AGUSTIN P.

DELA TORRE, vs. THE HONORABLE COURT OF APPEALS, CRISOSTOMO G.

CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE TRIGON SHIPYARD
CORPORATION, and ROLAND G. DELA TORRE G.R. No. 160088               July 13, 2011

FACTS: Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the
Philippine Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary
Agreement"5 with Roland de la Torre (Roland) for the dry-docking and repairs of the said vessel as
well as for its charter afterwards.6 Under this agreement, Concepcion agreed that after the dry-
docking and repair of LCT-Josephine, it "should" be chartered for ₱ 10,000.00 per month with the
following conditions:

1. The CHARTERER will be the one to pay the insurance premium of the vessel
2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks
3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used
by the FIRST PARTY (referring to Roland) for the maximum period of two (2) years
4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel.

On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation7 (PTSC), represented
by Roland, entered into a "Contract of Agreement,"8 wherein the latter would charter LCT-Josephine
retroactive to May 1, 1984, under the following conditions:

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a

single proprietorship owned by Roland’s father, Agustin de la Torre (Agustin).9 
On November 22, 1984, TSL, this time represented by Roland per Agustin’s Special Power of
Attorney,11 sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo
consisting of sand and gravel to Leyte. The following were agreed upon in that contract,12 to wit:

On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos,
Isabel, Leyte. The vessel was beached near the NDC Wharf. With the vessel’s ramp already lowered,
the unloading of the vessel’s cargo began with the use of Larrazabal’s payloader. While the payloader
was on the deck of the LCT-Josephine scooping a load of the cargo, the vessel’s ramp started to
move downward, the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine sank.13

Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion
that negotiations were underway for the refloating of his vessel.14 Unfortunately, this did not
materialize.
For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and
Damages" against PTSC and Roland before the RTC. PTSC and Roland filed their answer together
with a third-party complaint against Agustin. Agustin, in turn, filed his answer plus a fourth-party
complaint against Larrazabal. The latter filed his answer and counterclaim but was subsequently
declared in default by the RTC.15 Eventually, the fourth-party complaint against Larrazabal was
dismissed when the RTC rendered its decision in favor of Concepcion on July 10, 1991. 16 In said RTC
decision, the following observations were written:

The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1) that the
payloader was used to unload the cargo of sand and gravel; (2) that the payloader had to go inside
the vessel and scoop up a load; (3) that the ramp according to Roland de la Torre, "was not properly
put into peak (sic) such that the front line will touch the bottom, particularly will touch the sea x x x";
(4) that "the tires (of the payloader) will be submerged to (sic) the sea"; (5) that according to
Sungayan "the ramp of the vessel was moving down"; (6) that the payloader had to be maneuvered
by its operator who dumped the load at the side of the vessel; (7) that the dumping of the load
changed the stability of the vessel and tilted it to the starboard side; and (8) that the tilting caused the
sliding of the cargo toward that side and opened the manhole through which seawater rushed in.17

Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin,
also admitted at the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-
Josephine’s operations although the responsibility of loading and unloading the cargo was under
Larrazabal. Thus, the RTC declared that the "efficient cause of the sinking of the LCT-JOSEPHINE

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was the improper lowering or positioning of the ramp," which was well within the charge or
responsibility of the captain and crew of the vessel.
ISSUE:  WON the provision of Code of Commerce, more specifically, the Limited Liability Rule will
apply.

HELD: No. The said rule has been explained to be that of the real and hypothecary doctrine in
maritime law where the shipowner or ship agent’s liability is held as merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction.24 In this jurisdiction, this rule
is provided in three articles of the Code of Commerce. These are:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but
he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it
may have earned during the voyage.

Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part
of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances and freightage served
during the voyage.

Article 837 specifically applies to cases involving collision which is a necessary consequence of the
right to abandon the vessel given to the shipowner or ship agent under the first provision – Article
587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is
co-owned by several persons.25 Obviously, the forerunner of the Limited Liability Rule under the Code
of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or
restricted to the value of the vessel pursuant to the said Rule, and these are the – "indemnities in
favor of third persons which may arise from the conduct of the captain in the care of the goods which
he loaded on the vessel." Thus, what is contemplated is the liability to third persons who may have
dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is the very person whom
the Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a
defense. The policy which the rule is designed to promote is the encouragement of shipbuilding and
investment in maritime commerce.

‘Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the
master, x x x.’27

‘No vessel, no liability,’ expresses in a nutshell the limited liability rule. The shipowner’s or agent’s
liability is merely coextensive with his interest in the vessel such that a total loss thereof results in its
extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer
any res to which it can attach. This doctrine is based on the real and hypothecary nature of maritime
law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the
medieval ages, attended by innumerable hazards and perils. To offset against these adverse
conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any.29

Concepcion as the real shipowner is the one who is supposed to be supported and encouraged to
pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability Rule against him
who, in the first place, should be the one benefitting from the said rule.

The whole ground of this assignment of errors rests on the proposition advanced by the appellant
company that ‘the charterer of a vessel, under the conditions stipulated in the charter party in

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question, is the owner pro hac vice of the ship and takes upon himself the responsibilities of the
owner.’

In the present case, the charterer and the sub-charterer through their respective contracts of
agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was
likewise manned by the charterer and later by the sub-charterer’s people. With the complete and
exclusive relinquishment of possession, command and navigation of the vessel, the charterer and
later the sub-charterer became the vessel’s owner pro hac vice. Now, and in the absence of any
showing that the vessel or any part thereof was commercially offered for use to the public, the above
agreements/charter parties are that of a private carriage where the rights of the contracting parties
are primarily defined and governed by the stipulations in their contract.

MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon. Judge
AMANTE PURISIMA, vs. COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION G.R.
No. 92735               June 8, 2000

FACTS: Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the
shippers and were consequently subrogated to their rights, interests and actions against Aboitiz, the
cargo carrier. 1 Because Aboitiz refused to compensate Monarch, it filed two complaints against
Aboitiz. For its part, Tabacalera also filed two complaints against the same defendant, docketed as.
As these four (4) cases had common causes of action, they were consolidated and jointly tried. 2
All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common
carrier owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila on October 31,
1980. Seeking indemnification for the loss of their cargoes, the shippers, their successors-in-interest,
and the cargo insurers such as the instant petitioners filed separate suits against Aboitiz before the
Regional Trial Courts. 

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

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

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

ABOITIZ SHIPPING CORPORATION, vs. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE

CORPORATION G.R. No. 100446 January 21, 1993

FACTS: Petitioner is a corporation organized and operating under Philippine laws and engaged in the
business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P.
ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October
31, 1980. Private respondent General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC),

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on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several
cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by
the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The
sinking was initially investigated by the Board of Marine Inquiry, which found that such sinking was
due to force majeure and that subject vessel, at the time of the sinking was seaworthy. This
administrative finding notwithstanding, the trial court in said Civil Case found against the carrier on
the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said
case, plaintiff GAFLAC was allowed to prove, and was later awarded, its claim. This decision in favor
of GAFLAC was elevated all the way up to this Court, with Aboitiz, like its ill-fated vessel,
encountering rough sailing. The attempted execution of the judgment award in said case in the
amount of P1,072,611.20 plus legal interest has given rise to the instant petition.

ISSUE: WON the doctrine of limited liability apply in the case.

HELD: Yes. In the few instances when the matter was considered by this Court, we have been
consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is
when there is an actual finding of negligence on the part of the vessel owner or agent.
The real and hypothecary nature of maritime law simply means that the liability of the carrier in
connection with losses related to maritime contracts is confined to the vessel, which is hypothecated
for such obligations or which stands as the guaranty for their settlement. It has its origin by reason of
the conditions and risks attending maritime trade in its earliest years when such trade was replete
with innumerable and unknown hazards since vessels had to go through largely uncharted waters to
ply their trade. It was designed to offset such adverse conditions and to encourage people and
entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding.
Thus, the liability of the vessel owner and agent arising from the operation of such vessel were
confined to the vessel itself, its equipment, freight, and insurance, if any, which limitation served to
induce capitalists into effectively wagering their resources against the consideration of the large
profits attainable in the trade.

It might be noteworthy to add in passing that despite the modernization of the shipping industry and
the development of high-technology safety devices designed to reduce the risks therein, the limitation
has not only persisted, but is even practically absolute in well-developed maritime countries such as
the United States and England where it covers almost all maritime casualties. Philippine maritime law
is of Anglo-American extraction, and is governed by adherence to both international maritime
conventions and generally accepted practices relative to maritime trade and travel.

The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and
while not absolute, must be swept aside only in the established existence of the most compelling of
reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not
sweep such rights aside on mere whim or surmise, for even in the existence of cause to do so, such
incursion is definitely punitive in nature and must never be taken lightly.

In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in
their recovery to the remaining value of accessible assets. In the case of an insolvent corporation,
these are the residual assets of the corporation left over from its operations. In the case of a lost
vessel, these are the insurance proceeds and pending freightage for the particular voyage.

In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction
from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its
loss. No claimant can be given precedence over the others by the simple expedience of having filed
or completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases,
even those already final and executory, must be stayed pending completion of all cases occasioned
by the subject sinking. Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy aall
claims.

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B

LUZON STEVEDORING CORPORATION, vs. COURT OF APPEALS, HIJOS DE F. ESCANO G.R.

No. L-58897 December 3, 1987

FACTS: On May 30, 1968 at past 6:00 in the morning a maritime collision occurred within the vicinity
of the entrance to the North Harbor, Manila between the tanker LSCO "Cavite" owned by Luzon
Stevedoring Corporation and MV "Fernando Escano" a passenger ship owned by Hijos de F. Escano,
Inc. as a result of which said passenger ship sunk. An action in admiralty was filed by Hijos de F.
Escano, Inc. and Domestic Insurance Company of the Philippines against the Luzon Stevedoring
Company (LSC) in the Court of First Instance of Cebu. In the course of the trial, the trial court
appointed two commissioners representing the plaintiffs and defendant to determine the value of the
LSCO "CAVITE." Said commissioners found the value thereof to be P180,000.00.

ISSUE: WON the doctrine of limited liability apply in the case.

HELD: No. We reiterate what we said in previous decisions that the real and hypothecary nature of
the liability of the shipowner or agent is embodied in the provisions of the Maritime Law, Book III,
Code of Commerce. 21 Articles 587, 590 and 837 of the same code are precisely intended to limit the
liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned
in the voyage, provided that owner or agent abandons the vessel. Although it is not specifically
provided for in Article 837 of the same code that in case of collision there should be such
abandonment to enjoy such limited liability, said article on collision of vessels is a mere amplification
of the provisions of Articles 587 and 590 of same code where abandonment of the vessel is a pre-
condition. Even without said article, the parties may avail of the provisions of Articles 587 and 590 of
same code in case of collision. This is the reason why Article 837 of the same code is considered a
superfluity. 22

Hence the rule is that in case of collision there should be abandonment of the vessel by the
shipowner or agent in order to enjoy the limited liability provided for under said Article 837.

The exception to this rule is when the vessel is totally lost in which case there is no vessel to abandon
so abandonment is not required. Because of such total loss the liability of the shipowner or agent for
damages is extinguished. Nevertheless, the shipowner or agent is personally liable for claims under
the Workmen's Compensation Act and for repairs of the vessel before its loss. 23

In case of illegal or tortious acts of the captain the liability of the shipowner and agent is subsidiary. In
such instance the shipowner or agent may avail of the provisions of Article 837 of the Code by
abandoning the vessel. 24

However, if the injury or damage is caused by the shipowner's fault as where he engages the
services of an inexperienced and unlicensed captain or engineer, he cannot avail of the provisions of
Article 837 of the Code by abandoning the vessel. 25 He is personally liable for the damages arising
thereby.
In the case now before the Court there is no question that the action arose from a collision and the
fault is laid at the doorstep of LSCO "Cavite" of petitioner. Undeniably petitioner has not abandoned
the vessel. Hence petitioner can not invoke the benefit of the provisions of Article 837 of the Code of
Commerce to limit its liability to the value of the vessel, all the appurtenances and freightage earned
during the voyage.

ABOITIZ SHIPPING CORPORATION, vs. NEW INDIA ASSURANCE COMPANY, LTD G..R. No.
156978             May 2, 2006

FACTS: Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from
France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to
General Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd. While
in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.4
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Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to
travel to its destination.5 But while at sea, the vessel received a report of a typhoon moving within its
general path. To avoid the typhoon, the vessel changed its course. However, it was still at the fringe
of the typhoon when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his
crew were saved.

On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind
force was at 10 to 15 knots at the time the ship foundered and described the weather as "moderate
breeze, small waves, becoming longer, fairly frequent white horses."6
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the vessel and all of
its cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent
paid General Textile and was subrogated to the rights of the latter.8

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking.
In its report,9 the surveyor concluded that the cause was the flooding of the holds brought about by
the vessel’s questionable seaworthiness. Consequently, respondent filed a complaint for damages
against petitioner Aboitiz, Franco-Belgian Services and the latter’s local agent, F.E. Zuellig, Inc.
(Zuellig). Respondent alleged that the proximate cause of the loss of the shipment was the fault or
negligence of the master and crew of the vessel, its unseaworthiness, and the failure of defendants
therein to exercise extraordinary diligence in the transport of the goods. Hence, respondent added,
defendants therein breached their contract of carriage.101avvphil.net

Franco-Belgian Services and Zuellig responded, claiming that they exercised extraordinary diligence
in handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate
cause of the loss of cargo was a fortuitous event. They also filed a cross-claim against petitioner
alleging that the loss occurred during the transshipment with petitioner and so liability should rest with
petitioner.

For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the
sinking of M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It
also alleged that in accordance with the real and hypothecary nature of maritime law, the sinking
of M/V P. Aboitiz extinguished its liability on the loss of the cargoes.11

ISSUE:  Whether the limited liability doctrine, which limits respondent’s award of damages to its pro-
rata share in the insurance proceeds, applies in this case.

HELD: An exception to the limited liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the captain. In which case, the
shipowner shall be liable to the full-extent of the damage.

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in
the transport of the goods it had on board in order to invoke the limited liability doctrine. Differently
put, to limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving
that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence
presented and the circumstances obtaining in this case, we find that petitioner failed to discharge this
burden. It initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at
fault. However, both the trial and the appellate courts, in this case, found that the sinking was not due
to the typhoon but to its unseaworthiness. Evidence on record showed that the weather was
moderate when the vessel sank. These factual findings of the Court of Appeals, affirming those of the
trial court are not to be disturbed on appeal, but must be accorded great weight. These findings are
conclusive not only on the parties but on this Court as well.24

In contrast, the findings of the BMI are not deemed always binding on the courts. 25 Besides,
exoneration of the vessel’s officers and crew by the BMI merely concerns their respective
administrative liabilities.26 It does not in any way operate to absolve the common carrier from its civil
liabilities arising from its failure to exercise extraordinary diligence, the determination of which
properly belongs to the courts.27

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Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability
cannot be applied.28 Therefore, we agree with the appellate court in sustaining the trial court’s ruling
that petitioner is liable for the total value of the lost cargo.

Motion for recon:

We need only to stress that from the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence over the goods they transport
according to all the circumstances of each case.11 In the event of loss, destruction or deterioration of
the insured goods, common carriers are responsible, unless they can prove that the loss, destruction
or deterioration was brought about by the causes specified in Article 1734 of the Civil Code.12 In all
other cases, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence.13

The weather was moderate when M/V P. Aboitiz sank. Both the trial and appellate courts also ruled
that the M/V P. Aboitiz sank due to its unseaworthiness and not due to typhoon. To limit petitioner's
liability to the amount of the insurance proceeds, it has the burden of showing that the
unseaworthiness of the vessel was not due to its fault or negligence. But it failed to do so. Where the
shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be
applied

DIONISIA ABUEG, ET AL., vs. BARTOLOME SAN DIEGO, G.R. No. L-773              December 17,

1946

FACTS: Dionisia Abueg is the widow of the deceased, Amado Nuñez, who was a machinist on board
the M/S San Diego II belonging to the defendant-appellant BARTOLOME SAN DIEGO. In case CA-
G.R. No. 774, plaintiff-appellee, Marciana S. de Salvacion, is the widow of the deceased, Victoriano
Salvacion, who was a machinist on board the M/S Bartolome S also belonging to the defendant-
appellant. In case CA-G.R. No. 775, the plaintiff-appellee, Rosario R. Oching is the widow of
Francisco Oching who was a captain or patron of the defendant-appellant's M/S Bartolome S.
The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro
Island on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and
totally lost. Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities
perished in the shipwreck.

It is also undisputed that the above-named vessels were not covered by any insurance.
Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned, the agent's
liability to third persons for tortious acts of the captain in the care of the goods which the ship carried
is extinguished. Counsel for the appellant cite article 587 of the Code of Commerce which provides
that if the vessel together with all her tackle and freight money earned during the voyage are
abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the
goods which the ship carried is extinguished.

ISSUE: WON the doctrine of limited liability is applicable.

HELD: No. The provisions of the Code of Commerce invoked by appellant have no room in the
application of the Workmen's Compensation Act which seeks to improve, and aims at the
amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of
the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master
of the ship; nor the liability for the loss of the ship as result of collision; nor the responsibility for wages
of the crew, but a liability created by a statute to compensate employees and laborers in cases of
injury received by or inflicted upon them, while engaged in the performance of their work or
employment, or the heirs and dependents and laborers and employees in the event of death caused
by their employment. Such compensation has nothing to do with the provisions of the Code of
Commerce regarding maritime commerce. It is an item in the cost of production which must be
included in the budget of any well-managed industry.

In the memorandum filed by counsel for the appellant, a new point not relied upon in the court below
is raised. They contend that the motorboats engaged in fishing could not be deemed to be in the
coastwise and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act
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(No. 3428), as amended by Act no. 3812, inasmuch as, according to counsel, a craft engaged in the
coastwise and interisland trade is one that carries passengers and/or merchandise for hire between
ports and places in the Philippine Islands.lawphil.net

This new point raised by counsel for the appellant is inconsistent with the first, for, if the motor ships
in question, while engaged in fishing, were to be considered as not engaged in interisland and
coastwise trade, the provisions of the Code of Commerce invoked by them regarding limitation of the
shipowner's liability or extinction thereof when the shipowner abandons the ship, cannot be applied
(Lopez vs. Duruelo, 52 Phil., 229). Granting however, that the motor ships run and operated by the
appellant were not engaged in the coastwise and interisland trade, as contemplated in section 38 of
the Workmen's Compensation Act, as amended, still the deceased officers of the motor ships in
question were industrial employees within the purview of section 39, paragraph (d), as amended, for
industrial employment "includes all employment or work at a trade, occupation or profession
exercised by an employer for the purpose of gain." The only exceptions recognized by the Act are
agriculture, charitable institutions and domestic service. Even employees engaged in agriculture for
the operation of mechanical implements, are entitled to the benefits of the Workmen's Compensation
Act (Francisco vs. Consing, 63 Phil., 354). In Murillo vs. Mendoza, supra, this Court held that "our
Legislature has deemed it admissible to include in the Workmen's Compensation Act all incidents that
may occur to workmen or employees in factories, shops and other industrial and agricultural
workplaces as well as in the interisland seas of the Archipelago." But we do not believe that the term
"coastwise and interisland trade" has such a narrow meaning as to confine it to the carriage for hire of
passengers and/or merchandise on vessels between ports and places in the Philippines, because
while fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.

CALTEX (PHILIPPINES), INC., vs. SULPICIO LINES, INC G.R. No. 131166 September 30, 1999
FACTS: On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and his
officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV Doña
Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of
Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity
of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz
died, while the two survivors from MT Vector claimed that they were sleeping at the time of the
incident.1âwphi1.nêt

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels
that responded to distress calls. 5 Among those who perished were public school teacher Sebastian
Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested
passengers but proved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation found that
the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector
Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz. 6

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages
Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio,
in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and
Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad
faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a
hazard to safe navigation; as a result, it rammed against MV Doña Paz in the open sea setting MT
Vector's highly flammable cargo ablaze.

ISSUE: WON CALTEX is liable.

HELD: No. First: The charterer has no liability for damages under Philippine Maritime laws.

Transpo Nov 27 - 8
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is
public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the other. Petitioner and Vector
entered into a contract of affreightment, also known as a voyage charter. 10

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use; a contract of affreightment is one by which the owner of
a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance
of goods, on a particular voyage, in consideration of the payment of freight. 11

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage.
In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period
of time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for the
wages of the master of the crew, and defray the expenses for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to
answer this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier.
The parties entered into a voyage charter, which retains the character of the vessel as a common
carrier.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in "public service." 22 The Civil Code demands diligence which is required by the
nature of the obligation and that which corresponds with the circumstances of the persons, the time
and the place. Hence, considering the nature of the obligation between Caltex and MT Vector, liability
as found by the Court of Appeals is without basis.1âwphi1.nêt

The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessel's seaworthiness, genuineness of its licenses and compliance with
all maritime laws. To demand more from shippers and hold them liable in case of failure exhibits
nothing but the futility of our maritime laws insofar as the protection of the public in general is
concerned. By the same token, we cannot expect passengers to inquire every time they board a
common carrier, whether the carrier possesses the necessary papers or that all the carrier's
employees are qualified. Such a practice would be an absurdity in a business where time is always of
the essence. Considering the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal requisites in its operation.

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to
observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we
find no legal basis to hold petitioner liable for damages.

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NATIONAL FOOD AUTHORITY, ROSELINDA GERALDEZ, RAMON SARGAN and APELINA A.
YAP, vs. THE HON. COURT OF APPEALS AND HONGFIL SHIPPING CORPORATION G.R. No.
96453           August 4, 1999

FACTS: National Food Authority (NFA), thru its officers then, Emil Ong, Roselinda Geraldez, Ramon
Sargan and Adelina A. Yap, entered into a "Letter of Agreement for Vessel/Barge Hire"3 with Hongfil
Shipping Corporation (Hongfil) for the shipment of 200,000 bags of corn grains from Cagayan de Oro
City to Manila. NFA sent Hongfil a Letter of Advice that its (Hongfil) vessel should proceed to
Cagayan de Oro City. On February 6, 1987, M/V DIANE/CHARLIE of Hongfil arrived in Cagayan de
Oro City 1500 hours. Hongfil notified the Provincial Manager of NFA in Cagayan de Oro, Eduardo A.
Mercado, of its said vessel's readiness to load and the latter received the said notification on
February 9, 1987.4

A certification of charging rate was then issued by Gold City Integrated Port Services, Inc. (INPORT),
the arrastre firm in Cagayan de Oro City, which certified that it would take them (INPORT) seven (7)
days, eight (8) hours and forty-three (43) minutes5 to load the 200,000 bags of NFA corn grains.
On February 10, 1987, loading on the vessel commenced and was terminated on March 4, 1987. As
there was a strike staged by the arrastre workers and in view of the refusal of the striking stevedores
to attend to their work, the loading of said corn grains took twenty-one (21) days, fifteen hours (15)
and eighteen (18) minutes to finish.

On March 6, 1987, the NFA Provincial Manager allowed MV CHARLIE/DIANE to depart for the Port
of Manila. On March 11, 1987, the vessel arrived at the Port of Manila and a certification of
discharging rate was issued at the instance of Hongfil, stating that it would take twelve (12) days, six
(6) hours and twenty-two (22) minutes to discharge the 200,000 bags of corn grains.

Unfortunately, unloading only commenced on March 15, 1987 and was completed on April 7, 1987. It
took a total period of twenty (20) days, fourteen (14) hours and thirty-three (33) minutes to finish the
unloading, due to the unavailability of a berthing space for M/V CHARLIE/DIANE.

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

When NFA refused to pay the amount reflected in the billing, Hongfil brought an action against NFA
and its officers for recovery of deadfreight and demurrage, docketed, as Civil Case No. 55892 before
Branch 165 of the Regional Trial Court in Pasig City.

ISSUE: 1. WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE FOR DEADFREIGHT.

2. WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE FOR DEMURRAGE.

3. WHETHER OR NOT PERSONAL CIVIL LIABILITY MAY ATTACH TO THE OFFICERS OF NFA.

HELD: It bears stressing that subject Letter of Agreement is considered a Charter Party. A charter
party is classified into (1) "bareboat" or "demise" charter and (2) contract of affreightment. Subject
contract is one of affreightment, whereby the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be rendered by the owner of the vessel. Under
such contract the ship 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.7

1. Yes. Under the law, the cargo not loaded is considered as deadfreight. It is the amount paid by
or recoverable from a charterer of a ship for the portion of the ship's capacity the latter
contracted for but failed to occupy.8 Explicit and succinct is the law that the liability for
deadfreight is on the charterer. The law in point is Article 680 of the Code of Commerce, which
provides:
Transpo Nov 27 - 10
 Art. 680. A charterer who does not complete the full cargo he bound himself to ship shall pay the
freightage of the amount he fails to ship, if the captain does not take other freight to complete the
load of the vessel, in which case the first charterer shall pay the difference, should there be any.

Petitioners' contention is untenable. The words "more or less" when used in relation to quantity or
distance, are words of safety and caution, intended to cover some slight or unimportant inaccuracy. It
allows an adjustment to the demands of circumstances which do not weaken or destroy the
statements of distance and quantity when no other guides are available00.9

In fact, it is further disclosed by the evidence that there was a communication from NFA Administrator
Emil Ong to Oscar Sanchez, Manager of Hongfil Shipping Corporation, stating clearly that the vessel
M/V CHARLIE/DIANE was chartered to "load our 200,000 bags corn grains from Cagayan de Oro to
Manila at P7.30 per 50 kg./bag."10 Therefrom, it can be gleaned unerringly that the charter party was
to transport 200,000 bags of corn grains.

It is thus decisively clear that the letter of agreement covered 200,000 bags of corn grains but only
166,798 bags were unloaded at the Port of Manila. Consequently, shut-out load or deadfreight of
33,201 bags at P7.30 per bag or P242,367.30 should be paid by NFA to Hongfil Shipping
Corporation.

2. No. Demurrage is the sum fixed in a charter party as a remuneration to the owner of the ship for
the detention of his vessel beyond the number of days allowed by the charter party for loading or
unloading or for sailing.12 Liability for demurrage, using the word in its strict technical sense, exist only
when expressly stipulated in the contract.13

Shipper or charterer is liable for the payment of demurrage claims when he exceeds the period for
loading or unloading as agreed upon or the agreed "laydays". The period for such may or may not be
stipulated in the contract.14 A charter party may either provide for a fixed laydays or contain general or
indefinite words such as "customary quick dispatch" or "as fast as the steamer can load."

In the present case, charterer NFA could not be held liable for demurrage for the delay resulting from
the aforementioned circumstances. The provision "Laydays: Customary Quick Dispatch" invoked by
Hongfil is unavailing as a basis for requiring the charterer to pay for demurrage absent convincing
proof that the time for the loading or unloading in question was beyond the "reasonable time" within
the contemplation of the charter party. Here, the Court holds that the delay sued upon was still within
the "reasonable time" embraced in the stipulation of "Customary Quick Dispatch."

3. NO. being a juridical entity, may act only through its officers, directors and employees. Obligations
incurred or contracted by them, acting as such corporate agents, are not theirs but the direct
accountability of the corporation they represent.

The exceptions wherein personal civil liability may attach to a corporate officer are:
1. When directors and trustees or, in appropriate cases, the officers of a corporation —
a. vote for or assent to patently unlawful acts of the corporation;
b. act in bad faith or with gross negligence in directing the corporate affairs;
c. are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons.
2. When a director or officer has consented to the issuance of watered stocks, or who, having
knowledge thereof, did not forth with file with the corporate secretary his written objection
thereto.
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.21 (emphasis supplied)

The present case under scrutiny does not fall under any of such exceptions. A careful perusal of the
contract litigated upon reveals that the petitioners, as officers of NFA, did not bind themselves to be
personally liable nor did they ink any undertaking that should NFA fail to pay Hongfil's claims, they

Transpo Nov 27 - 11
would be personally liable. Hongfil has not cited any provision of law under which the officers of NFA
are liable under the contract entered into.

What is more, there is nothing on record to show that the petitioner-officers acted in bad faith or were
guilty of gross negligence, to warrant personal liability. Neither the trial court nor the Court of Appeals
found of bad faith or gross negligence on the part of the said officers of NFA.
Bad faith or negligence is a question of fact and is evidentiary. It has been held that "bad faith does
not simply mean bad judgment or negligence; it imparts a dishonest purpose or some moral obliquity
and conscious doing of wrong. It means a breach of a known duty through some motive or interest or
ill-will; it partakes of the nature of fraud

NATIONAL STEEL CORPORATION, vs. COURT OF APPEALS AND VLASONS SHIPPING, INC.

G.R. No. 112287 December 12, 1997

FACTS: The MV Vlasons I is a vessel which renders tramping service and, as such, does not
transport cargo 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. The ship is a private carrier, and it is
in this capacity that its owner, Vlasons Shipping, Inc. (VSA), entered into a contract of affreightment
or contract of voyage charter hire with National Steel Corporation (NSC) on 17 July 1974, whereby
NSC hired VSI’s vessel, the MV ‘VLASONS I’ to make 1 voyage to load steel products at Iligan City
and discharge them at North Harbor, Manila

The shipment was placed in the 3 hatches of the ship which arrived with the cargo at Pier 12, North
Harbor, Manila, on 12 August 1974. The following day, when the vessel’s 3 hatches containing the
shipment were opened by NSC’s 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.

On 6 September 1974 NSC filed with VSI its claim for damages suffered due to the downgrading of
the damaged tinplates in the amount of P941,145.18. Then on 3 October 1974, NSC formally
demanded payment of said claim but VSI refused and failed to pay. On appeal, and on 12 August
1993, 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. The CA denied both motions. NSC and VSI filed
their respective petitions for review before the Supreme Court.

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.

ISSUE: Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;

HELD: No. The Court defined demurrage in its strict sense as the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the laytime or that period of time
agreed on for loading and unloading of cargo.40 It is given to compensate the shipowner for the
nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed
in "running days," this means days when the ship would be run continuously, and holidays are
not excepted. A qualification of "weather permitting" excepts only those days when bad
weather reasonably prevents the work contemplated.41

Transpo Nov 27 - 12
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.

PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS, SORIAMONT STEAMSHIP

AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, G.R. No. 101503 September 15, 1993

FACTS: Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation
(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the
latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private
respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, to Poro Point, San Fernando,
La Union, Philippines.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK
as shipowner, in Tokyo, Japan.

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. PPI unloaded the cargo from the holds into its steelbodied dump
trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to
the terms and conditions of the charter-partly.6 The hatches remained open throughout the duration of
the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable, raining occasionally
while the discharge was in progress.8 The petitioner's warehouse was made of corrugated galvanized
iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the
fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI)
dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea
fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce,
having been polluted with sand, rust and dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged

Transpo Nov 27 - 13
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13

ISSUE: whether a common carrier becomes a private carrier by reason of a charter-party;

HELD: A "charter-party" is defined as a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; 20 a contract of affreightment
by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of
shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and,
(b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants. Contract of affreightment may
either be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or
voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master and
the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the business, such that if the undertaking is a
single transaction, not a part of the general business or occupation, although involving the carriage of
goods for a fee, the person or corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry.25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving otherwise
rests on them.26 On the contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of proving that the cause was
the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course of
the voyage and other technical incidents of maritime navigation were all consigned to the officers and
crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the vessel
and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as
the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or
voyage charter retains possession and control of the ship, although her holds may, for the moment,
be the property of the charterer

the rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a
more exacting interpretation of admiralty laws, more particularly, the rules governing common
carriers.
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COASTWISE LIGHTERAGE CORPORATION, vs. COURT OF APPEALS and the PHILIPPINE
GENERAL INSURANCE COMPANY G.R. No. 114167 July 12, 1995

FACTS: Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of
Negros to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned
by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long" 1 As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-
asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged
cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which
the consignee may have against the carrier, which is presumed to have violated the contract of
carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court
of Appeals, the award was affirmed.

ISSUE: whether or not petitioner Coastwise Lighterage was transformed into a private carrier, by
virtue of the contract of affreightment which it entered into with the consignee, Pag-asa Sales, Inc.
Corollarily, if it were in fact transformed into a private carrier, did it exercise the ordinary diligence to
which a private carrier is in turn bound?

HELD: No. Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and
crew, would remain in the absence of stipulation.3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein we
ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes the owner pro hac vice, subject to liability to others for damages caused by negligence. To
create a demise, the owner of a vessel must completely and exclusively relinquish possession,
command and navigation thereof to the charterer, anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all
of its space to haul goods for others. It is a contract for special service to be rendered by the owner of
the vessel and under such contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return
for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of the charterer,
remains liable as carrier and must answer for any breach of duty as to the care, loading and
unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment on account of the aforementioned distinctions between the two.

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Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command and navigation of the vessels remained with petitioner
Coastwise Lighterage.by the contract of affreightment, was not converted into a private carrier, but
remained a common carrier and was still liable as such.

The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in
bad order makes for a prima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.

The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of
the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any effort
to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to avoid
navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being unaware
of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same.
Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by the
provisions of the Civil Code) provides:

Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract
in accordance with this code, and prove the skill capacity and qualifications necessary to command
and direct the vessel, as established by marine and navigation laws, ordinances or regulations, and
must not be disqualified according to the same for the discharge of the duties of the position. . . .

Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this rule. It cannot
safely claim to have exercised extraordinary diligence, by placing a person whose navigational skills
are questionable, at the helm of the vessel which eventually met the fateful accident. It may also
logically, follow that a person without license to navigate, lacks not just the skill to do so, but also the
utmost familiarity with the usual and safe routes taken by seasoned and legally authorized ones. Had
the patron been licensed, he could be presumed to have both the skill and the knowledge that would
have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.

NATIONAL DEVELOPMENT COMPANY, vs. THE COURT OF APPEALS and DEVELOPMENT

INSURANCE & SURETY CORPORATION G.R. No. L-49407 August 19, 1988

FACTS: 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.
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. Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui,
Transpo Nov 27 - 16
Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium
lauryl sulfate and 10 cases of aluminum foil. 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. 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).

ISSUE: 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.

HELD: "that the law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration" (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.
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.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded; that in case of collision, both the owner and the agent are civilly
responsible for the acts of the captain; 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. 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.

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.

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