective custody, if
determinable);
3. Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34;
Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment
sustained losses/damages. The two drums were shipped in good
order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum
that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
 Correspondingly, as to the second issue, it follows that the 3. Costs.
losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier B. Dismissing the counterclaims and
(Eastern), arrastre operator (Metro Port) and broker (Allied crossclaim of defendant/cross-claimant
Brokerage). This becomes evident when the Marine Cargo Allied Brokerage Corporation.
Survey Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when the shipment
was "landed on vessel" to dock of Pier # 15, South Harbor, SO ORDERED. (p. 207, Record).
Manila on December 12, 1981, it was observed that "one (1)
fiber drum (was) in damaged condition, covered by the vessel's Dissatisfied, defendant's recourse to US.
Agent's Bad Order Tally Sheet No. 86427." The report further
states that when defendant Allied Brokerage withdrew the The appeal is devoid of merit.
shipment from defendant arrastre operator's custody on January
7, 1982, one drum was found opened without seal, cello bag
partly torn but contents intact. Net unrecovered spillages was After a careful scrutiny of the evidence on record. We find that the conclusion drawn
15 kgs. The report went on to state that when the drums reached therefrom is correct. As there is sufficient evidence that the shipment sustained
the consignee, one drum was found with adulterated/faked damage while in the successive possession of appellants, and therefore they are liable
contents. It is obvious, therefore, that these losses/damages to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-
occurred before the shipment reached the consignee while under 89, Rollo.)
the successive custodies of defendants. Under Art. 1737 of the
New Civil Code, the common carrier's duty to observe The Court of Appeals thus affirmed in toto the judgment of the court
extraordinary diligence in the vigilance of goods remains in full a quo.
force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
destination, until the consignee has been advised and has had
discretion on the part of the appellate court when —
reasonable opportunity to remove or dispose of the goods (Art.
1738, NCC). Defendant Eastern Shipping's own exhibit, the
"Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
states that on December 12, 1981 one drum was found "open". WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
and thus held:

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE

WHEREFORE, PREMISES CONSIDERED, judgment is hereby
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF
rendered:
THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL
A. Ordering defendants to pay plaintiff, jointly and severally: COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
1. The amount of P19,032.95, with the present legal interest of
12% per annum from October 1, 1982, the date of filing of this The petition is, in part, granted.
complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
of the loss, whichever is lesser, while the liability of defendant
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
Metro Port Service, Inc. shall be to the extent of the actual
invoice value of each package, crate box or container in no case
to exceed P5,000.00 each, pursuant to Section 6.01 of the The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time
Management Contract); the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA
2. P3,000.00 as attorney's fees, and
646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive
in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131
SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but
these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that
of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5
[1967]. The relationship between the consignee and the common carrier is similar to
that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line,
et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care
of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera
vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated
and not known until definitely ascertained, assessed and determined by the courts
after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis
supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay
jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00
which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly loss suffered by them as
a result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully
paid. When the appellate court's decision became final, the case was remanded to the lower
court for execution, and this was when the trial court issued its assailed resolution which
applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their
petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that
the rate of interest for the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
 interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or forbearance of any money,
goods or credits does not fall within the coverage of the said law for it is not within
the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered
in an Action for Damages for injury to persons and loss of property and does not
involve any loan, much less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July
1986. The case was for damages occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken
to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering
the special and environmental circumstances of this case, we deem it reasonable to
render a decision imposing, as We do hereby impose, upon the defendant and the
third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723,
Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals)
and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving
loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260
[1985]). It is true that in the instant case, there is neither a loan or a forbearance,
but then no interest is actually imposed provided the sums referred to in the judgment
are paid upon the finality of the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on
the total sum, from the filing of the complaint until paid; in other words, as part of
the judgment for damages. Clearly, they are not applicable to the instant case.
(Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as
exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit.
In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
 WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at
the legal rate from the date of the filing of the complaint until fully paid(Emphasis
supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the
trial court, and an entry of judgment was made. The writ of execution issued by the trial court
directed that only compensatory damages should earn interest at 6% per annum from the date
of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge,
a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the
legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a breach of employment
contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from
the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their lands so expropriated "with
legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the
Civil Code, the Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods
or credits but expropriation of certain parcels of land for a public purpose, the
payment of which is without stipulation regarding interest, and the interest adjudged
by the trial court is in the nature of indemnity for damages. The legal interest
required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in the
payment thereof. Therefore, since the kind of interest involved in the joint judgment
of the lower court sought to be enforced in this case is interest by way of damages,
and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there
has been a consistent holding that the Central Bank Circular imposing the 12% interest per
annum applies only to loans or forbearance16of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases,
a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the
time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or
one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the
court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of
the decision.'" American Express International v. IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil
and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until
the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
116923 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per
annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, 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.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.
 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. 8Common carriers are responsible for the loss, destruction, or deterioration of Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
the goods unless the same is due to any of the following causes only: required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
(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
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 $500 liability per package, is in order.
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
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) 2) In G.R.No.71478,the judgment is hereby affirmed.

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its SO ORDERED.
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.
G.R. No. L-37604 October 23, 1981
EASTERN AND AUSTRALIAN STEAMSHIP CO., LTD. AND F. E. ZUELLIG, INC., petitioners,
vs.
GREAT AMERICAN INSURANCE CO. and COURT OF FIRST INSTANCE OF MANILA,
BRANCH XIII, respondents.
DE CASTRO, * J.:
This is a petition for review on certiorari of the decision of the Court of First Instance of Manila, Branch
XIII, dated July 25, 1973, in Civil Case No. 88985, entitled "Great American Insurance Co., plaintiff, vs.
Eastern & Australian Steamship Co., Ltd. and/or F.E. Zuellig, Inc., defendants," the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered, finding the defendants liable to the
plaintiff in the amount of $500.00, or its peso equivalent of P 3,217.50, with legal
interest thereon from November 20, 1972; and to further pay to the plaintiff an
amount equivalent to twenty-five per centum (25%) thereof by way of damages as
and for attorney's fees.
The facts of the case are as follows:
On December 10, 1971, the Jackson and Spring (Sydney) Pty. Ltd. shipped from Sydney, Australia, one
(1) case of impellers for warman pump on board the SS "Chitral," a vessel owned and operated in the
Philippines by Eastern & Australian Steamship Co., Ltd., thru its agent F.E. Zuellig, Inc. under Bill of
Lading No. 31, for delivery to Manila, Philippines in favor of consignee Benguet Consolidated, Inc. The
shipment was insured with Great American Insurance, Co. for P 35,921.81 against all risks. On
December 22, 1971 the SS "Chitral" arrived in Manila but failed to discharge the shipment or any part
thereof. Demand was made on herein petitioners for the delivery of said shipment, but having failed to
make delivery, a claim was presented against them for the value of the shipment. Petitioners, likewise,
failed to make good the claim. As a consequence of the loss of the shipment, private respondent Great
American Insurance Co. was compelled to pay the consignee P 35,921,81. As subrogee, said private
respondent filed a complaint dated Nov. 20, 1972 against herein petitioners for recovery of the said
amount with legal interest and attorney's fees.
In the answer dated Nov. 27, 1972 petitioners alleged that their liability for the loss of the shipment is
only limited to L100 Sterling or its peso equivalent of P1,544.40 as per stipulation in the Bill of Lading
and that even before the filing of the complaint, petitioners have signified their willingness to pay the
claim up to their limit of liability as stipulated in the Bill of Lading.
During the pre-trial on may 28, 1973, the loss of the subject shipment was admitted, and the parties
submitted the case for decision on one issue: whether petitioner's liability is limited to L100 Sterling or
its peso equivalent of P1,544.40 as stipulated in Clause 17 of the Bill of Lading 1 or whether petitioner's
liability should be $500 or its peso equivalent in the sum of P3,217.50 pursuant to Sec. 4 (5) of the
Carriage of Goods by Sea Act. 2
The Court a quo found that under Section 4 (5) of the Carriage of Goods by Sea Act, the carrier and the
shipper may, in the absence of a declaration in the Bill of Lading of the value of the goods shipped, fix a
maximum liability of the shipper for the cargo lost or damages, but such maximum shall not be less than
$500.00 per package. Consequently, the agreement for a maximum liability of only L100 Sterling
contained in Clause 17 of the Bill of Lading was declared void for being contrary to law and as adverted
to above, petitioners were held liable.
From the decision of the lower court the present petition for review was instituted by petitioners
assigning the following errors:
I
THAT RESPONDENT CFI ERRED IN DECIDING THAT THE LIMIT OF LIABILITY IN THE SUM
OF L100 STERLING OR ITS PESO EQUIVALENT OF THE VESSEL/CARRIER, PER PACKAGE,
AS STIPULATED IN CLAUSE 17 OF THE BILL OF LADING, IS CONTRARY TO LAW, AND,
THEREFORE, VOID, and
II
THAT RESPONDENT COURT ERRED IN AWARDING ATTORNEY'S FEES AND COSTS IN
FAVOR OF PRIVATE RESPONDENT AND AGAINST THE HEREIN PETITIONERS.
Petitioners contend that the first paragraphs of Section 4(5) of the Carriage of Goods by Sea Act
prescribes a maximum liability of the vessel/carrier in the amount of $500.00 per package; that said
maximum liability, however, is not applicable in a shipment wherein the nature and a higher valuation of
the goods are indicated in the Bill of Lading; that the second paragraph refers to an agreement of the
shipper and the carrier which provides for another maximum necessarily higher than $500.00 and that
said proviso should not be read in connection with stipulations in Bills of Lading limiting the vessel's
liability to less than $500.00 per package, otherwise, the very intent of the law setting the sum of $500.00
as the maximum liability of the carrier, per package, in the absence of a higher valuation of the goods as
indicated in the Bill of Lading would be nullified, for it would thereby become not the maximum, but the
minimum liability of the carrier.
Petitioners also contend that the New Civil Code, particularly Articles 1749 3 and 1750, 4 expressly allow
the limitation of the carrier's liability, provided it is just and reasonable. Hence, the limitation of
petitioners' liability to L100 Sterling or its peso equivalent as stipulated in the Bill of Lading is perfectly
legal and binding to the parties.
Private respondent alleges that Article 1749 imposes certain conditions for the validity of a stipulation
limiting the carrier's liability. These conditions are: (1) it must be in writing, signed by the shipper or
owner; (2) it must be supported by a valuable consideration other than the service rendered by the carrier
and (3) it must be reasonable, just and not contrary to public policy.
Respondent believes that an agreement limiting the carrier's liability does not per se give validity thereto
but it must be shown, among others, that the amount agreed upon is just and reasonable under the
circumstances.
There is no inconsistency between Section 4 (5) of the Carriage of Goods by Sea Act and Clause 17 of
the Bill of Lading. The first part of the provision of Section 4 (5) of the Carriage of Goods by Sea Act
limits the melee, amount that may be recovered by the shipper in the absence of an agreement as to the
nature and value of goods shipped. Said provision does not prescribe the minimum and hence, it could be
any amount which is below $500.00. Clause 17 of the questioned Bill of Lading also provides the melee,
for which the carrier is liable. It prescribes that the carrier may only be held liable for an amount not
more than L100 Sterling which is below the melee, limit required in the Carriage of Goods by Sea Act.
where the shipper is silent as to the value of his goods, the carrier's liability for loss
or damage thereto is limited to the amount specified in the contract of carriage and
where the shipper states the value of his goods, the carrier's liability for loss or
damage thereto is limited to that amount. Under a stipulation such as this, it is the
duty of the shipper to disclose, rather than the carrier's to demand the true value of
the goods and silence on the part of the shipper will be sufficient to limit recovery in
case of loss to the amount stated in the contract of carriage. 7

It should be noted that both the Carriage of Goods by Sea Act and Clause 17 of the Bill of Lading allow In view of the above findings, it is no longer necessary to discuss the second assignment of error.
the payment beyond the respective melee, limit imposed therein, provided that the value of the goods
have been declared in the Bin of Lading. WHEREFORE, the decision of the court a quo is hereby reversed and another one is entered finding
petitioners liable to private respondent in the amount of L100 Sterling or its peso equivalent of
The second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act prescribing the melee, P1,544.40. Without pronouncement as to costs.
amount shall not be less than $500.00 refers to a situation where there is an agreement other than set
forth in the Bill of Lading providing for a melee, higher than $500.00 per package. In the case at bar, it is SO ORDERED.
apparent that there had been no agreement between the parties, and hence, Clause 17 of the Bin of
Lading shall prevail.

Petitioners' stand that the condition imposed in Clause 17 of the Bill of Lading should not be read in the
light of second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act, is well taken. Indeed, it
would be to render ineffective the very intent of the law setting the sum of $500.00 as the melee, liability
of the vessel/carrier, per package, in the, absence of a higher valuation of the goods as indicated in the
Bail of Lading By providing that $500.00 is the maximum liability, the law does not disallow an
agreement for liability at a lesser amount.

Significantly, Article 1749 of the New Civil Code expressly allow the limitation of the carrier's liability.

Art. 1749 A stipulation that the common carrier's liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.

Thus, in the case of Northern Motors, Inc. Prince Line, 5 We said:

This Court has held as valid and binding a similar provision in a bill of lading
limiting the carrier's liability to a specific amount unless the shipper expressly
declares a higher valuation and pays the corresponding rate thereon.

Again, in Phoenix Assurance Company vs. Macondray & Co., Inc. 6, We are reiterating the validity of a
stipulation limiting the carrier's liability.

The right of the carrier to limit its liability has been recognized not only in Our jurisdiction but also in
American jurisprudence:

A stipulation in a contract of carriage that the carrier will not be liable beyond a
specified amount unless the shipper declares the goods to have a greater value is
generally deemed to be valid and will operate to limit the carrier's liability, even if
the loss or damage results from the carrier's negligence. Pursuant to such provision,
G.R. No. L-36481-2 October 23, 1982
AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,
vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of
First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine
Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of a fire which
gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's
vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to
wit:
Clara Uy Bico —
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando —
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were
discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in
the afternoon of the same day, said warehouse was razed by a fire of unknown origin, destroying
appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take delivery of 907 cavans of
rice 2 Appellees' claims for the value of said goods were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which
reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C.
Servando the aggregate sum of P1,070.50 with legal interest thereon from the date of
the filing of the complaint until fully paid, and to pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico
the aggregate sum of P16,625.00 with legal interest thereon from the date of the
filing of the complaint until fully paid, and to pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary
diligence from the moment the goods are unconditionally placed in their possession "until the same are
delivered, actually or constructively, by the carrier to the consignee or to the person who has a right to
receive them, without prejudice to the provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of
Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouse
occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable
against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the parties
agreed to limit the responsibility of the carrier for the loss or damage that may be caused to the shipment
by inserting therein the following stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to shipments billed
'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or
accidents of the sea or other waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or
public policy.
Appellees would contend that the above stipulation does not bind them because it was printed in fine
letters on the back-of the bills of lading; and that they did not sign the same. This argument overlooks the
pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 1979, 3 where the
same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof. 'Such provisions have been held to be a
 part of the contract of carriage, and valid and binding upon the passenger regardless Custom's warehouse was in any way attributable to the negligence of the appellant or its employees.
of the latter's lack of knowledge or assent to the regulation'. It is what is known as a Under the circumstances, the appellant is plainly not responsible.
contract of 'adhesion', in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane WHEREFORE, the judgment appealed from is hereby set aside. No costs.
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent."
(Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, SO ORDERED.
Lawyer's Journal, Jan. 31, 1951, p. 49).

Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle
of law written in Article 1 1 7 4 of the Civil Code:

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of
the Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have been
foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.'

In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a legal
sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the following essential
characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent of the human will; (2) it must be impossible to
foresee the event which constitutes the 'caso fortuito', or if it can be foreseen, it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor." In the case at bar, the burning of the customs warehouse was an extraordinary
event which happened independently of the will of the appellant. The latter could not have foreseen the
event.

There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of its
obligation. It appears that appellant had not only notified appellees of the arrival of their shipment, but
had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken
delivery of 907 cavans of rice before the burning of the warehouse.

Nor can the appellant or its employees be charged with negligence. The storage of the goods in the
Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their
knowledge and consent. Since the warehouse belonged to and was maintained by the government, it
would be unfair to impute negligence to the appellant, the latter having no control whatsoever over the
same.

The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where this
Court held the defendant liable for damages arising from a fire caused by the negligence of the
defendant's employees while loading cases of gasoline and petroleon products. But unlike in the said
case, there is not a shred of proof in the present case that the cause of the fire that broke out in the
G.R. No. L-57582 August 24, 1984
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), petitioner-appellant,
vs.
COURT OF APPEALS and CHARTER INSURANCE CO., INC., respondents-appellees.
Silverio B. De Leon for petitioner-appellant.
Manuel L. Villamayor, Ramirez, Villamayor & Associates for respondent Charter Insurance Co., Inc.
MELENCIO-HERRERA, J.:
Petitioner seeks a review of the Decision, and Resolution denying reconsideration, of the then Court of
Appeals in CA-G.R. No. 63087-R entitled "The Charter Insurance Co., Inc. vs. Universal Shipping Lines,
Inc. and E. Razon, Inc.".
The following are the established facts: Sometime in April 1973, Union Sales Marketing Corporation
(UNION) ordered from Union Carbide of Antwerp Belgium, 99,540 kilograms of Low Density
Polyethylene, valued at US $.245 per kilogram or a total purchase price of US $24,417.30 (Exhibits "D"
& "F"), at the conversion rate of P6.848 to a US Dollar (Exhibit "E ").
The shipment was packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and was loaded
at Antwerp Belgium, in good order condition on board the S/S Dingalan Bay", owned and operated by
Universal Shipping Lines, Inc. (CARRIER) and consigned to UNION in Manila. The shipment was
covered by a Marine Risk Note (Exhibit "B ") issued by Charter Insurance Co. (INSURER) for
P212,738.17 against all risks. The CARRIER arrived in Manila on June 22, 1073 and arrastre services
were handled by E. Razon, Inc. (ARRASTRE), now called Metro Port Service, Inc.
It is not disputed that out of the 4,000 bags, 1,050 bags were received by the consignee UNION in bad
order condition (Exhibits "I" to "I-5"; Exhibits "22" to "27"). 1 As a consequence of the damage and loss,
the INSURER paid UNION the sum of P35,709.11 in full settlement of the claim, and the INSURER
became the subrogee of all of UNION's rights to recover from the parties concerned.
On July 1, 1974, the INSURER sued for damages with the then Court of First Instance of Manila against
the CARRIER and the ARRASTRE in the amount of P35,709.1 1, in addition to exemplary damages and
attorney's fees.
Both defendants disclaimed liability, each one attributing the loss to the other.
In its Decision, the Trial Court allocated payment of liabilities as follows:
WHEREFORE, defendant Universal Shipping Lines, Inc., is ordered to pay plaintiff
the amount of P12,285.94 plus 12% interest per annum from July 1, 1974 until full
payment thereof.
Defendant E. Razon, Inc., is ordered to pay plaintiff the amount of P9,763.94 plus
12% interest per annum from July 1, 1974 until full payment thereof.
Both defendants are ordered to pay the costs.
Both defendants also are jointly and severally liable to pay plaintiff P2,000.00 as
attorney's fees. 2
On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on March 23,1981, absolved
the CARRIER of any and all liability and held the ARRASTRE solely liable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed
from is hereby MODIFIED as follows:
1. Defendant E. Razon, Inc., is hereby directed to pay to plaintiff, the total sum of
P22,049.88, plus interest of 12% interest per annum from July 1, 1974 until the sum
is fully paid;
2. Dismissing the complaint as against defendant Universal Shipping Lines, Inc.;
3. Defendant E. Razon, Inc., to pay costs under the complaint of plaintiff;
4. Plaintiff to pay costs by reason of its complaint against defendant Universal
Shipping Lines, Inc.
Appellant E. Razon to pay costs of this appeal on its appeal against plaintiff-
appellant;
Appellee to pay costs of this appeal to appellant Universal Shipping Lines, Inc. 3
Reconsideration filed by the ARRASTRE was denied by the Appellate Court. 4
Before us now, the ARRASTRE assails the appealed judgment in that 1) it did not give credence and
belief to the ARRASTRE's Bad Order Certificates (Exhibits "22" to "27" Razon), and 2) it erred in
holding the ARRASTRE liable. 5
Ordinarily, in a Petition for Review on Certiorari, only questions of law may be raised. 6 And, this Court
has held in a number of cases that findings of fact by the Court of Appeals are, in general, conclusive on
the Supreme Court when supported by the evidence on record. 7 The rule is not absolute, however, and
allows of exceptions, which we find present in the case at bar in that respondent Court's findings of facts
are contrary to those of the Trial Court and are contradicted by the evidence on record. 8
In absolving the CARRIER, respondent Court stated:
 When the shipment was discharged from the carrying vessel, there were 443 bags of
shipment which were broken at the ends. in other words, only the end-portions of the
443 bags were torn or broken, without any showing that any portion of the contents
of these 443 bags was spilled or spoiled. ... and no loss or spoilage of the shipment
having been proved or shown to have occurred when the shipment was under the care
and custody of the vessel, then the vessel can and should not be held liable to answer
for the loss of any part of it that was found upon the discharge of the shipment from
the Arrastre Operator's care and custody into the consignee's Broker.

...The trial court found the value of the losses at P22,049.88. Now, since the losses
are shown to have occurred after the Arrastre Operator had received the entire
shipment of 4,000 bags from the vessel, then it can be safely assumed that the losses
occurred while the shipment was in the care and custody of the Arrastre Operator.
The appellant E. Razon, Inc., should, therefore, be liable to pay for the whole claim. 9

The foregoing completely disregards the evidence of the CARRIER and the ARRASTRE that 619 bags
were discharged by the CARRIER to the ARRASTRE in bad order condition, as evidenced by the
original and duplicate copies of the Cargo Receipts issued by the CARRIER to the ARRASTRE and
signed by their respective representatives (Exhibits 1-DDDD to 1-HHHH Exhibits "2" to "2-D"-
Razon). 10 The condition of the 619 bags before the turnover to the ARRASTRE from the CARRIER
was loss or spoilage of up to 50%, as reflected in the Survey of Bad Order Cargoes, signed by the
CARRIER and ARRASTRE representatives (Exhibits "1" to "I-D" Razon; Exhibits "2" to "2-
Universal). 11 Accordingly, the Trial Court held the CARRIER liable only for the value of a total of 443
bags, as this is the "evidence of the plaintiff (INSURER), at 16.8209 kilograms per bag, 12 less than the
actual weight of 25 kilograms net per bag (Exhibit "D"; Exhibits "I" to "I-C"-Razon) due to some
recovery of spillage, or a total liability of P12,285.94.

Since 619 bags were discharged from the CARRIER already in bad order condition, it follows that the
remaining 431 bags were damaged while in the ARRASTRE's custody for which it should be held liable.
However, since the Trial Court computed the liability of the ARRASTRE at 351 bags, notwithstanding
the ARRASTRE's admission that "80 bags were not included in the bad order cargo certificate, 13 and
the INSURER did not appeal said award by the Trial Court in its desire to have the case terminated
soonest, 14 the INSURER may not, in this appeal, have the judgment modified. 15 The liability of the
ARRASTRE for P9,763.94 fixed by the Trial Court is thus in order.

WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby REVERSED and SET
ASIDE, and that of the Court of First Instance of Manila, Branch XI, is hereby reinstated. No costs.

SO ORDERED.
G.R. No. L-42926 September 13, 1985
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES,
ROMEO VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.
Emilio D. Castellanes for petitioners.
Apolinario A. Abantao for private respondents.
MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of petitioners' respective children after the
shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and which
we find supported by the record, read as follows:
When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso
Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and
struck a reef on the southern part of Malapascua Island, located somewhere north of
the island of Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo;
and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child,
Mario Marlon Vasquez. They seek the recovery of damages due to the loss of
Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.
At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV
"Pioneer Cebu". The issues of the case were limited to the defenses alleged by the
defendant that the sinking of the vessel was caused by force majeure, and that the
defendant's liability had been extinguished by the total loss of the vessel.
The evidence on record as to the circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV
"Pioneer Cebu" was owned and operated by the defendant and used in the
transportation of goods and passengers in the inter-island shipping. Scheduled to
leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00
a.m. the following day, May 15, 1966. It had a passenger capacity of three hundred
twenty-two (322) including the crew. It undertook the said voyage on a special
permit issued by the Collector of Customs inasmuch as, upon inspection, it was
found to be without an emergency electrical power system. The special permit
authorized the vessel to carry only two hundred sixty (260) passengers due to the said
deficiency and for lack of safety devices for 322 passengers (Exh. 2). A headcount
was made of the passengers on board, resulting on the tallying of 168 adults and 20
minors, although the passengers manifest only listed 106 passengers. It has been
admitted, however, that the headcount is not reliable inasmuch as it was only done by
one man on board the vessel.
When the vessel left Manila, its officers were already aware of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signals on the route
from Manila to Cebu, and the vessel having been cleared by the Customs authorities,
the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it
reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the
weather condition was still good. After passing Romblon and while near Jintotolo
island, the barometer still indicated the existence of good weather condition
continued until the vessel approached Tanguingui island. Upon passing the latter
island, however, the weather suddenly changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate island group, the captain ordered a
reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966,
the vessel struck a reef near Malapascua island, sustained leaks and eventually sunk,
bringing with her Captain Floro Yap who was in command of the vessel.
Due to the loss of their children, petitioners sued for damages before the Court of First Instance of
Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction of
its liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay:
(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss
of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss
of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and
(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way
of moral damages by reason of the death of Mario Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent
from any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:
... It is an admitted fact that even before the vessel left on its last voyage, its officers
and crew were already aware of the typhoon brewing somewhere in the same general
direction to which the vessel was going. The crew of the vessel took a calculated risk
when it proceeded despite the typhoon advisory. This is quite evident from the fact
that the officers of the vessel had to conduct conferences amongst themselves to
decide whether or not to proceed. The crew assumed a greater risk when, instead of
seeking shelter in Romblon and other islands the vessel passed en route, they decided
to take a change on the expected continuation of the good weather the vessel was
encountering, and the possibility that the typhoon would veer to some other
directions. The eagerness of the crew of the vessel to proceed on its voyage and to
arrive at its destination is readily understandable. It is undeniably lamentable,
however, that they did so at the risk of the lives of the passengers on board.
Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately
by fortuitous event which not even extraordinary diligence of the highest degree could have guarded
against; and that there was no negligence on the part of the common carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to
the creditor." 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
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 Commerce12 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.

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.
G.R. No. 98243 July 1, 1992
37 CS CS 673.40
WOODEN
ALEJANDRO ARADA, doing business under the name and style "SOUTH NEGROS MTS
ENTERPRISES", petitioner,
vs. 8 CS LAGERLITE 128.00
HONORABLE COURT OF APPEALS, respondents. PLASTIC
MTS

PARAS, J.: 640 CS STENEI 14,080.00

PLASTIC
MTS
This is a petition for review on certiorari which seeks to annul and set aside the decision * of the Court
of Appeals dated April 8, 1991 in CA-G.R. CV No. 20597 entitled "San Miguel Corporation v.
9,824 P176,824.80
Alejandro Arada, doing business under the name and style "South Negros Enterprises", reversing the
CS
decision of the RTC, Seventh Judicial Region, Branch XII, Cebu City, ordering petitioner to pay the
private respondent tho amount of P172,284.80 representing the value of the cargo lost on board the ill-
fated, M/L Maya with interest thereon at the legal rate from the date of the filing of the complaint on On March 24, 1982, petitioner thru its crew master, Mr. Vivencio Babao, applied for a clearance with the
March 25, 1983 until fully paid, and the costs. Philippine Coast Guard for M/L Maya to leave the port of San Carlos City, but due to a typhoon, it was
denied clearance by SNI Antonio Prestado PN who was then assigned at San Carlos City Coast Guard
The undisputed facts of the case are as follows: Alejandro Arada, herein petitioner, is the proprietor and Detachment (Rollo, p. 122).
operator of the firm South Negros Enterprises which has been organized and established for more than
ten (10) years. It is engaged in the business of small scale shipping as a common carrier, servicing the On March 25, 1982 M/L Maya was given clearance as there was no storm and the sea was calm. Hence,
hauling of cargoes of different corporations and companies with the five (5) vessels it was operating said vessel left for Mandaue City. While it was navigating towards Cebu, a typhoon developed and said
(Rollo, p. 121). vessel was buffeted on all its sides by big waves. Its rudder was destroyed and it drifted for sixteen (16)
hours although its engine was running.
On March 24, 1982. petitioner entered into a contract with private respondent to safely transport as a
common carrier, cargoes of the latter from San Carlos City, Negros Occidental to Mandaue City using On March 27, 1982 at about 4:00 a.m., the vessel sank with whatever was left of its cargoes. The crew
one of petitioner's vessels, M/L Maya. The cargoes of private respondent consisted of 9,824 cases of beer was rescued by a passing pump boat and was brought to Calanggaman Island. Later in the afternoon, they
empties valued at P176,824.80, were itemized as follows: were brought to Palompon, Leyte, where Vivencio Babao filed a marine protest (Rollo, p. 10).
NO. CARGO VALUE
OF On the basis of such marine protest, the Board of Marine Inquiry conducted a hearing of the sinking of
CASES M/L Maya wherein private respondent was duly represented. Said Board made its findings and
recommendation dated November 7, 1983, the dispositive portion of which reads as:
7,515 PPW P136.773.00
CS STENIE
WHEREFORE, premises considered, this Board recommends as it is hereby
MTS
recommended that the owner/operator, officers and crew of M/L Maya be exonerated
or absolved from any administrative liability on account of this incident (Exh. 1).
1,542 PLW 23,438.40
CS GRANDE
MTS The Board's report containing its findings and recommendation was then forwarded to the headquarters
of the Philippine Coast Guard for appropriate action. On the basis of such report, the Commandant of the
58 CS G.E. 1,276.00 Philippine Coast Guard rendered a decision dated December 21, 1984 in SBMI Adm. Case No. 88-82
PLASTIC exonerating the owner/operator officers and crew of the ill-fated M/L Maya from any administrative
MTS liability on account of said incident (Exh. 2).

24 CS PLP MTS 456.00 On March 25, 1983, Private respondent filed a complaint in the Regional Trial Court its first cause of
action being for the recovery of the value of the cargoes anchored on breach of contract of carriage. After
due hearing, said court rendered a decision dated July 18, 1988, the dispositive portion of which reads
 WHEREFORE, judgment is hereby rendered as follows:
(1) With respect to the first cause of action, claim of plaintiff is hereby dismissed;
(2) Under the second cause of action, defendant must pay plaintiff the sum of
P2,000.00;
(3) In the third cause of action, the defendant must pay plaintiff the sum of
P2,849.20;
(4) Since the plaintiff has withheld the payment of P12,997.47 due the defendynt, the
plaintiff should deduct the amount of P4,849.20 from the P12,997.47 and the balance
of P8,148.27 must be paid to the defendant; and
(5) Defendant's counterclaim not having been substantiated by evidence is likewise
dismissed. NO COSTS. (Orig. Record, pp. 193-195).
Thereafter, private respondent appealed said decision to the Court of Appeals claiming that the trial court
erred in —
(1) holding that nothing was shown that the defendant, or any of his employees who
manned the M/L Maya was negligent in any way nor did they fail to observe
extraordinary diligence over the cargoes of the plaintiff; and
(2) holding that the sinking of said vessel was caused by the storm, consequently,
dismissing the claim of plaintiff in its first cause of action for breach of contract of
carriage of goods (Rollo, pp. 33-34; Decision, pp. 3-4).
In its decision Promulgated on April 8, 1991, the Court of Appeals reversed the decision of the court a
quo, the dispositive portion and the dispositive part of its decision reads as:
WHEREFORE, that part of the Judgment appeal6d from is REVERSED and the
appellee Aleiandro Arada, doing business by the name and style, "South Negros
Enterprises", ordered (sic) to pay unto the appellant San Miguel Corporation the
amount of P176,824.80 representing the value of the cargo lost on board the ill-fated
vessel, M/L Maya, with interest thereon at the legal rate from date of the filing of the
complaint on March 25, 1983, until fully paid, and the costs. (Rollo, p. 37)
The Court of Appeals ruled that "in view of his failure to observe extraordinary diligence over the cargo
in question and his negligence previous to the sinking of the carrying vessel, as above shown, the
appellee is liable to the appellant for the value of the lost cargo.
Hence the present recourse.
On November 20, 1991, this Court gave due course to the petition. The pivotal issue to be resolved is
whether or not petitioner is liable for the value of the lost cargoes.
Petitioner contends that it was not in the exercise of its function as a common carrier when it entered into
a contract with private respondent,but was then acting as a private carrier not bound by the requirement
of extraordinary diligence (Rollo, p. 15) and that the factual findings of the Board of Marine Inquiry and
the Special Board of Marine Inquiry are binding and conclusive on the Court (Rollo, pp. 16-17).
Private respondent counters that M/L Maya was in the exercise of its function as a common carrier and
its failure to observe the extraordinary diligence required of it in the vigilance over their cargoes makes
Petitioner liable for the value of said cargoes.
The petition is devoid of merit.
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 (Art. 1732 of the New Civil Code).
In the case at bar, there is no doubt that petitioner was exercising its function as a common carrier when
it entered into a contract with private respondent to carry and transport the latter's cargoes. This fact is
best supported by the admission of petitioner's son, Mr. Eric Arada, who testified as the officer-in-charge
for operations of South Negros Enterprises in Cebu City. In substance his testimony on January 14, 1985
is as follows:
Q. How many vessels are you operating?
A. There were all in all around five (5).
Q. And you were entering to service hauling of cargoes to
different companies, is that correct?
A. Yes, sir.
Q. In one word, the South Negros Enterprises is engaged in the
business of common carriers, is that correct?
A. Yes, sir,
Q. And in fact, at the time of the hauling of the San Miguel Beer,
it was also in the same category as a common carrier?
A. Yes, sir,
(TSN. pp. 3-4, Jan. 29, 1985)
A common carrier, both from the nature of its business and for insistent reasons of public policy is prevailed in the vicinity of Catmon, Cebu during the period March 25-27, 1982, the sea conditions on
burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of March 25, 1982 were slight to rough and the weather conditions then prevailing during those times were
passengers, but in caring for the goods transported by it. The loss or destruction or deterioration of goods cloudy skies with rainshowers and the small waves grew larger and larger, to wit:
turned over to the common carrier for the conveyance to a designated destination raises instantly a
SPEED WAVE SEA WEATHER
presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or
HT.
damage arises from extreme circumstances such as a natural disaster or calamity ... (Benedicto v. IAC,
G.R. No. 70876, July 19, 1990, 187 SCRA 547) (Emphasis supplied).
KNOTS (METERS) CONDITIONS

In order that the common carrier may be exempted from responsibility, the natural disaster mustMarch
have
been the proximate and only cause of the loss. However, the common carrier must exercise due 25 diligence
to prevent or minimize the loss before, during and after the occurrence of flood, storm or other natural
disaster in order that the common carrier may be exempted from liability for the destruction or 8 AM 15 1-2 slight
deterioration of the goods (Article 1739, New Civil Code).

In the instant case, the appellate court was correct in finding that petitioner failed to observe the
extraordinary diligence over the cargo in question and he or the master in his employ was negligent
previous to the sinking of the carrying vessel. In substance, the decision reads:
2 PM 20-25 2.0-3.0 moderate
... VIVENCIO BABAO, the master of the carrying vessel, knew that there was a
typboon coming before his departure but did not check where it was.
to rough

xxx xxx xxx

8 PM 30 3.7 rough
If only for the fact that he was first denied clearance to depart on March 24, 1982,
obviously because of a typhoon coming, Babao, as master of the vessel, should have
verified first where the typhoon was before departing on March 25, 1982. True, the
sea was calm at departure time. But that might be the calm before the storm.
Prudence dictates that he should have ascertained first where the storm was before
departing as it might be on his path. (Rollo, pp. 35-36)

Respondent court's conclusion as to the negligence of petitioner is supported by evidence. It will be noted
that Vivencio Babao knew of the impending typhoon on March 24, 1982 when the Philippine Coast
Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since the time of
the denial of said clearance and the time a clearance to sail was finally issued on March 25, 1982.
Records will show that Babao did not ascertain where the typhoon was headed by the use of his vessel's
barometer and radio (Rorlo, p. 142). Neither did the captain of the vessel monitor and record the weather
conditions everyday as required by Art, 612 of the Code of Commerce (Rollo, pp. 142-143). Had he done
so while navigating for 31 hours, he could have anticipated the strong winds and big waves and taken
shelter (Rollo, pp- 36; 145). His testimony on May 4, 1982 is as follows:

Q. Did you not check on your own where the typhoon was?

A. No. sir. (TSN, May 4, 1982, pp. 58-59)

2 AM 30 3.7 rough
Noteworthy is the fact that as Per official records of the Climatological Division of the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA for brevity) issued by
its Chief of Climatological Division, Primitivo G. Ballan, Jr. as to the weather and sea conditions that
 The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled
white foam
"Marine Investigation and Suspension and Revocation Proceedings" prescribes the Rules governing
from
maritime casualties or accidents, the rules and Procedures in administrative investigation of all maritime
cases within the jurisdiction or cognizance of the Philippine Coast Guard and the grounds for suspension
breaking
and revocation of licenses/certificates of marine officers and seamen (1601 — SCOPE); clearly, limiting
waves
the jurisdiction of the Board of Marine Inquiry and Special Board of Marine Inquiry to the administrative
aspect of marine casualties in so far as it involves the shipowners and officers.
begin to be
blown
PREMISES CONSIDERED, the appealed decision is AFFIRMED.
in streaks
SO ORDERED. along

the
direction of
the wind;

Spindrift
begins

(Exh. 3)

A common carrier is obliged to observe extraordinary diligence and the failure of Babao to ascertain the
direction of the storm and the weather condition of the path they would be traversing, constitute lack of
foresight and minimum vigilance over its cargoes taking into account the surrounding circumstances of
the case.

While the goods are in the possession of the carrier, it is but fair that it exercises 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 (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757,
Aug. 6, 1990, 188 SCRA 387).

Furthermore, the records show that the crew of M/L Maya did not have the required qualifications
provided for in P.D. No. 97 or the Philippine Merchant Marine Officers Law, all of whom were
unlicensed. While it is true that they were given special permit to man the vessel, such permit was issued
at the risk and responsibility of the owner (Rollo, p. 36).

Finally, petitioner claims that the factual findings of the Special Board of Marine Inquiry exonerating the
owner/operator, crew officers of the ill-fated vessel M/L Maya from any administrative liability is
binding on the court.

In rejecting petitioner's claim, respondent court was correct in ruling that "such exoneration was but with
respect to the administrative liability of the owner/operator, officers and crew of the ill-fated" vessel. It
could not have meant exoneration of appellee from liability as a common carrier for his failure to observe
extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or
omissions of his employees. Such is the function of the Court, not the Special Board of Marine Inquiry."
(Rollo, P. 37, Annex A, p. 7)
G.R. No. 80936 October 17, 1990
EASTERN SHIPPING LINES, INC., petitioner,
vs.
COURT OF APPEALS, HONGKONG & SHANGHAI BANKING CORPORATION, AND
CONSOLIDATED MINES, INC., respondents.
Quisumbing, Torres & Evangelista for petitioner.
Belo, Abiera & Associates for respondent HSBC.
GUTIERREZ, JR., J.:
Assailed herein is the decision of respondent Court of Appeals in C.A.-G.R. CV-08707 Hongkong &
Shanghai Banking Corporation (HSBC) v. Eastern Shipping Lines, Inc. (ESLI) dated June 30, 1987 as
well as its Order dated November 24, 1987 denying herein petitioner's Motion for Reconsideration and
Supplemental Motion for Reconsideration, which in effect affirmed the decision of the trial court holding
the petitioner liable for the value of the goods it allegedly misdelivered as well as for damages and
attorney's fees.
The basic facts are as follows:
On February 24, 1980, the Nanyo Corporation of Kobe, Japan shipped a cargo consisting of five (5)
packages of supplies and materials for "1200 W x 2500 LMM Apron Feeder and 200 W x 5850 LMM
Apron Feeder," (p. 22, Rollo), covered by a bill of lading. The cargo was loaded on board the S/S Eastern
Adventure destined for Manila. The vessel is operated by herein petitioner-carrier.
The bill of lading was consigned to "Shipper's Order", with "Address Arrival Notice to Consolidated
Mines Inc. 6799 Ayala Avenue, Makati, Metro Manila, Philippines" (p. 22, Rollo). Consolidated Mines
Inc. (CMI) is one of the private respondents herein.
The cargo arrived in Manila on March 4, 1980.
A few days later, on the basis of an Undertaking for Delivery of Cargo but without the surrender of the
original bill of lading presented by CMI, petitioner-carrier released the shipment in question to CMI.
In said guaranty, CMI undertook to indemnify petitioner carrier "harmless from all demands, claiming
liabilities, actions and expenses" (p. 5, Rollo).
About five (5) and a half months later, or specifically on August 19, 1980, the petitioner received from
Hongkong and Shanghai Bank (HSBC) co-respondent of CMI in the case at bar, a letter (Annex B of
complaint, p. 8, Original Records) stating thus:
We refer to the above mentioned cargo and would advise that we hold title to the
goods and have in our possession the full set of original bills of lading a copy of
which is enclosed for your perusal.
We are unable to locate the cargo and it would appear that it has been released by
you to Consolidated Mines Inc.
We shall be grateful therefore if you will look into the matter and advise us.
(Emphasis supplied.)
Considering that there was no reply from the petitioner, HSBC wrote another demand letter through
counsel dated October 29, 1980 (Annex C of Complaint, p. 7, Original Records) in contemplation of a
legal action against ESLI should it not make good HSBC's claim.
On December 23, 1980 CMI wrote a letter (Annex C of Third Party Complaint, p. 33, Original Records)
to HSBC admitting that they received the shipment in question due to a guarantee executed by them, and
requested HSBC that legal action be held off for at least thirty (30) days, promising to settle its account
with HSBC from the funds it was expecting from Benguet Corporation.
On January 14, 1981 the petitioner-carrier wrote a reply to HSBC (Annex D of Complaint, p. 10,
Original Records) as follows:
In this connection, we deeply regret releasing the cargo without the consent of your
client. However, we are constrained to release the same in view of the consigee's
strong representation and guarantee that they will settle their obligation with the
bank. You must be aware of the fact that said consignee directly communicated with
your client bank requesting for an extension of thirty (30) days within which to settle
their account, to which we hope you will accommodate. Should consignee fail to
comply with their commitments, please advise us immediately. (Emphasis supplied.)
CMI having failed to fulfill its promise, HSBC filed a complaint before the then Court of First Instance
of Rizal against herein petitioner praying for actual and compensatory damages in the amount of
$168,521.16 representing the value of the goods covered by the Bill of Lading, exemplary damage in the
amount deemed just by the court and P50,000 attorney's fees plus expenses of litigation and judicial
costs.
After two motions for extensions, the petitioner-carrier filed its answer with counterclaim alleging inter
alia that:
xxx xxx xxx
That it ADMITS paragraph 7 insofar as it alleges that defendant is duly bound not
only to transport the goods entrusted to it safely but to deliver them to the person
indicated in the Bill of Lading, which obligation was religiously and faithfully
complied with by defendant, but DENIES the allegation that goods will be released
only as soon as the original Bill of Lading is presented; The truth being that it is not
mandatory for defendant to require the consignee to present the original Bill of
Lading for as long as the consignee has proof that it is the owner and besides in this
particular case, the consignee, Consolidated Mines, Inc. not only proved that it is the
owner of the cargo but it has executed a Letter of Guaranty signed by its President,
JOSE MARINO OLONDRIZ, which is hereto attached and marked as Annex "I" and
made an integral part of this answer, which not only proved ownership over the cargo
but further warrants that defendant herein is free from whatever liability;
That it ADMIT paragraph 8 insofar as it alleges that the Bill of Lading covering the
shipment of goods in question is made to "TO SHIPPER'S ORDER" the rest of the
allegation is DENIED for lack of knowledge or information sufficient to form a
belief as to the truth or falsity of the allegation therein contained and for further
reasons stated in the Special and Affirmative Defenses;
That it DENIES paragraph 9, the truth of the matter being there was no misdelivery,
as the goods was received by the consignee and for further reasons stated in the
Special and Affirmative Defenses;
xxx xxx xxx
SPECIAL AND AFFIRMATIVE DEFENSES
BY WAY of Special and Affirmative Defenses, defendant respect fully states:—
That plaintiff has no cause of action against defendant;
That herein defendant is not aware that plaintiff is the consignee bank as the bill of
lading only bears to "SHIPPER'S ORDER" and when the shipment arrived Manila on
March 4, 1980 or even before its arrival, plaintiff did not notify defendant that they
have a lien over the shipment;
That answering defendant only became aware of that fact that plaintiff is the
consignee bank sometime on August 19, 1980 thru their letter dated August 11, 1980,
to which such notice was received by the defendant several months after the
shipment in question was released to the consignee Consolidated Mines, Inc.;
That answering defendant released the shipment in question to Consolidated Mines,
Inc. pursuant to the provision of the last paragraph of Article 353 of the Code of
Commerce which provide as follows:
In case the consignee, upon receiving the goods, cannot return
the bill of lading subscribed by the carrier because of its loss or
any other cause, he must give the latter a receipt for the goods
delivered, this receipt producing the same effects as the return of
the bill of lading. (Emphasis supplied.)
That the consignee (Consolidated Mines, Inc.) in compliance with the above-cited
provision, executed a Letter of Undertaking for Delivery of cargo without
surrendering the Bills of Lading signed by its President, MR. JOSE MARINO
OLONDRIZ and the original Bill of lading will be surrendered by them later on ;
That the consignee (Consolidated Mines, Inc.) acknowledges the receipt of the goods
and likewise its obligation with the plainntiff by virtue of their letter dated December
23, 1980 signed by its President;
That plaintiff prior to the filing of this instant case is already fully aware of the fact
that herein answering defendant is not hable to them but still insisted in suing
defendant carrier without even impleading Consolidated Mines, Inc. who accepted
their obligation;
That speaking of negligence and bad faith, answering defendant maintains that
plaintiff is the one that is negligent and in bad faith for the following reasons: —
That at the earliest time possible when plaintiff became in possession of the original
bill of lading, they did not at once notify the defendant carrier that they are the
consignee bank and that they have lien over the goods for failure of Consolidated
Mines, Inc. to pay the value of said goods. They only notify (sic) the defendant
carrier after five (5) months from the arrival of the goods in Manila;
Plaintiff is in bad faith in suing the carrier alone knowing fully well that it is
Consolidated Mines, Inc. who has the obligation with them and same was
acknowledged by its President per letter dated December 23, 1980 addressed to
plaintiff.
xxx xxx xxx
WHEREFORE, it is most respectfully prayed of this Honorable Court that after
proper proceedings judgment be rendered herein
a) Dismissing the complaint;
b) Ordering the plaintiff to pay defendant moral damages in the
amount of P200,000.00;
c) Sentencing plaintiff to pay defendant the sum of P50,000.00 as
compensatory damages, litigation expenses and attorney's fees
and granting unto the defendant such other reliefs which are just
and equitable in the premises. (pp. 20-24, Original Records.)
On August 15, 1981, the petitioner-carrier filed a third party complaint against CMI seeking
reimbursement from the latter of whatever pecuniary obligations the petitioner may be liable to HSBC, as
well as moral damages.
During trial, CMI filed a Motion to Stay Action in view of the pendency of involuntary insolvency
proceedings commenced against it in the meantime by its creditors which included HSBC. This motion
was denied by the trial court.
On the basis of the evidence presented by HSBC and the petitioner, as CMI failed to present its evidence,
the court on January 15, 1985 rendered judgment as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Eastern Shipping Lines, Inc., ordering the latter to pay the sum of
$168,521.16 or its equivalent in Philippine Currency representing the value of the
goods covered by the Bill of Lading plus interest thereon from the filing of the
complaint, until fully paid; P20,000.00 as and for attorney's fees and to pay the costs.
With respect to the Third Party Complaint, judgment is hereby rendered in favor of
the Third Party Plaintiff, Eastern Shipping Lines, Inc., and against the Third Party
Defendant, Consolidated Mines, Inc., ordering the latter to pay all the liabilities of
the former in favor of the plaintiff consisting of the value of the goods covered by the
Bill of Lading in the sum of $168,521.16 or its equivalent in Philippine Currency
plus interest from the filing of the Third Party Complaint until fully paid; attorney's
fees of P20,000.00 and to pay the costs. (p. 27, Rollo)
Its motion for reconsideration having been denied, the petitioner appealed to herein public respondent
Court of Appeals. On January 30, 1987, the Court of Appeals rendered the decision now assailed, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in
toto.
Costs against appellant.
SO ORDERED. (p. 40, Rollo)
Hence, this petition for review on the following grounds:
I LADING (Annex "A" hereof) the shipment was issued 'To Shipper's Order.'" (p. 2, Original Records) It
The Court of appeals erred in refusing to apply the principle that "Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences"-on the finding that petitioner carrier "committed
gross error and negligence when it released the cargo to CMI" and without
considering the fault, gross error and negligence of respondent Hongkong Shanghai
Banking Corporation." (p. 7, Rollo)
II
Although irrelevant to the application of the principle or doctrine here involved, the
Court of Appeals was unduly prejudiced by petitioner carrier's polite "apologetic
admission". (p. 16, Rollo)
The resolution of the dispute in the case at bar pivots upon the determination of who the consignee is in
the bin of lading in question.
At the outset, the Bill of Lading which was issued by the carrier but contained articles furnished by the
Shipper, shows on its face that the Shipment is consigned "TO SHIPPER'S ORDER" with "ADDRESS
ARRIVAL NOTICE TO CONSOLIDATED MINES INC. 6799 AYALA AVE. MAKATI, METRO
MANILA PHILIPPINES" (Annex A of Complaint, p. 7, Original Records). Nowhere did the Bill of
Lading refer to respondent HSBC as the consignee or the one to be notified.
The foregoing information, without more, in effect makes respondent CMI for all practical intents and
purposes the party named and ordered to receive the goods. The petitioner-carrier, not being privy to any
transaction between HSBC and CMI, cannot be expected to look beyond what is contained on the face of
the bill of lading in question and guess which of the many banks in Metro Manila or some other
unrevealed corporation could possibly be the consignee. To consider otherwise would not be sound
business practice as petitioner would be forced to wait for the real owner of the goods to show up,
perhaps in vain. In Macondray and Company Inc. v. Acting Commissioner of Customs (62 SCRA 427
[1975]), it was held that a bill of lading is ordinarily merely a convenient commercial instrument
designed to protect the importer or consignee. And in Phoenix Assurance Co., Ltd. v. United States
Lines(22 SCRA 674 [1968]), it was held that as a receipt, a bill of lading recites the place and date of
shipment, describes the goods as to quantity, weight, dimensions, Identification marks, condition, quality
and value.
It should likewise be noted that the shipment consisted of machinery materials and supplies for a mining
company named in the bill of lading. In the absence of contrary instructions or at least knowledge of
other facts, the carrier is not ordinarily expected to deliver mining equipment to an unnamed or unknown
party lurking for several months.
Other pieces of evidence found in the records indicate that the parties knew that respondent CMI was
indeed the owner of the goods in question, to wit:
Firstly, even respondent HSBC expressly admitted in its complaint that "pursuant to the BILL OF
never alleged therein that it was the consignee of the shipment in question.
Similarly, by respondent HSBC's own documentary evidence, respondent CMI is the buyer-owner of the
shipment, to wit:
"SOLD BY ORDER AND FOR ACCOUNT AND RISK OF MESSRS.
CONSOLIDATED MINES INC. 6799 AYALA AVE. MAKATI, METRO
MANILA PHILIPPINES" (Exh. A-3, NANYO CORPORATION PACKING LIST;
Exh. A-4 NANYO CORPORATION INVOICE; Exh. A-8, NANYO
CORPORATION INVOICE. (pp. 68, 71-77, Original Records)
Secondly, the Buyer referred to in the Certificate (Exh. A-5) issued by the shipper NANYO
CORPORATION should perforce refer to CMI to wit:
We hereby certify that Original Consular Invoice had been air-mailed directly to
Buyer.
We also certify that advance copies of Commercial Invoice Packing List and Bill of
Lading were airmailed directly to Buyer. (p. 73, Original Records)
Thirdly, respondent HSBC has established by its own documentary evidence, more particularly, the
CONSULAR INVOICE (Exh. A-6 dated February 25, 1980, issued in Tokyo, Japan by the Foreign
Service of the Republic of the Philippines, that the consignee of the shipment in question is respondent
CONSOLIDATED MINES, INC. as shown therein thus:
Consignee CONSOLIDATED MINES, INC.
Address 6799 AYALA AVENUE MAKATI
METRO MANILA PHILIPPINES
(p. 74, Original Records)
Hence, in view of the admissions of the respondent, exceptional circumstances allow a deviation from the
general rule regarding the surrender of the bill of lading. The rule cannot always be absolute.
On the other hand, petitioner-carrier Eastern Shipping Lines, Inc., averred in its answer as one of its
special and affirmative defenses that respondent CMI is the consignee of the shipment in question and
offered in its formal offer of evidence before the Trial Court the subject Bill of Lading as its "Exhibit 1".
(p. 146, Original Records)
The Rules of Court provide that:
Admissibility of evidence. — Evidence is admissible when it is relevant to the issue
and is not excluded by these rules. (Sec. 3, Rule 128, Rules of Court)
Judicial admissions. — Admissions made by the parties in the pleadings, or in the
course of the trial or other proceedings do not require proof and cannot be
contradicted unless previously shown to have been made through palpable mistakes.
(Sec. 2, Rule 129, Rules of Court)
But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for releasing
the goods to CMI under the circumstances, due to its lack of knowledge as to who was the real consignee
in view of CMI's strong representations and letter of undertaking wherein it stated that the bill of lading
would be presented later. This is precisely the situation covered by the last paragraph of Art. 353 of the
Corporation Code to wit:
If in case of loss or for any other reason whatsoever, the consignee cannot return
upon receiving the merchandise the bin of lading subscribed by the carrier, he shall
give said carrier receipt of the goods delivered this receipt producing the same effects
as the return of the bill of lading.
In State Bonding and Ins. Co. Inc. v. Manila Port Service, (11 SCRA 400 [1964]), it was held that the
arrival of shipment is deemed admitted by an allegation of delivery to the consignee.
Under the special circumstances of this case, equity favors the petitioner which proved that it was in
good faith while both respondents cannot claim the same.
While the goods in question were released on March 4, 1980 the records show that HSBC received the
original bill of lading, as per testimony of its witness Ederlina Crisostomo (TSN, p. 29, July 13, 1982),
only on April 1980 or long after the goods had been released. This circumstance goes against the claims
of HSBC.
Thus HSBC in its original demand letter stated, "We are unable to locate the cargo and it would appear
that it has been released by you to Consolidated Mines, Inc." (Annex B of Complaint, p. 8, Original
Records). This proves that it had foreknowledge of the prior release to CMI.
And to make things worse, HSBC, despite CMI's admission that it received the goods, sued only the
petitioner-carrier while at the same time claiming for the value of the goods in the involuntary insolvency
proceedings of CMI which the Bank itself, together with others, initiated. Only later developments led to
this case.
Notwithstanding that respondent HSBC admits even in its memorandum filed with the trial court that
Consolidated Mines, Inc. is the consignee (p. 168, Original Records), yet HSBC pinpoints liability to the
petitioner carrier by relying on the provisions of Article 1736 of the Civil Code of the Philippines which
provides that:
The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive them, without prejudice
to the provisions of Article 1738.
Respondent HSBC wittingly or unwittingly overlooked the fact that the same article uses the conjunction
"or" in reference to whom the goods may be delivered, that is, to the consignee, or to the person who has
a right to receive them.
That respondent HSBC is the more negligent party as against the petitioner-carrier becomes more evident
when aside from having allowed respondent Consolidated Mines, Inc. to be designed in the bills of
lading (Exhibits A, A-1 and A-2, pp. 65-67, Original Records), as the party to be notified, it allowed the
latter to be designated as the consignee in the Consular Invoice (Exhibit A-6, p. 74, Original Records),
the original of which was directly furnished to respondent Consolidated Mines, Inc. by and as certified to
by the shipper Nanyo Corporation (Exhibit A-5, p. 73, Original Records). With such vast powers, akin to
an agent of respondent HSBC, respondent Consolidated Mines, Inc. acted within its authority, and even
if it acted on its own; consequently, respondent HSBC may not hold the petitioner came liable because
Art. 1883 of the Civil Code provides that:

If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted neither have such persons against the
principal.

In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves
things belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the

actions between the principal and agent.

For almost six months from the arrival of the goods HSBC did not do anything to claim the cargo. It
could not possibly be left around lying Idle when on the face of the bill of lading, there was a named
owner to be notified.

On the other hand, CMI secured the release of the goods through misrepresentation before the petitioner-
carrier without settling its account with HSBC and thereafter did not bother to present evidence before
the trial court, leaving the petitioner holding an empty bag as it were. These circumstances also prove bad
faith on the part of CMI.

Under the exceptional circumstances and applying especially strong considerations of equity, the
petitioner did not commit any fault sufficient to render it liable to HSBC. On the contrary, it was HSBC
and CMI who were obviously in bad faith in dealing with the petitioner-carrier.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Appeals
dated June 30, 1987 is SET ASIDE as well as its orders dated November 24, 1987 denying the
petitioners's motion for reconsideration. The complaint before the trial court is dismissed for lack of
merit but without prejudice to Hongkong & Shanghai Banking Corporation pursuing its claims herein
against Consolidated Mines, Inc. in the proper proceedings.

SO ORDERED.
G.R. No. L-49407 August 19, 1988
NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents-appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents- appellees.
Balgos & Perez Law Office for private respondent in both cases.
PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R
entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the
Philippines and National Development Company defendant-appellants," affirming in toto the
decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National
Development Company and Maritime Company of the Philippines, to pay jointly and
severally, to the plaintiff Development Insurance and Surety Corp., the sum of
THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED
FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with the legal
interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully
paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for
attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the
defendant National Development Company, judgment is hereby rendered, ordering
the National Development Company to pay the cross-claimant Maritime Company of
the Philippines the total amount that the Maritime Company of the Philippines may
voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the
judgment rendered in this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement
entered into between defendants NDC and MCP on September 13, 1962, defendant
NDC as the first preferred mortgagee of three ocean going vessels including one with
the name 'Dona Nati' appointed defendant MCP as its agent to manage and operate
said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the
E. Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San
Francisco, California, a total of 1,200 bales of American raw cotton consigned to the
order of Manila Banking Corporation, Manila and the People's Bank and Trust
Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc.,
who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A).
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui,
Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En
route to Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15,
1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of
which 550 bales of aforesaid cargo of American raw cotton were lost and/or
destroyed, of which 535 bales as damaged were landed and sold on the authority of
the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of
the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-
4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid
shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking
Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00
which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of
lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount
of P364,915.86 to the consignees or their successors-in-interest, for the said lost or
damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from
the defendants-NDC and MCP as owner and ship agent respectively, of the said
'Dofia Nati' vessel. (Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of
First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of
P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the action has
prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an
Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-
24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on
the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and
cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24).
It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However,
on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure
to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965
allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said
order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31,
1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its
order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered DISMISSING THE COMPLAINT.
a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of
P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22,
1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted
MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after
its motion to set aside the decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of
the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On
July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August
27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on
February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE
AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE
CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF
CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE
YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL
JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR
REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF
ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF
ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE
PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY
PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE
COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT
OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE
FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA
MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA
NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A
SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT
NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS
SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO
RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA
MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR
DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE
CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE
AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH
1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING
NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL
DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF
THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES
INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS
COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE
COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as
well as the rules of prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to
the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the
carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master,
mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus,
NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals,
both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability
under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and
both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to
the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA
469-470 [1987]) where it was held under similar circumstance "that the law of the country to which the
goods are to be transported governs the liability of the common carrier in case of their loss, destruction or
deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes
transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil
Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of
Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was
found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the
above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision
actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons
of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them according to all circumstances of each case. Accordingly,
under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the
common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that
it has observed the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so
that no reversible error can be found in respondent courses application to the case at bar of Articles 826
to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred
after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which
provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both
shall be solidarily responsible for the losses and damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the
universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who
has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and
Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to
domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com.
Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms,
restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be
construed as repealing any existing provision of the Code of Commerce which is now in force, or as
limiting its application." By such incorporation, it is obvious that said law not only recognizes the
existence of the Code of Commerce, but more importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers
have either the ownership or special property right or beneficial interest in the cargo in question; neither
was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they
could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for
the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly
endorsed bills of lading covering the shipments in question and an examination of the invoices in
particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for
the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to
recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo,
p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and
operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it
can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13,
1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include
the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner
of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p.
12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case
of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce;
Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the
liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the
Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil
Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce.
Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and
severally liable, since the obligation which is the subject of the action had its origin in a tortious act and
did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]).
Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and
owners of the cargo transported by it, for losses and damages occasioned to such cargo, without
prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package
or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the
law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the
language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its
liability for injury to a loss of goods where such injury or loss was caused by its own negligence."
Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not
being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted
correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima
Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily
as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the
trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their
excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow
trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April
18,1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive
on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in
consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive
in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had
the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates.
Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse
of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of
Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision
of the respondent Appellate Court is AFFIRMED.

SO ORDERED.
G.R. No. L-56294 May 20, 1991
SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE
INSURANCE CO., INC.,petitioners,
vs.
THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.
Bito, Misa & Lozada for petitioners.
Rodriguez, Relova & Associates for private respondent.
FELICIANO, J.:
In the early morning of 3 May 1970—at exactly 0350 hours, on the approaches to the port of Manila near
Caballo Island, a collision took place between the M/V "Don Carlos," an inter-island vessel owned and
operated by private respondent Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai
Maru," a merchant vessel of Japanese registry. The "Don Carlos" was then sailing south bound leaving
the port of Manila for Cebu, while the "Yotai Maru" was approaching the port of Manila, coming in from
Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting
a three (3) cm. gaping hole on her portside near Hatch No. 3, through which seawater rushed in and
flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.
The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in
turn, having been subrogated to the interests of the consignees of the damaged cargo, commenced actions
against private respondent Go Thong for damages sustained by the various shipments in the then Court of
First Instance of Manila.
Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567,
was commenced on 13 March 1971 by petitioner Smith Bell and Company (Philippines), Inc. and
Sumitomo Marine and Fire Insurance Company Ltd., against private respondent Go Thong, in Branch 3,
which was presided over by Judge Bernardo P. Fernandez. The second case, Civil Case No. 82556, was
filed on 15 March 1971 by petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine
and Fire Insurance Company, Inc. against private respondent Go Thong in Branch 4, which was presided
over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.
Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues
and evidence relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both
cases having agreed that the evidence on the collision presented in one case would be simply adopted in
the other. In both cases, the Manila Court of First Instance held that the officers and crew of the "Don
Carlos" had been negligent that such negligence was the proximate cause of the collision and
accordingly held respondent Go Thong liable for damages to the plaintiff insurance companies. Judge
Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney's
fees; while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US $ 68,640.00 or
its equivalent in Philippine currency plus attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00
as attorney's fees, respectively.
The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the
Court of Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge
Cuevas in Civil Case No. 82556 was also appealed by Go Thong to the Court of Appeals, the appeal
being docketed as C.A.-G.R. No. 61206-R. Substantially identical assignments of errors were made by
Go Thong in the two (2) appealed cases before the Court of Appeals.
In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8
August 1978 affirming the Decision of Judge Fernandez. Private respondent Go Thong moved for
reconsideration, without success. Go Thong then went to the Supreme Court on Petition for Review, the
Petition being docketed as G.R. No. L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and
Company [Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this Court, having
considered "the allegations, issues and arguments adduced in the Petition for Review on Certiorari, of
the Decision of the Court of Appeals as well as respondent's comment", denied the Petition for lack of
merit. Go Thong filed a Motion for Reconsideration; the Motion was denied by this Court on 24 January
1979.
In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or
almost two [2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed
by the Supreme Court on Petition for Review) through Sison, P.V., J., reversed the Cuevas Decision and
held the officers of the "Yotai Maru" at fault in the collision with the "Don Carlos," and dismissed the
insurance companies' complaint. Herein petitioners asked for reconsideration, to no avail.
The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision
of Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are:
a. that the Sison Decision had disregarded the rule of res judicata;
b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that
the question of fault on the part of the "Yotai Maru" had been settled by the compromise
agreement between the owner of the "Yotai Maru" and Go Thong as owner of the "Don
Carlos;" and
c. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai Maru" had
been negligent and at fault in the collision with the "Don Carlos."
I
The first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision, failed to
apply the rule of res judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6
December 1978 in G.R. No. 48839 which dismissed Go Thong's Petition for Review of the Decision of
Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had effectively settled the question of liability on the part of
the "Don Carlos." Under the doctrine of res judicata, petitioners contend, Sison, P. V. J. should have
followed the Reyes, L.B., J. Decision since the latter had been affirmed by the Supreme Court and had
become final and executory long before the Sison Decision was rendered.
Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its
minute Resolution in G.R. No. L- 48839, had merely dismissed Go Thong's Petition for Review of the
Reyes, L.B., J. Decision for lack of merit but had not affirmed in toto that Decision. Private respondent,
in other words, purports to distinguish between denial of a Petition for Review for lack of merit and
affirmance of the Court of Appeals' Decision. Thus, Go Thong concludes, this Court did not hold that the
"Don Carlos" had been negligent in the collision.
Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review
in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by this
Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment
shall be framed.1 It has long been settled that this Court has discretion to decide whether a "minute
resolution" should be used in lieu of a full-blown decision in any particular case and that a minute
Resolution of dismissal of a Petition for Review on certiorariconstitutes an adjudication on the merits of
the controversy or subject matter of the Petition.2 It has been stressed by the Court that the grant of due
course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is
no need to fully explain the Court's denial. For one thing, the facts and law are already mentioned in the
Court of Appeals' opinion."3 A minute Resolution denying a Petition for Review of a Decision of the
Court of Appeals can only mean that the Supreme Court agrees with or adopts the findings and
conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set
aside is correct.4
Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant
case whether in respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme
Court in G.R. No. L-48839, for the reason that there was no identity of parties and no identity of cause of
action between C.A.-G.R. No. 61206-R and C.A.-G.R. No. 61320-R.
The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed, involved
Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while
the petitioners in the instant case (plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo
Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the two (2) cases,
although the co-petitioner in one was an insurance company different from the insurance company co-
petitioner in the other case. It should be noted, moreover, that the co-petitioner in both cases was an
insurance company arid that both petitioners in the two (2) cases represented the same interest, i.e., the
cargo owner's interest as against the hull interest or the interest of the shipowner. More importantly, both
cases had been brought against the same defendant, private respondent Go Thong, the owner of the
vessel "Don Carlos." In sum, C.A.-G.R. No. 61320R and C.A-G.R. No. 61206-R exhibited substantial
identity of parties.
It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense
that the cargo which had been damaged in the one case and for which indemnity was sought, was not the
very same cargo which had been damaged in the other case indemnity for which was also sought. The
cause of action was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to
the safety and integrity of their cargo had been violated by the same casualty, the ramming of the "Yotai
Maru" by the "Don Carlos." The judgments in both cases were final judgments on the merits rendered by
the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not
been questioned.
Under the circumstances, we believe that the absence of identity of subject matter, there being substantial
identity of parties and identity of cause of action, will not preclude the application of res judicata.5
In Tingson v. Court of Appeals,6 the Court distinguished one from the other the two (2) concepts
embraced in the principle of res judicata, i.e., "bar by former judgment" and "conclusiveness of
judgment:"
There is no question that where as between the first case Where the judgment is rendered and
the second case where such judgment is invoked, there is identity of parties, subject-matter and
cause of action, the judgment on the merits in the first case constitutes an absolute bar to the
subsequent action not only as to every matter which was offered and received to sustain or
defeat the claim or demand, but also as to any other admissible matter which might have been
offered for that purpose and to all matters that could have been adjudged in that case. This is
designated as "bar by former judgment."
But where the second action between the same parties is upon a different claim or demand, the
judgment in the prior action operates as an estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was rendered. In fine,
the previous judgment is conclusive in the second case, only as those matters actually and
directly controverted and determined and not as to matters merely involved therein. This is the
rule on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39 of
the Revised Rules of' Court.7 (Citations omitted) (Emphases supplied)
In Lopez v. Reyes,8 the Court elaborated further the distinction between bar by former judgment which
bars the prosecution of a second action upon the same claim, demand or cause of action, and
conclusiveness of judgment which bars the relitigation of particular facts or issues in another litigation
between the same parties on a different claim or cause of action:
The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the
prosecution of a second action upon the same claim, demand or cause of action. The second
aspect is that it precludes the relitigation of a particular fact or issues in another action between
the same parties on a different claim or cause of action.
The general rule precluding the relitigation of material facts or questions which were in issue
and adjudicated in former action are commonly applied to all matters essentially connected
with the subject matter of the litigation. Thus, it extends to questions "necessarily involved in
an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no
specific finding may have been made in reference thereto, and although such matters were
directly referred to in the pleadings and were not actually or formally presented. Under this
rule, if the record of the former trial shows that the judgment could not have been rendered
without deciding the particular matter it will be considered as having settled that matter as to
all future actions between the parties, and if a judgment necessarily presupposes certain
premises, they are as conclusive as the judgment itself. Reasons for the rule are that a judgment
is an adjudication on all the matters which are essential to support it, and that every proposition
assumed or decided by the court leading up to the final conclusion and upon which such
conclusion is based is as effectually passed upon as the ultimate question which is finally
solved.9 (Citations omitted) (Emphases supplied)
In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so
negligent as to have proximately caused the collision between them, was an issue that was actually,
directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,
resolved that issue in his Decision and held the "Don Carlos" to have been negligent rather than the
"Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a
Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately
two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying
the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court and could no longer be relitigated in
C.A.-G.R. No. 61206- R. Private respondent Go Thong was certainly bound by the ruling or judgment of
Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error When it
disregarded the Decision of this Court affirming the Reyes Decision. 10
Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo
Shipping Company as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under
which the former paid P268,000.00 to the latter, effectively settled that the "Yotai Maru" had been at
fault. This argument is wanting in both factual basis and legal substance. True it is that by virtue of the
compromise agreement, the owner of the "Yotai Maru" paid a sum of money to the owner of the "Don
Carlos." Nowhere, however, in the compromise agreement did the owner of the "Yotai Maru " admit or
concede that the "Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of
compromise is not an admission that anything is due, and is not admissible in evidence against the person
making the offer."11 A compromise is an agreement between two (2) or more persons who, in order to
forestall or put an end to a law suit, adjust their differences by mutual consent, an adjustment which
everyone of them prefers to the hope of gaining more, balanced by the danger of losing more. 12 An offer
to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he
is legally liable, nor on the part of a plaintiff that his claim or demand is groundless or even doubtful,
since the compromise is arrived at precisely with a view to avoiding further controversy and saving the
expenses of litigation.13 It is of the very nature of an offer of compromise that it is made tentatively,
hypothetically and in contemplation of mutual concessions.14 The above rule on compromises is
anchored on public policy of the most insistent and basic kind; that the incidence of litigation should be
reduced and its duration shortened to the maximum extent feasible.
The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but
also administrative proceedings before the Board of Marine Inquiry ("BMI"). The collision was the
subject matter of an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the BMI through
Commodore Leovegildo L. Gantioki, found both vessels to have been negligent in the collision.
Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were
resolved by the Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980
issued by PCG Commandant, Commodore Simeon M. Alejandro. The dispositive portion of the PCG
decision read as follows:
Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended
absolving the officers of "YOTAI MARU" from responsibility for the collision. This
Headquarters finds no reason to modify the penalties imposed upon the officers of Don Carlos.
(Annex "C", Reply, September 5, 1981).15
Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated
September 1980.
Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing
with the PCG on 6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to
submit its record on appeal. On 4 February 1981, Go Thong filed a second urgent motion for another
extension of thirty (30) days from 7 February 1981. On 12 March 1981, Go Thong filed a motion for a
final extension of time and filed its record on appeal on 17 March 1981. The PCG noted that Go Thong's
record on appeal was filed late, that is, seven (7) days after the last extension granted by the PCG had
expired. Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar had
been filed with this Court), the Ministry of Defense rendered a decision reversing and setting aside the 19
May 1980 decision of the PCG
The owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration
of the Defense Ministry's decision. The Office of the President rendered a decision dated 17 April 1986
denying the Motion for Reconsideration. The decision of the Office of the President correctly recognized
that Go Thong had failed to appeal in a seasonable manner:
MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the records
also show beyond peradventure of doubt that the PCG Commandant's decision of May 19,
1980, had already become final and executory When MV "DON CARLOS" filed her Record on
Appeal on March 17, 1981, and When the motion for third extension was filed after the expiry
date.
Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules
and Regulations, decisions of the PCG Commandant shall be final unless, within thirty (30)
days after receipt of a copy thereof, an appeal to the Minister of National Defense is filed
and perfected by the filing of a notice of appeal and a record on appeal. Such administrative
regulation has the force and effect of law, and the failure of MV "DON CARLOS" to comply
therewith rendered the PCG Commandant's decision on May 19, 1980, as final and
executory, (Antique Sawmills, Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary,
19 SCRA 487; Macailing vs. Andrada, 31 SCRA 126.) (Annex "A", Go Thong's Manifestation
and Motion for Early Resolution, November 24, 1986).16 (Emphases supplied)
Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the
Office of the President held that the Minister of National Defense could validly modify or alter the PCG
Commandant's decision:
However, the records likewise show that, on November 26, 1980, the Court of Appeals
rendered a decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go
Thong & Co.) holding that the proximate cause of the collision between MV "DON CARLOS"
AND MS "YOTAI MARU" was the negligence, failure and error of judgment of the officers of
MS "YOTAI MARU". Earlier, or on February 27, 1976, the Court of First Instance of Cebu
rendered a decision in Civil Case No. R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.)
holding that MS "YOTAI MARU" was solely responsible for the collision, which decision was
upheld by the Court of Appeals.
The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's
decision of May 19, 1980, were supervening causes or reasons that rendered the PCG
Commandant's decision as no longer enforceable and entitled MV "DON CARLOS" to request
the Minister of National Defense to modify or alter the questioned decision to harmonize the
 same with justice and tile facts. (De la Costa vs. Cleofas, 67 Phil. 686; City of Bututan vs.
Ortiz, 3 SCRA 659; Candelario vs. Canizares, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA
244). Under such precise circumstances, the Minister of National Defense may validly modify
or alter the PCG commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised
Administrative Code; Province of Pangasinan vs. Secretary of Public Works and
Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA 640). 17 (Emphasis supplied)
The multiple misapprehensions under which the Office of the President labored, were the following:
It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the
subject of review in the Petition at bar and therefore not final. At the same time, the Office of the
President either ignored or was unaware of the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R
finding the "Don Carlos" solely liable for the collision, and of the fact that that Decision had been
affirmed by the Supreme Court and had long ago become final and executory. A third misapprehension
of the Office of the President related to a decision in a Cebu Court of First Instance litigation which had
been settled by the compromise agreement between the Sanyo Marine Company and Go Thong. The
Office of the President mistakenly believed that the Cebu Court of First Instance had rendered a decision
holding the "Yotai Maru" solely responsible for the collision, When in truth the Cebu court had rendered
a judgment of dismissal on the basis of the compromise agreement. The Cebu decision was not, of
course, appealed to the Court of Appeals.
It thus appears that the decision of the Office of the President upholding the belated reversal by the
Ministry of National Defense of the PCG'S decision holding the "Don Carlos" solely liable for the
collision, is so deeply flawed as not to warrant any further examination. Upon the other hand, the basic
decision of the PCG holding the "Don Carlos" solely negligent in the collision remains in effect.
II
In their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the
"Yotai Maru" was negligent and at fault in the collision, rather than the "Don Carlos." In view of the
conclusions reached in Part I above, it may not be strictly necessary to deal with the issue of the
correctness of the Sison Decision in this respect. The Court considers, nonetheless, that in view of the
conflicting conclusions reached by Reyes, L.B., J., on the one hand, and Sison, P.V., J., on the other, and
since in affirming the Reyes Decision, the Court did not engage in a detailed written examination of the
question of which vessel had been negligent, and in view of the importance of the issues of admiralty law
involved, the Court should undertake a careful review of the record of the case at bar and discuss those
issues in extenso.
The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence
concerning the collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil
Case No. 82567 (which was affirmed by the Court of Appeals in the Reyes Decision and by this Court in
G.R. No. L-48839) are just about identical with the findings of Judge Cuevas. Examining the facts as
found by Judge Cuevas, the Court believes that there are three (3) principal factors which are constitutive
of negligence on the part of the "Don Carlos," which negligence was the proximate cause of the
collision.
The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18
(a) of the International Rules of the Road ("Rules")," which provides as follows
(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk
of collision, each shall alter her course to starboard, so that each may pass on the port side of
the other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in
such a manner as to involve risk of collision, and does not apply to two vessels which must, if
both keep on their respective course, pass clear of each other. The only cases to which it does
apply are when each of two vessels is end on, or nearly end on, to the other; in other words, to
cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with
her own; and by night to cases in which each vessel is in such a position as to see both the
sidelights of the other. It does not apply, by day, to cases in which a vessel sees another ahead
crossing her own course; or, by night, to cases where the red light of one vessel is opposed to
the red light of the other or where the green light of one vessel is opposed to the green light of
the other or where a red light without a green light or a green light without a red light is seen
ahead, or Where both green and red lights are seen anywhere but ahead. (Emphasis supplied)
The evidence on this factor was summarized by Judge Cuevas in the following manner:
Plaintiff's and defendant's evidence seem to agree that each vessel made a visual sighting of
each other ten minute before the collision which occurred at 0350. German's version of the
incident that followed, was that "Don Carlos" was proceeding directly to [a] meeting [on an]
"end-on or nearly end-on situation" (Exh. S, page 8). He also testified that "Yotai Maru's'
headlights were "nearly in line at 0340 A.M." (t.s.n., June 6, 1974) clearly indicating that both
vessels were sailing on exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the
International Rules of the Road provides as follows:
xxx xxx xxx
And yet German altered "Don Carlos" course by five degrees to the left at 0343 hours instead of to the
right (t.s.n. June 6, 1974, pages 4445) which maneuver was the error that caused the collision in
question. Why German did so is likewise explained by the evidence on record. "Don Carlos" was
overtaking another vessel, the "Don Francisco",and was then at the starboard (right side) of the
aforesaid vessel at 3:40 a.m. It was in the process of overtaking"Don Francisco" that "Don Carlos' was
finally brought into a situation where he was meeting end-on or nearly end-on "Yotai Maru, thus
involving risk of collision. Hence, German in his testimony before the Board of Marine inquiry stated:
Atty. Chung:
You said in answer to the cross-examination that you took a change of course to the left. Why
did you not take a course to the right instead?
German:
I did not take any course to the right because the other vessel was in my mind at the starboard
side following me. Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209
and 210).19 (Emphasis supplied)
For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai
Maru" found herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos, " and as the
distance between them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right) and at the
same time gave the required signal consisting of one short horn blast. The "Don Carlos" turned to
portside (to its left), instead of turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also
violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning "I am
altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the
master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her
engines; at about 3:46 a.m. the "Yotai Maru" went "full astern engine."20 The collision occurred at
exactly 3:50 a.m.
The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to
have on board that night a "proper look-out" as required by Rule I (B) Under Rule 29 of the same set of
Rules, all consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be
borne by the "Don Carlos." Judge Cuevas' summary of the evidence said:
The evidence on record likewise discloses very convincingly that "Don Carlos" did not have
"look-out" whose sole and only duty is only to act as Such. . . . 21
A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a
look-out and who is stationed where he can see and hear best and maintain good communication with the
officer in charge of the vessel, and who must, of course, be vigilant. Judge Cuevas wrote:
The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62,
U.S. 548, 571). He has only one duty, that which its name implies—to keep "look-out". So
a deckhand who has other duties, is not a proper "look-out" (Brooklyn Perry Co. v. U.S., 122,
Fed. 696). The navigating officer is not a sufficient"look-out" (Larcen B. Myrtle, 44 Fed.
779)—Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in the
pilothouse can be considered to be a "look-out" within the meaning of the maritime law. Nor
should he be stationed in the bridge. He should be as near as practicable to the surface of the
water so as to be able to see low-lying lights (Griffin on Collision, page 273).
On the strength of the foregoing authorities, which do not appear to be disputed even by the
defendant, it is hardly probable that neither German or Leo Enriquez may qualify as "look-out"
in the real sense of the word.22(Emphasis supplied)
In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision
with the "Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the
"Don Carlos" to maintain a proper look-out.
The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second
Mate Benito German was, immediately before and during the collision, in command of the "Don
Carlos." Judge Cuevas summed up the evidence on this point in the following manner:
The evidence on record clearly discloses that "Don Carlos" was, at the time of the collision and
immediately prior thereto, under the command of Benito German, a second mate although its
captain, Captain Rivera, was very much in the said vessel at the time. The defendant's evidence
appears bereft of any explanation as to why second mate German was at the helm of the
aforesaid vessel when Captain Rivera did not appear to be under any disability at the time. In
this connection, Article [633] of the Code of Commerce provides:
Art. [633] — The second mate shall take command of the vessel in case of the
inability or disqualification of the captain and sailing mate, assuming, in such case,
their powers and liability.
The fact that second mate German was allowed to be in command of "Don Carlos" and not the
chief or the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion
except that said vessel [had] no chief mate. Otherwise, the defense evidence should have at
least explained why it was German, only a second mate, who was at the helm of the vessel
"Don Carlos" at the time of the fatal collision.
But that is not all. Worst still, aside from German's being only a second mate, is his apparent
lack of sufficient knowledge of the basic and generally established rules of navigation. For
instance, he appeared unaware of the necessity of employing a "look- out" (t.s.n. June 6, 1974,
page 27) which is manifest even in his testimony before the Board of Marine Inquiry on the
same subject (Exh. 2, page 209). There is, therefore, every reasonable ground to believe that
his inability to grasp actual situation and the implication brought about by inadequacy of
experience and technical know-how was mainly responsible and decidedly accounted for the
collision of the vessels involved in this case.. . .23 (Emphasis supplied)
Second Mate German simply did not have the level of experience, judgment and skill essential for
recognizing and coping with the risk of collision as it presented itself that early morning when the "Don
Carlos," running at maximum speed and having just overtaken the "Don Francisco" then approximately
one mile behind to the starboard side of the "Don Carlos," found itself head-on or nearly head on vis-a-
vis the "Yotai Maru. " It is essential to point out that this situation was created by the "Don Carlos" itself.
The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted
the findings of fact made by Judge Cuevas. What Sison, P.V., J. actually did was to disregard all the facts
found by Judge Cuevas, and discussed above and, astonishingly, found a duty on the "Yotai
Maru" alone to avoid collision with and to give way to the "Don Carlos ". Sison, P.V., J., wrote:
At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and
Chonabayashi had ample time to adopt effective precautionary measures to steer away from the
Philippine vessel, particularly because both [Katoh] and Chonabayashi also deposed that at the
time they had first eyesight of the "Don Carlos" there was still "no danger at all" of a
collision.1âwphi1 Having sighted the "Don Carlos" at a comparatively safe distance—"no
danger at all" of a collision—the Japanese ship should have observed with the highest
diligence the course and movements of the Philippine interisland vessel as to enable the former
to adopt such precautions as will necessarily present a collision, or give way, and in case of a
collision, the former is prima facie at fault. In G. Urrutia & Co. vs. Baco River Plantation Co.,
26 Phil. 632, the Supreme Court held:
Nautical rules require that where a steamship and sailing vessel are approaching each
other from opposite directions, or on intersecting lines, the steamship, from the
moment the sailing vessel is seen, shall watch with the highest diligence her course
and movements so as to enable it to adopt such timely means of precaution as will
 necessarily prevent the two boats from coming in contact.' (Underscoring in the
original)

At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before contact
time, Chonabayashi revealed that the "Yotai Maru" gave a one-blast whistle to inform the
Philippine vessel that the Japanese ship was turning to starboard or to the right and that there
was no blast or a proper signal from the "Don Carlos" (pp. 67-68. Deposition of Chonabayashi,
List of Exhibits). The absence of a reply signal from the"Don Carlos" placed the "Yotai
Maru" in a situation of doubt as to the course the "Don Carlos" would take. Such being the
case, it was the duty of the Japanese officers "to stop, reverse or come to a standstill until the
course of the "Don Carlos" has been determined and the risk of a collision removed (The
Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu Stevedoring, etc., 5
C.A.R. 2d 853, 861-862).. . . .24(Emphasis supplied)

The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive
obligation upon one of the vessels, the "Yotai Maru, " to avoid the collision, the Court of Appeals not
only chose to overlook all the above facts constitutive of negligence on the part of the "Don Carlos;" it
also in effect used the very negligence on the part of the "Don Carlos" to absolve it from responsibility
and to shift that responsibility exclusively onto the "Yotai Maru" the vessel which had observed carefully
the mandate of Rule 18 (a). Moreover, G. Urrutia and Company v. Baco River Plantation
Company25 invoked by the Court of Appeals seems simply inappropriate and inapplicable. For the
collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel,
on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch the
movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable
than the power-driven one. In the case at bar, both the "Don Carlos" and the "Yotai Maru" were power-
driven and both were equipped with radar; the maximum speed of the "Yotai Maru" was thirteen (13)
knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai
Maru" precisely took last minute measures to avert collision as it saw the "Don Carlos" turning to
portside: the "Yotai Maru" turned "hard starboard" and stopped its engines and then put its engines "full
astern."

Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge
Fernandez and Nocon, J.,26 that the "Don Carlos" had been negligent and that its negligence was the sole
proximate cause of the collision and of the resulting damages.

FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.-
G.R. No. 61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court dated 22
September 1975 is hereby REINSTATED and AFFIRMED in its entirety. Costs against private
respondent.

SO ORDERED.
 [G.R. No. 93291. March 29, 1999] It should be noted that F/B Aquarius G is a fishing vessel with a speed of only 7.5 or 8 knots per hour
and according to the master of the vessel, they are not required by law to have a lookout because the
SULPICIO LINES, INC. and CRESENCIO G. CASTANEDA, petitioners, vs. COURT OF vessel is small. M/V Don Sulpicio is a passenger boat with a speed of about 15.5 knots an hour and being
APPEALS and AQUARIUS FISHING CO., INC., respondents. a passenger boat, it is bigger boat and a faster boat. It is incumbent upon its master to see to it that the
direction to which they are proceeding is clear. Having seen for the first time the 2 vessels, F/B Aquarius
D E C I S I ON C and F/B Aquarius G about 4 miles ahead and that they were almost parallel to each other or in the same
line with each other, as M/V Don Sulpicio was following, M/V Don Sulpicio should have used sufficient
PURISIMA, J.: diligence to avoid collision. It appears from the evidence that during the incident, the weather was clear
and visibility was very good. The M/V Don Sulpicio had a clear opportunity to avoid collision, but it
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking
[1] failed to do so. M/V Don Sulpicio believed, that considering that it was a following vessel, it can just go
the reversal of the Decision, dated November 29, 1989, of the Court of Appeals in CA GR No. 15081,
thru and proceed irrespective of danger. The Court believes that the evidence is abundant to show
and the Resolution, dated April 24, 1990, denying petitioners Motion for Reconsideration.
negligence on the part of the master of the defendants and as such, defendants should be held responsible
The facts that matter are as follows: for all the damages suffered by F/B Aquarius G.

The case stemmed from a complaint for damages of Aquarius Fishing Co., Inc. against Sulpicio
Defendants claim that the vessel involved was F/B Aquarius B. However, the evidence show that the
Lines, Inc. and Cresencio G. Castaneda, docketed as Civil Case No. 14510 before Branch 44 of Regional
fishing vessel that sunk was F/B Aquarius G and not F/B Aquarius B. And as shown by the evidence, the
Trial Court in Bacolod City. In due time, said defendants submitted their Answer with counterclaim.
total loss of F/B Aquarius G together with its articles and provisions was P564,448.80.[2]
On May 31, 1986, the trial court came out with its Decision in favor of plaintiff Aquarius Fishing
Co., Inc. ratiocinating and disposing thus: WHEREFORE, the Court finds the complaint duly supported by evidence and judgment is hereby
rendered in favor of the plaintiff and against the defendants, who are hereby ordered to pay, jointly and
The question to be determined is whether the collision between M/V Don Sulpicio and F/B Aquarius 'G' severally, the plaintiff the sum of P564,448.80 for the actual loss of F/B Aquarius G including its articles
was due to the negligence of the defendants or of the plaintiff. It is admitted in the evidence that at a and provisions; the sum of P10,000.00 per month from the date of the accident representing deprivation
distance of about 4 miles M/V Don Sulpicio has sighted 2 fishing boats, namely: F/B Aquarius 'C' and of the use and services of F/B Aquarius G and another sum of P10,000.00 for actual expenses and costs
F/B Aquarius G although defendants maintained it was F/B Aquarius 'B'. From the evidence it appears of litigation, another sum of P10,000.00 by way of exemplary damages, another sum equivalent to 15%
that the 2 fishing boats had a speed of about 7.5 to 8 knots per hour while M/V Don Sulpicio was running of the total claim of plaintiff as attorneys fees plus P300.00 per court appearance, and to pay legal rate of
about 15.5 knots per hour. It would appear that the speed of M/V Don Sulpicio was more than twice as interest of all the amounts so adjudged from November 18, 1978 until the entire amount is fully paid, and
fast as the speed of the two fishing boats. The weather at that time the accident happened was clear and to pay the costs. Counterclaim is dismissed.[3]
visibility was good. In other words, from the distance of about four miles at sea, the men of Don Sulpicio
The defendants appealed to the Court of Appeals, assigning seven (7) errors which the appellate
could clearly see the 2 fishing boats which were ahead about 4 miles and likewise, the men of the 2
court summed up and treated as two pivotal issues, to wit:
fishing boats could clearly see M/V Don Sulpicio following. The plaintiff claims that they continued on
their speed in their course and while maintaining their speed they were rammed by M/V Don Sulpicio.
1. THE COURT A QUO ERRED IN DISREGARDING THE REGULATION FOR PREVENTING
COLLISION AT SEA, MORE POPULARLY KNOWN AS THE RULE OF THE ROAD IN
Defendants claim that plaintiff was negligent and that the collision was due to the negligence of the men
DETERMINING WHICH OF THE TWO VESSELS WAS NEGLIGENT AND LIABLE,
manning F/B Aquarius 'B' and submit that considering that F/B Aquarius 'B' had no lookout and that the
CONSIDERING THAT M/V DON SULPICIO COMPLIED WITH THEIR PROVISIONS, WHILE F/B
fishing boat was ahead, F/B Aquarius 'B' should have given way to M/V Don Sulpicio who was
AQUARIUS G DID NOT; AND
following in order to avoid collision. And considering that F/B Aquarius 'B' was at fault, it should suffer
its own damage.
2. THE COURT A QUO ERRED IN AWARDING DAMAGES, ATTORNEYS FEES, ACTUAL
xxx xxx xxx EXPENSES AND COSTS OF LITIGATION, LEGAL RATE OF INTEREST OF ALL THE AWARDS
FROM NOVEMBER 18, 1978 UNTIL ALL THE AMOUNTS ARE FULLY PAID.[4]
It appears in the theory of defendants that simply because a vessel had no lookout and that the vessel was
On November 29, 1989, the Court of Appeals affirmed the Decision of the trial court of origin. The
ahead, if it is rammed by another vessel that is following, the fault would be on the vessel that is ahead
Motion for Reconsideration interposed on December 23, 1989 by appellants met the same fate. It was
because the vessel that is ahead should always give way to the vessel that is following.
denied on April 24, 1990.
xxx xxx xxx
Undaunted, petitioners found their way to this Court via the present Petition for Review on Certiorari,
contending that:
From this argument, it would appear that whether actual negligence was committed by the vessel ahead
or not, but as long as the vessel had no lookout and has not given way to the vessel following, the vessel I
following, if it ram the vessel ahead, has no fault.
THE LOWER COURT ERRED IN EXONERATING THE VESSEL F/B AQUARIUS B AND HER
MASTER FROM NEGLIGENCE DESPITE THE ADMISSION BY AGAPITO GERBOLINGA,
PATRON OF SAID VESSEL THAT THEY HAD NO LOOKOUT DURING THE COLLISION.
II
THE LOWER COURT ERRED IN DISREGARDING THE REGULATION FOR PREVENTING
COLLISION AT SEA, MORE POPULARLY KNOWN AS THE RULES OF THE ROAD IN
DETERMINING WHICH OF THE TWO VESSELS WAS NEGLIGENT AND LIABLE.
III
THE LOWER COURT ERRED IN IMPUTING NEGLIGENCE ON THE VESSEL M/V DON
SULPICIO, THE PRIVILEGED VESSEL WHICH COMPLIED WITH RULES 19 AND 21, RULES
OF THE ROAD.
IV
THE LOWER COURT ERRED IN AWARDING TO PLAINTIFF-APPELLEE THE AMOUNT OF
P564,448.80 AS ACTUAL LOSS PLUS P10,000.00 PER MONTH FROM THE PERIOD OF
NOVEMBER 18, 1978 REPRESENTING DEPRIVATION OF USE AND SERVICES OF F/B
AQUARIUS B AND ANOTHER SUM OF P10,000.00 FOR ACTUAL EXPENSES AND COST OF
LITIGATION.
V the crossing situation (Exhibits 2, 3, 4, 9, 10). However, the F/B Aquarius B violated the rules, did not
THE LOWER COURT ERRED IN AWARDING PLAINTIFF AND AGAINST DEFENDANTS THE
SUM OF P10,000.00 AS EXEMPLARY DAMAGES.
VI
THE LOWER COURT ERRED IN AWARDING PLAINTIFF AND AGAINST THE DEFENDANT-
APPELLEE THE SUM EQUIVALENT TO 15% OF THE TOTAL CLAIM AS ATTORNEYS FEES
PLUS P300.00 PER COURT APPEARANCE.
VII
THE LOWER COURT ERRED IN AWARDING LEGAL RATE OF INTEREST OF ALL THE
AWARDS TO PLAINTIFF-APPELLEE FROM NOVEMBER 18, 1978 UNTIL ALL THE AMOUNTS
ARE FULLY PAID.[5]
Placing reliance on the Rules of the Road and Regulations on the Prevention of Collision, petitioners
maintain:
xxx that respondent Court of Appeals completely disregarded the rule of admission in matters adverse to not changed to avoid the collision.
ones interest. It is very clear that the F/B Aquarius B, her patron and crew were negligent in this
case. The Rules of the Road which is Annex A' of the Philippine Merchant Rules and Regulations
requires that all vessels must have a lookout (Rule 29, Rules of the Road). All vessels irrespective of size At any rate, the office of the Coast Guard Judge Advocate which we believed is the proper authority and
and make must keep a lookout. There is no exception to this rule.
xxx xxx xxx
It was clearly established by the positive testimony of second mate, Aurelio Villacampa, Jr. on July 14,
1981 and the sketch prepared by said witness (Exhibit 2) that the two vessels were in a crossing
situation. The vessel M/V Don Sulpicio was approaching on the starboard or right side of the crossing
vessel F/B Aquarius B. The applicable rules in such a crossing situation are Rules 19, 21, 22 and 23. We
quote the above Rules as follows:
Rule 19. When two power driven vessels are crossing, so as to involve risk of collision, the vessel which
has the other on her starboard side shall keep out of the way of the other.
Rule 21. Where, by any of the Rules, one of two vessels is to keep out of the way, the other shall keep
her course and speed.
Rule 22. Every vessel which is directed by these Rules to keep out of the way of another vessel, so far as
possible, take positive early action to comply with this obligation, and shall, if the circumstance of the
case admit, avoid crossing ahead of the other.
Rule 23. Every power-driven vessel which is directed by these Rules to keep out of the way of another
vessel shall, on approaching her, if necessary, slacken her speed or stop or reverse.
The M/V DON SULPICIO was the privileged vessel and the F/B Aquarius B was the burdened vessel in
keep out of the way, did not slacken speed but instead went full ahead and crossed the bow of M/V DON
SULPICIO. xxx
xxx xxx xxx
In the case at bar F/B Aquarius B by failure to keep out of the way and slacken her speed has allowed
herself to come to close proximity to the vessel M/V DON SULPICIO bringing about the collision.
The award to private respondent of the sum of P564,448.80 as actual loss is based on surmises and
conjectures. No appraisal of the value of the vessel F/B Aquarius B was presented to support said claim
of total loss. The claim of P564,448.80 was derived after summarizing up invoices and receipts of alleged
purchases of materials, provisions dating back since 1972 and even after November 18, 1978 the date of
the collision (Exhibits CC to KK). This award is exaggerated (sic) and speculative.[6]
On October 24, 1990, respondent Aquarius Fishing Co., Inc. sent in its Comment, stating:
Granting for the sake of argument that any or all of the petitioners witnesses can be classified as lookouts
for M/V Don Sulpicio, their negligence is made much clearer because they could not determine risk of
collision, speed was not slackened, no warning sign was made and the course of M/V Don Sulpicio was
has the technical competence to determine who is at fault in maritime cases has this to say on the look
out defense put up by the petitioners:
It is clear that the M/V Don Sulpicio was the overtaking vessel and, under the Rules on the Road, was the forward of or abaft more than 2 points from the vessel. It is beyond cavil that M/V Don Sulpicio must
burdened vessel which had the duty to take all the necessary actions to keep clear of the overtaken assume responsibility as it was in a better position to avoid the collision. It should have blown its horn or
vessel. It was also shown that M/V Don Sulpicio did not alter her course to reduce her speed and being at give signs to warn the other vessel that it was to overtake it.
close range with F/B Aquarius G, did not even give a warning signal. It was likewise shown that the
Aquarius Fishing Co., Inc. did not own a vessel named F/B Aquarius B ( as identified by Chief Mate Assuming argumenti ex gratia that F/B Aquarius G had no lookout during the collision, the
Oro), but it did own a vessel named Aquarius G at the time of the incident. The fact that F/B 'Aquarius G' omission does not suffice to exculpate Sulpicio Lines from Liability. M/V Don Sulpicio cannot claim that
had no lookout at the time of the collision does not excuse M/V Don Sulpicio from observing her duty to it was a privileged vessel being in the portside which can maintain its course and speed during the
keep clear of the overtaken vessel especially so when there was sufficient room for her to do so. [7] collision. When it overtook F/B Aquarius G, it was duty bound during the collision. When it overtook F/B
Aquarius G, it was duty bound to slacken its speed and keep away from other vessel, which it failed to
The Petition is not impressed with merit. do. The stance of petitioners that F/B Aquarius G is a burdened vessel which should have kept out of the
way of M/V Don Sulpicio is not supported by facts.
Well-settled to the point of being elementary is the doctrine that the findings by the trial court are
binding on the appellate court and will not be disturbed on appeal, unless the trial court has overlooked or Anent the award of actual damage in the amount of P564,448.80, petitioners mere allegation that the
ignored some fact or circumstance of sufficient weight or significance which, if considered, would alter award of actual damages is exaggerated and speculative, without controverting the receipts and invoices
the situation.[8] when the boat was constructed and which were bases of accounting entries in the books of accounts
presented by the private respondent, are unavailing to defeat the award. To be sure, the private respondent
"Factual findings of the appellate court deemed conclusive. (Estonina v. Court of Appeals, 266 SCRA amply established the compensatory damages it suffered by reason of the collision.
627)" The award of fifteen (15%) percent of the total claim sued upon as attorneys fees and the legal rate
of interest adjudged are proper. However, the P10,000.00 a month awarded by the trial court and the
It is a fundamental rule in criminal as well as in civil cases that in the matter of credibility of witnesses, respondent court for earnings that would have derived from F/B Aquarius G, without indicating the
the findings of the trial court are given great weight and highest degree of respect by the appellate court. material period is too uncertain and onerous to deserve serious consideration.
(Lee Eng Hong v. Court of Appeals, 241 SCRA 392 citing Pagsuyuin v. Intermediate Appellate Court,
193 SCRA 547) In awarding P10,000.00 per month, representing the supposed profits F/B Aquarius G could have
netted, the trial court relied on the sole testimony of Mr. Johnny L. Chua, who is in the employ of private
respondent.
xxx It is not the function of this Court to assess and evaluate all over again the evidence, testimonial and
evidentiary, adduced by the parties particularly where, such as here, the findings of both the trial court
and the appellate court on the matter coincide. (South Sea Surety and Insurance Company, Inc. v. Court The arguments of petitioners that the earnings of F/B Aquarius G must be shown is not applicable in this
of Appeals, 244 SCRA 744) case. F/B Aquarius G is just a carrier to its mother boat Aquarius G. Its role was to carry the catch from
the fishing ground to the port and it was serving not only its mother boat, but other boats owned by
respondent Aquarius. The income of F/B Aquarius G is therefore impossible to really determine. The
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of only reasonable basis is only its rental value compared with similar boats.[9]
witnesses are entitled to great respect from the appellate court xxx" (Limketkai Sons Milling, Inc. vs.
Court of Appeals, 250 SCRA 253, citing Serrano vs. Court of Appeals, 196 SCRA 107) As regards the reckoning period, there is tenability in petitioners submission that a fishing boat
deteriorates quite quickly due to exposure to the elements. To hold Sulpicio Lines to pay the profits that
After a thorough review and examination of the evidence on hand, we discern no ground or basis for would have been realized by the private respondents for an unlimited period of time is to burden it
disregarding the findings and conclusion arrived at below. indefinitely, which cannot be countenanced.
Petitioners asserted that private respondent, through its patron, admitted that the vessel had
no lookout during the collision despite the absolute rule provided in Rule 9 of the Rules of Road. To bolster xxx The decision awarding P10,000.00 per month reckoned from November 1978 up to the present
its stance, it contended that it was a privileged vessel pursuant to Rules 19, 21, 22, 23 of the Regulations implies unlimited existence of the fishing vessel F/B Aquarius G which is not the case as any common
for the Prevention of Collisions at Sea. man will experience. The Honorable Court can take judicial notice of the deterioration of the wood in a
fishing boat that is always exposed to the elements. Surely, said existence will not last for more than ten
Both the trial court and the respondent court found that M/V Don Sulpicio was crossing at 15.5 knots years. Considering that the fishing vessel is already six years old, then it has a lifespan of not more than
per hour while F/B Aquarius G was obeying a speed limit of 7.5 knots per hour. The weather was clear and four more years.[10]
visibility was good. M/V Don Sulpicio was four (4) miles away when it first sighted F/B Aquarius G. All
the time up to the collision, M/V Don Sulpicio maintained its speed of 16 knots. It was only two (2) minutes Failure of Aquarius Fishing Co., Inc. to come forward with controverting evidence to the allegation
before the collision when M/V Don Sulpicio changed its course. of Sulpicio Lines that the ordinary lifespan of a fishing vessel is more than ten (10) years, amounted to an
admission of such allegation. The vessel was constructed in 1972 while the collision occurred in 1978. The
Whether or not the collision sued upon occurred in a crossing situation is immaterial as the Court of remaining life span of F/B Aquarius G was therefore four (4) years. Conformably, computed at P10,000.00
Appeals, relying on Rule 24-C, Regulations for Preventing Collisions at the Sea, rules that the duty to keep per month for a period of four (4) years, the unrealized profits/earnings involved, amounted to at
out of the way remained even if the overtaking vessel cannot determine with certainty whether she is most P480,000.00.
 As regards the attorneys fees equivalent to 15% of all the awards granted by the Regional Trial
Court, the propriety thereof cannot be questioned. Gross and evident bad faith on the part of petitioner in
refusing to pay the claim sued upon constrained the private respondent to enlist the services of a lawyer to
litigate.
Petitioner must have placed reliance on the general rule that attorneys fees cannot be recovered as
part of damages because of the policy that no premium should be placed on the right to litigate. (Philtranco
Service Enterprises, Inc. v. Court of Appeals, 273 SCRA 562; Morales v. Court of Appeals, 274 SCRA
282). But the aforecited rule is inapplicable here in the face of the stubborn refusal of petitioner to respect
the valid claim of the private respondent.
The payment of legal interest is also in order. But it should be computed from November 18, 1978,
not from March 30, 1986, when the Regional Trial Court a quo came out with its Decision. It was from the
time of the collision complained of that the private respondent began to be deprived of subject vessel.
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals in CA GR CV
No. 15081 AFFIRMED, with the MODIFICATION that the award for exemplary damages is deleted for
want of legal basis, and the amount of unrealized profits awarded is fixed at P480,000.00. No
pronouncement as to cost.
SO ORDERED.
 [G.R. No. 130068. October 1, 1998] noticed that the anchor did not take hold. Gavino thereafter gave the full-astern code. Before the right
anchor and additional shackles could be dropped, the bow of the vessel rammed into the apron of the pier
FAR EASTERN SHIPPING COMPANY, petitioner, vs. COURT OF APPELAS and PHILIPPINE causing considerable damage to the pier. The vessel sustained damage too. (Exhibit 7-Far Eastern
PORTS AUTHORITY, respondents. Shipping). Kavankov filed his sea protest (Exhibit1-Vessel). Gavino submitted his report to the Chief
Pilot (Exhibit 1-Pilot) who referred the report to the Philippine Ports Authority (Exhibit 2-Pilot) Abellana
likewise submitted his report of the incident (Exhibit B).

[G.R. No. 130150. October 1, 1998] Per contract and supplemental contract of the Philippine Ports Authority and the contractor for the
rehabilitation of the damaged pier, the same cost the Philippine Ports Authority the amount
MANILA PILOTS ASSOCIATION, petitioner, vs. PHILIPPINE PORTS AUTHORITY and FAR
of P1,126,132.25 (Exhibits D and E).[3]
EASTERN SHIPPING COMPANY, respondents.
On January 10, 1983, the Philippine Ports Authority (PPA, for brevity), through the Solicitor
DECISION General, filed before the Regional Trial Court of Manila, Branch 39, a complaint for a sum of money
against Far Eastern Shipping Co., Capt. Senen C. Gavino and the Manila Pilots Association, docketed as
REGALADO, J.: Civil Case No. 83-14958,[4] praying that the defendants therein be held jointly and severally liable to pay
the plaintiff actual and exemplary damages plus costs of suit. In a decision dated August 1, 1985, the trial
These consolidated petitions for review on certiorari seek in unison to annul and set aside the court ordered the defendants therein jointly and severally to pay the PPA the amount of P1,053,300.00
decision[1] of respondent Court of Appeals of November 15, 1996 and its resolution[2] dated July 31, 1997 representing actual damages and the cost of suit.[5]
in CA-G.R. CV No. 24072, entitled Philippine Ports Authority, Plaintiff-Appellee vs. Far Eastern Shipping
Company, Senen C. Gavino and Manila Pilots Association. Defendants-Appellants, which affirmed with The defendants appealed to the Court of Appeals and raised the following issues: (1) Is the pilot of
modification the judgment of the trial court holding the defendants-appellants therein solidarily liable for a commercial vessel, under compulsory pilotage, solely liable for the damage caused by the vessel to the
damages in favor of herein private respondent. pier, at the port of destination, for his negligence? And (2) Would the owner of the vessel be liable likewise
if the damage is caused by the concurrent negligence of the master of vessel and the pilot under a
There is no dispute about the facts as found by the appellate court, thus -- compulsory pilotage?

x x x On June 20, 1980, the M/V PAVLODAR, flying under the flagship of the USSR, owned and
operated by the Far Eastern Shipping Company (FESC for brevitys sake), arrived at the Port of Manila
from Vancouver, British Columbia at about 7:00 oclock in the morning. The vessel was assigned Berth 4
of the Manila International Port, as its berthing space. Captain Roberto Abellana was tasked by the
Philippine Port Authority to supervise the berthing of the vessel. Appellant Senen Gavino was assigned
by the appellant Manila Pilots Association (MPA for brevitys sake) to conduct docking maneuvers for
the safe berthing of the vessel to Berth No. 4.
Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the
master of the vessel, Victor Kavankov, beside him. After a briefing of Gavino by Kavankov of the
particulars of the vessel and its cargo, the vessel lifted anchor from the quarantine anchorage and
proceeded to the Manila International Port. The sea was calm and the wind was ideal for docking
maneuvers.
When the vessel reached the landmark (the big church by the Tondo North Harbor) one-half mile from
the pier, Gavino ordered the engine stopped. When the vessel was already about 2,000 feet from the pier,
Gavino ordered the anchor dropped. Kavankov relayed the orders to the crew of the vessel on the
bow. The left anchor, with two (2) shackles were dropped. However, the anchor did not take hold as
expected. The speed of the vessel did not slacken. A commotion ensued between the crew members. A
brief conference ensued between Kavankov and the crew members. When Gavino inquired what was all
the commotion about, Kavankov assured Gavino that there was nothing of it.
As stated at the outset, respondent appellate court affirmed the findings of the court a quo except that
it found no employer-employee relationship existing between herein private respondents Manila Pilots
Association (MPA, for short) and Capt. Gavino.[6] This being so, it ruled instead that the liability of MPA
is anchored, not on Article 2180 of the Civil Code, but on the provisions of Customs Administrative Order
No. 15-65,[7] and accordingly modified said decision of the trial court by holding MPA, along with its co-
defendants therein, still solidarily liable to PPA but entitled MPA to reimbursement from Capt. Gavino for
such amount of the adjudged pecuniary liability in excess of the amount equivalent to seventy-five percent
(75%) of its prescribed reserve fund.[8]
Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was happy with the decision of the Court
of Appeals and both of them elevated their respective plaints to us via separate petitions for review
on certiorari.
In G.R. No. 130068, which was assigned to the Second Division of this Court, FESC imputed that
the Court of Appeals seriously erred:
1. in not holding Senen C. Gavino and the Manila Pilots Association as the parties solely responsible for
the resulting damages sustained by the pier deliberately ignoring the established jurisprudence on the
matter.
2. in holding that the master had not exercised the required diligence demanded from him by the
circumstances at the time the incident happened;

After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who 3. in affirming the amount of damages sustained by the respondent Philippine Ports Authority despite a
was then on the pier apron, noticed that the vessel was approaching the pier fast. Kavankov likewise strong and convincing evidence that the amount is clearly exorbitant and unreasonable;
4. in not awarding any amount of counterclaim prayed for by the petitioner in its answer; and
5. in not granting herein petitioner's claim against pilot Senen C. Gavino and Manila Pilots' Association
in the event that it be held liable.[9]
Petitioner asserts that since the MV PAVLODAR was under compulsory pilotage at the time of the
incident, it was a compulsory pilot, Capt. Gavino, who was in command and had complete control in the
navigation and docking of the vessel. It is the pilot who supersedes the master for the time being in the
command and navigation of a ship and his orders must be obeyed in all respects connected with her
navigation. Consequently, he was solely responsible for the damage caused upon the pier apron, and not
the owners of the vessel. It claims that the master of the boat did not commit any act of negligence when
he failed to countermand or overrule the orders of the pilot because he did not see any justifiable reason to G.R. No. 130068.[18]
do so. In other words, the master cannot be faulted for relying absolutely on the competence of the
compulsory pilot. If the master does not observe that a compulsory pilot is incompetent or physically conduct of the respective counsel for FESC and PPA leaves much to be desired, to the displeasure and
[10]
incapacitated, the master is justified in relying on the pilot.
Respondent PPA, in its comment, predictably in full agreement with the ruling of respondent court
on the solidary liability of FESC, MPA and Capt. Gavino, stresses the concurrent negligence of Capt.
Gavino, the harbor pilot, and Capt. Viktor Kabankov, *shipmaster of MV Pavlodar, as the basis of their
solidary liability for damages sustained by PPA. It posits that the vessel was being piloted by Capt. Gavino
with Capt. Kabankov beside him all the while on the bridge of the vessel, as the former took over the helm
of MV Pavlodar when it rammed and damaged the apron of the pier of Berth No. 4 of the Manila
International Port. Their concurrent negligence was the immediate and proximate cause of the collision
between the vessel and the pier - Capt. Gavino, for his negligence in the conduct of docking maneuvers for
the safe berthing of the vessel; and Capt. Kabankov, for failing to countermand the orders of the harbor
pilot and to take over and steer the vessel himself in the face of imminent danger, as well as for merely
relying on Capt. Gavino during the berthing procedure.[11]
On the other hand, in G.R. No. 130150, originally assigned to the Court's First Division and later
transferred to the Third Division, MPA, now as petitioner in this case, avers the respondent court's errors
consisted in disregarding and misinterpreting Customs Administrative Order No. 15-65 which limits the
liability of MPA. Said pilots' association asseverates that it should not be held solidarily liable with Capt.
Gavino who, as held by respondent court, is only a member, not an employee, thereof. There being no
employer-employee relationship, neither can MPA be held liable for any vicarious liability for the
respective exercise of profession by its members nor be considered a joint tortfeasor as to be held jointly
and severally liable.[12] It further argues that there was erroneous reliance on Customs Administrative Order
No. 15-65 and the constitution and by-laws of MPA, instead of the provisions of the Civil Code on damages
which, being a substantive law, is higher in category than the aforesaid constitution and by-laws of a
professional organization or an administrative order which bears no provision classifying the nature of the
liability of MPA for the negligence its member pilots.[13]
As for Capt. Gavino, counsel for MPA states that the former had retired from active pilotage services
since July 28, 1994 and has ceased to be a member of petitioner pilots' association. He is not joined as a
petitioner in this case since his whereabouts are unknown. [14]
FESC's comment thereto relied on the competence of the Court of Appeals in construing provisions certification against forum shopping[21] signed by Atty. Herbert A. Tria as affiant:
of law or administrative orders as basis for ascertaining the liability of MPA, and expressed full accord
with the appellate court's holding of solidary liability among itself, MPA and Capt. Gavino. It further avers
that the disputed provisions of Customs Administrative Order No. 15-65 clearly established MPA's
solidary liability.[15]
On the other hand, public respondent PPA, likewise through representations by the Solicitor General,
assumes the same supportive stance it took in G.R. No. 130068 in declaring its total accord with the ruling
of the Court of Appeals that MPA is solidarily liable with Capt. Gavino and FESC for damages, and in its
application to the fullest extent of the provisions of Customs Administrative Order No. 15-65 in relation
to MPA's constitution and by-laws which spell out the conditions of and govern their respective
liabilities. These provisions are clear and ambiguous as regards MPA's liability without need for
interpretation or construction. Although Customs Administrative Order No. 15-65 is a mere regulation
issued by an administrative agency pursuant to delegated legislative authority to fix details to implement
the law, it is legally binding and has the same statutory force as any valid statute. [16]
Upon motion[17] by FESC dated April 24, 1998 in G.R. No. 130150, said case was consolidated with
Prefatorily, on matters of compliance with procedural requirements, it must be mentioned that the
disappointment of this Court.
Section 2, Rule 42 of the 1997 Rules of Civil Procedure[19] incorporates the former Circular No. 28-
91 which provided for what has come to be known as the certification against forum shopping as an
additional requisite for petitions filed with the Supreme Court and the Court of Appeals, aside from the
other requirements contained in pertinent provisions of the Rules of Court therefor, with the end in view
of preventing the filing of multiple complaints involving the same issues in the Supreme Court, Court of
Appeals or different divisions thereof or any other tribunal or agency.
More particularly, the second paragraph of Section 2, Rule 42 provides:
xxxxxxxxx
The petitioner shall also submit together with the petition a certification under oath that he has not
therefore commenced any other action involving the same issues in the Supreme Court, the Court of
Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or
proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts
and other tribunal or agency thereof within five (5) days therefrom. (Italics supplied.)
For petitions for review filed before the Supreme Court, Section 4(e), Rule 45 specifically requires that
such petition shall contain a sworn certification against forum shopping as provided in the last paragraph
of Section 2, Rule 42.
The records show that the law firm of Del Rosario and Del Rosario through its associate, Atty.
Herbert A. Tria, is the counsel of record for FESC in both G.R. No. 130068 and G.R. No. 130150.
G.R. No. 130068, which is assigned to the Court's Second Division, commenced with the filing by
FESC through counsel on August 22, 1997 of a verified motion for extension of time to file its petition for
thirty (30) days from August 28, 1997 or until September 27, 1997.[20] Said motion contained the following
CERTIFICATION
AGAINST FORUM SHOPPING
I/we hereby certify that I/we have not commenced any other action or proceeding involving the same
issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that to the best of my
own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or
any other tribunal or agency; that if I/we should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency,
I/we undertake to report that fact within five (5) days therefrom to this Honorable Court.
This motion having been granted, FESC subsequently filed its petition on September 26, 1997, this time
bearing a "verification and certification against forum-shopping" executed by one Teodoro P. Lopez on
September 24, 1997,[22] to wit:
VERIFICATION AND CERTIFICATION
AGAINST FORUM SHOPPING
in compliance with Section 4(e), Rule 45 in relation to Section 2, Rule 42 of the Revised Rules of Civil
Procedure
I, Teodoro P. Lopez, of legal age, after being duly sworn, depose and state:
1. That I am the Manager, Claims Department of Filsov Shipping Company, the local agent of petitioner
in this case.
2. That I have caused the preparation of this Petition for Review on Certiorari.
3. That I have read the same and the allegations therein contained are true and correct based on the
records of this case.
4. That I certify that petitioner has not commenced any other action or proceeding involving the same
issues in the Supreme Court or Court of Appeals, or any other tribunal or agency, that to the best of my
own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals or
any other tribunal or agency, that I should thereafter learn that a similar action or proceeding has been his duty to assist in the speedy and efficient administration of justice.[31] Being an officer of the court, a
filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I
undertake to report the fact within five (5) days therefrom to this Honorable Court. (Italics supplied for to advance its ends -- the speedy, efficient, impartial, correct and inexpensive adjudication of cases and the
emphasis.)
Reviewing the records, we find that the petition filed by MPA in G.R. No. 130150 then pending with charged as he is with the primary task of assisting in the speedy and efficient administration of justice. [32]
the Third Division was duly filed on August 29, 1997 with a copy thereof furnished on the same date by
registered mail to counsel for FESC.[23] Counsel of record for MPA, Atty. Jesus P. Amparo, in his
verification accompanying said petition dutifully revealed to the Court that--
xxxxxxxxx
3. Petitioner has not commenced any other action or proceeding involving the same issues in his
Honorable Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, but
to the best of his knowledge, there is an action or proceeding pending in this Honorable Court, entitled
Far Eastern Shipping Co., Petitioner, vs. Philippine Ports Authority and Court of Appeals with a Motion
for Extension of time to file Petition for Review by Certiorari filed sometime on August 18, 1997. If
undersigned counsel will come to know of any other pending action or claim filed or pending he
undertakes to report such fact within five (5) days to this Honorable Court.[24] (Italics supplied.)
Inasmuch as MPA's petition in G.R. No. 130150 was posted by registered mail on August 29, 1997
and taking judicial notice of the average period of time it takes local mail to reach its destination, by
reasonable estimation it would be fair to conclude that when FESC filed its petition in G.R. No. 130068
on September 26, 1997, it would already have received a copy of the former and would then have
knowledge of the pendency of the other petition initially filed with the First Division. It was therefore
incumbent upon FESC to inform the Court of that fact through its certification against forum shopping. For
failure to make such disclosure, it would appear that the aforequoted certification accompanying the
petition in G.R. No. 130068 is defective and could have been a ground for dismissal thereof.
Even assuming that FESC has not yet received its copy of MPA's petition at the time it filed its own
petition and executed said certification, its signatory did state "that if I should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or any
other tribunal or agency, I undertake to report the fact within five (5) days therefrom in this Honorable
Court."[25] Scouring the records page by page in this case, we find that no manifestation concordant with
such undertaking was then or at any other time thereafter ever filed by FESC nor was there any attempt to
bring such matter to the attention of the Court. Moreover, it cannot feign non-knowledge of the existence
of such other petition because FESC itself filed the motion for consolidation in G.R. No. 130150 of these
two cases on April 24, 1998.
It is disturbing to note that counsel for FESC, the law firm of Del Rosario and Del Rosario, displays
an unprofessional tendency of taking the Rules for granted, in this instance exemplified by its pro
forma compliance therewith but apparently without full comprehension of and with less than faithful
commitment to its undertakings to this Court in the interest of just, speedy and orderly administration of
court proceedings.
As between the lawyer and the courts, a lawyer owes candor, fairness and good faith to the
court.[26] He is an officer of the court exercising a privilege which is indispensable in the administration of
justice.[27] Candidness, especially towards the courts, is essential for the expeditious administration of
justice. Courts are entitled to expect only complete honesty from lawyers appearing and pleading before
them.[28] Candor in all dealings is the very essence of honorable membership in the legal
profession.[29] More specifically, a lawyer is obliged to observe the rules of procedure and not to misuse
them to defeat the ends of justice.[30] It behooves a lawyer, therefore, to exert every effort and consider it
lawyer has a responsibility in the proper administration of justice. Like the court itself, he is an instrument
prompt satisfaction of final judgments. A lawyer should not only help attain these objectives but should
likewise avoid any unethical or improper practices that impede, obstruct or prevent their realization,
Sad to say, the members of said law firm sorely failed to observe their duties as responsible members
of the Bar. Their actuations are indicative of their predisposition to take lightly the avowed duties of
officers of the Court to promote respect for law and for legal processes.[33] We cannot allow this state of
things to pass judicial muster.
In view of the fact that at around the time these petitions were commenced, the 1997 Rules of Civil
Procedure had just taken effect, the Court treated infractions of the new Rules then with relative liberality
in evaluating full compliance therewith. Nevertheless, it would do well to remind all concerned that the
penal provisions of Circular No. 28-91 which remain operative provides, inter alia:
3. Penalties.-
xxxxxxxxx
(c) The submission of a false certification under Par. 2 of the Circular shall likewise constitute contempt background of the case and if only to make its job easier by having to prepare and file only one comment. It
of court, without prejudice to the filing of criminal action against the guilty party. The lawyer may also could not have been unaware of the pendency of one or the other petition because, being counsel for
be subjected to disciplinary proceedings. respondent in both cases, petitioner is required to furnish it with a copy of the petition under pain of
dismissal of the petition for failure otherwise.[40]
It must be stressed that the certification against forum shopping ordained under the Rules is to be
executed by the petitioner, and not by counsel. Obviously it is the petitioner, and not always the counsel Besides, in G.R. 130068, it prefaces its discussions thus --
whose professional services have been retained for a particular case, who is in the best position to know
whether he or it actually filed or caused the filing of a petition in that case. Hence, a certification against Incidentally, the Manila Pilots' Association (MPA), one of the defendants-appellants in the case before
forum shopping by counsel is a defective certification. It is clearly equivalent to non-compliance with the the respondent Court of Appeals, has taken a separate appeal from the said decision to this Honorable
requirement under Section 2, Rule 42 in relation to Section 4, Rule 45, and constitutes a valid cause for Court, which was docketed as G.R. No. 130150 and entitled "Manila Pilots' Association, Petitioner,
dismissal of the petition. versus Philippine Ports Authority and Far Eastern Shipping Co., Respondents.[41]
Hence, the initial certification appended to the motion for extension of time to file petition n G.R. Similarly, in G.R. No. 130150, it states -
No. 130068 executed in behalf of FESC by Atty. Tria is procedurally deficient. But considering that it was
a superfluity at that stage of the proceeding, it being unnecessary to file such a certification with a mere Incidentally, respondent Far Eastern Shipping Co. (FESC) had also taken an appeal from the said
motion for extension, we shall disregard such error. Besides, the certification subsequently executed by decision to this Honorable Court, docketed as G.R. No. 130068, entitled "Far Eastern Shipping Co. vs.
Teodoro P. Lopez in behalf of FESC cures that defect to a certain extent, despite the inaccuracies earlier Court of Appeals and Philippine Ports Authority."[42]
pointed out. In the same vein, we shall consider the verification signed in behalf of MPA by its counsel,
Atty. Amparo, in G.R. No. 130150 as substantial compliance inasmuch as it served the purpose of the We find here a lackadaisical attitude and complacency on the part of the OSG in the handling of its
Rules of informing the Court of the pendency of another action or proceeding involving the same issues. cases and an almost reflexive propensity to move for countless extensions, as if to test the patience of the
Court, before favoring it with the timely submission of required pleadings.
It bears stressing that procedural rules are instruments in the speedy and efficient administration of
justice. They should be used to achieve such end and not to derail it.[34] It must be emphasized that the Court can resolve cases only as fast as the respective parties in a case
file the necessary pleadings. The OSG, be needlessly extending the pendency of these cases through its
Counsel for PPA did not make matters any better. Despite the fact that, save for the Solicitor General numerous motions for extension, came very close to exhausting this Court's forbearance and has regrettably
at the time, the same legal team of the Office of the Solicitor General (OSG, for short) composed of fallen short of its duties as the People's Tribune.
Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, with the addition of
Assistant Solicitor General Pio C. Guerrero very much later in the proceedings, represented PPA The OSG is reminded that just like other members of the Bar, the canons under the Code of
throughout the appellate proceedings in both G.R. No. 130068 and G.R. No. 130150 and was presumably Professional Responsibility apply with equal force on lawyers in government service in the discharge of
[43]
fully acquainted with the facts and issues of the case, it took the OSG an inordinately and almost their official tasks. These ethical duties are rendered even more exacting as to them because, as
unreasonably long period of time to file its comment, thus unduly delaying the resolution of these cases. It government counsel, they have the added duty to abide by the policy of the State to promote a high standard
[44] Furthermore, it is incumbent upon the OSG, as part of the government
took several changes of leadership in the OSG -- from Silvestre H. Bello III to Romeo C. dela Cruz and, of ethics in public service.
finally, Ricardo P. Galvez -- before the comment in behalf of PPA was finally filed. bureaucracy, to perform and discharge its duties with the highest degree of professionalism, intelligence
and skill[45] and to extend prompt, courteous and adequate service to the public.[46]
In G.R. No. 130068, it took eight (8) motions for extension of time totaling 210 days, a warning that
no further extensions shall be granted, and personal service on the Solicitor General himself of the Now, on the merits of the case. After a judicious examination of the records of this case, the pleadings
resolution requiring the filing of such comment before the OSG indulged the Court with the long required filed, and the evidence presented by the parties in the two petitions, we find no cogent reason to reverse
comment on July 10, 1998.[35] This, despite the fact that said office was required to file its comment way and set aside the questioned decision. While not entirely a case of first impression, we shall discuss the
back on November 12, 1997.[36] A closer scrutiny of the records likewise indicates that petitioner FESC issues seriatim and, correlatively by way of a judicial once-over, inasmuch as the matters raised in both
was not even furnished a copy of said comment as required by Section 5, Rule 42. Instead, a copy thereof petitions beg for validation and updating of well worn maritime jurisprudence. Thereby, we shall
was inadvertently furnished to MPA which, from the point of view of G.R. No. 130068, was a non- write finis to the endless finger-pointing in this shipping mishap which has been stretched beyond the limits
party.[37] The OSG fared slightly better in G.R. No. 130150 in that it took only six (6) extensions, or a total of judicial tolerance.
of 180 days, before the comment was finally filed.[38] And while it properly furnished petitioner MPA with The Port of Manila is within the Manila Pilotage District which is under compulsory pilotage
a copy of its comment, it would have been more desirable and expedient in this case to have furnished its pursuant to Section 8, Article III of Philippine Ports Authority Administrative Order No. 03-85,[47] which
therein co-respondent FESC with a copy thereof, if only as a matter of professional courtesy. [39] provides that:
This undeniably dilatory disinclination of the OSG to seasonably file required pleadings constitutes
deplorable disservice to the tax-paying public and can only be categorized as censurable inefficiency on SEC. 8. Compulsory Pilotage Service.- For entering a harbor and anchoring thereat, or passing through
the part of the government law office. This is most certainly professionally unbecoming of the OSG. rivers or straits within a pilotage district, as well as docking and undocking at any pier/wharf, or shifting
from one berth or another, every vessel engaged in coastwise and foreign trade shall be under
Another thing that baffles the Court is why the OSG did not take the initiative of filing a motion for compulsory pilotage. x x x
consolidation in either G.R. No. 130068 or G.R. No. 130150, considering its familiarity with the
 In case of compulsory pilotage, the respective duties and responsibilities of the compulsory pilot and
the master have been specified by the same regulation in this wise:
SEC. 11. Control of vessels and liability for damage. - On compulsory pilotage grounds, the Harbor
Pilot, providing the service to a vessel shall be responsible for the damage caused to a vessel or to life
and property at ports due to his negligence or fault. He can only be absolved from liability if the accident
is caused by force majeure or natural calamities provided he has exercised prudence and extra diligence
to prevent or minimize damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can
countermand or overrule the order or command of the Harbor Pilot on board. In such event, any damage
caused to a vessel or to life and property at ports by reason of the fault or negligence of the Master shall
be the responsibility and liability of the registered owner of the vessel concerned without prejudice to
recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by competent
authority in appropriate proceedings in the light of the facts and circumstances of each particular case.
We start our discussion of the successive issues bearing in mind the evidentiary rule in American
jurisprudence that there is a presumption of fault against a moving vessel that strikes a stationary object
such as a dock or navigational aid. In admiralty, this presumption does more than merely require the ship
to go forward and produce some evidence on the presumptive matter. The moving vessel must show that
it was without fault or that the collision was occasioned by the fault of the stationary object or was the
result of inevitable accident. It has been held that such vessel must exhaust every reasonable possibility
which the circumstances admit and show that in each, they did all that reasonable care required.[50] In the
absence of sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides
with a fixed object and makes a prima facie case of fault against the vessel.[51] Logic and experience
support this presumption:
The common sense behind the rule makes the burden a heavy one. Such accidents simply do not occur in
the ordinary course of things unless the vessel has been mismanaged in some way. It is not sufficient for
the respondent to produce witnesses who testify that as soon as the danger became apparent
everything possible was done to avoid an accident. The question remains, How then did the collision
occur? The answer must be either that, in spite of the testimony of the witnesses, what was done was too
little or too late or, if not, then the vessel was at fault for being in a position in which an unavoidable
collision would occur.[52]

SEC. 32. Duties and responsibilities of the Pilot or Pilots' Association. - The duties and responsibilities The task, therefore, in these cases is to pinpoint who was negligent - the master of the ship, the harbor pilot
of the Harbor Pilot shall be as follows: or both.

xxxxxxxxx
f) a pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a
pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his responsibility shall
cease at the moment the Master neglects or refuses to carry out his order.
Customs Administrative Order No. 15-65 issued twenty years earlier likewise provided in Chapter I
thereof for the responsibilities of pilots:
Par. XXXIX. - A Pilot shall be held responsible for the direction of a vessel from the time he assumes
control thereof until he leaves it anchored free from shoal; Provided, That his responsibility shall cease at employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of the
the moment the master neglects or refuses to carry out his instructions.
xxxxxxxxx
A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a vessel into or out of
ports, or in certain waters. In a broad sense, the term "pilot" includes both (1) those whose duty it is to
guide vessels into or out of ports, or in particular waters and (2) those entrusted with the navigation of
vessels on the high seas.[53] However, the term "pilot" is more generally understood as a person taken on
board at a particular place for the purpose of conducting a ship through a river, road or channel, or from a
port.[54]
Under English and American authorities, generally speaking, the pilot supersedes the master for the
time being in the command and navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation. He becomes the master pro hac vice and should give all directions as to
speed, course, stopping and reversing, anchoring, towing and the like. And when a licensed pilot is
vessel, or to decline to act as pilot. Under certain systems of foreign law, the pilot does not take entire
charge of the vessel, but is deemed merely the adviser of the master, who retains command and control of
the navigation even on localities where pilotage is compulsory. [55]

Par. XLIV. - Pilots shall properly and safely secure or anchor vessels under their control when requested It is quite common for states and localities to provide for compulsory pilotage, and safety laws have
to do so by the master of such vessels. been enacted requiring vessels approaching their ports, with certain exceptions, to take on board pilots duly
licensed under local law. The purpose of these laws is to create a body of seamen thoroughly acquainted
I. G.R. No. 130068 with the harbor, to pilot vessels seeking to enter or depart, and thus protect life and property from the
dangers of navigation.[56]
Petitioner FESC faults the respondent court with serious error in not holding MPA and Capt. Gavino
solely responsible for the damages caused to the pier. It avers that since the vessel was under compulsory In line with such established doctrines, Chapter II of Customs Administrative Order No. 15-65
pilotage at the time with Capt. Gavino in command and having exclusive control of the vessel during the prescribes the rules of compulsory pilotage in the covered pilotage districts, among which is the Manila
docking maneuvers, then the latter should be responsible for damages caused to the pier.[48] It likewise Pilotage District, viz. --
holds the appellate court in error for holding that the master of the ship, Capt. Kabankov, did not exercise
the required diligence demanded by the circumstances.[49] PARAGRAPH I. - Pilotage for entering a harbor and anchoring thereat, as well as docking and
undocking in any pier or shifting from one berth to another shall be compulsory, except Government
vessels and vessels of foreign governments entitled to courtesy, and other vessels engaged solely in river
or harbor work, or in a daily ferry service between ports which shall be exempt from compulsory pilotage Q By that testimony, you are leading the Court to understand that is that anchor was released
provisions of these regulations: provided, however, that compulsory pilotage shall not apply in pilotage immediately at the time you gave the order, the incident would not have happened. Is that
districts whose optional pilotage is allowed under these regulations. correct?
Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of the Manila A Yes, sir, but actually it was only a presumption on my part because there was a commotion between
International Port. Upon assuming such office as compulsory pilot, Capt. Gavino is held to the universally the officers who are in charge of the dropping of the anchor and the captain. I could not
accepted high standards of care and diligence required of a pilot, whereby he assumes to have skill and understand their language, it was in Russian, so I presumed the anchor was not dropped on time.
knowledge in respect to navigation in the particular waters over which his license extends superior to and
more to be trusted than that of the master.[57] A pilot should have a thorough knowledge of general and Q So, you are not sure whether it was really dropped on time or not?
local regulations and physical conditions affecting the vessel in his charge and the waters for which he is A I am not sure, your Honor.
licensed, such as a particular harbor or river. He is not held to the highest possible degree of skill and care,
but must have and exercise the ordinary skill and care demanded by the circumstances, and usually shown xxxxxxxxx
by an expert in his profession. Under extraordinary circumstances, a pilot must exercise extraordinary
care.[58] Q You are not even sure what could have caused the incident. What factor could have caused the
incident?
In Atlee vs. The Northwestern Union Packet Company,[59] Mr. Justice Miller spelled out in great
detail the duties of a pilot: A Well, in this case now, because either the anchor was not dropped on time or the anchor did not hold,
that was the cause of the incident, your Honor.[60]
x x x (T)he pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of It is disconcertingly riddled with too much incertitude and manifests a seeming indifference for the
the topography through which he steers his vessel. In the long course of a thousand miles in one of these possibly injurious consequences his commands as pilot may have. Prudence required that he, as pilot,
rivers, he must be familiar with the appearance of the shore on each side of the river as he goes along. Its should have made sure that his directions were promptly and strictly followed. As correctly noted by the
banks, towns, its landings, its houses and trees, are all landmarks by which he steers his vessel. The trial court -
compass is of little use to him. He must know where the navigable channel is, in its relation to all these
external objects, especially in the night. He must also be familiar with all dangers that are permanently
Moreover, assuming that he did indeed give the command to drop the anchor on time, as pilot he
located in the course of the river, as sand-bars, snags, sunken rocks or trees or abandoned vessels or
should have seen to it that the order was carried out, and he could have done this in a number of ways,
barges. All this he must know and remember and avoid. To do this, he must be constantly informed of
one of which was to inspect the bow of the vessel where the anchor mechanism was installed. Of course,
the changes in the current of the river, of the sand-bars newly made, of logs or snags, or other objects
Captain Gavino makes reference to a commotion among the crew members which supposedly caused the
newly presented, against which his vessel might be injured.
delay in the execution of the command. This account was reflected in the pilot's report prepared four
xxxxxxxxx hours later, but Capt. Kavankov, while not admitting whether or not such a commotion occurred,
maintained that the command to drop anchor was followed "immediately and precisely." Hence, the
Court cannot give much weight or consideration to this portion of Gavino's testimony."[61]
It may be said that this is exacting a very high order of ability in a pilot. But when we consider the
value of the lives and property committed to their control, for in this they are absolute masters, the high An act may be negligent if it is done without the competence that a reasonable person in the position
compensation they receive, the care which Congress has taken to secure by rigid and frequent of the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to
examinations and renewal of licenses, this very class of skill, we do not think we fix the standard too another.[62] Those who undertake any work calling for special skills are required not only to exercise
high. reasonable care in what they do but also possess a standard minimum of special knowledge and ability. [63]
Tested thereby, we affirm respondent court's finding that Capt. Gavino failed to measure up to such Every man who offers his services to another, and is employed, assumes to exercise in the
strict standard of care and diligence required of pilots in the performance of their duties. Witness this employment such skills he possesses, with a reasonable degree of diligence. In all these employments
testimony of Capt. Gavino: where peculiar skill is requisite, if one offers his services he is understood as holding himself out to the
public as possessing the degree of skill commonly possessed by others in the same employment, and if his
Court: pretensions are unfounded he commits a species of fraud on every man who employs him in reliance on
[64]
You have testified before that the reason why the vessel bumped the pier was because the anchor his public profession.
was not released immediately or as soon as you have given the order. Do you remember having Furthermore, there is an obligation on all persons to take the care which, under ordinary
stated that? circumstances of the case, a reasonable and prudent man would take, and the omission of that care
A Yes, your Honor. constitutes negligence.[65] Generally, the degree of care required is graduated according to the danger a
person or property attendant upon the activity which the actor pursues or the instrumentality which he
Q And you gave this order to the captain of the vessel? uses. The greater the danger the greater the degree of care required. What is ordinary under extraordinary
of conditions is dictated by those conditions; extraordinary risk demands extraordinary care. Similarly, the
A Yes, your Honor. more imminent the danger, the higher the degree of care. [66]
 We give our imprimatur to the bases for the conclusion of the Court of Appeals that Capt. Gavino
was indeed negligent in the performance of his duties:
xxxxxxxxx
x x x As can be gleaned from the logbook, Gavino ordered the left anchor and two (2) shackles
dropped at 8:30 o'clock in the morning. He ordered the engines of the vessel stopped at 8:31 o'clock. By
then, Gavino must have realized that the anchor did not hit a hard object and was not clawed so as to
reduce the momentum of the vessel. In point of fact, the vessel continued travelling towards the pier at
the same speed. Gavino failed to react. At 8:32 o'clock, the two (2) tugboats began to push the stern part
of the vessel from the port side but the momentum of the vessel was not contained. Still, Gavino did not
react. He did not even order the other anchor and two (2) more shackles dropped to arrest the momentum
of the vessel. Neither did he order full-astern. It was only at 8:34 o'clock, or four (4) minutes, after the
anchor was dropped that Gavino reacted. But his reaction was even (haphazard) because instead of
arresting fully the momentum of the vessel with the help of the tugboats, Gavino ordered merely "half-
astern". It took Gavino another minute to order a "full-astern". By then, it was too late. The vessel's
momentum could no longer be arrested and, barely a minute thereafter, the bow of the vessel hit the
apron of the pier. Patently, Gavino miscalculated. He failed to react and undertake adequate measures to
arrest fully the momentum of the vessel after the anchor failed to claw to the seabed. When he reacted,
the same was even (haphazard). Gavino failed to reckon the bulk of the vessel, its size and its cargo. He
erroneously believed that only one (1) anchor would suffice and even when the anchor failed to claw into
the seabed or against a hard object in the seabed, Gavino failed to order the other anchor dropped
immediately. His claim that the anchor was dropped when the vessel was only 1,000 feet from the pier is
but a belated attempt to extricate himself from the quagmire of his own insouciance and negligence. In
sum, then, Appellants' claim that the incident was caused by "force majeure" is barren of factual basis.
xxxxxxxxx
The harbor pilots are especially trained for this job. In the Philippines, one may not be a harbor
pilot unless he passed the required examination and training conducted then by the Bureau of Custom,
under Customs Administrative Order No. 15-65, now under the Philippine Ports Authority under PPA
Administrative Order 63-85. Paragraph XXXIX of the Customs Administrative Order No. 15-65
provides that "the pilot shall be held responsible for the direction of the vessel from the time he assumes
control thereof, until he leaves it anchored free from shoal: Provided, that his responsibility shall cease at
the moment the master neglects or refuse(s) to carry out his instructions." The overall direction regarding
the procedure for docking and undocking the vessel emanates from the harbor pilot. In the present
recourse, Gavino failed to live up to his responsibilities and exercise reasonable care or that degree of
care required by the exigencies of the occasion. Failure on his part to exercise the degree of care
demanded by the circumstances is negligence (Reese versus Philadelphia & RR Co. 239 US 463, 60 L ed.
384, 57 Am Jur. 2d 12age 418).[67]
This affirms the findings of the trial court regarding Capt. Gavino's negligence:
This discussion should not however, divert the court from the fact that negligence in manuevering
the vessel must be attributed to Capt. Senen Gavino. He was an experienced pilot and by this time should
have long familiarized himself with the depth of the port and the distance he could keep between the
vessel and port in order to berth safely.[68]
The negligence on the part of Capt. Gavino is evident; but Capt. Kabankov is no less responsible for
the allision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes
negligence.
While it is indubitable that in exercising his functions a pilot-is in sole command of the ship[69] and
supersedes the master for the time being in the command and navigation of a ship and that he becomes
master pro hac vice of a vessel piloted by him,[70] there is overwhelming authority to the effect that the
master does not surrender his vessel to the pilot and the pilot is not the master. The master is still in
command of the vessel notwithstanding the presence of a pilot. There are occasions when the master may
and should interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated
and the circumstances may require the master to displace a compulsory pilot because of incompetency or
physical incapacity. If, however, the master does not observe that a compulsory pilot is incompetent or
physically incapacitated, the master is justified in relying on the pilot, but not blindly.[71]
The master is not wholly absolved from his duties while a pilot is on board his vessel, and may
advise with or offer suggestions to him. He is still in command of the vessel, except so far as her navigation
is concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual
precaution taken. Thus, in particular, he is bound to see that there is sufficient watch on deck, and that the
men are attentive to their duties, also that engines are stopped, towlines cast off, and the anchors clear and
ready to go at the pilot's order.[72]
A perusal of Capt. Kabankov's testimony makes it apparent that he was remiss in the discharge of
his duties as master of the ship, leaving the entire docking procedure up to the pilot, instead of maintaining
watchful vigilance over this risky maneuver:
Q Will you please tell us whether you have the right to intervene in docking of your ship in the harbor?
A No sir, I have no right to intervene in time of docking, only in case there is imminent danger to the
vessel and to the pier.
Q Did you ever intervene during the time that your ship was being docked by Capt. Gavino?
A No sir, I did not intervene at the time when the pilot was docking my ship.
Q Up to the time it was actually docked at the pier, is that correct'?
A No sir, I did not intervene up to the very moment when the vessel was docked.
xxxxxxxxx
Atty. Del Rosario (to the witness)
Q Mr. Witness, what happened, if any, or was there anything unusual that happened during the
docking?
A Yes sir, our ship touched the pier and the pier was damaged.
Court (to the witness)
Q When you said touched the pier, are you leading the court to understand that your ship bumped the
pier?
A I believe that my vessel only touched the pier but the impact was very weak.
Q Do you know whether the pier was damaged as a result of that slight or weak impact?
A Yes sir, after the pier was damaged.
xxxxxxxxx
Q Being most concerned with the safety of your vessel, in the maneuvering of your vessel, to the port,
did you observe anything irregular in the maneuvering by Capt. Gavino at the time he was trying
to cause the vessel to be docked at the pier?
A You mean the action of Capt. Gavino or his condition?
Court:
Q Not the actuation that conform to the safety maneuver of the ship to the harbor?
A No sir, it was a usual docking.
Q By that statement of yours, you are leading the court to understand that there was nothing irregular
in the docking of the ship?
A Yes sir, during the initial period, of the docking, there was nothing unusual that happened.
Q What about in the last portion of the docking of the ship, was there anything unusual or abnormal
that happened?
A None Your Honor, I believe that Capt. Gavino thought that the anchor could keep or hold the vessel.
Q You want us to understand, Mr. Witness, that the dropping of the anchor of the vessel was not
timely?
A I don't know the depth of this port but I think, if the anchor was dropped earlier and with more
shackles, there could not have been an incident.
Q So you could not precisely tell the court that the dropping of the anchor was timely because you are
not well aware of the seabed, is that correct?
Q If you knew that the shackles were not enough to hold the ship, did you not make any protest to the
pilot?
A No sir, after the incident, that was my assumption.
Q Did you come to know later whether that presumption is correct?
A I still don't know the ground in the harbor or the depths.
Q So from the beginning, you were not competent whether the 2 shackles were also dropped to hold
the ship?
A No sir, at the beginning, I did not doubt it because I believe Capt. Gavino to be an experienced pilot
and he should be more aware as to the depths of the harbor and the ground and I was confident
in his actions.
xxxxxxxxx
Solicitor Abad (to the witness)
Q Now, you were standing with the pilot on the bridge of the vessel before the incident happened, were
you not?
A Yes sir, all the time, I was standing with the pilot.
Q And so whatever the pilot saw, you could also see from that point of view?
A That is right.
Q Whatever the pilot can read from the panel of the bridge, you also could read, is that correct?
A What is the meaning of panel'?
Q All indications necessary for men on the bridge to be informed of the movements of the ship?

A Yes sir, that, is right. A That is right.

xxxxxxxxx Q And whatever sound the captain... Capt. Gavino would hear from the bridge, you could also hear?

Q Alright, Capt. Kavankov, did you come to know later whether the anchor held its ground so much A That is right.
so that the vessel could not travel? Q Now, you said that when the command to lower the anchor was given, it was obeyed, is that right?
A It is difficult for me to say definitely. I believe that the anchor did not hold the ship. A This command was executed by the third mate and boatswain.
Q You mean you don't know whether the anchor blades stuck to the ground to stop the ship from further Court (to the witness)
moving?
Q Mr. Witness, earlier in today's hearing, you said that you did not intervene with the duties of the
A Yes sir, it is possible. pilot and that, in your opinion, you can only intervene if the ship is placed in imminent danger,
Q What is possible? is that correct?

A I think, the 2 shackles were not enough to hold the vessel. A That is right, I did say that.

Q Did you know that the 2 shackles were dropped? Q In your observation before the incident actually happened, did you observe whether or not the ship,
before the actual incident, the ship was placed in imminent danger?.
A Yes sir, I knew that.
A No sir, I did not observe.
Q By that answer, are you leading the court to understand that because you did not intervene and Court (to the witness)
because you believed that it was your duty to intervene when the vessel is placed in imminent
danger to which you did not observe any imminent danger thereof, you have not intervened in Q You were in full accord with the steps being taken by Capt. Gavino because you relied on his
any manner to the command of the pilot? knowledge, on his familiarity of the seabed and shoals and other surroundings or conditions
under the sea, is that correct?
A That is right, sir.
A Yes sir, that is right.
xxxxxxxxx
xxxxxxxxx
Q Assuming that you disagreed with the pilot regarding the step being taken by the pilot in
maneuvering the vessel. whose command will prevail, in case of imminent danger to the vessel? Solicitor Abad (to the witness)

A I did not consider the situation as having an imminent danger. I believed that the vessel will dock Q And so after the anchors were ordered dropped and they did not take hold of the seabed, you were
alongside the pier. alerted that there was danger already on hand?

Q You want us to understand that you did not see an imminent danger to your ship, is that what you A No sir, there was no imminent danger to the vessel.
mean? Q Do you mean to tell us that even if the anchor was supposed to take hold of the bottom and it did
A Yes sir, up to the very last moment, I believed that there was no imminent danger. not, there was no danger to the ship?

Q Because of that, did you ever intervene in the command of the pilot? A Yes sir, because the anchor dragged on the ground later.

A Yes sir, I did not intervene because I believed that the command of the pilot to be correct.
Solicitor Abad (to the witness)
Q As a captain of M/V Pavlodar, you consider docking maneuvers a serious matter, is it not?
A Yes sir, that is right.
Q Since it affects not only the safety of the port or pier, but also the safety of the vessel and the cargo,
is it not?
Q And after a few moments when the anchor should have taken hold the seabed but not done (sic), as
you expected, you already were alerted that there was danger to the ship, is that correct?
A Yes sir, I was alerted but there was no danger.
Q And you were alerted that somebody was wrong?
A Yes sir, I was alerted.
Q And this alert you assumed was the ordinary alertness that you have for normal docking?

A That is right. A Yes sir, I mean that it was usual condition of any man in time of docking to be alert.

Q So that, I assume that you were watching Capt. Gavino very closely at the time he was making his
commands?
A I was close to him, I was hearing his command and being executed.
Q And that you were also alert for any possible mistakes he might commit in the maneuvering of the
vessel?
Q And that is the same alertness when the anchor did not hold onto the ground, is that correct?
A Yes sir, me and Capt. Gavino (thought) that the anchor will hold the ground.
Q Since, as you said that you agreed all the while with the orders of Capt. Gavino, you also therefore
agreed with him in his failure to take necessary precaution against the eventuality that the anchor
will not hold as expected?

A Yes sir, that is right. Atty. Del Rosario:

Q But at no time during the maneuver did you issue order contrary to the orders Capt. Gavino made? May I ask that the question ...

A No sir. Solicitor Abad:

Q So that you were in full accord with all of Capt. Gavino's orders? Never mind, I will reform the question.

A Yes sir. xxxxxxxxx

Q Because, otherwise, you would have issued order that would supersede his own order? Solicitor Abad (to the witness)

A In that case, I should take him away from his command or remove the command from him. Q Is it not a fact that the vessel bumped the pier?
A That is right, it bumped the pier.
 Q For the main reason that the anchor of the vessel did not hold the ground as expected? Atty. Catris:
[73]
A Yes sir, that is my opinion. But in this instance of docking of the MV Pavlodar, do you remember of a time during the course
of the docking that the MV Pavlodar was in imminent danger of bumping the pier?
Further, on redirect examination, Capt. Kabankov fortified his apathetic assessment of the situation:
A When we were about more than one thousand meters from the pier. I think, the anchor was not
Q Now, after the anchor was dropped, was there any point in time that you felt that the vessel was in holding, so I immediately ordered to push the bow at a fourth quarter, at the back of the vessel
imminent danger. in order to swing the bow away from the pier and at the same time, I ordered for a full astern of
A No, at that time, the vessel was not in imminent danger, sir."[74] the engine."[75]

This cavalier appraisal of the event by Capt. Kabankov is disturbingly antipodal to Capt. Gavino's These conflicting reactions can only imply, at the very least, unmindful disregard or, worse, neglectful
anxious assessment of the situation: relinquishment of duty by the shipmaster, tantamount to negligence.

Q When a pilot is on board a vessel, it is the pilot's command which should be followed-at that moment The findings of the trial court on this aspect is noteworthy:
until the vessel is, or goes to port or reaches port?
For, while the pilot Gavino may indeed have been charged with the task of docking the vessel in
A Yes, your Honor, but it does not take away from the Captain his prerogative to countermand the the berthing space, it is undisputed that the master of the vessel had the corresponding duty to
pilot. countermand any of the orders made by the pilot, aid even maneuver the vessel himself, in case of
Q In what way? imminent danger to the vessel and the port.

A In any case, which he thinks the pilot is not maneuvering correctly, the Captain always has the In fact, in his testimony, Capt. Kavankov admitted that all throughout the man(eu)vering
prerogative to countermand the pilot's order. procedures he did not notice anything was going wrong, and even observed that the order given to drop
the anchor, was done at the proper time. He even ventured the opinion that the accident occurred because
Q But insofar as competence, efficiency and functional knowledge of the seabed which are vital or
the anchor failed to take hold but that this did not alarm him because there was still time to drop a second
decisive in the safety (sic) bringing of a vessel to the port, he is not competent?
anchor.
A Yes, your Honor. That is why they hire a pilot in an advisory capacity, but still, the safety of the
vessel rest(s) upon the Captain, the Master of the vessel. Under normal circumstances, the above-mentioned facts would have caused the master of a vessel
to take charge of the situation and see to the man(eu)vering of the vessel himself. Instead,
Q In this case, there was not a disagreement between you and the Captain of the vessel in the bringing
Capt. Kavankov chose to rely blindly upon his pilot, who by this time was proven ill-equipped to cope
of the vessel to port?
with the situation.
A No, your Honor.
xxxxxxxxx
Court:
It is apparent that Gavino was negligent but Far Eastern's employee Capt. Kavankov was no less
May proceed.
responsible for as master of the vessel he stood by the pilot during the man(eu)vering procedures and was
Atty. Catris: privy to every move the latter made, as well as the vessel's response to each of the commands. His choice
to rely blindly upon the pilot's skills, to the point that despite being appraised of a notice of alert he
In fact, the Master of the vessel testified here that he was all along in conformity with the orders continued to relinquish control of the vessel to Gavino, shows indubitably that he was not performing his
you gave to him, and, as matter of fact, as he said, he obeyed all your orders. Can you tell, if in duties with the diligence required of him and therefore may be charged with negligence along with
the course of giving such normal orders for the saf(e) docking of the MV Pavlodar, do you defendant Gavino.[76]
remember of any instance that the Master of the vessel did not obey your command for the safety
docking of the MV Pavlodar? As correctly affirmed by the Court of Appeals -

Atty. del Rosario: We are in full accord with the findings and disquisitions of the Court a quo.
Already answered, he already said yes sir.
In the present recourse, Captain Viktor Kavankov had been a mariner for thirty-two years before
Court: the incident. When Gavino was (in) the command of the vessel, Kavankov was beside Gavino, relaying
Yes, he has just answered yes sir to the Court that there was no disagreement insofar as the the commands or orders of Gavino to the crewmembers-officers of the vessel concerned. He was thus
bringing of the vessel safely to the port. fully aware of the docking maneuvers and procedure Gavino undertook to dock the vessel. Irrefragably,
Kavankov was fully aware of the bulk and size of the vessel and its cargo as well as the weight of the
vessel. Kavankov categorically admitted that, when the anchor and two (2) shackles were dropped to the In Jure vs. United Fruit Co.,[80] which, like the present petitions, involved compulsory pilotage, with
sea floor, the claws of the anchor did not hitch on to any hard object in the seabed. The momentum of the a similar scenario where at and prior to the time of injury, the vessel was in the charge of a pilot with the
vessel was not arrested. The use of the two (2) tugboats was insufficient. The momentum of the vessel, master on the bridge of the vessel beside said pilot, the court therein ruled:
although a little bit arrested, continued (sic) the vessel going straightforward with its bow towards the
port (Exhibit "A-1"). There was thus a need for the vessel to move "full-astern" and to drop the other The authority of the master of a vessel is not in complete abeyance while a pilot, who is required
anchor with another shackle or two '(2), for the vessel to avoid hitting the pier. Kavankov refused to act by law to be accepted, is in discharge of his functions. x x x It is the duty of the master to interfere in
even as Gavino failed to act. Even as Gavino gave mere "half-astern" order, Kavankov supinely stood cases of the pilot's intoxication or manifest incapacity, in cases of danger which he does not foresee, and
by. The vessel was already about twenty (20) meters away from the pier when Gavino gave the 'full- in all cases of great necessity . The master has the same power to displace the pilot that he has to remove
astern" order. Even then, Kavankov did nothing to prevent the vessel from hitting the pier simply because any subordinate officer of the vessel. He may exercise it, or not, according to his discretion. There was
he relied on the competence and plan of Gavino. While the "full-astern" maneuver momentarily arrested evidence to support findings that plaintiff's injury was due to the negligent operation of the Atenas, and
the momentum of the vessel, it was, by then, too late. All along, Kavankov stood supinely beside Gavino, that the master of that vessel was negligent in failing to take action to avoid endangering a vessel situated
doing nothing but relay the commands of Gavino.Inscrutably, then, Kavankov was negligent. as the City of Canton was and persons or property thereon.
xxxxxxxxx
A phase of the evidence furnished support for the inferences x x x that he negligently failed to
The stark incompetence of Kavankov is competent evidence to prove the unseaworthiness of the suggest to the pilot the danger which was disclosed, and means of avoiding such danger; and that the
vessel. It has been held that the incompetence of the navigator, the master of the vessel or its crew makes master's negligence in failing to give timely admonition to the pilot proximately contributed to the injury
the vessel unseaworthy (Tug Ocean Prince versus United States of America, 584 F. 2nd, page complained of. We are of opinion that the evidence mentioned tended to prove conduct of the pilot,
1151). Hence, the Appellant FESC is likewise liable for the damage sustained by the Appellee."[77] known to the master, giving rise to a case of danger or great necessity, calling for the intervention of the
master. A master of a vessel is not Without fault in acquiescing in conduct of a pilot which involves
We find strong and well-reasoned support in time-tested American maritime jurisprudence, on which apparent and avoidable danger, whether such danger is to the vessel upon which the pilot is, or to
much of our laws and jurisprudence on the matter are based, for the conclusions of the Court of Appeals another vessel, or persons or property thereon or on shore. (Italics ours.)
adjudging both Capt. Gavino and Capt. Kabankov negligent.
Still in another case involving a nearly identical setting, the captain of a vessel alongside the compulsory
As early as 1869, the U.S. Supreme Court declared, through Mr. Justice Swayne, in The Steamship pilot was deemed to be negligent, since, in the words of the court, "he was in a position to exercise his
China vs. Walsh,[78] that it is the duty of the master to interfere in cases of the pilot's intoxication or manifest superior authority if he had deemed the speed excessive on the occasion in question. I think it was clearly
incapacity, in cases of danger which he does not foresee, and in all cases of great necessity. The master has negligent of him not to have recognized the danger to any craft moored at Gravell Dock and that he should
the same power to displace the pilot that he has to remove any subordinate officer of the vessel, at his have directed the pilot to reduce his speed as required by the local governmental regulations. His failure
discretion. amounted to negligence and renders the respondent liable."[81] (Italics supplied.) Though a compulsory
pilot might be regarded as an independent contractor, he is at all times subject to the ultimate control of
In 1895, the U.S. Supreme Court, this time through Mr. Justice Brown, emphatically ruled that: the ship's master.[82]

Nor are we satisfied with the conduct of the master in leaving the pilot in sole charge of the
vessel. While the pilot doubtless supersedes the master for the time being in the command and navigation
of the ship, and his orders must be obeyed in all matters connected with her navigation, the master is not
wholly absolved from his duties while the pilot is on board, and may advise with him, and even displace
him in case he is intoxicated or manifestly incompetent. He is still in command of the vessel, except so
far as her navigation is concerned, and bound to see that there is a sufficient watch on deck, and that the
men are attentive to their duties.
xxx (N)otwithstanding the pilot has charge, it is the duty of the master to prevent accident, and not
to abandon the vessel entirely to the pilot; but that there are certain duties he has to discharge
(notwithstanding there is a pilot on board) for the benefit of the owners. x x x that in well conducted
ships the master does not regard the presence of a duly licensed pilot in compulsory pilot waters as
freeing him from every obligation to attend to the safety of the vessel; but that, while the master sees that
his officers and crew duly attend to the pilot's orders, he himself is bound to keep a vigilant eye on the
navigation of the vessel, and, when exceptional circumstances exist, not only to urge upon the pilot to use
every precaution, but to insist upon, such being taken."[79] (Italics for emphasis.)
In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to
navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty
of the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is
justified in relying upon the pilot, but not blindly. Under the circumstances of this case, if a situation arose
where the master, exercising that reasonable vigilance which the master of a ship should exercise, observed,
or should have observed, that the pilot was so navigating the vessel that she was going, or was likely to go,
into danger, and there was in the exercise of reasonable care and vigilance an opportunity for the master to
intervene so as to save the ship from danger, the master should have acted accordingly. [83] The master of a
vessel must exercise a degree of vigilance commensurate with the circumstances.[84]
Inasmuch as the matter of negligence is a question of fact, [85] we defer to the findings of the trial
court, especially as this is affirmed by the Court of Appeals.[86] But even beyond that, our own evaluation
is that Capt. Kabankov's shared liability is due mainly to the fact that he failed to act when the perilous
situation should have spurred him into quick and decisive action as master of the ship. In the face of
imminent or actual danger, he did not have to wait for the happenstance to occur before countermanding
or overruling the pilot. By his own admission, Capt. Kabankov concurred with Capt. Gavino's decisions,
and this is precisely the reason why he decided not to countermand any of the latter's orders. Inasmuch as
both lower courts found Capt. Gavino negligent, by expressing full agreement therewith Capt. Kabankov
was just as negligent as Capt. Gavino.
 In general, a pilot is personally liable for damages caused by his own negligence or default to the negligence, and that negligence having been the proximate cause of the damages, he is liable for such
owners of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot damages as usually and naturally flow therefrom. x x x.
in the performance of duty constitutes a maritime tort.[87]At common law, a shipowner is not liable for
injuries inflicted exclusively by the negligence of a pilot accepted by a vessel compulsorily. [88] The x x x (T)he defendant should have known of the existence and location of the rock upon which the
exemption from liability for such negligence shall apply if the pilot is actually in charge and solely in vessel struck while under his control and management. x x x.
fault. Since, a pilot is responsible only for his own personal negligence, he cannot be held accountable for
damages proximately caused by the default of others,[89] or, if there be anything which concurred with the Consistent with the pronouncements in these two earlier cases, but on a slightly different tack, the
fault of the pilot in producing the accident, the vessel master and owners are liable. Court in Yap Tico & Co. exonerated the pilot from liability for the accident where the order's of the pilot
in the handling of the ship were disregarded by the officers and crew of the ship. According to the Court,
Since the colliding vessel is prima facie responsible, the burden of proof is upon the party claiming a pilot is "x x x responsible for a full knowledge of the channel and the navigation only so far as he can
benefit of the exemption from liability. It must be shown affirmatively that the pilot was at fault, and that accomplish it through the officers and crew of the ship, and I don't see that he can be held responsible for
there was no fault on the part of the officers or crew, which might have been conducive to the damage. The damage when the evidence shows, as it does in this case, that the officers and crew of the ship failed to
fact that the law compelled the master to take the pilot does not exonerate the vessel from liability. The obey his orders." Nonetheless, it is possible for a compulsory pilot and the master of the vessel to be
parties who suffer are entitled to have their remedy against the vessel that occasioned the damage, and are concurrently negligent and thus share the blame for the resulting damage as Joint tortfeasors, [98] but only
not under necessity to look to the pilot from whom redress is not always had for compensation. The owners under the circumstances obtaining in and demonstrated by the instant petitions.
of the vessel are responsible to the injured party for the acts of the pilot, and they must be left to recover
the amount as well as they can against him. It cannot be maintained that the circumstance of having a pilot It may be said, as a general rule, that negligence in order to render a person liable need not be the
on board, and acting in conformity to his directions operate as a discharge of responsibility of the sole cause of an injury. It is sufficient that his negligence, concurring with one or more efficient causes
owners.[90] Except insofar as their liability is limited or exempted by statute, the vessel or her owner are other than plaintiff's, is the proximate cause of the injury.Accordingly, where several causes combine to
liable for all damages caused by the negligence or other wrongs of the owners or those in charge of the produce injuries, a person is not relieved from liability because he is responsible for only one of them, it
vessel. Where the pilot of a vessel is not a compulsory one in the sense that the owner or master of the being sufficient that the negligence of the person charged with injury is an efficient cause without which
vessel are bound to accept him, but is employed voluntarily, the owners of the vessel are, all the more, the injury would not have resulted to as great an extent, and that such cause is not attributable to the person
liable for his negligent act.[91] injured. It is no defense to one of the concurrent tortfeasors that the injury would not have resulted from
his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. [99] Where
In the United States, the owners of a vessel are not personally liable for the negligent acts of a several causes producing an injury are concurrent and each is an efficient cause without which the injury
compulsory pilot, but by admiralty law, the fault or negligence of a compulsory pilot is imputable to the would not have happened, the injury may be attributed to all or any of the causes and recovery may be had
vessel and it may be held liable therefor in rem. Where, however, by the provisions of the statute the pilot against any or all of the responsible persons although under the circumstances of the case, it may appear
is compulsory only in the sense that his fee must be paid, and is not in compulsory charge of the vessel, that one of them was more culpable, and that the duty owed by them to the injured person was not the
there is no exemption from liability. Even though the pilot is compulsory, if his negligence was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the
sole cause of the injury, but the negligence of the master or crew contributed thereto, the owners are negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his
liable.[92] But the liability of the ship in rem does not release the pilot from the consequences of his own acts were the sole cause of the injury.[100]
negligence.[93] The rationale for this rule is that the master is not entirely absolved of responsibility with
respect to navigation when a compulsory pilot is in charge.[94] There is no contribution between joint tortfeasors whose liability is solidary since both of them are
liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more
By way of validation and in light of the aforecited guidepost rulings in American maritime cases, persons, although acting independently, are in combination the direct and proximate cause of a single injury
we declare that our rulings during the early years of this century in City of Manila vs. Gambe, [95] China to a third person, it is impossible to determine in what proportion each contributed to the injury and either
Navigation Co., Ltd. vs. Vidal,[96] and Yap Tico & Co. vs. Anderson, et al.[97] have withstood the proverbial of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage
test of time and remain good and relevant case law to this day. to a third party, they become joint tortfeasors and are solidarity liable for the resulting damage under Article
[101] of the Civil Code.[102]
City of Manila stands for the doctrine that the pilot who was in command and complete control of a 2194
vessel, and not the owners, must be held responsible for an accident which was solely the result of the As for the amount of damages awarded by the trial court, we find the same to be reasonable. The
mistake of the pilot in not giving proper orders, and which did not result from the failure of the owners to testimony of Mr. Pascual Barral, witness for PPA, on cross and redirect examination, appears to be
equip the vessel with the most modern and improved machinery. In China Navigation Co., the pilot grounded on practical considerations:
deviated from the ordinary and safe course, without heeding the warnings of the ship captain. It was this
careless deviation that caused the vessel to collide with a pinnacle rock which, though uncharted, was Q So that the cost of the two additional piles as well as the (two) square meters is already included in
known to pilots and local navigators. Obviously, the captain was blameless. It was the negligence of the this -P1,300,999.77.
pilot alone which was the proximate cause of the collision. The Court could not but then rule that -
A Yes sir, everything. It is (the) final cost already.
The pilot in the case at bar having deviated from the usual and ordinary course followed by Q For the eight piles.
navigators in passing through the strait in question, without a substantial reason, was guilty of
A Including the reduced areas and other reductions.
Q (A)nd the two square meters. With regards to the amount of damages that is to be awarded to plaintiff, the Court finds that the amount
of P1,053,300.00 is justified. Firstly, the doctrine of res ipsa loquitur best expounded upon in the
A Yes sir. landmark case of Republic vs. Luzon Stevedoring Corp. (21 SCRA 279) establishes the presumption that
Q In other words, this P1,300,999.77 does not represent only for the six piles that was damaged as well in the ordinary course of events the ramming of the dock would not have occurred if proper care was
as the corresponding two piles. used.

A The area was corresponding, was increased by almost two in the actual payment. That was why the Secondly, the various estimates and plans justify the cost of the port construction price. The new
contract was decreased, the real amount was P1,124,627.40 and the final one is P1300,999.77. structure constructed not only replaced the damaged one but was built of stronger materials to forestall
Q Yes, but that P1,300,999.77 included the additional two new posts. the possibility of any similar accidents in the future.

A It was increased. The Court inevitably finds that the plaintiff is entitled to an award of P1,053,300.00 which represents
actual damages caused by the damage to Berth 4 of the Manila International Port. Co-defendants Far
Q Why was it increased?
Eastern Shipping, Capt. Senen Gavino and Manila Pilots Association are solidarity liable to pay this
A The original was 48 and the actual was 46. amount to plaintiff.[104]

Q Now, the damage was somewhere in 1980. It took place in 1980 and you started the repair and The Solicitor General rightly commented that the adjudicated amount of damages represents the
reconstruction in 1982, that took almost two years? proportional cost of repair and rehabilitation of the damaged section of the pier. [105]

A Yes sir. Except insofar as their liability is limited or exempted by statute, the vessel or her owners are liable
for all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. As
Q May it not happen that by natural factors, the existing damage in 1980 was aggravated for the 2 year a general rule, the owners or those in possession and control of a vessel and the vessel are liable for all
period that the damage portion was not repaired? natural and proximate damages caused to persons or property by reason of her negligent management or
navigation.[106]
A I don't think so because that area was at once marked and no vehicles can park, it was closed.
FESC's imputation of PPA's failure to provide a safe and reliable berthing place is obtuse, not only
Q Even if or even natural elements cannot affect the damage?
because it appears to be a mere afterthought, being tardily raised only in this petition, but also because
A Cannot, sir. there is no allegation or evidence on record about Berth No. 4 being unsafe and unreliable, although perhaps
it is a modest pier by international standards. There was, therefore, no error on the part of the Court of
xxxxxxxxx Appeals in dismissing FESC's counterclaim.
Q You said in the cross-examination that there were six piles damaged by the accident, but that in the
reconstruction of the pier, PPA drove and constructed 8 piles. Will you explain to us why there
was change in the number of piles from the original number? II. G.R. No. 130150
A In piers where the piles are withdrawn or pulled out, you cannot re-drive or drive piles at the same This consolidated case treats on whether the Court of Appeals erred in holding MPA jointly and
point. You have to redesign the driving of the piles. We cannot drive the piles at the same point solidarity liable with its member pilot, Capt. Gavino, in the absence of employer-employee relationship
where the piles are broken or damaged or pulled out. We have to redesign, and you will note that and in applying Customs Administrative Order No. 15-65, as basis for the adjudged solidary liability of
in the reconstruction, we redesigned such that it necessitated 8 piles. MPA and Capt. Gavino.
Q Why not, why could you not drive the same number of piles and on the same spot? The pertinent provisions in Chapter I of Customs Administrative Order No. 15-65 are:
A The original location was already disturbed. We cannot get required bearing capacity. The area is
already disturbed. "PAR. XXVII.-- In all pilotage districts where pilotage is compulsory, there shall be created and
maintained by the pilots or pilots' association, in the manner hereinafter prescribed, a reserve fund equal
Q Nonetheless, if you drove the original number of piles, six, on different places, would not that have to P1,000.00 for each pilot thereof for the purpose of paying claims for damages to vessels or property
sustained the same load? caused through acts or omissions of its members while rendered in compulsory pilotage service. In
[103]
Manila, the reserve fund shall be P2,000.00 for each pilot.
A It will not suffice, sir."
We quote the findings of the lower court with approval: PAR. XXVIII.-- A pilots' association shall not be liable under these regulations for damage to any vessel,
or other property, resulting from acts of a member of an association in the actual performance of his duty
for a greater amount than seventy-five per centum (75%) of its prescribed reserve fund; it being
understood that if the association is held liable for an amount greater than the amount above-stated, the
excess shall be paid by the personal funds of the member concerned.
PAR. XXXI.-- If a payment is made from the reserve fund of an association on account of damages
caused by a member thereof, and he shall have been found at fault, such member shall reimburse the
association in the amount so paid as soon as practicable; and for this purpose, not less than twenty-five
per centum of his dividends shall be retained each month until the full amount has been returned to the
reserve fund.
PAR. XXXIV. - Nothing in these regulations shall relieve any pilots' association or members thereof,
individually or collectively, from civil responsibility for damages to life or property resulting from the
acts of members in the performance of their duties.
Correlatively, the relevant provisions of PPA Administrative Order No. 03-85, which timely
amended this applicable maritime regulation, state:
Article IV
SEC. 17. Pilots' Association -- The Pilots in a Pilotage District shall organize themselves into a Pilots'
Association or firm, the members of which shall promulgate their own By-Laws not in conflict with the
rules and regulations promulgated by the Authority. These By-Laws shall be submitted not later than one
(1) month after the organization of the Pilots' Association for approval by the General Manager of the
Authority. Subsequent amendments thereto shall likewise be submitted for approval.
SEC. 25. Indemnity Insurance and Reserve Fund--
a) Each Pilots' Association shall collectively insure its membership at the rate
of P50,000.00 each member to cover in whole or in part any liability
arising from any accident resulting in damage to vessel(s), port facilities
and other properties and/or injury to persons or death which any member
may have caused in the course of his performance of pilotage duties. x x x.
b) The Pilotage Association shall likewise set up and maintain a reserve fund which
shall answer for any part of the liability referred to in the immediately
preceding paragraph which is left unsatisfied by the insurance proceeds, in
the following manner:
1) Each pilot in the Association shall contribute from his own account an amount
of P4,000.00 (P6,000.00 in the Manila Pilotage District) to the reserve
fund. This fund shall not be considered part of the capital of the
Association nor charged as an expense thereof.
2) Seventy-five percent (75%) of the reserve fund shall be set aside for use, in the
payment of damages referred to above incurred in the actual performance
of pilots' duties and the excess shall be paid from the personal funds of the
member concerned.
xxxxxxxxx
5) If payment is made from the reserve fund of an Association on account of
damage caused by a member thereof who is found at fault, he shall
reimburse the Association in the amount so paid as soon as practicable;
and for this purpose, not less than twenty-five percentum (25%) of his
dividend shall be retained each month until the full amount has been
returned to the reserve fund. Thereafter, the pilot involved shall be
entitled to his full dividend.
6) When the reimbursement has been completed as prescribed in the preceding
paragraph, the ten percentum (10%) and the interest withheld from the
shares of the other pilots in accordance with paragraph (4) hereof shall be
returned to them.
c) Liability of Pilots' Association -- Nothing in these regulations shall relieve any
Pilots' Association or members thereof, individually or collectively, from
any civil, administrative and/or criminal responsibility for damages to life
or property resulting from the individual acts of its members as well as
those of the Association's employees and crew in the performance of their
duties.
The Court of Appeals, while affirming the trial court's finding of solidary liability on the part of
FESC, MPA and Capt. Gavino, correctly based MPA's liability not on the concept of employer-employee
relationship between Capt. Gavino and itself, but on the provisions of Customs Administrative Order No.
15-65:
The Appellant MPA avers that, contrary to the findings and disquisitions of the Court a quo, the
Appellant Gavino was not and has never been an employee of the MPA but was only a member
thereof. The Court a quo, it is noteworthy,, did not state the factual basis on which it anchored its finding
that Gavino was the employee of MPA. We are in accord with MPA's pose. Case law teaches Us that, for
an employer-employee relationship to exist the confluence of the following elements must be established:
(1) selection and engagement of employees; (2) the payment of wages; (3) the power of dismissal; (4) the
employer's power to control the employees with respect to the means and method by which the work is to
be performed (Ruga versus NLRC, 181SCRA 266).
xxxxxxxxx
The liability of MPA for damages is not anchored on Article 2180 of the New Civil Code as erroneously
found and declared by the Court a quo but under the provisions of Customs Administrative Order No. 15-
65, supra, in tandem with the by-laws of the MPA."[107]
There being no employer-employee relationship, clearly Article 2180[108] of the Civil Code is
inapplicable since there is no vicarious liability of an employer to speak of. It is so stated in American law,
as follows:
The well-established rule is that pilot associations are immune to vicarious liability for the tort of their
members. They are not the employer of their members and exercise no control over them once they take
the helm of the vessel. They are also not partnerships because the members do not function as agents for
the association or for each other. Pilots' associations are also not liable for negligently assuring, the WHEREFORE, in view of all of the foregoing, the consolidated petitions for review are DENIED
competence of their members because as professional associations they made no guarantee of the and the assailed decision of the Court of Appeals is AFFIRMED in toto.
professional conduct of their members to the general public.[109]
Counsel for FESC, the law firm of Del Rosario and Del Rosario, specifically its associate,
Where under local statutes and regulations, pilot associations lack the necessary legal incidents of Atty. Herbert A. Tria, is REPRIMANDED and WARNED that a repetition of the same or similar acts of
responsibility, they have been held not liable for damages caused by the default of a member heedless disregard of its undertakings under the Rules shall be dealt with more severely.
pilot.[110] Whether or not the members of a pilots' association are in legal effect a copartnership depends
wholly on the powers and duties of the members in relation to one another under the provisions of the The original members of the legal team of the Office of the Solicitor General assigned to this case,
governing statutes and regulations. The relation of a pilot to his association is not that of a servant to the namely, Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, are
master, but of an associate assisting and participating in a common purpose. Ultimately, the rights and ADMONISHED and WARNED that a repetition of the same or similar acts of unduly delaying
liabilities between a pilots' association and an individual member depend largely upon the constitution, proceedings due to delayed filing of required pleadings shall also be dealt with more stringently.
articles or by-laws of the association, subject to appropriate government regulations.[111] The Solicitor General is DIRECTED to look into the circumstances of this case and to adopt
No reliance can be placed by MPA on the cited American rulings as to immunity from liability of a provident measures to avoid a repetition of this incident and which would ensure prompt compliance with
pilots' association in light of existing positive regulation under Philippine law. The Court of Appeals orders of this Court regarding the timely filing of requisite pleadings, in the interest of just, speedy and
properly applied the clear and unequivocal provisions of Customs Administrative Order No. 15-65. In orderly administration of justice.
doing so, it was just being consistent with its finding of the non-existence of employer-employee Let copies of this decision be spread upon the personal records of the lawyers named herein in the
relationship between MPA and Capt. Gavino precludes the application of Article 2180 of the Civil Code. Office of the Bar Confidant.
True, Customs Administrative Order No. 15-65 does not categorically characterize or label MPA's SO ORDERED.
liability as solidary in nature. Nevertheless, a careful reading and proper analysis of the correlated
provisions lead to the conclusion that MPA is solidarity liable for the negligence of its member pilots,
without prejudice to subsequent reimbursement from the pilot at fault.
Article 1207 of the Civil Code provides that there is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity. Plainly, Customs
Administrative Order No. 15-65, which as an implementing rule has the force and effect of law, can validly
provide for solidary liability. We note the Solicitor General's comment hereon, to wit:

x x x Customs Administrative Order No. 15-65 may be a mere rule and regulation issued by an
administrative agency pursuant to a delegated authority to fix "the details" in the execution or
enforcement of a policy set out in the law itself. Nonetheless, said administrative order, which adds to the
procedural or enforcing provisions of substantive law, is legally binding and receives the same statutory
force upon going into effect. In that sense, it has equal, not lower, statutory force and effect as a regular
statute passed by the legislature."[112]
MPA's prayer for modification of the appellate court's decision under review by exculpating
petitioner MPA "from liability beyond seventy-five percent (75%) of Reserve Fund" is unnecessary
because the liability of MPA under Par. XXVIII of Customs Administrative Order No. 15-65 is in fact
limited to seventy-five percent (75%) of its prescribed reserve fund, any amount of liability beyond that
being for the personal account of the erring pilot and subject to reimbursement in case of a finding of fault
by the member concerned. This is clarified by the Solicitor General:

Moreover, contrary to petitioners pretensions, the provisions of Customs Administrative Order No. 15-65
do not limit the liability of petitioner as a pilots' association to an absurdly small amount of seventy-five
per centum (75%) of the member pilots' contribution of P2,000.00 to the reserve fund. The law speaks of
the entire reserve fund required to be maintained by the pilots' association to answer (for) whatever
liability arising from the tortious act of its members. And even if the association is held liable for an
amount greater than the reserve fund, the association may not resist the liability by claiming to be liable
only up to seventy-five per centum (75%) of the reserve fund because in such instance it has the right to
be reimbursed by the offending member pilot for the excess."[113]