G..R. No.
156978             May 2, 2006 loss of the shipment was the fault or negligence of the
ABOITIZ SHIPPING CORPORATION, Petitioner,
vs.
NEW INDIA ASSURANCE COMPANY,
LTD., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision 1 dated
August 29, 2002 of the Court of Appeals in CA-G.R.
CV No. 28770 and its Resolution 2 dated January 23,
2003 denying reconsideration. The Court of Appeals
affirmed the Decision3 dated November 20, 1989 of
the Regional Trial Court of Manila in Civil Case No.
82-1475, in favor of respondent New India Assurance
Company, Ltd.
This petition stemmed from the action for damages
against petitioner, Aboitiz Shipping Corporation,
arising from the sinking of its vessel, M/V P. Aboitiz,
on October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of
textiles and auxiliary chemicals from France on board
a vessel owned by Franco-Belgian Services, Inc. The
cargo was consigned to General Textile, Inc., in
Manila and insured by respondent New India
Assurance Company, Ltd. While in Hongkong, the
cargo was transferred to M/V P. Aboitiz for
transshipment to Manila.4
Before departing, the vessel was advised by the
Japanese Meteorological Center that it was safe to
travel to its destination. 5 But while at sea, the vessel
received a report of a typhoon moving within its
general path. To avoid the typhoon, the vessel
changed its course. However, it was still at the fringe
of the typhoon when its hull leaked. On October 31,
1980, the vessel sank, but the captain and his crew
were saved.
On November 3, 1980, the captain of M/V P.
Aboitiz filed his "Marine Protest", stating that the wind
force was at 10 to 15 knots at the time the ship
foundered and described the weather as "moderate
breeze, small waves, becoming longer, fairly frequent
white horses."6
Thereafter, petitioner notified7 the consignee, General
Textile, of the total loss of the vessel and all of its
cargoes. General Textile, lodged a claim with
respondent for the amount of its loss. Respondent
paid General Textile and was subrogated to the rights
of the latter.8
Respondent hired a surveyor, Perfect, Lambert and
Company, to investigate the cause of the sinking. In
its report,9 the surveyor concluded that the cause was
the flooding of the holds brought about by the 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
master and crew of the vessel, its unseaworthiness,
and the failure of defendants therein to exercise
extraordinary diligence in the transport of the goods.
Hence, respondent added, defendants therein
breached their contract of carriage.101avvphil.net
Franco-Belgian Services and Zuellig responded,
claiming that they exercised extraordinary diligence in
handling the shipment while it was in their possession;
its vessel was seaworthy; and the proximate cause of
the loss of cargo was a fortuitous event. They also
filed a cross-claim against petitioner alleging that the
loss occurred during the transshipment with petitioner
and so liability should rest with petitioner.
For its part, petitioner also raised the same defense
that the ship was seaworthy. It alleged that the sinking
of M/V P. Aboitiz was due to an unforeseen event and
without fault or negligence on its part. It also alleged
that in accordance with the real and hypothecary
nature of maritime law, the sinking of M/V P.
Aboitiz extinguished its liability on the loss of the
cargoes.11
Meanwhile, the Board of Marine Inquiry (BMI)
conducted its own investigation to determine whether
the captain and crew were administratively liable.
However, petitioner neither informed respondent nor
the trial court of the investigation. The BMI exonerated
the captain and crew of any administrative liability;
and declared the vessel seaworthy and concluded
that the sinking was due to the vessel’s exposure to
the approaching typhoon.
On November 20, 1989, the trial court, citing the Court
of Appeals decision in General Accident Fire and Life
Assurance Corporation v. Aboitiz Shipping
Corporation12 involving the same incident, ruled in
favor of respondent. It held petitioner liable for the
total value of the lost cargo plus legal interest, thus:
WHEREFORE, PREMISES CONSIDERED, judgment
is hereby rendered in favor of New India and against
Aboitiz ordering the latter to pay unto the former the
amount of P142,401.60, plus legal interest thereon
until the same is fully paid, attorney’s fees equivalent
to fifteen [percent] (15%) of the total amount due and
the costs of suit.
The complaint with respect to Franco and Zuellig is
dismissed and their counterclaim against New India is
likewise dismissed
SO ORDERED.13
1avvphil.net
Petitioner elevated the case to the Court of Appeals
and presented the findings of the BMI. However, on
August 29, 2002, the appellate court affirmed in
toto the trial court’s decision. It held that the
proceedings before the BMI was only for the
administrative liability of the captain and crew, and
was unilateral in nature, hence not binding on the
courts. Petitioner moved for reconsideration but the
same was denied on January 23, 2003.
Hence, this petition for review, alleging that the Court
of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE
HONORABLE SUPREME COURT ON THE
APPLICATION OF THE RULE ON LIMITED
LIABILITY UNDER ARTICLE 587, 590 AND 837 OF
THE CODE OF COMMERCE TO CASES
INVOLVING THE SINKING OF THE M/V "P.
ABOITIZ;
A.
x x x NOT APPLYING THE RULINGS IN THE
CASES OF MONARCH INSURANCE CO., INC. ET
AL. V. COURT OF APPEALS ET AL. AND ABOITIZ
SHIPPING CORPORATION V. GENERAL
ACCIDENT FIRE AND LIFE ASSURANCE
CORPORATION, LTD.;
B.
x x x RULING THAT THE ISSUE ON THE
APPLICATION OF THE RULE ON LIMITED
LIABILITY UNDER ARTICLES 587, 590 AND 837 OF
THE CODE OF COMMERCE HAD BEEN
CONSIDERED AND PASSED UPON IN ITS
DECISION;
II.
x x x NOT LIMITING THE AWARD OF
DAMAGES TO RESPONDENT TO ITS PRO-
RATA SHARES IN THE INSURANCE PROCEEDS
FROM THE SINKING OF THE M/V "P. ABOITIZ".14
Stated simply, we are asked to resolve whether the
limited liability doctrine, which limits respondent’s
award of damages to its pro-rata share in the
insurance proceeds, applies in this case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court
of Appeals,  15 contends that respondent’s claim for
damages should only be against the insurance
proceeds and limited to its pro-rata share in view of
the doctrine of limited liability.
Respondent counters that the doctrine of real and
hypothecary nature of maritime law is not applicable
in the present case because petitioner was found to
have been negligent. Hence, according to respondent,
petitioner should be held liable for the total value of
the lost cargo.
It bears stressing that this Court has variedly applied
the doctrine of limited liability to the same incident –
the sinking of M/V P. Aboitiz on October 31,
1980. Monarch, the latest ruling, tried to settle the
conflicting pronouncements of this Court relative to
the sinking of M/V P. Aboitiz. In Monarch, we said that
the sinking of the vessel was not due to force
majeure, but to its unseaworthy condition. 16 Therein,
we found petitioner concurrently negligent with the
captain and crew.17 But the Court stressed that the
circumstances therein still made the doctrine of limited
liability applicable.18
Our ruling in Monarch may appear inconsistent with
the exception of the limited liability doctrine, as
explicitly stated in the earlier part of
the Monarch decision. An exception to the limited
liability doctrine is when the damage is due to the fault
of the shipowner or to the concurrent negligence of
the shipowner and the captain. In which case, the
shipowner shall be liable to the full-extent of the
damage.19 We thus find it necessary to clarify now the
applicability here of the decision in Monarch.
From the nature of their business and for reasons of
public policy, common carriers are bound to observe
extraordinary diligence over the goods they transport
according to all the circumstances of each case. 20 In
the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible,
unless they can prove that the loss, destruction or
deterioration was brought about by the causes
specified in Article 1734 of the Civil Code. 21 In all other
cases, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove
that they observed extraordinary
diligence.22 Moreover, where the vessel is found
unseaworthy, the shipowner is also presumed to be
negligent since it is tasked with the maintenance of its
vessel. Though this duty can be delegated, still, the
shipowner must exercise close supervision over its
men.23
In the present case, petitioner has the burden of
showing that it exercised extraordinary diligence in the
transport of the goods it had on board in order to
invoke the limited liability doctrine. Differently put, to
limit its liability to the amount of the insurance
proceeds, petitioner has the burden of proving that the
unseaworthiness of its vessel was not due to its fault
or negligence. Considering the evidence presented
and the circumstances obtaining in this case, we find
that petitioner failed to discharge this burden. It
initially attributed the sinking to the typhoon and relied
on the BMI findings that it was not at fault. However,
both the trial and the appellate courts, in this case,
found that the sinking was not due to the typhoon but
to its unseaworthiness. Evidence on record showed
that the weather was moderate when the vessel sank.
These factual findings of the Court of Appeals,
affirming those of the trial court are not to be disturbed
on appeal, but must be accorded great weight. These
findings are conclusive not only on the parties but on
this Court as well.24
In contrast, the findings of the BMI are not deemed
always binding on the courts.25 Besides, exoneration
of the 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
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.
WHEREFORE, the petition is DENIED for lack of
merit. The Decision dated August 29, 2002 and
Resolution dated January 23, 2003 of the Court of
Appeals in CA-G.R. CV No. 28770 are AFFIRMED.
Costs against petitioner. 9
 Records, pp. 562-580.

SO ORDERED. 10
 Id. at 5-6.

LEONARDO A. QUISUMBING 11
 Id. at 18-19, 23-24.
Associate Justice
 CA-G.R. C.V. No. 10609, March 9, 1989
12

WE CONCUR: (Now SC G.R No. 89757, August 6, 1990, 188

SCRA 387).
ANTONIO T. CARPIO
Associate Justice 13
 Records, p. 859.

DANTE O. 14
 Rollo, pp. 68-69.
CONCHITA CARPIO
TINGA
MORALES
Asscociate  G.R. No. 92735, June 8, 2000, 333 SCRA
15
Associate Justice
Justice 71.

PRESBITERO J. VELASCO, JR. 16

 Id. at 98-99.
Associate Justice
17
 Id. at 101.
ATTESTATION
18
 Id. at 103.
I attest that the conclusions in the above Decision had
been reached in consultation before the case was 19
 Id. at 97.
assigned to the writer of the opinion of the Court’s
Division. 20
 Civil Code, Art. 1733. Common carriers,
from the nature of their business and for
LEONARDO A. QUISUMBING reasons of public policy, are bound to observe
Associate Justice extraordinary diligence in the vigilance over
Chairperson the goods and for the safety of the
passengers transported by them, according to
CERTIFICATION all the circumstances of each case.

Pursuant to Section 13, Article VIII of the Constitution
and the Division Chairperson’s Attestation, I certify
that the conclusions in the above decision had been
reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
 Id. at Art. 1734. Common carriers are
21
Such extraordinary diligence in the
vigilance over the goods is further
expressed in articles 1734, 1735, and
1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of
the passengers is further set forth in
articles 1755 and 1756.

Footnotes responsible for the loss, destruction, or

deterioration of the goods, unless the same is
1
 Rollo, pp. 84-97. Penned by Associate due to any of the following causes only:
Justice Romeo J. Callejo, Sr. (now a member
of this Court), with Associate Justices (1) Flood, storm, earthquake, lightning, or
Remedios Salazar-Fernando, and Danilo B. other natural disaster or calamity;
Pine concurring.
(2) Act of the public enemy in war,
 Id. at 99. Penned by Associate Justice
2 whether international or civil;
Danilo B. Pine, with Associate Justices
Godardo A. Jacinto, and Remedios Salazar- (3) Act or omission of the shipper or
Fernando concurring. owner of the goods;

3
 Id. at 149-166. (4) The character of the goods or defects
in the packing or in the containers;
4
 Id. at 84-85, 150.
(5) Order or act of competent public
5
 Id. at 65. authority.

6
 Id. at 163-164.

7
 Exhibit "F-1," folder of exhibits, p. 8.

8
 Exhibits "G, G-1, G-2," Id. at 11.
22
 Id. at Art. 1735. In all cases other than those
mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost,
destroyed or deteriorated, common carriers
are presumed to have been at fault or to have
acted negligently, unless they prove that they
observed extraordinary diligence as required
in article 1733.

23
 Philippine American General Insurance Co.,
Inc. v. Court of Appeals, G.R. No. 116940,
June 11, 1997, 273 SCRA 262, 272.

 Prudential Bank v. Chonney Lim, G.R. No.

24

136371, November 11, 2005, p. 5.

 See Aboitiz Shipping Corporation v. Court of

25

Appeals, G.R. No. 89757, August 6, 1990,

188 SCRA 387, 390-391.

 Delsan Transport Lines, Inc. v. Court of

26

Appeals, G.R. No. 127897, November 15,

2001, 369 SCRA 24, 33.

27
 Id. at 33-34.

28
 Central Shipping Company, Inc. v.
Insurance Company of North America, G.R.
No. 150751, September 20, 2004, 438 SCRA
511, 523-524.