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62. Sea Land Service Inc. v.

Intermediate Appellate Court 153 SCRA 552


87. Mirasol v. Robert Dollar Co. 53 Phil 1214
G.R. No. L-29721 March 27, 1929
AMANDO MIRASOL, plaintiff-appellant, vs.THE ROBERT DOLLAR CO., defendant-appellant.
Vicente Hilado for plaintiff-appellant.J.A. Wolfson for defendant-appellant.
STATEMENT
After the promulgation of the decision rendered by the Second Division of February 13, 1929,
1
the
defendant filed a motion to have the case heard and decided in banc, and inasmuch as the legal
questions involved are important to the shipping interests, the court thought it best to do so.
After the formal pleas, plaintiff alleges that he is the owner and consignee of two cases of books,
shipped in good order and condition at New York, U.S.A., on board the defendant's steamship
President Garfield, for transport and delivery to the plaintiff in the City of Manila, all freight charges
paid. That the two cases arrived in Manila on September 1, 1927, in bad order and damaged condition,
resulting in the total loss of one case and a partial loss of the other. That the loss in one case is P1,630,
and the other P700, for which he filed his claims, and defendant has refused and neglected to pay,
giving as its reason that the damage in question "was caused by sea water." That plaintiff never entered
into any contract with the defendant limiting defendant's liability as a common carrier, and when he
wrote the letter of September 3, 1927, he had not then ascertained the contents of the damaged case,
and could not determine their value. That he never intended to ratify or confirm any agreement to limit
the liability of the defendant. That on September 9, 1927, when the other case was found, plaintiff filed
a claim for the real damage of the books therein named in the sum of $375.
Plaintiff prays for corresponding judgment, with legal interest from the filing of the complaint and
costs.
For answer the defendant made a general and specific denial, and as a separate and special defense
alleges that the steamship President Garfield at all the times alleged was in all respects seaworthy and
properly manned, equipped and supplied, and fit for the voyage. That the damage to plaintiff's
merchandise, if any, was not caused through the negligence of the vessel, its master, agent, officers,
crew, tackle or appurtenances, nor by reason of the vessel being unseaworthy or improperly manned,
"but that such damage, if any, resulted from faults or errors in navigation or in the management of said
vessel." As a second separate and special defense, defendant alleges that in the bill of lading issued by
the defendant to plaintiff, it was agreed in writing that defendant should not be "held liable for any loss
of, or damage to, any of said merchandise resulting from any of the following causes, to wit: Acts of
God, perils of the sea or other waters," and that plaintiff's damage, if any, was caused by "Acts of God"
or "perils of the sea." As a third special defense, defendant quoted clause 13 of the bill of lading, in
which it is stated that in no case shall it be held liable "for or in respect to said merchandise or property
beyond the sum of two hundred and fifty dollars for any piece, package or any article not enclosed in a
package, unless a higher value is stated herein and ad valorem freight paid or assessed thereon," and
that there was no other agreement. That no September 3, 1927 the plaintiff wrote the defendant a letter
as follows:
Therefore, I wish to file claim of damage to the meager maximum value that your bills of lading will
indemnify me, that is $250 as per condition 13.
As a fourth special defense, defendant alleges that the damage, if any, was caused by "sea water," and
that the bill of lading exempts defendant from liability for that cause. That damage by "sea water" is a
shipper's risk, and that defendant is not liable.
As a result of the trial upon such issues, the lower court rendered judgment for the plaintiff for P2,080,
with legal interest thereon from the date of the final judgment, with costs, from which both parties
appealed, and the plaintiff assigns the following errors:
I. The lower court erred in holding that plaintiff's damage on account of the loss of the damaged books
in the partially damaged case can be compensated with an indemnity of P450 instead of P750 as
claimed by plaintiff.
II. The lower court, consequently, also erred in giving judgment for plaintiff for only P2,080 instead of
P2,380.
III. The lower court erred in not sentencing defendant to pay legal interest on the amount of the
judgment, at least, from the date of the rendition of said judgment, namely, January 30, 1928.
The defendant assigns the following errors:
I. The lower court erred in failing to recognize the validity of the limited liability clause of the bill of
lading, Exhibit 2.
II. The lower court erred in holding defendant liable in any amount and in failing to hold, after its
finding as a fact that the damage was caused by sea water, that the defendant is not liable for such
damage by sea water.
III. The lower court erred in awarding damages in favor of plaintiff and against defendant for P2,080 or
in any other amount, and in admitting, over objection, Exhibits G, H, I and J.
JOHNS, J.:
Plaintiff's contention that he is entitled to P700 for his Encyclopedia Britannica is not tenable. The
evidence shows that the P400 that the court allowed, he could buy a new set which could contain all of
the material and the subject matter of the one which he lost. Plaintiff's third assignment of error is well
taken, as under all of the authorities, he is entitled to legal interest from the date of his judgement
rendered in the lower court and not the date when it becomes final. The lower court found that
plaintiff's damage was P2,080, and that finding is sustained by that evidence. There was a total loss of
one case and a partial loss of the other, and in the very nature of the things, plaintiff could not prove his
loss in any other way or manner that he did prove it, and the trial court who heard him testify must have
been convinced of the truth of his testimony.
There is no claim or pretense that the plaintiff signed the bill of lading or that he knew of his contents
at the time that it was issued. In that situation he was not legally bound by the clause which purports to
limit defendant's liability. That question was squarely met and decided by this court in banc in Juan
Ysmael and Co., vs. Gabino Baretto and Co., (51 Phil., 90; see numerous authorities there cited).
Among such authorities in the case of The Kengsington decided by the Supreme Court of the U.S.
January 6, 1902 (46 Law. Ed., 190), in which the opinion was written by the late Chief Justice White,
the syllabus of which is as follows:
1. Restrictions of the liability of a steamship company for its own negligence or failure of duty toward
the passenger, being against the public policy enforced by the courts of the United States, will not to be
upheld, though the ticket was issued and accepted in a foreign country and contained a condition
making it subject to the law thereof, which sustained such stipulation.
2. The stipulation in a steamship passenger's ticket, which compels him to value his baggage, at a
certain sum, far less than it is worth, or, in order to have a higher value put upon it, to subject it to the
provisions of the Harter Act, by which the carrier would be exempted from all the liability therefore
from errors in navigation or management of the vessel of other negligence is unreasonable and in
conflict with public policy.
3. An arbitrary limitation of 250 francs for the baggage of any steamship passenger unaccompanied by
any right to increase the amount of adequate and reasonable proportional payment, is void as against
public policy.
Both the facts upon which it is based and the legal principles involved are square in point in this case.
The defendant having received the two boxes in good condition, its legal duty was to deliver them to
the plaintiff in the same condition in which it received them. From the time of their delivery to the
defendant in New York until they are delivered to the plaintiff in Manila, the boxes were under the
control and supervision of the defendant and beyond the control of the plaintiff. The defendant having
admitted that the boxes were damaged while in transit and in its possession, the burden of proof then
shifted, and it devolved upon the defendant to both allege and prove that the damage was caused by
reason of some fact which exempted it from liability. As to how the boxes were damaged, when or
where, was a matter peculiarly and exclusively within the knowledge of the defendant and in the very
nature of things could not be in the knowledge of the plaintiff. To require the plaintiff to prove as to
when and how the damage was caused would force him to call and rely upon the employees of the
defendant's ship, which in legal effect would be to say that he could not recover any damage for any
reason. That is not the law.
Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights, and
when goods are delivered on board ship in good order and condition, and the shipowner delivers them
to the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove
that the goods were damaged by the reason of some fact which legally exempts him from liability;
otherwise, the shipper would be left without any redress, no matter what may have caused the damage.
The lower court in its opinion says:
The defendant has not even attempted to prove that the two cases were wet with sea water by fictitious
event, force majeure or nature and defect of the things themselves. Consequently, it must be presumed
that it was by causes entirely distinct and in no manner imputable to the plaintiff, and of which the
steamer President Garfield or any of its crew could not have been entirely unaware.
And the evidence for the defendant shows that the damage was largely caused by "sea water," from
which it contends that it is exempt under the provisions of its bill of lading and the provisions of the
article 361 of the Code of Commerce, which is as follows:
Merchandise shall be transported at the risk and venture of the shipper, if the contrary was not
expressly stipulated.
Therefore, all damages and impairment suffered by the goods during the transportation, by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account and
risk of the shipper.
The proof of these accidents is incumbent on the carrier.
In the final analysis, the cases were received by the defendant in New York in good order and
condition, and when they arrived in Manila, they were in bad condition, and one was a total loss. The
fact that the cases were damaged by "sea water," standing alone and within itself, is not evidence that
they were damaged by force majeure or for a cause beyond the defendant's control. The words "perils
of the sea," as stated in defendant's brief apply to "all kinds of marine casualties, such as shipwreck,
foundering, stranding," and among other things, it is said: "Tempest, rocks, shoals, icebergs and other
obstacles are within the expression," and "where the peril is the proximate cause of the loss, the
shipowner is excused." "Something fortuitous and out of the ordinary course is involved in both words
'peril' or 'accident'."
Defendant also cites and relies on the case of Government of the Philippine Islands vs. Ynchausti &
Company (40 Phil., 219), but it appears from a reading of that case that the facts are very different and,
hence, it is not in point. In the instant case, there is no claim or pretense that the two cases were not in
good order when received on board the ship, and it is admitted that they were in bad order on their
arrival at Manila. Hence, they must have been damaged in transit. In the very nature of things, if they
were damaged by reason of a tempest, rocks, icebergs, foundering, stranding or the perils of the sea,
that would be a matter exclusively within the knowledge of the officers of defendant's ship, and in the
very nature of things would not be within plaintiff's knowledge, and upon all of such questions, there is
a failure of proof.
The judgment of the lower court will be modified, so as to give the plaintiff legal interest on the
amount of his judgment from the date of its rendition in the lower court, and in all respects affirmed,
with costs. So ordered.
Johnson, Malcolm, Ostrand, Romualdez, and Villa-Real, JJ., concur.
Separate Opinions
STREET, J., dissenting in part:
I gave a hesitating adherence to the decision of this case in division, and upon further reflection, I am
now constrained to record my belief that the decision is in part erroneous. I agree with the court that the
defendant is liable to the plaintiff, but I think that its liability is limited, under clause 13, printed on the
back of the bill of lading, to the amount of 250 dollars for each of the two boxes of books comprising
this consignment. While the law does not permit a carrier gratuitously to exempt itself from liability for
the negligence of its servants, it cannot effectually do so for a valuable consideration; and where freight
rates are adjusted upon the basis of a reasonable limited value per package, where a higher value is not
declared by the shipper, the limitation as to the value is binding. This court in two well considered
decisions has heretofore upheld a limitation of exactly the character of that indicated in clause 13 (H.E.
Heacock Co. vs. Macondray & Co., 42 Phil., 205; Freixas & Co. vs. Pacific Mail Steamship Co., 42
Phil., 198); and I am unable to see any sufficient reason for ignoring those decisions.
88.. MRR v. La. Cia. Transatlantica et al. 38 Phil 875
G.R. No. L-11318 October 26, 1918
THE MANILA RAILROAD CO., plaintiff-appellant, vs.LA COMPAIA TRANSATLANTICA,
defendant-appellee. and THE ATLANTIC GULF & PACIFIC CO., defendant-appellant.
William A. Kincaid & Thomas L. Hartigan for plaintiff-appellant.Lawrence, Ross & Block for
defendant-appellant Atlantic, Gulf & Pacific Co.Gilbert, Cohn & Fisher for defendant-appellee
Compaia Transatlantica.

STREET, J.:
In March 1914, the steamship Alicante, belonging to the Compaia Transatlantica de Barcelona,
arrived at Manila with two locomotive boilers aboard, the property of The Manila Railroad Company.
The equipment of the ship for discharging heavy cargo was not sufficiently strong to handle these
boilers, and it was therefore necessary for the Steamship Company to procure assistance in the port of
Manila.
The Atlantic, Gulf and Pacific Company (hereafter called the Atlantic Company) was
accordingly employed by the Steamship Company, as having probably the best equipment for this
purpose of any contracting company in the city. The service to be performed by the Atlantic Company
consisted in bringing it s floating crane alongside the Alicante, lifting the boilers our of the ship's hold,
and transferring them to a barge which would be placed ready to receive them.
Upon the arrival of the Alicante, the Atlantic company sent out its crane in charge of one Leyden.
In preparing to hoist the first boiler the sling was unfortunately adjusted near the middle of the boiler,
and it was thus raised nearly in an horizontal position. The boiler was too long to clear the hatch in this
position, and after one end of the boiler had emerged on one side of the hatch, the other still remained
below on the other side. When the boiler had been gotten into this position and was being hoisted still
further, a river near the head of the boiler was caught under the edge of the hatch. The weight on the
crane was thus increased by a strain estimated at fifteen tons with the result that the cable of the sling
parted and the boiler fell to the bottom of the ship's hold. The sling was again adjusted to the boiler but
instead of being placed near the middle it was now slung nearer one of the ends, as should have been
done at first. The boiler was gain lifted; but as it was being brought up, the bolt at the end of the derrick
book broke, and again the boiler fell.
The crane was repaired and the boiler discharged, but it was found to be so badly damaged that it
had to be reshipped to England where it was rebuilt, and afterwards was returned to Manila. The
Railroad Company's damage by reason of the cost of repairs, expenses and loss of the use of the boiler
proved to be P23,343.29; and as to the amount of the damage so resulting there is practically no
dispute. To recover these damages the present action was instituted by the Railroad Company against
the Steamship Company. the latter caused the Atlantic Company to be brought in as a codefendant, and
insisted that whatever liability existed should be fixed upon the Atlantic Company as an independent
contractor who had undertaken to discharge the boilers and had become responsible for such damage as
had been done.
The judge of the Court of First Instance gave judgment in favor of the plaintiff against the
Atlantic Company, but the absolved the Steamship Company from the complaint. The plaintiff has
appealed from the action of the court in failing to give judgment against the Steamship company, while
the Atlantic company has appealed from the judgment against it.
The mishap was undoubtedly due, as the lower court found, to the negligence of one Leyden, the
foreman in charge; and we may add that the evidence tends to show that his negligence was of a type
which may without exaggeration be denominated gross. The sling was in the first place improperly
adjusted, and the attention of Leyden was at once called to this by the man in charge of the stevedores.
Nevertheless he proceeded and, instead of lowering the boiler when it was seen that it could not readily
pass through the hatch, he attempted to force it through; and the ship's tackle was brought into use to
assist in this maneuver. The second fall was, it appears, caused by the weakening of the bolt at the head
of the derrick boom, due to the shock incident to the first accident. This defect was possibly such as not
to be patent to external observation but we are of the opinion that a person of sufficient skill to be
trusted with the operation of machinery of this character should be trusted with the operation of
machinery of this character should have known that the crane had possibly been weakened by the jar
received in the first accident. The foreman was therefore guilty of negligence in attempting to hoist the
boiler the second time under the conditions that had thus developed. It should be noted that the
operation was at all its states entirely under Leyden's control; and, although in the first lift he utilized
the ship's tackle to aid in hoisting the boiler, everything was done under his immediate supervision.
There is no evidence tending to show that the first fall of the boiler might have been due to any hidden
defect in the lifting apparatus; and if it had not been for the additional strain caused by one end of the
boiler catching under the hatch, the operation would doubtless have been accomplished without
difficulty. The accident is therefore to be attributed to the failure of Leyden to exercise the degree of
care which an ordinarily competent and prudent person would have exhibited under the circumstances
which then confronted him. This conclusion of fact cannot be refuted; and, indeed, no attempt is here
made by the appellant to reverse this finding of the trial court.
Three questions are involved in the case, namely: (1) Is the steamship company liable to the
plaintiff by reason of having delivered the boiler in question in a damaged condition? (2) Is the atlantic
company liable to be made to respond to the steamship company for the amount the latter may be
required to pay to the plaintiff for the damage done? Is the Atlantic company directly liable to the
plaintiff, as the trial court held?
It will be observed that the contractual relation existed between the railroad company and the
steamship company; and the duties of the latter with respect to the carrying and delivery of the boilers
are to be discovered by considering the terms and legal effect of that contract. A contractual relation
also existed between the Steamship company and the atlantic company; and the duties owing by the
latter to the former with respect to the lifting and the transferring of the boiler are likewise to be
discovered by considering the terms and legal effect of the contract between these parties. On the other
hand, no contractual relation existed directly between the Railroad Company and the Atlantic
Company.
We are all agreed, that, under the contract for transportation from England to Manila, the
Steamship company is liable to the plaintiff for the injury done to the boiler while it was being
discharged from the ship. The obligation to transport the boiler necessarily involves the duty to convey
and deliver it in a proper condition according to its nature, and conformably with good faith, custom,
and the law (art. 1258, Civ. Code). The contract to convey import the duty to convey and deliver safely
and securely with reference to the degree of care which, under the circumstances, are required by law
and custom applicable to the case. The duty to carry and to carry safely is all one.
Such being the contract of the Steamship Company, said company is necessarily liable, under
articles 1103 and 1104 of the Civil Code, for the consequences of the omission of the care necessary to
the proper performance of this obligation. The contact to transport and deliver at the port of Manila a
locomotive boiler, which was received by it in proper condition, is not complied with the delivery at
the port of destination of a mass of iron the utility of which had been destroyed.
Nor does the Steamship Company escape liability by reason of the fact that it employed a
competent independent contractor to discharge the boilers. The law applicable to this feature of the case
will be more fully discussed further on in this opinion. At this point we merely observe that in the
performance of this service the Atlantic company, and it has never yet been held that the failure to
comply with a contractual obligation can be excused by showing that such delinquency was due to the
negligence of one to whom the contracting party had committed the performance of the contract.
Coming to the question of the liability of the Atlantic Company to respond to the Steamship
Company for the damages which the latter will be compelled to pay to the plaintiff, we observe that the
defense of the Atlantic company comprises two contentions, to-wit, first, that by the terms of the
engagement in accordance with which the Atlantic company agreed to render the service, all risk
incident to the discharge of the boilers was assumed by the steamship company, and secondly, that the
atlantic company should be absolved under the last paragraph of article 1903 of the civil code,
inasmuch as it had used due care in the selection of the employee whose negligent act caused the
damage in question.
At the hearing in first instance the Atlantic Company introduced four witnesses to prove that at
the time said company agreed to lift the boilers out of the Alicante, as upon other later occasions, the
steamship company not be responsible for damage. The vice-president of the atlantic company testified
that hew as present upon the occasion when the agent of the Steamship company made arrangements
for the discharge of the boilers and he heard the conversation between the president and said agent.
According to this witness the substance of the agreement was that, while the Atlantic Company would
use all due care in getting the boilers out, no responsibility was assumed for damage done either to ship
or cargo. The intermediary who acted as agent for the Steamship Company in arranging for the
performance of this service stoutly denied that any such terms were announced by the officials or
anybody else connected with the Atlantic Company at any time while the arrangements were pending.
In the conflict of the evidence, we recognize that, by a preponderance of the evidence, some
reservation or other was made as to the responsibility of the Atlantic Company; was made to the
responsibility of the atlantic company and though the agent who acted on behalf of the steamship
company possibly never communicated this reservation to his principal, the latter should nevertheless
be held bound thereby. It thus becomes necessary to discover what the exact terms of this supposed
reservation were.
We think that we must put aside at once the words of studies precision with which the president
of the Atlantic company could exclude the possibility of any liability attaching to his company, though
we may accept his statement as showing that the excepted risk contemplated breakage of the lifting
equipment. There is undoubtedly a larger element of truth in the more reasonable statement by the vice-
president of the company. According to this witness the contract combined two features, namely, an
undertaking on the part of the Atlantic Company to use all due care, combined with a reservation
concerning the company's liability for damage.
The Atlantic Company offered in evidence, a number of letters which had been written by it at
different times, extending over a period of years, in response to inquiries made by other firms and
person in Manila concerning the terms upon which the Atlantic Company was not accustomed to
assume the risk incident to such work and required the parties for whom the service might be rendered
either to carry the risk or insure against it. One such letter, dated nearly four years prior to the
occurrence such letter, dated nearly four years prior to the occurrences which gave rise to this lawsuit,
was addressed to the Compaia Transatlantica de Barcelona one of the defendants in this case. It was
stated in this communication that the company's derrick would be subject to inspection prior to making
the lift but that the Atlantic Company would not assume responsibility for damage that might occur
either to ship or cargo from any whatsoever. The steamship company rejected the services of the
Atlantic company in that instance as being too onerous.
The letters directed to this parties, it may observed, would not, generally speaking, be admissible
as against the plaintiff for the purpose of proving that a similar reservation was inserted in the contract
with it on this occasion; but if knowledge of such custom is brought home to the steamship company,
the fact that such reservation was commonly made is of some probative force. Reference to a number
of these letters will show that no particular formula was used by the Atlantic Company in defining its
exemption, and the tenor of these various communications differs materially. We think, however, that
some of the letters are of value as an aid in interpreting the reservation which the Atlantic Company
may have intended to make. We therefore quote from some of these letters as follows:
We will use our best endeavors to carry out the work successfully and will ask you to inspect our
plant but we wish it distinctly understood that we cannot assume responsibility for damage which may
occur . . . while the lift is being made. (To Rear Admiral, U.S.N., Oct. 4, 1909.)
Our quotation is based on the understanding that we assume no responsibility from any accident
which may happen during our operations. We always insert this clause as precautionary measure, but
we have never had to avail ourselves of it as yet and do not expect to now. (To "El Varadero de
Manila," Nov. 1, 1913.)
As is customary in these cases, we will use all precaution as necessary to handle the gun in a
proper manner. Our equipment has been tested and will be again, before making the lift, but we do not
assume any responsibility for damage to the gun ship, or cargo. (To Warner, Barnes & Co., June 7,
1909.)
The idea expressed in these letters is, we think entirely consonant with the interpretation which
the vice-president of the company placed upon the contract which was made with the steamship
company upon this occasion, that is, the company recognized its duty to exercise due supervisory care;
and the exemption from liability, whatever may have been its precise words had reference to disasters
which might result from some inherent hidden defect in the lifting apparatus or other unforeseen
occurrence not directly attributable to negligence of the company in the lifting operations. Neither party
could have supposed for a moment that it was intended to absolve the Atlantic Company from its duty
to use due care in the work.
It is not pretended that negligence on the part of the Atlantic Company or its employees was
expressly included in the excepted risk, and we are of the opinion that the contract should not be
understood as covering such an exemption. It is a rudimentary principle that the contractor is
responsible for the work executed by persons whom he employees in its performance, and this
expressed in the Civil Code in the form of a positive rule of law (art. 1596). It is also expressly declared
by law that liability arising from negligence is demandable in the fulfillment of all kinds of obligations
(art. 1103, Civil Code). Every contract for the presentation of service therefore has annexed to it, as an
inseparable implicit obligation, the duty to exercise due care in the accomplishment of the work; and no
reservation whereby the person rendering the services seeks to escape from the consequences of a
violation of this obligations can viewed with favor.
Contracts against liability for negligence are not favored by law. In some instances, such as
common carriers, they are prohibited as against public policy. In all cases such contracts should be
construed strictly, with every intendment against the party seeking its protection. (Crew vs. Bradstreet
Company, 134 Pa. St., 161; 7 L. R. A., 661; 19 Am. St. Rep., 681.)
The strictness with which contracts conferring such an unusual exemption are construed is
illustrated in Bryan vs. Eastern & Australian S. S. Co. (28 Phil. Rep., 310). The decision in that case is
not precisely applicable to the case at bar, since the court was there applying the law of a foreign
jurisdiction, and the question at issue involved a doctrine peculiar to contracts of common carriers.
Nevertheless the case is instructive as illustrating the universal attitude of courts upon the right of a
contracting party to stipulate against the consequences of his own negligence. It there appeared that the
plaintiff had purchased from the defendant company a ticket for the transportation of himself and
baggage from Hongkong to Manila By the terms of the contract printed in legible type upon the back of
the ticket it was provided that the company could not hold itself responsible for any loss or damage to
luggage, under any circumstances whatsoever, unless it had been paid for as freight. It was held that
this limitation upon the liability of the defendant company did not relieve it from liability of the
defendant company for negligence of its servants by which the baggage of the passenger was lost. Said
the court: Ordinarily this language would seem to be broad enough to cover every possible
contingency, including the negligent act of the defendant's servants. To so hold, however, would run
counter to the established law of England and the United States on that subject. The court then quoted
the following proposition from the decision of the King's Bench Division in Price & Co. vs. Union
Lighterage Co. ([1903], 1 K. B. D., 750, 754):
"An exemption in general words not expressly relating to negligence, even though the words are
wide enough to include loss by negligence or default of carriers' servants' must be construed as limiting
the liability of the carrier as assurer, and not as relieving from the duty of the exercising reasonable
skill and care."
Even admitting that, generally speaking, a person may stipulate against liability for the
consequences of negligence, at least in those cases where the negligence is not gross or willful, the
contract conferring such exemption must be so clear as to leave no room for the operation of the
ordinary rules of liability consecrated by experience and sanctioned by the express provisions of law.
If the exemption should be understood in the scene that counsel for the Atlantic Company now
insists it should bear, that is, as an absolute exemption from all responsibility for negligence, it is
evident that the agreement was a most inequitable and unfair one, and hence it is one that the steamship
company can not be lightly assumed to have made. Understood in that sense it is the equivalent of
licensing the Atlantic Company to perform its tasks in any manner and fashion that it might please, and
to hold it harmless from the consequences.
It is true that, in these days insurance can usually be obtained in the principal ports of commerce
by parties circumstanced as was the steamship company in the case now before us. But the best
insurance against disasters of this kind is found in the exercise of due care; and the chief incentive to
the exercise of care is a feeling of responsibility on the part of him who undertakes the work. Naturally
the courts are little inclined to aid tin the efforts of contractors to evade this responsibility.
There may have been in the minds of the officials of the Atlantic Company an idea that the
promise to use due care in the lifting operations was not accompanied by a legal obligation, such
promise being intended merely for its moral effect as an assurance to the steamship company that the
latter might rely upon competence and diligence of the employees of the Atlantic Company to
accomplish the work in a proper way. The contract can not be permitted to operate in this one-sided
manner. The two features of the engagement, namely, the promise to use due care and the exemption
from liability for damage should be so construed as to give some legal effect to both. The result is, as
already indicated, that the Atlantic Company was bound by its undertaking to use due care and that he
exemption was intended to cover accidents use to hidden defects in the apparatus or other
unforeseeable occurrences not having their origin in the immediate personal negligence of the party in
charge of the operations.
We now proceed to consider the contention that the Atlantic Company under the last paragraph
of article 1903 of the Civil Code, which declares that the liability there referred to shall cease when the
persons mentioned therein prove that they employed all the diligence of a good father of a family to
avoid the damage. In this connection the conclusion of fact must be conceded in favor of the Atlantic
Company that it had used proper care in the selection of Leyden and that , so far as the company was
aware, he was a person to whom might properly be committed the task of discharging the boilers. The
answer to the contention, however is the obligation of the Atlantic Company was created by contract,
and article 1903 is not applicable to negligence arising in the course of the performance of a contractual
obligation. Article 1903 is exclusively concerned with cases where the negligence arises in the absence
of agreement.
In discussing the liability of the Steamship Company to the plaintiff Railroad Company we have
already shown that a party is bound to the full performance of his contractual engagements under
articles 1101 et seq. of the Civil Code, and other special provisions of the Code relative to contractual
obligations; and if he falls short of complete performance by reason of his own negligence or that of
any person to whom he may commit the work, he is liable for the damages resulting therefrom. What
was there said is also applicable with reference to the liability of the Atlantic Company upon its
contract with the Steamship Company, and the same need not be here repeated. It is desirable, however,
in this connection, to bring out somewhat more fully the distinction between negligence in the
performance of a contractual obligation (culpa contractual) and neligence considered as an independent
source of obligation between parties not previously bound (culpa aquiliana).
This distinction is well established in legal jurisprudence and is fully recognized in the provisions
of the Civil Code. As illustrative of this, we quote the following passage from the opinion of this Court
in the well-known case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil. Rep., 359, 365), and in this
quotation we reproduce the first paragraph of here presenting a more correct English version of said
passage.
The acts to which these articles are applicable are understood to be those not growing out of
preexisting duties of the parties to one another. But where relations already formed give arise to duties,
whether springing form contract or quasi-contract, then breaches of those duties are subject to articles
1101, 1103, and 1104 of the same code. A typical application of this distinction may be found in the
consequences of a railway accident due to defective machinery supplied by the employer. His liability
to his employee would arise out of the contract for passage, while that of the injured by-stander would
originate in the negligent act itself. This distinction is thus clearly set forth by Manresa in his
commentary on article 1093:
"We see with reference to such obligations, that culpa, or negligence, may be understood in two
different senses, either as culpa, substantive and independent, which of itself constitutes the source of
an obligation between two person not formerly bound by any other obligation; or as an incident in the
performance of an obligation which already existed, and which increases the liability arising from the
already existing obligation."
Justice Tracey, the author of the opinion from which we have quoted, proceeds to observe that
Manresa, in commenting on articles 1101 and 1104, has described these two species of negligence as
contractual and extra-contractual, the latter being the culpa aquiliana of the Roman law. "This
terminology is unreservedly accepted by Sanchez Roman (Derecho Civil, fourth section, chapter XI,
article II, No. 12), and the principle stated is supported by decisions of the supreme court of Spain,.
among them those of November 29, 11896 (80 Jurisprudencia Civil, No. 151), and June 27, 1894 (75
Jurisprudencia Civil, No. 182.)"
The principle that negligence in the performance of a contract is not governed by article of the
Civil Code but rather by article 1104 of the same Code was directly applied by this court in the case of
Baer Senior & Co.'s successors vs. Compaa Maritima (6 Phil. Rep., 215); and the same idea has been
impliedly if not expressly recognized in other cases (N. T. Hashim & Co. vs. Rocha & Co., 18 Phil.
Rep., 315; Tan Chiong Sian vs. Inchausti & Co., 22 Phil. Rep., 152).
What has been said suffices in our opinion to demonstrate that the Atlantic Company is liable to
the Steamship Company for the damages brought upon the latter by the failure of the Atlantic company
to use due care in discharging the boiler, regardless of the fact that the damage was caused by the
negligence of an employee who was qualified for the work and who had been chosen by the Atlantic
Company with due care.
This brings us to the last question here to be answered, which is, Can the Atlantic Company be
held directly liable to the Railroad Company? In other words, can the judgement entered in the trial
court directly in favor of the plaintiff against the Atlantic Company be sustained? To answer this it is
necessary to examine carefully the legal relations existing between the Atlantic Company and the
Railroad Company with reference to this affair; and we shall for a moment ignore the existence of the
contract between the steamship company and the atlantic company, to which the railroad company was
not a party.
Having regard then to the bare fact that the Atlantic Company undertook to remove the boiler
from the ship's hold and for this purpose took the property into its power and control, there arose a duty
to the owner to use due care in the performance of that service and to avoid damaging was obviously in
existence before the negligent act may, if we still ignore the existence of the express contract, be
considered as an act done in violation of this duty.
The duty thus to use due care is an implied obligation, of a quasi contractual nature, since it is
created by implication of liability with which we are here confronted is somewhat similar to that which
is revealed in the case of the depositary, or commodatary, whose legal duty with respect to the property
committed to their care is defined by law even in the absence of express contract; and it can not be
doubted that a person who takes possession of the property of another for the purpose of moving or
conveying it from one place to another, or for the purpose of performing any other service in
connection therewith (locatio operis faciendi), owes to the owner a positive duty to refrain from
damaging it, to the same extent as if an agreement for the performance of such service had been
expressly made with the owner. The obligation as if an agreement made with the owner. The obligation
here is really a species of contract re, and it has its source and explanation in vital fact, that the active
party has taken upon himself to do something with or to the property and has taken it into his power
and control for the purpose of performing such service. (Compare art. 1889, Civil Code.)
In the passage which we have already from the decision in the Rakes case this Court recognized
the fact that the violation of a quasi-contractual duty is subject to articles 1101, 1103, 1104 of the Civil
Code, and not within the purview of article 1903. Manresa also, in the paragraph reproduced above is
of the opinion that negligence, considered a substantive and independent source of liability, does not
include cases where the parties are previously bound by any other obligation. Again, it is instructive in
this connection to refer to the contents of article 1103 of the Civil Code, where it is demandable in the
fulfillment of all kinds of obligations. These words evidently comprehend both forms of positive
obligations, whether arising from express contract or from implied contract (quasi contract).
In this connection it is instructive to recall celebrate case of Coggs vs. Bernard (2 Ld. Raym,
909), decided in the court of the King's Bench of England in the year of 1803. The action was brought
by the owner of certain casks of brandy to recover damages from a person who had undertaken to
transport them from one place to another. It was alleged that in so doing the defendant so negligently
and improvidently put then down that one of the casks was staved and the brandy lost. The complaint
did not allege that the defendant was a common carrier or that he was to be paid for his services. It was
therefore considered that the compliant did not state facts sufficient to support an action for breach of
any express contract. This made it necessary for the court to go back to fundamental principles and to
place liability on the ground of a violation of the legal duty incident to the mere fact of carriage. Said
Powell, J.: "An action indeed will not lie for not doing the thing, for want of a sufficient consideration;
but yet if the bailee will take the goods into his custody, he shall be answerable for them; for the taking
of the goods into his custody is his own act." S9 Gould, J.: ". . . any man that undertakes to carry goods
in liable to an action, be he a common carrier or whatever he is, if through his neglect they are lost or
come to any damage: . . . . " Behind these expressions was an unbroken line of ancient English
precedents holding persons liable for damage inflicted by reason of a misfeasance in carrying out an
undertaking. The principle determined by the court in the case cited is expressed in the syllabus in these
words: 'If a man undertakes to carry goods safely and securely, he is responsible for any damage they
may sustain in the carriage through his neglect, though he was not a common carrier and was to have
nothing for the carriage." Though not stated in so many words, this decision recognizes that from the
mere fact that a person takes the property of another into his possession and control there arises an
obligation in the nature of an assumpsit that he will use due care with respect thereto. This must be
considered a principle of universal jurisprudence, for it is consonant with justice and common sense
and as we have already seen harmonizes with the doctrine above deduced from the provisions of the
Civil Code.
The conclusion must therefore be that if there had been no contract of any sort between the
Atlantic company and the Steamship Company, an action could have been maintained by the Railroad
Company, as owner, against the Atlantic Company to recover the damages sustained by the former.
Such damages would have been demandable under article 1103 of the Civil Code and the action would
not have been subject to the qualification expressed in the last paragraph of article 1903.
The circumstance that a contract was made between the Atlantic Company and the Steamship
company introduces, however, an important, and in our opinion controlling factor into this branch of
the case. It cannot be denied that the Steamship company has possession of this boiler in the capacity of
carrier and that as such it was authorized to make a contract with Atlantic Company to discharge the
same from the ship. Indeed, it appears in evidence that even before the contract of affreightment was
made the Railroad Company was informed that it would necessary for steamship company to procure
the services of some contractor in the port of Manila to handle the discharge, as the ship's tackle was
inadequate to handle heavy cargo. It is therefore to be assumed that the Railroad Company had in fact
assented to the employment of a contractor to perform this service.
Now, it cannot be admitted that a person who contract to do a service like that rendered by the
Atlantic company in this case incurs a double responsibility upon entering upon performance, namely,
a responsibility to the party with whom he contracted, and another entirely different responsibility to
the owner, based on an implied contract. The two liabilities can not in our opinion coexist. It is a
general rule that an implied conract never arises where an express contract has been made.
If double responsibility existed in such case as this, it would result that a person who had limited
his liability by express stipulation might find himself liable to the owner without regard to the
limitation which he had seen fit to impose by contract. There appears to be no possibility of reconciling
the conflict that would be developed in attempting to give effect to those inconsistent liabilities. The
contract which was in fact made, in our opinion, determine not only the character and extent of the
liability of the Atlantic company but also the person or entity by whom the obligation is eligible. It is of
course quite clear that if the Atlantic company had refused to carry out its agreement to discharge the
cargo, the plaintiff could have enforced specific performance and could not have recovered damages
for non-performance. (Art. 1257, Civil Code; Donaldson, Sim & Co. vs. Smith, Bell & Co., 2 Phil.
Rep., 766; Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) In view of the preceding discussion it
is equally obvious that, for lack of privity with the contract, the Railroad Company can have no right of
action to recover damages from the Atlantic Company for the wrongful act which constituted the
violation of said contract. The rights of the plaintiff can only be made effective through the Compaia
Trasatlantica de Barcelona with whom the contract of affreightment was made.
The judgment entered in the Court of First Instance must, therefore be reversed not only with
respect to the judgment entered in favor of the plaintiff directly against the Atlantic company but also
with respect to the absolution of the steamship company and the further failure of the court to enter
judgment in favor of the latter against the Atlantic Company. The Compaa Transatlantic de
Barcelona should be and is hereby adjudged to pay to the Manila Railroad Company the sum of twenty
nine thousand three hundred forty three pesos and twenty nine centavos (P23,343.29) with interest from
May 11, 1914, until paid; and when this judgment is satisfied, the Compaia Transatlantic de
Barcelona is declared to be entitled to recover the same amount from the Atlantic & Pacific Gulf
Company, against whom judgment is to this end hereby rendered in favor of the Compaia
Transatlantica de Barcelona. No express adjudication of costs of either instance will be made. So
ordered.
Arellano, C.J., Torres, Araullo and Avancea, JJ., concur.



Separate Opinions

JOHNSON, J., dissenting:
The only question presented by the appellant the Atlantic Gulf & Pacific Company is whether or
not it is liable, either to the Manila railroad company or to the Compaa Transatlantica de Barcelona
for the damage caused to a certain locomotive boiler while being discharged at the port of Manila.
The essential facts important for a decision upon the rights and liabilities of the Atlantic, Gulf &
Pacific Company may be stated as follows:
(1) That the Manila Railroad Company purchased certain locomotive boilers in Europe and
contracted with the Compaia Transatlantica de Barcelona to transport the same to Manila by its
steamship Alicante; (2) That the tackle and equipment of the steamship Alicante being insufficient to
discharge said locomotive boilers, the Compaa Transatlantica entered into a contract with the
Atlantic, Gulf & Pacific Company by virtue of the terms of which the latter company agreed to
discharge the said locomotive boilers from the said steamship Alicante by using its tackle and
equipment for that purpose;' (3) that in the effort of the Atlantic Gulf & Pacific Company to discharge
in the manner described in the complaint and damaged to the amount found by the lower court (4) That
while the Atlantic Gulf & Pacific Company attempted to show, during the trial for the cause, that it and
its employees exercised due care and diligence, it admitted in this court that its employees had perhaps
been negligent in the performance of their duties.
Considering that the relations between the Compaa Transatlantica and the Atlantic Gulf &
Pacific Company were contractual, it becomes important to ascertain what were the terms of the
contract, in order to properly understand the rights and liabilities of the parties thereto, in relation tot he
admission of the Atlantic Gulf & Pacific Company that is employees had perhaps been guilty of
negligence in the discharge of said boiler.
The contract was not wholly reduced to writing; it was partly written and partly oral. The
Compania Transatlantica alleged that under the terms of the contract said boilers form the steamship
Alicante, using its tackle and apparatus therefore, and that no condition of any character was imposed,
while the Atlantic, Gulf & Pacific Company alleged that it agreed to discharge said boilers and to use
its tackle and equipment for that purpose, but with the express conditions that it was, under no
circumstances or conditions, to assume any responsibility for any damage whatever which might be
occasioned thereby, either to the cargo ship or persons.
In support of the allegation of the Compaa Transatlantica, it really presented but one witness,
while the Atlantic, Gulf & Pacific Company presented several witnesses, including its president, vice-
president and several others, together with a number of documents showing that the contract was in
conformity with its usual custom in making similar contracts. The Atlantic, Gulf & Pacific Company
also showed that the Compaa Transatlantica had actual knowledge of such custom.
A careful examination of the proof in our opinion, clearly shows by a large preponderance that
the contract in question was as the Atlantic Gulf & Pacific Company alleged and that by its terms said
company was relieved of any responsibility for any damage which might occur either to the ship, cargo
or persons, from any cause whatsoever."
The contract is the law governing the rights and obligations of the parties, subject to certain well
defined exceptions. Persons have a right to enter into any contact with any clauses, or conditions, or
limitations which they may deem convenient and advisable so long as such clauses or conditions do not
conflict with the existing laws, morals or public order. (Art. 1255, Civil Code.) There are some well
defined exceptions to that rule, the most notable of which are contracts with common carriers.
(Hartford F. Ins. Co., vs. Chicago, M. & St. P. Railway Co., 175 U.S., 91, 97.) The Atlantic, Gulf &
Pacific Company, so far as the record shows, is not a common carrier, and the exception, therefore, just
noted does not apply to it. Neither was the contract between the Compaa Transatlantica and the
Atlantic a company for the carriage of merchandise. It was a contract for services of an entirely
different character from that of a common carrier.
If then, generally speaking, persons may enter into contractual relations with any clauses or
conditions which they may deem advisable and convenient, which do not conflict with existing laws,
morals, or public order, we may ask: Is a contract of the character of that before us in which one of the
parties stipulates that he will not assume any responsibility for any damage which may occur from any
cause whatsoever in the execution of said contract, contrary to the laws morals or public order?
The contract in question was not one which the parties were obliged to enter into. In that respect,
it differed from contracts with common carriers, wherein the latter have no option, generally speaking.
In the preset case, the Atlantic, Gulf & Pacific Company has a perfect right to refuse to enter into the
contract in question until and unless its terms were satisfactory and acceptable. The parties being at
perfect liberty to enter into the contract or to refuse to do, they must be bound by the law which they
themselves have made for themselves. Having voluntarily made the law (contract), they must abide by
its terms until it can be shown that the same is contrary to the laws, morals or public order.
It is a fundamental rule of the law that what one may resume to do entirely, he may agree to do
upon such terms as her pleases so long as he does not contravene the laws, morals or public order. The
atlantic, Gulf & Pacific Company having had the right to refuse to enter into it except upon just such
terms and conditions as it was fir to require. The Atlantic, Gulf & Pacific Company, therefore, had a
right to refuse to enter into the contract in question until and unless the Compaa Transatlantica
agreed to relive it of all responsibility for any damages which might occur either to the ship, cargo or
persons from any cause whatsoever. By the terms of the contract the Compaia Trasatlantica assumed
all responsibility for damages in the discharge of the said locomotive boilers. That must be true
considering that, by the terms of the contract, the Atlantic, Gulf & Pacific Company was relieved from
any and all damages whatsoever which might occur.1awph!l.net
The only purpose on the part of the Atlantic Gulf & Pacific Company, in imposing the condition
above-mentioned was to avoid the consequences of the negligence of its agent or employees or of any
act or accident which might cause damage, and to avoid possible lawsuits growing out of the alleged
negligent acts.
The question which we are discussing is not a new one in jurisprudence. The courts have been
called upon many times to interpret contract with conditions like those contained in the contract before
us. (Coup vs. Wabash, St. Louis & Pac. Railway Co., 56 Mich., 111; 56 Am. Rep., 374; Mann vs. Pere
Marquette R. Co., 135 Mich., 210; Stephens vs. Southern Pacific co., 109 Cal., 86; 29 L. R. A., 751;
Quimby vs. Boston & Maine R., 150 Mass., 365; 5 L. R. A., 846; Pittsburgh, etc. Railway Co. vs.
Mahoney, 148 Ind., 196; Russell vs. Pittsburgh, etc., R. Co., 157 Ind., 305; 55 L. R. A., 253; Hartford
Fire Ins. Co. vs. Chicago, M. & St. P. Railway Co., 175 U. S., 91, 97; Baltimore, etc. Railway Co. vs.
Voigt, 176 U. S., 498; Osgood vs. Railway Co., 77 Vermont, 334; 70 L. R. A., 930.)
In the case of the Hartford Insurance Company vs. Chicago, M. & St. P. Railway Co. (175 U. S.,
91, 97, supra) a contract was made by which one of the parties was relieved from all liability for
damage, et cetera, et cetera, even the liability for damage which might result "from the careless ness or
negligence of employees or agents of said railway company," and the Supreme Court of the United
States held that such a condition in contracts of that character was not void as against public policy, or
public morals or contrary to law. (Baltimore, etc. Railaway Co. vs. Voigt, 176 U. S., 498; Osgood vs.
Central Vermont R. Co., 77 Vermont, 334; 70 L. R. A., 930.)
Court must not forget that they are not to extend, arbitrarily, those rules which say that a given
contract is void as being against public policy, or public laws, because if there is one thing which more
than another public policy requires, it is that men of full age and competent understanding shall have
the utmost liberty of contracting, and that the contracts when entered into freely and voluntarily shall
be held sacred and must be enforced in courts of justice. Courts should not lightly interfere with the
freedom of contracts. (Baltimore, etc., Railway Co. vs. Voigt, 176 U.S., 498; Printing, etc. Company
vs. Sampson, Law Reps., 19 Equity, 465; Osgood vs. Central Vermont R. Co., 77 Vermont, 334.)
The record shows that the Atlantic, Gulf & Pacific Company had, at various times, discharged
other freight from steamships in Manila Bay of much greater weight than the boiler in question, by
means of the same tackle and equipment and by the same employees which were used in the present
case. the records also shows that the tackle and equipment was ample and that the men incharged were
experience in the work they were to perform., The record further shows that the Atlantic, Gulf &
Pacific Company undertook the discharge of said boilers at a very low price, for the very reason that
they were relived of all liability whatsoever for damages in the discharge of the same. The record
further shows that the representative for the Compaa Transatlantica who made the contract in
question, was requested to and did make a causal examination of the tackle equipment which were to
be used in the discharge of the boilers. The records further shows that said company, after receiving the
information that the tackel and equipment and employees of the Atlantic, Gulf & Pacific Company had
discharged, on various occasions, other and heavier freight without accident or mishap, and after
having made a casual examination of such equipment, voluntarily and willingly and without any
objection or protest for and on behalf of the Compaia Trasatlantica, entered into the contract as above
described, accepting fully and without protest the conditions imposed by the Atlantic, Gulf & Pacific
Company. Having entered into the contract in question and the same not being in contravention of the
laws, morals or public order, the Compania Trasatlantica is bound by its terms.
The rule above announced may seem to be a hard one, but when we remember that the right to
enter into contracts carries with it the freedom to impose such conditions as the parties may see fit to
impose, subject to specific limitations, the hardship if any, is one self-imposed by the parties.
An example may serve to make the rule which we have announced plainer:
A is the owner of an automobile at Manila which desires to deliver at Baguio. B. is the owner of
a garage at Manila and has in his employ experienced chauffeurs. A desires to employ B to take the
automobile to Baguio and offers a certain price for the services. B accepts A's proposition with the
condition that he will assume no responsibility whatever for any damages which might occur to the said
automobile in the course of its delivery. In passing the zigzag on the way to Baguio, an unforseen
accident happens through the casual neglect or lack of care on the part of the chauffeur and the
automobile is damaged. Can B held liable, in an action upon the contract, for the damages in the face of
the fact that A had relieved him of all liability for any damages which might occur? The cases which
we have cited above, together with many others which might be cited, all answer that question in the
negative. That question is answered in the negative upon the theory that A, by the terms of his contract,
relieved B, in an action upon the contract from all liability whatsoever.
It must not be forgotten that what we have said relates the actions upon the contract with the
conditions mentioned and not t actions for damages in an action ex delicto resulting from the negligent
performance of duties and obligations assumed.
The appellant, the Atlantic, Gulf & Pacific company, contends that inasmuch as it had exercised
the care of a good father of a family in selecting its employees, that it should be relieved from all
liability by virtue of the provisions of article 1903 of the Civil Code. We do not believe that the
provisions of said article can be invoked when the rights and liabilities of parties to an action depend
upon a contract. The right of parties are defined by the contract and there is no occasion t invoke the
statute. The argument employed by the Atlantic, Gulf & Pacific Company if valid, would also relieve
the Compaia Transatlantic had not exercised the care of a good father of a family in selecting it for
the discharge of said boilers. Neither d we believe that the provisions of article 1902 of the Civil Code
can be invoked in favor of the Compaia Transatlantica for the reason that the contract governs the
rights and liabilities and by the terms of the contract the Atlantic, Gulf & Pacific Company is relieved
from all liability whatsoever. A relief from all liability is a relief from any liability caused by
negligence, especially so when the action is based upon a contract. Whether or not the rule should be
followed in an action of tort growing out of willful negligence, square?
From all the foregoing, we are persuaded that the judgment of the lower court should be
modified and that the Atlantic, Gulf & Pacific Company should be relieved from all liability under the
complaint.
89.. Metro Port Service v. Court of Appeals 131 SCRA 365
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.
Teehankee, Actg. C.J., Plana, Relova, Gutierrez, Jr. and Dela Fuente, JJ., concur.
90. C.F. Sharp & Co. v. Comm. of Customs 22 SCRA 760
G.R. No. L-23803 February 26, 1968
C. F. SHARP & COMPANY, INC., petitioner, vs.COMMISSIONER OF CUSTOMS, respondent.
Francisco I. Agoncillo for petitioner. Office of the Solicitor General for respondent.
BENGZON, J.P., J.:
At or about four thirty in the morning of April 1, 1962, a water patrol of the Bureau of Customs
apprehended M/L Cheton while it was passing through the breakwater of Manila loaded with 1,865
cartons of untaxed blue seal cigarettes. The vessel was seized for violation of Section 2530(a) of the
Tariff and Customs Code and immediately thereafter was subjected to forfeiture proceedings.
During the pendency of the case, the Law Division of the Bureau of Customs recommended, in
its report to the Collector of Customs of the Port of Manila, the imposition of a fine of P1,000 instead
of forfeiture on the ground that the incident was the first offense.
On June 11, 1962, after hearing the parties, the Collector of Customs of the Port of Manila
rendered a decision imposing a fine of P10,000 instead of P1,000 as recommended by the Law
Division, in order to give force and effect to the socio-economic program of the then President
Diosdado Macapagal.
M/L Cheton's owner, C.F. Sharp & Co., Inc., moved for reconsideration, which was denied. It
appealed to the Commissioner of Customs who modified the decision of the Collector by ordering the
forfeiture of the vessel instead of imposing only a fine in the amount of P10,000. A motion for
reconsideration was filed but the same was subsequently denied. Thereafter, C.F. Sharp & Co., Inc.
appealed to the Court of Tax Appeals.
The Court of Tax Appeals heard the parties and rendered the following judgment: 1wph1.t
Finding no reversible error in the decision appealed from, the same is hereby affirmed, with costs
against petitioner.
A motion for reconsideration failed, hence this appeal.
The only issue in this case is whether or not M/L Cheton is subject to forfeiture in favor of the
government in accordance with paragraph a., Section 2530 of the Tariff and Customs Code.
It is contended that the M/L Cheton should not be ordered forfeited because it was loaded with
untaxed foreign made cigarettes with duress upon its patron and crew; and, that it was not used to
transport said cigarettes from a foreign port to any port or place in the Philippines.
The patron and the crew of M/L Cheton executed affidavits to the effect that at four o'clock in
the morning of April 1, 1962, the M/L Cheton was intercepted on its way from the Pasig River to the
Manila Yacht Club by four armed men riding in a motorized banca who posed as employees of the
Manila Port Service; that they were ordered to proceed to pier 13 of the South Harbor where the armed
men hurriedly loaded the cigarettes in question; that after the loading, they were ordered to proceed
towards Cavite; that before reaching the breakwater, the patron sighted a customs patrol boat towards
which he directed the course of M/L Cheton; that when they were along side the customs patrol boat
they informed the customs agents of their cargo; and that the four armed men and their banca just
vanished from the scene.
The said written statements regarding duress were not given credence by the Bureau of Customs
and by the Court of Tax Appeals. Appellate Courts usually do not interfere with the lower court's
findings as to the credibility of witnesses and other evidence for credibility is best left with the trial
court the Court of Tax Appeals and the Bureau of Customs which had the opportunity of
observing the witnesses, in the absence of a showing that some fact or circumstance of weight and
influence in the record was overlooked or misapplied, or its significance misunderstood by the court.
1
We see no reason to alter the finding of the Court of Tax Appeals on this point.
C.F. Sharp & Co., Inc. maintains further that paragraph a., Section 2530 of the Tariff and
Customs Code does not apply to the instant case inasmuch as it was not proved that M/L Cheton was
unlawfully used in the importation of articles into any Philippine port.
Paragraph a. of Section 2530 of the Tariff and Customs Code states:
Sec. 2530. Property Subject to Forfeiture Under Tariff and Customs Laws. Any vessel or
aircraft, cargo, articles and other objects shall, under the following conditions, be subject to forfeiture:
a. Any vessel or aircraft, including cargo, which shall be used unlawfully in the importation or
exportation of articles into or from any Philippine port or place except a port of entry and any vessel
which, being of less than thirty tons capacity shall be used in the importation of articles into any
Philippine port or place except into a port of the Sulu sea where importation in such vessel may be
authorized by the Commissioner, with the approval of the department head.
There is no question that M/L Cheton was apprehended carrying untaxed cigarettes of foreign
origin without the necessary papers showing that they were entered lawfully through a port of entry.
There is no question also that said cigarettes were liable for forfeiture pursuant to the Customs and
Tariff Code. On the basis of the aforestated facts, the conclusion is inevitable that the M/L Cheton was
used in connection with unlawful importation of said cigarettes. The burden was therefore shifted to the
boat's owner to show that the carriage by M/L Cheton of the smuggled cigarettes was lawful. No such
showing was made. Hence, the Court of Tax Appeals committed no error in ordering the forfeiture of
the launch in question. By way of comment on petitioner's stand, it would be absurd to require the
Government to prove that a vessel was engaged in smuggling, after it has already been caught red-
handed, that is, loaded with smuggled goods.
With respect to petitioner's plea that it was deprived of its property without due process in that
the Commissioner of Customs rendered his decision without conducting a formal hearing, suffice it to
state that Section 2313 of the Tariff and Customs Code, quoted below:
Sec. 2313. Review of Commissioner. The person aggrieved by the decision or action of the
Collector in any matter presented upon protest or by his action in any case of seizure may, within
fifteen days after notification in writing by the Collector of his action or decision, give written notice to
the Collector of his desire to have the matter reviewed by the Commissioner. Thereupon the Collector
shall forthwith transmit all the records of the proceedings to the Commissioner, who shall approve
modify or reverse the action or decision of the Collector and take such steps and make such orders as
may be necessary to give effect to his decision.
does not require the Commissioner of Customs to hold a formal hearing. His duty is to approve,
modify or reverse the decision of the Collector of Customs on the basis of the records, papers and
evidence presented before the latter. Moreover, the proceedings had before the Court of Tax Appeals
was a trial de novo
2
and if petitioner desired to present evidence in addition to those already presented
before the Collector of Customs, it could have done so.
Petitioner further urges Us to resolve in its, favor the alleged "doubt" in this case. The so-called
"doubt" is that allegedly produced by the acquittal of the patron and crew of M/L Cheton from criminal
charges in connection with the incident at bar. Insofar as the evidence adduced in this case is
concerned, there is no doubt that M/L Cheton was used in smuggling for which it should suffer the
penalty of forfeiture pursuant to law. The result of criminal proceedings in a separate case before a
different, tribunal, being dependent upon the evidence adduced therein, would not necessarily influence
the judgment in the instant case.
WHEREFORE, the judgment appealed from is hereby affirmed. With costs against
petitioner.1wph1.t
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando,
JJ., concur.
91. Comm. of Customs v. Court of Tax Appeals & Pascual 138 SCRA 581
G.R. No. L-31733 September 20, 1985
COMMISSIONER OF CUSTOMS, petitioner, vs.COURT OF TAX APPEALS and JOSE
PASCUAL, respondents,

MAKASIAR, J.:
This is a petition for review on certiorari of the decision dated September 30, 1969 of respondent Court
of Tax Appeals which modified the decision of petitioner Commissioner of Customs by ordering only
the payment of a fire in lieu of the forfeiture of private respondent Jose Pascual's vessel M/B "Maria
Victoria-P", used in the illegal importation of blue seal cigarettes.
Private respondent Jose Pascual is the registered owner of the M/B "Maria Victoria-P", a motor boat of
63.25 gross tonnage duly licensed by the Bureau of Customs to engage in coastwise trade. On
December 16, 1963, the said vessel was apprehended by the elements of the Philippine Navy five miles
off the coast of Naic, Cavite for carrying untaxed 105 cases and 90 parks of Salem cigarettes and 414
cases of Union cigarettes. The authorities turned over the vessel, its crew and its cargo of blue seal
cigarettes to the Small Craft Unit of the Philippine Navy for disposition. Thereafter, Seizure
Identification Case Nos. 8006 and 8006-A against the vessel and the cargo of blue seal cigarettes,
respectively, were instituted before the Collector of Customs.
For failure of anybody to claim ownership over the cigarettes, the same were forfeited in favor of the
Government.
On the other hand, during the forfeiture proceedings against the vessel private respondent claimed that
on December 4, 1963, his vessel with fourteen (14) crew and a captain went to Bulalakao, Mindoro to
catch fish; that after three days of fishing, all the fishing nets were destroyed; that Jose Joloc captain of
the boat, notified private respondent in Manila about the nets and the latter ordered the former to bring
the boat back to Manila; that for failure of the boat to arrive in Manila on the date expected by private
respondent, he sent a telegram addressed to the captain reiterating his previous order, but no answer
was received; that private respondent sent a certain Artemio Buenvenuto to Mindoro on December 13,
1963 to fetch the boat; that on even date Buenvenuto sent a telegram to private respondent that the boat
had left Mindoro; that after receiving the telegram on the same date, private respondent notified the
Philippine Navy that his boat was missing and expressed fear that it might be used illegally.
Jose Joloc captain of the vessel claimed that he was not able to bring the boat back to Manila due to
bad weather; that while in Mindoro, Fructuoso Maniego, whom he knew since 1962 approached and
asked him if he could load the former's fishes on board M/B "Maria Victoria-P" for a fee of
P20,000.00; that the fishes were out in the sea aboard a disabled boat; that he agreed and upon reaching
the place where the boatload of fishes is located, they found a kumpit with seven armed Muslims on
board and that the kumpit was loaded with blue seal cigarettes; that at gun points, he was forced to load
the blue seal cigarettes which allegedly belong to one Datu Jacob of Jolo, Sulo.
On July 3, 1964, the Collector of Customs rendered a decision declaring the vessel forfeited in favor of
the Government. The Collector of Customs ruled that since it was established that the vessel was hired
for a fee of P20,000.00 thru its captain, to ferry the untaxed cigarettes, there was a contract of carriage
entered into between Jose Joloc and the owner of the cigarettes; that Jose Pascual, owner of the vessel
is bound by the acts of his agent,
On appeal by herein private respondent, the decision was affirmed by the Commissioner of Customs.
Private respondent appealed before the Court of Tax Appeals and on September 30, 1969, the said
Court, as already stated, modified the decision of the Commissioner of Customs and ordered private
respondent to pay a fine of P5,000.00 instead of the forfeiture of the vessel.
Respondent Court stated that there is no question that the vessel was used in the illegal importation of
blue seal cigarettes; hence, subject to penalty imposed by Section 2530 of the Tariff and Customs
Code. However, the penalty of forfeiture appears to be excessive since herein private respondent took
all the necessary action to prevent the vessel from being used illegally by notifying the Philippine Navy
of the disappearance of the vessel.
From the aforesaid decision, petitioner instituted the present petition.
The imperative question presented to Us in this appeal is whether or not the motor boat M/B "Maria
Victoria-P" is subject to forfeiture under the Tariff and Customs Code, particularly paragraphs (a) and
(b) of Section 2530.
After the petition was given due course, private respondent in his answer stated that during the
pendency of the case before the Court of Appeals, the vessel M/B "Maria Victoria-P" was sold at
public auction by the Auction and Sales Division of the Bureau of Customs.
WE find merit in the petition.
M/B "Maria Victoria-P" was a vessel duly authorized to engage in coastwise trade. It is undisputed and,
in fact, established that it was used in the illegal importation of blue seal cigarettes. Thus, the law
applicable is paragraphs (a) and (b), Section 2530 of the Tariff and Customs Code which states:
SEC. 2530. Property Subject to Forfeiture Under Tariff and Customs Law.- Any vehicle, vessel or
aircraft, cargo, article and other objects shall under the following conditions be subject to forfeiture
a. Any vehicle, vessel or aircraft, including cargo, which shall be used unlawfully in the importation or
exportation of articles or in conveying and or transporting contraband, or smuggled article in
commercial quantities into or from any Philippine port or place, and any vessel which, being of less
than thirty tons capacity shall be used in the importation of articles into any Philippine Port or place.
The mere carrying or holding on board of contraband or smuggled articles in commercial quantities
shall subject such vessel vehicle, aircraft or any other craft to forfeiture: Provided, That the vessel,
vehicle, aircraft or any other craft is not used as a duly authorized common carrier and as such a carrier
it is not chartered or leased;
b. Any vessel engaging in the coastwise trade which shall have on board any article of foreign growth,
produce, or manufacture in excess of the amount necessary for sea stores, without such article having
been properly entered or legally imported.
Pursuant to the aforesaid provision, the vessel is clearly subject to forfeiture in favor of the
Government. Forfeiture proceedings are in the nature of proceedings in rem (Vierneza vs.
Commissioner of Customs, 24 SCRA 394) and are directed against the res. The fact that private
respondent has allegedly no actual knowledge that M/B "Maria Victoria-P" was used illegally does not
render the vessel immune from forfeiture. This is so because the forfeiture proceedings in this case was
instituted against the vessel itself. Private respondent's defense that he has no actual knowledge that the
vessel was used illegally is personal to him but cannot absolve the vessel from liability of forfeiture.
Moreover, the aforequoted provision prescribes in an unequivocal term the imposition of the penalty of
forfeiture in cases of unlawful importation of foreign articles regardless of whether such importation
occurred with or without the knowledge of the owner of the vessel.
In United States vs. Steamship "Rubi" (32 Phil. 239), this Court, in resolving the question of whether or
not the innocence of the owner in the illegal importation of foreign articles can withdraw the ship from
the penalty of confiscation, said:
The vessel which commits the aggression is treated as the offender, without any reference whatsoever
to the character or conduct of the owner. ... This is done from the necessity of the case, as the only
adequate means of suppressing the offense or wrong. ... The doctrine also is familiarly applied to cases
of smuggling and other misconduct under our revenue laws; and ... embargo and non-intercourse
acts. ... The same thing applies to proceeding in rem or seizures in admiralty ... The acts of the master
and crew, in cases of this sort, bind the interest of the owner of the ship, whether he be innocent or
guilty.
The claim of private respondent that while the crew members of the vessel were fishing, all the fishing
nets were destroyed and that he was even notified in this regard is hardly convincing. It may be
possible that while in the course of catching fish, one or two fishing nets may be destroyed. But the
destruction of all the fishing nets at the same time is highly improbable. Furthermore, private
respondent reported to the Philippine Navy instead of the Coast Guard that his vessel was missing, only
after a lapse of six (6) days from the time he was informed of the alleged destruction of all the fishing
nets. Could it be that all those notification of destruction of fishing nets and eventually of the loss of
vessel are just a part of a scheme to prevent the vessel from any liability should, as it happened in this
case, it be intercepted by the authorities?
The insistence of Jose Joloc captain of the vessel that the boat could not be brought back to Manila due
to bad weather is not supported by evidence. No weather report in Mindoro was ever presented during
the hearing of the case. His insistence becomes even more dubious by the fact that he agreed with
Fructuoso Maniego to load the latter's fishes on board M/B "Maria Victoria-P" when the alleged fishes
were even out at sea aboard an alleged disabled boat. It is unbelievable that he could risk going out to
sea to load the fish cargo of Maniego in the midst of the storm, but could not sail back to Manila.
Taking all these circumstances, the conclusion is inevitable that the vessel was not used in catching fish
but was used in the smuggling of blue seal cigarettes.
WHEREFORE, THE QUESTIONED DECISION DATED SEPTEMBER 30, 1969 OF
RESPONDENT COURT OF TAX APPEALS IS HEREBY SET ASIDE; AND THE VESSEL M/B
"MARIA VICTORIA-P" IS HEREBY ORDERED FORFEITED IN FAVOR OF THE
GOVERNMENT. COSTS AGAINST PRIVATE RESPONDENT.
SO ORDERED.
92. Heacock v. Macondray 42 Phil 205
G.R. No. L-16598 October 3, 1921
H. E. HEACOCK COMPANY, plaintiff-appellant, vs.MACONDRAY & COMPANY, INC.,
defendant-appellant.
Fisher & DeWitt for plaintiff-appellant. Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum of
P240 together with interest thereon. The facts are stipulated by the parties, and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of steamship
Bolton Castle, then in the harbor of New York, four cases of merchandise one of which contained
twelve (12) 8-day Edmond clocks properly boxed and marked for transportation to Manila, and paid
freight on said clocks from New York to Manila in advance. The said steampship arrived in the port of
Manila on or about the 10th day of September, 1919, consigned to the defendant herein as agent and
representative of said vessel in said port. Neither the master of said vessel nor the defendant herein, as
its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was
made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the
market value of the same in the City of Manila at the time when they should have been delivered to the
plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton
Castle contained, among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad
valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the
carrier shall not be liable for more than the net invoice price plus freight and insurance less all charges
saved, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said
basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the
freight ton value thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the
aforesaid clocks, and no ad valorem freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate
freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which
tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered
judgment in favor of the plaintiff against the defendant for the sum of P226.02, this being the invoice
value of the clocks in question plus the freight and insurance thereon, with legal interest thereon from
November 20, 1919, the date of the complaint, together with costs. From that judgment both parties
appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of
the clocks in question, to wit: the sum of P420. The defendant-appellant, on the other hand, contends
that, in accordance with clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum of
P76.36, the proportionate freight ton value of the said clocks. The claim of the plaintiff is based upon
the argument that the two clause in the bill of lading above quoted, limiting the liability of the carrier,
are contrary to public order and, therefore, null and void. The defendant, on the other hand, contends
that both of said clauses are valid, and the clause 1 should have been applied by the lower court instead
of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations
inserted in the bill of lading, limit its liability for the loss of or damage to the cargo to an agreed
valuation of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting
the carrier from any and all liability for loss or damage occasioned by its own negligence. The second
is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is
one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value
and pays a higher rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of
February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4
McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second stipulations in a bill of
lading are invalid which either exempt the carrier from liability for loss or damage occasioned by its
negligence, or provide for an unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that
the present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the
liability of the carrier to a certain amount unless the shipper declares a higher value and pays a higher
rate of freight, is valid and enforceable. This proposition is supported by a uniform lien of decisions of
the Supreme Court of the United States rendered both prior and subsequent to the passage of the Harter
Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the
case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p.
318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of
carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a valuation of the
property carried, with the rate of freight based on the condition that the carrier assumes liability only to
the extent of the agreed valuation, even in case of loss or damage by the negligence of the carrier, the
contract will be upheld as proper and lawful mode of securing a due proportion between the amount for
which the carrier may be responsible and the freight he receives, and protecting himself against
extravagant and fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from
the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151,
decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep.,
354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be the settled Federal law that if a
common carrier gives to a shipper the choice of two rates, the lower of the conditioned upon his
agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the
shipper makes such a choice, understandingly and freely, and names his valuation, he cannot thereafter
recover more than the value which he thus places upon his property. As a matter of legal distinction,
estoppel is made the basis of this ruling, that, having accepted the benefit of the lower rate, in
common honesty the shipper may not repudiate the conditions on which it was obtained, but the rule
and the effect of it are clearly established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement
with a shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than
the real value thereof, unless the shipper is given a choice of rates, based on valuation."
A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with
any sound principle of public policy; and it is not conformable to plain principles of justice that a
shipper may understate value in order to reduce the rate and then recover a larger value in case of loss.
(Adams Express Co. vs. Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C. C. A., 285);
Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and Co. (227 U. S., 278);
Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in
question are not contrary to public order. Article 1255 of the Civil Code provides that "the contracting
parties may establish any agreements, terms and conditions they may deem advisable, provided they
are not contrary to law, morals or public order." Said clauses of the bill of lading are, therefore, valid
and binding upon the parties thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the
bill of lading here in question is to be adopted as the measure of defendant's liability. Clause 1 provides
as follows:
1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad
valorem freight paid thereon. Clause 9 provides:
9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the
carrier shall not be liable for more than the net invoice price plus freight and insurance less all charges
saved, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said
basis.
The defendant-appellant contends that these two clauses, if construed together, mean that the
shipper and the carrier stipulate and agree that the value of the goods receipted for does not exceed
$500 per freight ton, but should the invoice value of the goods be less than $500 per freight ton, then
the invoice value governs; that since in this case the invoice value is more than $500 per freight ton, the
latter valuation should be adopted and that according to that valuation, the proportionate value of the
clocks in question is only P76.36 which the defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in
case of loss on the basis of not exceeding $500 per freight ton, clause 9 contains an express undertaking
to settle on the basis of the net invoice price plus freight and insurance less all charges saved. "Any loss
or damage for which the carrier may be liable shall be adjusted pro rata on the said basis," clause 9
expressly provides. It seems to us that there is an irreconcilable conflict between the two clauses with
regard to the measure of defendant's liability. It is difficult to reconcile them without doing violence to
the language used and reading exceptions and conditions into the undertaking contained in clause 9 that
are not there. This being the case, the bill of lading in question should be interpreted against the
defendant carrier, which drew said contract. "A written contract should, in case of doubt, be interpreted
against the party who has drawn the contract." (6 R. C. L. 854.) It is a well-known principle of
construction that ambiguity or uncertainty in an agreement must be construed most strongly against the
party causing it. (6 R. C. L., 855.) These rules as applicable to contracts contained in bills of lading. "In
construing a bill of lading given by the carrier for the safe transportation and delivery of goods shipped
by a consignor, the contract will be construed most strongly against the carrier, and favorably to the
consignor, in case of doubt in any matter of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89
Ala., 294; 18 Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed, without
any finding as to costs. So ordered.
93.. Freixas & Co. v. Pacific Mail S/S Co. 42 Phil 198
G.R. No. L-16569 October 3, 1921
FREIXAS AND COMPANY, plaintiff-appellant, vs.PACIFIC MAIL STEAMSHIP CO.,
defendant-appellee.
Kincaid, Perkins & Kincaid for appellant. Wolfson, Wolfson & Schwarzkopf for appellee.

JOHNSON, J.:
The facts in the present case are stipulated by the parties. They may be stated, briefly, as follows:
On the 23d day of May, 1918, the plaintiff, a regular general copartnership, caused to be
delivered on board the defendant's steamship Colusa, then in the harbor of San Francisco, California,
one case of hat bands, described in the bill of lading as one case of dry goods, properly boxed and
marked of transportation to the port of Manila. The plaintiff paid the freight not on ad valorem value
but on space on said merchandise from San Francisco to Manila, in advance, to the defendant's
authorized representatives in San Francisco. The master of the said steamship issued and delivered to
the plaintiff his bill of lading for said merchandise, which bill of lading was introduced in evidence as
Exhibit B.
The said steamship Colusa arrived in the port of Manila on or about June 19, 1918, but neither
the master thereof nor the defendant herein delivered to the plaintiff the aforesaid one case of hat
bands, although demand was made upon them for its delivery, and the said steamship departed from the
port of Manila without landing said plaintiff's merchandise.
The invoice value of the said one case of hat bands at the time of its delivery to the steamship
Colusa was the sum of P1,624.78. This amount was claimed by the plaintiff from the defendant as
damages for failure to the deliver the said merchandise, but the defendant tendered to the plaintiff only
the sum of $100, U. S. currency, in payment of plaintiff's claim, which tender plaintiff rejected.
Whereupon the present action was instituted.
Upon the foregoing facts in relation with clauses 25 and 27 of the bill of lading, Exhibit B, the
Honorable Geo. R. Harvey, judge, in a carefully prepared opinion, rendered a judgment in favor of the
plaintiff and against the defendant for the sum of P200, Philippine currency, with costs against the
plaintiff. From that judgment the plaintiff appealed to this court.
The issue presented by the present case hinges on clauses 25 and 27 of the bill of lading, Exhibit
B. Said clauses read as follows:
25. All liability for loss or damage to goods shall be determined by their invoice cost plus freight.
It is expressly understood that the Steamship Company is not accountable for weight, leakage,
breakage, insecure packages, chafage to goods in bales, nor for loss or damage from the effects of
climate or decay, or caused by other cargo in contact or otherwise when properly stowed; nor for
explosion of articles on freight or otherwise, nor from unavoidable detention or delay, and it is
expressly agreed that the goods named in this Bill of Lading are hereby valued at not exceeding $100
per package, and unless a different or other value is expressly written and declared herein, the liability
of the companies therefor, in case of the total loss of all or any of the said goods from any cause, shall
not exceed $100 per package, and in case of the partial loss of or damage to any of said goods, the
liability of the carriers shall not exceed such proportion therefor per package as the loss or damage on
each package shall bear to the sum of $100.
27. The shipper hereby represents and declares that the value of each package described on the
face of this bill of lading does not exceed the sum of $100, unless the shipper shall expressly declare
and there shall be written on the face thereof a different value; and upon such basis of valuation of said
packages, the rate of freight thereon is adjusted.
The appellants indirectly attacks the validity of the foregoing clauses upon grounds which may
be summarized as follows: (1) The said clauses (25 and 27) of the bill of lading are in contravention of
the principles of article 1601 of our Civil Code;
(2) That said clauses "were probably not within the contemplation of the parties" when the bill of
lading was executed; and
(3) That there was no consideration for said clauses "because the amount of the freight was not
based on the value of the merchandise but on the cubic foot space occupied by it.
1. With reference to the first ground above set forth, article 1601 of the Civil Code provides:
Art. 1601. Carriers of goods by land or by water shall be subject, with respect to the care and
preservation of the things entrusted to them, to the same obligations as those imposed on innkeepers by
articles 1783 and 1784.
The provisions of this article shall be understood to be without prejudice to those of the Code of
Commerce with respect to transportation by sea and land.1awph!l.net
Quoting the foregoing article together with articles 1783 and 1784 and the commentaries of
Manresa thereon, appellant contends "that the Civil Code does not permit any limitation of liability on
the carrier's part unless the loss or damage occurred through force majeure or an act of God," for such
limitation would be contrary to public policy. We have discussed this same question in the case of H.
E. Heacock Co. vs. Macondray and Co. (42 Phil., p. 205, post), which is analogous to the present case.
In that case we said:
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting
the carrier from any and all liability for loss or damage occasioned by its own negligence. The second
is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is
one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value
and pays a higher rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable. (See cases cited.)
The clauses of the bill of lading here in question fall within the third kind of stipulation above
described, and are therefore valid and enforceable. (Union Pacific Ry. Co. vs. Burke, No. 10, Advance
Opinions, April 1, 1921, U. S. Supreme Court.)
2. With reference to the second ground invoked by the appellant, to wit: That the said clauses
were probably not within the contemplation of the parties when the bill of lading was executed, the
following statement clearly appears on the face of said bill of lading:
All the provisions above and on the reverse side of this bill of lading are hereby agreed to on the
part of the shipper.
(Sgd.) B. BERTOLONE, Shipper.
The foregoing statement, in our opinion, is conclusive against the plaintiff in the absence of
proof that its representative, B. Bertolone, signed the same through error or fraud.
3. With reference to the third contention of the appellant, it is undisputed that the latter did not
declare the merchandise in question to be a higher value than $100 per package, but paid the freight
therefor upon the express understanding and agreement between the parties that its value did not
exceed $100 per package. The bill of lading shows that the appellant paid $18.18 on two packages or
cases of dry goods (hat bands), measuring 29 cubic feet. While it is true that the unit of measure
adopted in fixing the rate of freight was the cubic foot of space occupied by the merchandise, it is clear
the such rate was charged upon the stipulation that the value of east package, for which the carrier
stood responsible, did not exceed $100. (See clause 27, supra.) In other words, if the shipper had
declared that each package was of the value of P1,624.78 instead of P200, he would have had to pay a
much higher rate than that which he did pay on the basis of a valuation of P200 per package. We are,
therefore, of the opinion that there was sufficient consideration for the clauses or stipulations of the bill
of lading in question.
The appellant further contends that the appelle, not having shown what became of the
merchandise in question, is liable for the entire value thereof, as otherwise it would enrich itself by
appropriating the goods and then pleading limited liability. If this were an action for conversation of
the plaintiff's chattel and the plaintiff proved that the defendant had really appropriated the goods in
question, there would be no question but that the defendant would be liable for the full market value
thereof to the plaintiff. But the present is an action to recover from the defendant carrier the value of
the goods carried by it, which were alleged to have been wholly lost not "by an act of God or any other
excusable and carelessness of said defendant and its agents and servants." (Par. 3, complaint.) While it
was possible for the defendant to have appropriated the goods in question, yet we are of the opinion
that the defendant cannot be presumed to have done so by the mere fact that it admits the loss of said
goods through its negligence and carelessness, as alleged in the complaint.
In the case of the Union Pacific Railway Company vs. Burke, supra, the Supreme Court of the
United States, in discussing the question before us, said:
In many cases, from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S., 331; 28 L. ed.,
717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S. 439; 62 L.
ed., 820; 38 Sup. Ct. Rep., 354; Ann. cas. 1918E, 469, decided in 1918), it has been declared to be the
settled Federal law that if a common carrier gives to a shipper the choice of two rates, the lower of
them conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the
carrier's negligence, if the shipper makes such a choice, understandingly and freely, and names his
valuation, he cannot thereafter recover more than the value which he thus places upon his property.
As a matter of legal distinction, estoppel is made the basis of this ruling, that, having accepted
the benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on which
it was obtained, but the rule and the effect of it are clearly established.
This court has consistently held the law to be that it is against public policy to permit a common
carrier to limit its common-law liability by contracting for exemption from the consequences of his
own negligence or that of its servants (112 U. S., 331, 338, and 246 U. S., 439, 444, supra), and
valuation agreements have been sustained only on principles of estoppel, and in carefully restricted
cases where choice of rates was given, where "the rate was tied to the release." Thus in the Hart
Case (p. 343), it is said:
"The distinct ground of our decision in the case at bar is, that where a contract of the kind, signed
by the shipper, is fairly made, agreeing on the valuation of the property carried, with the rate of freight
based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even
in case of loss or damage her the negligence of the carrier, the contract will be upheld as a proper and
lawful mode of securing a due proportion between the amount for which the carrier may be responsible
and the freight he receives, and of protecting himself against extravagant and fanciful valuations."
In the case of Boston and M. R. Co. vs. Piper (246 U. S., 439), it was said:
In the previous decisions of this court upon the subject it has been said that the limited valuation
for which a recovery may be had does not permit the carrier to defeat recovery because of losses arising
from its own negligence, but serves to fix the amount of recovery upon an agreed valuation made in
consideration of the lower rate stipulated to be paid for the service.
For all of the foregoing reasons the judgment of the lower court should be affirmed, without any
finding as to costs in this instance. So ordered.
94. Shewaram v. PAL 17 SCRA 606; 64 OG 3261
G.R. No. L-20099 July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee, vs.PHILIPPINE AIR LINES, INC.,
defendant and appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.Climaco and
Associates for plaintiff and appellee.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an
action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines
Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After
trial the municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee
P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of
the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court by
ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with legal
interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award of
exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on
a question of law, assigning two errors allegedly committed by the lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff
regulations filed by defendant-appellant with the civil aeronautics board and the conditions of carriage
printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-appellant to
P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with
ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound for Manila;
that defendant is a common carrier engaged in air line transportation in the Philippines, offering its
services to the public to carry and transport passengers and cargoes from and to different points in the
Philippines; that on the above-mentioned date of November 23, 1959, he checked in three (3) pieces of
baggages a suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's
personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for
Manila). When plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his
suitcase did not arrive with his flight because it was sent to Iligan. So, he made a claim with defendant's
personnel in Manila airport and another suitcase similar to his own which was the only baggage left for
that flight, the rest having been claimed and released to the other passengers of said flight, was given to
the plaintiff for him to take delivery but he did not and refused to take delivery of the same on the
ground that it was not his, alleging that all his clothes were white and the National transistor 7 and a
Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol which he did
not have nor placed inside his suitcase; that after inquiries made by defendant's personnel in Manila
from different airports where the suitcase in question must have been sent, it was found to have reached
Iligan and the station agent of the PAL in Iligan caused the same to be sent to Manila for delivery to
Mr. Shewaram and which suitcase belonging to the plaintiff herein arrived in Manila airport on
November 24, 1959; that it was also found out that the suitcase shown to and given to the plaintiff for
delivery which he refused to take delivery belonged to a certain Del Rosario who was bound for Iligan
in the same flight with Mr. Shewaram; that when the plaintiff's suitcase arrived in Manila as stated
above on November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of
the Manila airport of the arrival of his suitcase but of course minus his Transistor Radio 7 and the
Rollflex Camera; that Shewaram made demand for these two (2) items or for the value thereof but the
same was not complied with by defendant.
x x x x x x x x x
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The
tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase arrived in
Manila, defendant's personnel could open the same in spite of the fact that plaintiff had it under key
when he delivered the suitcase to defendant's personnel in Zamboanga City. Moreover, it was
established during the hearing that there was space in the suitcase where the two items in question
could have been placed. It was also shown that as early as November 24, 1959, when plaintiff was
notified by phone of the arrival of the suitcase, plaintiff asked that check of the things inside his
suitcase be made and defendant admitted that the two items could not be found inside the suitcase.
There was no evidence on record sufficient to show that plaintiff's suitcase was never opened during
the time it was placed in defendant's possession and prior to its recovery by the plaintiff. However,
defendant had presented evidence that it had authority to open passengers' baggage to verify and find
its ownership or identity. Exhibit "1" of the defendant would show that the baggage that was offered to
plaintiff as his own was opened and the plaintiff denied ownership of the contents of the baggage. This
proven fact that baggage may and could be opened without the necessary authorization and presence of
its owner, applied too, to the suitcase of plaintiff which was mis-sent to Iligan City because of
mistagging. The possibility of what happened in the baggage of Mr. Del Rosario at the Manila Airport
in his absence could have also happened to plaintiffs suitcase at Iligan City in the absence of plaintiff.
Hence, the Court believes that these two items were really in plaintiff's suitcase and defendant should
be held liable for the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court had found that
the suitcase of the appellee was tampered, and the transistor radio and the camera contained therein
were lost, and that the loss of those articles was due to the negligence of the employees of the
appellant. The evidence shows that the transistor radio cost P197.00 and the camera cost P176.00, so
the total value of the two articles was P373.00.
There is no question that the appellant is a common carrier.
1
As such common carrier the appellant,
from the nature of its business and for reasons of public policy, is bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by it
according to the circumstances of each case. 2 It having been shown that the loss of the transistor radio
and the camera of the appellee, costing P373.00, was due to the negligence of the employees of the
appellant, it is clear that the appellant should be held liable for the payment of said loss.
3
It is, however, contended by the appellant that its liability should be limited to the amount stated in the
conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee,
which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil
Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the appellant in
this case provides as follows:
The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is
limited to its value and, unless the passenger declares in advance a higher valuation and pay an
additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for each
ticket.
The appellant maintains that in view of the failure of the appellee to declare a higher value for his
luggage, and pay the freight on the basis of said declared value when he checked such luggage at the
Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand payment
from the appellant of an amount in excess of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides
as follows:
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.
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary
liability of a common carrier may, by contract, be limited to a fixed amount. It is required, however,
that the contract must be "reasonable and just under the circumstances and has been fairly and freely
agreed upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport. In the case before us We believe that the
requirements of said article have not been met. It can not be said that the appellee had actually entered
into a contract with the appellant, embodying the conditions as printed at the back of the ticket stub that
was issued by the appellant to the appellee. The fact that those conditions are printed at the back of the
ticket stub in letters so small that they are hard to read would not warrant the presumption that the
appellee was aware of those conditions such that he had "fairly and freely agreed" to those conditions.
The trial court has categorically stated in its decision that the "Defendant admits that passengers do not
sign the ticket, much less did plaintiff herein sign his ticket when he made the flight on November 23,
1959." We hold, therefore, that the appellee is not, and can not be, bound by the conditions of carriage
found at the back of the ticket stub issued to him when he made the flight on appellant's plane on
November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles 1734
and 1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.1wph1.t
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.
It having been clearly found by the trial court that the transistor radio and the camera of the appellee
were lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant
is clear it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision,
this Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods
shipped where such injury or loss was caused by its own negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public policy, in
accordance with which the obligations of the carrier to the public are settled. It cannot lawfully
stipulate for exemption from liability, unless such exemption is just and reasonable, and unless the
contract is freely and fairly made. No contractual limitation is reasonable which is subversive of public
policy.
"Par. 195. 7. What Limitations of Liability Permissible. a. Negligence (1) Rule in America (a)
In Absence of Organic or Statutory Provisions Regulating Subject aa. Majority Rule. In the
absence of statute, it is settled by the weight of authority in the United States, that whatever limitations
against its common-law liability are permissible to a carrier, it cannot limit its liability for injury to or
loss of goods shipped, where such injury or loss is caused by its own negligence. This is the common
law doctrine and it makes no difference that there is no statutory prohibition against contracts of this
character.
"Par. 196. bb. Considerations on which Rule Based. The rule, it is said, rests on considerations of
public policy. The undertaking is to carry the goods, and to relieve the shipper from all liability for loss
or damage arising from negligence in performing its contract is to ignore the contract itself. The natural
effect of a limitation of liability against negligence is to induce want of care on the part of the carrier in
the performance of its duty. The shipper and the common carrier are not on equal terms; the shipper
must send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the
carrier unless protected by the higher power of the law against being forced into contracts limiting the
carrier's liability. Such contracts are wanting in the element of voluntary assent.
"Par. 197. cc. Application and Extent of Rule (aa) Negligence of Servants. The rule prohibiting
limitation of liability for negligence is often stated as a prohibition of any contract relieving the carrier
from loss or damage caused by its own negligence or misfeasance, or that of its servants; and it has
been specifically decided in many cases that no contract limitation will relieve the carrier from
responsibility for the negligence, unskillfulness, or carelessness of its employer." (Cited in Ysmael and
Co. vs. Barreto, 51 Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
95.0ngYiu v. Court of Appeals 91 SCRA 223; 75 OG (No. 48) 9659
G.R. No. L-40597 June 29, 1979
AGUSTINO B. ONG YIU, petitioner, vs.HONORABLE COURT OF APPEALS and
PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for
damages for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc.
(PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to
attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch
II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of luggage,
a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan
Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00
o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be found.
According to petitioner, it was only after reacting indignantly to the loss that the matter was attended to
by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00 o'clock P.M.,
PAL Butuan, sent a message to PAL, Cebu, inquiring about the missing luggage, which message was,
in turn relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same
afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same afternoon, PAL
Manila wired PAL Cebu advising that the luggage had been over carried to Manila aboard Flight No.
156 and that it would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were also
given that the luggage be immediately forwarded to Butuan City on the first available flight (Exh. "3").
At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL Butuan that the luggage would
be forwarded on Fright No. 963 the following day, August 27, 196'(. However, this message was not
received by PAL Butuan as all the personnel had already left since there were no more incoming flights
that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu
demanding the delivery of his baggage before noon the next day, otherwise, he would hold PAL liable
for damages, and stating that PAL's gross negligence had caused him undue inconvenience, worry,
anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu PAL
supervisor but the latter felt no need to wire petitioner that his luggage had already been forwarded on
the assumption that by the time the message reached Butuan City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire
about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that
morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner,
but the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car, who also used to
drive for petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to
be the same driver used by petitioner whenever the latter was in Butuan City, Gomez took the luggage
and placed it on the counter. Dagorro examined the lock, pressed it, and it opened. After calling the
attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at its contents, but did not
touch them. Dagorro then delivered the "maleta" to petitioner, with the information that the lock was
open. Upon inspection, petitioner found that a folder containing certain exhibits, transcripts and private
documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for
his parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the porter clerk,
Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his
documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on
August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention
to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be compensated
in the sum of P250,000,00 for actual and moral damages within five days from receipt of the letter,
otherwise, he would be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's
office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the contents
were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the
investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager,
Southern Philippines.
First of all, may we apologize for the delay in informing you of the result of our investigation since we
visited you in your office last August 31, 1967. Since there are stations other than Cebu which are
involved in your case, we have to communicate and await replies from them. We regret to inform you
that to date we have not found the supposedly lost folder of papers nor have we been able to pinpoint
the personnel who allegedly pilferred your baggage.
You must realize that no inventory was taken of the cargo upon loading them on any plane.
Consequently, we have no way of knowing the real contents of your baggage when same was loaded.
We realized the inconvenience you encountered of this incident but we trust that you will give us
another opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu
(Exhibit G, Folder of Exhibits)
1
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of
transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188,
which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith and with
malice and declared petitioner entitled to moral damages in the sum of P80,000.00, exemplary damages
of P30,000.00, attorney's fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the sum of
P80,000.00 as moral damages; and defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but ordered
PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the condition of
carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the
following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY
ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS
CONTRACT OF TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE
LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO
PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES
OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND ORDERED
RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY
TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL
CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is
the correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL
and that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and
exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad
faith means a breach of a known duty through some motive of interest or ill will.
2
It was the duty of
PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in
complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had
exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith because
PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same afternoon, despite plaintiff's
indignation for the non-arrival of his baggage. The message was sent within less than one hour after
plaintiff's luggage could not be located. Efforts had to be exerted to locate plaintiff's maleta. Then the
Bancasi airport had to attend to other incoming passengers and to the outgoing passengers. Certainly,
no evidence of bad faith can be inferred from these facts. Cebu office immediately wired Manila
inquiring about the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at the domestic
airport wired Cebu that the baggage was over carried to Manila. And this message was received in
Cebu one minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same
afternoon. His Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and
completely relayed to Mactan at 4:00 P.M., or within one minute, made the message appear spurious.
This is a forced reasoning. A radio message of about 50 words can be completely transmitted in even
less than one minute depending upon atmospheric conditions. Even if the message was sent from
Manila or other distant places, the message can be received within a minute. that is a scientific fact
which cannot be questioned.
3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time
the luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier than
a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the arrival
of the morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the proximate result
of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the
Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage
liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection, respondent
Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL for the
loss, in accordance with the stipulation written on the back of the ticket, Exhibit 12, is limited to
P100.00 per baggage, plaintiff not having declared a greater value, and not having called the attention
of the defendant on its true value and paid the tariff therefor. The validity of this stipulation is not
questioned by the plaintiff. They are printed in reasonably and fairly big letters, and are easily readable.
Moreover, plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and he,
being a lawyer and businessman, must be fully aware of these conditions.
4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the
plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in
excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and additional charges
are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less did he
pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and
that Article 1750* of the Civil Code has not been complied with.
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 of the latter's lack of knowledge or assent
to the regulation".
5
It is what is known as a 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 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.
6
And as held in Randolph v.
American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc.,
349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence.
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00.Besides, passengers are advised not to place valuable items
inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to be noted that
there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner.
There is another matter involved, raised as an error by PAL the fact that on October 24, 1974 or two
months after the promulgation of the Decision of the appellate Court, petitioner's widow filed a Motion
for Substitution claiming that petitioner died on January 6, 1974 and that she only came to know of the
adverse Decision on October 23, 1974 when petitioner's law partner informed her that he received copy
of the Decision on August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner
reciting facts constitutive of excusable negligence. The appellate Court noting that all pleadings had
been signed by petitioner himself allowed the widow "to take such steps as she or counsel may deem
necessary." She then filed a Motion for Reconsideration over the opposition of PAL which alleged that
the Court of Appeals Decision, promulgated on August 22, 1974, had already become final and
executory since no appeal had been interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it
is best that technicality yields to the interests of substantial justice. Besides, in the 'last analysis, no
serious prejudice has been caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not
erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be
reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
96. Panam v. IAC 164 SCRA 268
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs.INTERMEDIATE APPELLATE
COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS and ARCHER
PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.

CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost
baggage, containing promotional and advertising materials for films to be exhibited in Guam and the
U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the airline
ticket absent a declaration of a higher valuation and the payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as
follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang
Bastos and Archer Production while in San Francisco, Califonia and Primo Quesada of Prime Films,
San Francisco, California, entered into an agreement (Exh. A) whereby the former, for and in
consideration of the amount of US $2,500.00 per picture, bound himself to supply the latter with three
films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal
Dragon' for exhibition in the United States. It was also their agreement that plaintiffs would provide the
necessary promotional and advertising materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick
of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with
Slutchnick for the exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on
May 30, 1978 for the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff
Pangan undertook to provide the necessary promotional and advertising materials for said films on or
before the exhibition date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional
handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C1).
Likewise in preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased
fourteen clutch bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs.
D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the Your
Travel Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from
Manila to Guam on defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of the
regular fare. The Your Travel Guide is a tour and travel office owned and managed by plaintiffs
witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket
counter at the Manila International Airport and presented his ticket and checked in his two luggages,
for which he was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two
luggages contained the promotional and advertising materials, the clutch bags, barong tagalog and his
personal belongings. Subsequently, Pangan was informed that his name was not in the manifest and so
he could not take Flight No. 842 in the economy class. Since there was no space in the economy class,
plaintiff Pangan took the first class because he wanted to be on time in Guam to comply with his
commitment, paying an additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive
with his flight, as a consequence of which his agreements with Slutchnick and Quesada for the
exhibition of the films in Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a
written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations
to protest as to the treatment which he received from the employees of the defendant and the loss of his
two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances
would be investigated and given its immediate consideration (Exhs. N, P and R). Due to the defendant's
failure to communicate with Pangan about the action taken on his protests, the present complaint was
filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as
follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from December 6,
1978, when the complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of
P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-
107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective memoranda.
In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of actual damages
beyond the limitation of liability set forth in the Warsaw Convention and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of actual damages
consisting of alleged lost profits in the face of this Court's ruling concerning special or consequential
damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the country of
departure the Warsaw Convention may be applicable and the Convention governs and in most cases
limits the liability of carriers for death or personal injury and in respect of loss of or damage to
baggage. See also notice headed "Advice to International Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which these
conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier" means all air
carriers that carry or undertake to carry the passenger or his baggage hereunder or perform any other
service incidental to such air carriage. "WARSAW CONVENTION" means the convention for the
Unification of Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th October
1929, or that Convention as amended at The Hague, 28th September 1955, whichever may be
applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability established by the
Warsaw Convention unless such carriage is not "international carriage" as defined by that
Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier
are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of
carriage and related regulations which are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in the United States or Canada and any
place outside thereof to which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared
in advance and additional charges are paid: (1)for most international travel (including domestic
portions of international journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked
baggage and $400 per passenger for unchecked baggage: (2) for travel wholly between U.S. points, to
$750 per passenger on most carriers (a few have lower limits). Excess valuation may not be declared on
certain types of valuable articles. Carriers assume no liability for fragile or perishable articles. Further
information may be obtained from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its
liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as
the latter did not declare a higher value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597,
June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed stipulation at the
back of an airline ticket limiting the liability of the carrier for lost baggage to a specified amount and
ruled that the carrier's liability was limited to said amount since the passenger did not declare a higher
value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through
Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage
liability to the amount of P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the
plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in
excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00 and additional charges
are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less (lid he
pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and
that Article 1750 * of the Civil Code has not been complied with.
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 of the latter's lack of knowledge or assent
to the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten
v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is
what is known as a 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 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, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American
Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d
483.] "a contract limiting liability upon an agreed valuation does not offend against the policy of the
law forbidding one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2,
1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a
specified amount was invalid, finds no application in the instant case, as the ruling in said case was
premised on the finding that the conditions printed at the back of the ticket were so small and hard to
read that they would not warrant the presumption that the passenger was aware of the conditions and
that he had freely and fairly agreed thereto. In the instant case, similar facts that would make the case
fall under the exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as
stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the
Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425,
August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention which
limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of
carriage ** is against public policy" is utterly misplaced, to say the least. In said case, while the Court,
as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of death of
a passenger or injury suffered by him, or of destruction or loss of, or damages to any checked baggage
or any goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is
not borne out by the language of said Articles. The same merely declare the carrier liable for damages
in enumerated cases, if the conditions therein specified are present. Neither said provisions nor others
in the aforementioned Convention regulate or exclude liability for other breaches of contract by the
carrier. Under petitioner's theory, an air carrier would be exempt from any liability for damages in the
event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the ground that the lower court
has erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to transportation by
air is not in force in the Philippines: (2) in not holding that respondent has no cause of action; and (3) in
awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error because the same is the basis of the
second assignment of error, and the latter is devoid of merit, even if we assumed the former to be well
taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of
provisions of the Warsaw Convention. Consequently, by no stretch of the imagination may said
quotation from Northwest be considered as supportive of the appellate court's statement that the
provisions of the Warsaw Convention limited a carrier's liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court
of Appeals, awarding private respondents damages as and for lost profits when their contracts to show
the films in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable
only for damages that were foreseen or might have been foreseen at the time the contract of
transportation was entered into. The trial court correctly found that the defendant company could not
have foreseen the damages that would be suffered by Mendoza upon failure to deliver the can of film on
the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit that film during the
town fiesta and his preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration. In the
case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion
picture films to the defendant Fargo, an express company, consigned and to be delivered to him in
Utica. At the time of shipment the attention of the express company was called to the fact that the
shipment involved motion picture films to be exhibited in Utica, and that they should be sent to their
destination, rush. There was delay in their delivery and it was found that the plaintiff because of his
failure to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the highest
court in the State of New York refused to award him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of profits on
account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery
to him of the particular circumstances attending the shipment, and which probably would lead to such
special loss if he defaulted. Or, as the rule has been stated in another form, in order to purpose on the
defaulting party further liability than for damages naturally and directly, i.e., in the ordinary course of
things, arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of breach at the time of or prior
to contracting. Generally, notice then of any special circumstances which will show that the damages
to be anticipated from a breach would be enhanced has been held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the purpose
of shipment, and the desire to rush the shipment, circumstances and facts absent in the present case.
[Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner's attention was called to the special circumstances requiring prompt delivery of private
respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality when it accepted the luggages
for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in
Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the
finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in
Guam and California were cancelled because of the loss of the two luggages in question." [Rollo, p. 36]
The evidence reveals that the proximate cause of the cancellation of the contracts was private
respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed
upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of
the two luggages he had checked in and paid additional charges. Neither was petitioner privy to
respondents' contracts nor was its attention called to the condition therein requiring delivery of the
promotional and advertising materials on or before a certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the
award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy
private respondent's just and valid claim, loses support and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate
Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay private respondents
damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual
payment.
SO ORDERED.
97. Aboitiz Shipping Corp. v. Court of Appeals 188 SCRA 387
G.R. No. 89757 August 6, 1990
ABOITIZ SHIPPING CORPORATION, petitioner, vs.COURT OF APPEALS AND GENERAL
ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
Dollete, Blanco, Ejercito & Associates for private respondent.

GANCAYCO, J.:
The extent of the liability of a carrier of goods is again brought to the fore in this case.
On October 28, 1980, the vessel M/V "P. Aboitiz" took on board in Hongkong for shipment to Manila
some cargo consisting of one (1) twenty (20)-footer container holding 271 rolls of goods for apparel
covered by Bill of Lading No. 515-M and one (1) forty (40)-footer container holding four hundred
forty- seven (447) rolls, ten (10) bulk and ninety-five (95) cartons of goods for apparel covered by Bill
of Lading No. 505-M. The total value, including invoice value, freightage, customs duties, taxes and
similar imports amounts to US$39,885.85 for the first shipment while that of the second shipment
amounts to US$94,190.55. Both shipments were consigned to the Philippine Apparel, Inc. and insured
with the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC for short). The vessel
is owned and operated by Aboitiz Shipping Corporation (Aboitiz for short).
On October 31, 1980 on its way to Manila the vessel sunk and it was declared lost with all its cargoes.
GAFLAC paid the consignee the amounts US$39,885.85 or P319,086.80 and US$94,190.55 or
P753,524.40 for the lost cargo. As GAFLAC was subrogated to all the rights, interests and actions of
the consignee against Aboitiz, it filed an action for damages against Aboitiz in the Regional Trial Court
of Manila alleging that the loss was due to the fault and negligence of Aboitiz and the master and crew
of its vessel in that they did not observe the extraordinary diligence required by law as regards common
carriers.
After the issues were joined and the trial on the merits a decision was rendered by the trial court on
June 29, 1985, the dispositive part of which reads as follows:
PREMISES CONSIDERED, the Court finds in favor of the plaintiff and against the defendant,
ordering the latter to pay the former actual damages in the sum of P1,072,611.20 plus legal interest
from the date of the filing of the complaint on October 28, 1981, until full payment thereof, attorney's
fees in the amount of 20% of the total claim and to pay the costs.
SO ORDERED.
1
Not satisfied therewith, Aboitiz appealed to the Court of Appeals wherein in due course a decision was
rendered on March 9, 1989 affirming in toto the appealed decision, with costs against defendant
Aboitiz .
2
A motion for reconsideration of said decision filed by Aboitiz was denied in a resolution dated August
15, 1989.
Hence the herein petition for review alleging that the Court of Appeals decided the case not in
accordance with law when
1. The Court of Appeals held that "findings of administrative bodies are not always binding on court .
This is especially so in the case at bar where GAFLAC was not a party in the BMI proceedings and
which proceedings was not adversary in characther." This ruling is contrary to the principle established
in Vasquez vs. Court of Appeals (138 SCRA 559), where it was held that since the BMI possesses the
required expertise in shipping matters and is imbued with quasi-judicial powers, its factual findings are
conclusive and binding on the court. Likewise, the case of Timber Export Inc. vs. Retla Steamship Co.
(CA-G.R. No. 66143-R) also established the rule that decision of BMI must be given "great materiality
and weight to the determination and resolution of the case."
2. The Court of Appeals also held that the trial court did not err when it fixed the liability of Aboitiz not
on the basis of the stipulation in the bills of lading at US$500.00 per package/container but on the
actual value of the shipment lost notwithstanding the long line of cases decided by this Honorable
Supreme Court holding a contrary opinion, as shown below.
3. The Court of Appeals also held that the trial court did not abuse its discretion in granting GAFLAC's
motion for execution pending appeal notwithstanding the absence of reasonable and justifiable grounds
to support the same.
3
Under the first issue petitioner state that the sinking of the vessel M/V "P. Aboitiz" was the subject of
an administrative investigation conducted by the Board of Marine Inquiry (BMI) whereby in a decision
dated December 26, 1984, it was found that the sinking of the vessel may be attributed to force majeure
on account of a typhoon. Petitioner contends that these findings are conclusive on the courts.
In rejecting the evidence offered by the petitioner the appellate court ruled
But over and above all these considerations, the trial court did not err in not giving weight to the
finding of the BMI that the vessel sank due to a fortuitous event. Findings of administrative bodies are
not always binding on courts. This is especially so in the case at bar where plaintiff was not a party in
the BMI proceedings and which proceeding was not adversary in character.
4
As a general rule, administrative findings of facts are not disturbed by the courts when supported by
substantial evidence unless it is tainted with unfairness or arbitrariness that would amount to abuse of
discretion or lack of jurisdiction.
5
Even in Vasquez vs. Court of Appeals,
6
which is cited by petitioner,
this Court ruled that We nevertheless disagree with the conclusion of the BMI exonerating the captain
from any negligence "since it obviously had not taken into account the legal responsibility of a
common carrier towards the security of the passengers involved."
This case was brought to court on October 28, 1981. The trial court was never informed of a parallel
administrative investigation that was being conducted by the BMI in any of the pleadings of the
petitioner. It was only on March 22, 1985 when petitioner revealed to the trial court the decision of the
BMI dated December 26, 1984 (one day after Christmas day).
7
The said decision appears to have been
rendered over three (3) years after the case was brought to court.
Moreover, said administrative investigation was conducted unilaterally. Private respondent GAFLAC
was not notified or given an opportunity to participate therein. It cannot thereby be bound by said
findings and conclusions of the BMI.
The trial court and the appellate court found that the sinking of the M/V "P. Aboitiz" was not due to the
waves caused by tropical storm "Yoning" but due to the fault and negligence of petitioner, its master
and crew. The court reproduces with approval said findings
xxx xxx xxx
After a careful examination of the evidence, the Court is convinced in the plaintiffs claim that the M/V
"Aboitiz" and its cargo were not lost due to fortuitous event or force majeure.
To begin with, paragraph 4 of the marine protest (Exh. "4", also Exhibit "M"), which is defendant's
own evidence, shows that the wind force when the ill-fated ship foundered was 10 to 15 knots.
According to the Beaufort Scale (Exhibit "I"), which is admittedly an accurate reference for measuring
wind velocity, the wind force of 10 to 15 knots is classified as scale No. 4 and described as "moderate
breeze," small waves, becoming longer, fairly frequent white horses. Meteorologist Justo Iglesias, Jr.
himself affirms the above description of a wind force of 10 to 15 knots and adds that the weather
condition prevailing under said wind force is usual and forseeable. Thus Iglesias, Jr. testified:
Q. In the marine protest of the master of the vessel of Aboitiz, there is reference to wind force from ten
to 15 knots. In this Beaufort Scale, will you be able to clarify what this wind force of 10 to 15 as stated
in the marine protest?
A. It will be under Force 4 of the Beaufort Scale.
Q. What is the basis of your answer?
A. 10 to 15 falls within this scale of the Beaufort Scale, Force 4.
Atty. Dollete:
May I read into the records, Your Honor. Force 4, descriptive term moderate breeze. Near velocity in
knots 11-16 meters per second, 5.5-7.9 in kilometers per hour to 20 to 28 kilometers per hour and 13 to
18 miles per hour. Sea the description of this will be small waves becoming longer fairly frequent white
horse (sic).
Q. In the layman's language how do you interpret this white horses?
A. It means white forms. At the top of the crest they were beginning to form white foams.
Q. How about this moderate breeze as described under this Force 4 of the Beaufort Scale, how will you
interpret that?
A. Moderate breeze will only give winds of 29 kilometers per hour which is equivalent to just
extending your hand out of a running car at that speed.
Q. This weather condition between October 28 and November 1, 1980, will you classify this as
extraordinary or ordinary?
A. It was ordinary.
Q. When you said ordinary, was it usual or unusual?
A. It is usual.
Q. When you said it is usual it is foreseeable and predictable?
A. For an experienced meteorologist like a ship captain, it is foreseeable.
Q. When it is foreseeable, necessarily it follows that the weather could be predicted based on the
weather bulletin or report?
A. Yes, sir.
Q. And usually the bulletin states the condition in other words, this weather condition which you
testified to and reflected in your Exhibit "7" is an ordinary occurrence within that area of Philippine
responsibility?
A. Yes, sir.
Q. And in fact this weather condition is to be anticipated at that time of the year with respect to weather
condition which is reflected in Exhibit "7"?
A. It is a regular occurrence.
xxx xxx xxx
Moreover, Capt. Racines again admitted in Court that his ill-fated vessel was 200 miles away from the
storm 'Yoning when it sank. Said Capt. Racines:
Q. How far were you from this depression or weather disturbance on October 30, 1980?
A. Two hundred miles.
xxx xxx xxx
Q. In other words, this depression was far from your route because it took a northern approach whereas
you were towards the south approach?
A. As I have said, I was 200 miles away from the disturbance.
xxx xxx xxx
Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were
not lost due to fortuitous event or force majeure.
In accordance with Article 1732 of the Civil Code, the defendant common carrier, from the nature of its
business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by it according to all the circumstances
of each case. While the goods are in the possession of the carrier, it is but fair that it exercise extra
ordinary diligence in protecting them from loss or damage, and if its 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 (Article 1756, Civil Code; Anuran vs. Puno, 17 SCRA 224; Nocum vs.
Laguna Tayabas Bus Co., 30 SCRA 69; Landigan vs. Pangasinan Transportation Company, 88 SCRA
284). In the case at bar, the defendant failed to prove that the loss of the subject cargo was not due to its
fault or negligence.
8
The said factual findings of the appellate court and the trial court are finding on this Court. Its
conclusion as to the negligence of the petitioner is supported by the evidence.
The second issue raised to the effect that the liability of the petitioner should be fixed at US$500.00 per
package/container, as stipulated in the bill of lading and not at the actual value of the cargo, should be
resolved against petitioner.
While it is true that in the bill of lading there is such stipulation that the liability of the carrier is
US$500.00 per package/container/customary freight, there is an exception, that is, when the nature and
value of such goods have been declared by the shipper before shipment and inserted in the bill of
lading. This is provided for in Section 4(5) of the Carriage of Goods by Sea Act to wit
(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 of 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
inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie
evidence, but shall not 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.
Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection
with the transportation of the goods if the nature or value thereof has been knowingly and fraudulently
mis-stated by the shipper in the bill of lading. (Emphasis supplied.)
In this case the description of the nature and the value of the goods shipped are declared and reflected
in the bills of lading. Thus, it is the basis of the liability of the carrier as the actual value of the loss.
Moreover, it is absurd to interpret "container," as provided in the bill of lading to be valued at
US$500.00 each, to refer to the container which is the modern substitute for the hold of the vessel.
9
The package/container contemplated by the law to limit the liability of the carrier should be sensibly
related to the unit in which the shipper packed the goods and described them, not a large metal object,
functionally a part of the ship, in which the carrier used them to be contained.
10
Such "container" must
be given the same meaning and classification as a "package" and "customary freight unit."
The appellate court in disposing this issue quoted its decision in Allied Guarantee Insurance Co. Inc.
vs. Aboitiz Shipping Corporation, CA GR. CV No. 04121, March 23, 1987, viz;
Third. Still it is contended that the carrier's liability is limited to $500.00, pursuant to section 8 of the
Bill of Lading which provides that 'The liability of the Carrier for any loss or damage to the goods shall
in no case exceed the sum of U.S. $500.00 per package/container/customary freight unit, unless the
value of the goods has been correctly declared and extra freight paid, prior to the shipment and a signed
declaration to this effect appears in the bill of lading, duly confirmed by the Carrier. ... It is contended
that the Bill of Lading does not indicate the value of the goods. Nor was the corresponding freight ...
paid prior to shipment.
Generally speaking a stipulation, limiting the common carrier's liability to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is valid. (Civil
Code, Art. 1749). Such stipulation, however, must be reasonable and just under the circumstances and
must have been fairly and freely agreed upon. (St. Paul Fire & Marine Insurance Co. vs. Macondray
Co., 70 SCRA 122, 126-127 (1976) In the case at bar, the goods shipped on the M/V "P. Aboitiz" were
insured for P278,530.50, which may be taken as their value. To limit the liability of the carrier to
$500.00 would obviously put it in its power to have taken the whole cargo. In Juan Ysmael & Co. vs.
Gabino Barreto & Co., 51 Phil. 90 (1927), it was held that a stipulation limiting the carrier's liability to
$500.00 per package of silk when the value of such package was P2,500.00 unless the true value had
been declared and the corresponding freight paid was "void as against public policy." That ruling
applies to this case.
Moreover, by the weight of modern authority, a carrier cannot limit its liability for injury or loss of
goods shipped where such injury or loss was caused by its own negligence. (Juan Ysmael & Co. v.
Gabino Barreto & Co., supra) Here to limit the liability of Aboitiz Shipping to $500.00 would nullify
the policy of the law imposing on common carriers the duty to observe extraordinary diligence in the
carriage of goods.
Indeed, it is even doubtful whether the word "container" in section 8 of the Bill of Lading includes
containers which are a substitute for the hold of a vessel. This provision limits the carrier's liability to
"the sum of US$500.00 per package /container customary freight unit." By the rule of noscitur a sociis
the word "container" must be given the same meaning as package and customary freight unit and
therefore cannot possibly refer to modern containers which are used for shipment of goods in bulk.
11
In the same light, the third issue questioning the order of execution pending appeal of the trial court
must be resolved against petitioner as well.
The averments in the motion for execution pending appeal dated December 8, 1985 are as follows
Aside from the fact that petitioner can easily post a supersedeas bond to stay execution, still other
circumstances are present peculiar in the incident of the sinking of M/V P. Aboitiz which would justify
the issuance of execution pending appeal. There are other decided cases adjudging petitioner liable in
the lower court in the same incident. Other cases are on appeal, upcoming and about to be decided. The
value of cargo loss caused by the sinking of petitioner's vessel is in the tune of no less than fifty million
pesos inclusive of interests fees and all claims. Its insurer has gone bankrupt and petitioner alone must
face and answer for all these claims. In one branch of the Regional Trial Court of Manila alone there
are twenty five (25) cases pending against petitioner involving the same loss of cargoes aboard M/V "P.
Aboitiz" as per certification herewith attached as Annex "A". This claim do not include others, pending
in various courts in Metro Manila which would have to be satisfied ultimately by petitioner, it being a
common carrier which failed to exercise extraordinary diligence over the goods lost. The judgment
sought to be enforced may indeed be rendered imminently ineffectual in the ultimate analysis.
The purpose of Sec. 2 Rule 39 would not be achieved or execution pending appeal would not be
achieved if insolvency would still be awaited. The remedy is available to petitioner under Sec. 3 Rule
39 of the Rules of Court but to place insolvency as a condition to issuance of a writ of execution
pending appeal would render it illusory and ineffectual.
Justice and equity therefore dictates, that as a consequence of the bond posted by private respondent
and there being several other cases against petitioner, decided as well as pending, the totality of which
claims may render the appealed decision imminently ineffectual and the further fact that the appeal
being interposed is evidently for delay as a consequence of the several adverse decisions against it as a
common carrier in the lower court, a reconsideration of the decision dated November 25, 1985 of the
Honorable Court will be in consonance with law, jurisprudence and equity.
In order to erase all apprehensions that the aforesaid judgment award will wind up ineffectual when not
immediately executed, it is most respectfully prayed that herein respondent be required to post a
supersedeas bond. The statutory undertaking of posting a bond will then achieve a three-pronged
direction of justice, (1) it will cast no doubt on the solvency of the herein petitioner; (2) it will not
defeat or render phyrric a just resolution of the case whichever party prevails in the end or in the main
case on appeal, since both of their claims are secured by their corresponding bonds; and (3) it will put
to equitable operation Sec. 3 Rule 39 of the Revised Rules of Court.
12
The foregoing allegations which were not traversed that petitioner is facing many law suits arising from
said sinking of its vessel involving cargo loss of no less than 50 million pesos, in some cases of which
judgment had been rendered against Aboitiz, and considering that its insurer is now bankrupt, leaving
Aboitiz alone to face and answer the suits, which may render any judgment for GAFLAC ineffectual,
that the appeal is interposed manifestly for delay and the willingness of GAFLAC to put up a bond
certainly are cogent bases for the issuance of an order of execution pending appeal.
Finally, in a similar case for damages arising from the same incident entitled Aboitiz Shipping
Corporation vs. Honorable Court of Appeals and Allied Guaranteed Insurance Company, Inc., G.R.
No. 88159, this Court in a resolution dated November 13, 1989 dismissed the petition for lack of merit.
Therein this Court held in part
The appellate court affirmed the decision of the lower court based on its findings that the cause of
sinking of the vessel was due to its unseaworthiness and the failure of its crew and the master to
exercise extraordinary diligence.
The petitioner, however, contends that the appellate court erred on this matter and insists that the
contrary findings of the Board of Marine Inquiry (BMI), which conducted a separate investigation to
the effect that the proximate cause of the sinking of the vessel was due to force majeure and that the
officers and crew had exhausted all preventive measures to save the vessel and her cargo but to no
avail, should prevail. This, according to the petitioner is based on the doctrine of primary
administrative jurisdiction.
This argument is untenable.
A cursory reading of the decision and resolution of the appellate court shows that the same took into
consideration not only the findings of the lower court but also the findings of the BMI. Thus, the
appellate court stated:
Indeed, the decision of the Board was based simply on its finding that the Philippine Coast Guard had
certified the vessel to be seaworthy and that it sank because it was exposed later to an oncoming
typhoon plotted within the radius where the vessel was positioned. This generalization certainly cannot
prevail over the detailed explanation of the trial court in this case as basis for its contrary conclusion.
(Rollo, at p. 42)
We find no cogent reason to deviate from the factual findings of the appellate court and rule that the
doctrine of primary administrative jurisdiction is not applicable in the case at bar.
The other issue raised is whether or not the carrier's liability is limited to $500.00 pursuant to section 8
of the Bill of Lading. The petitioner claims that the appellate court erred in disregarding the limitation
of liability stipulated in the bill of lading. It argues that the consignee agreed to this amount (and)
therefore is bound by this rate and that there is no basis for the appellate court's finding that the rate is
unreasonable.
The argument is not well-taken. As aptly stated by the appellate court:
Generally speaking any stipulation, limiting the common carrier's liability to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value is valid. (Civil
Code, Art. 1749) Such stipulation, however, must be reasonable and just under the circumstances and
must have been fairly and freely agreed upon. (St. Paul Fire & Marine Insurance Co. v. Macondray &
Co., 70 SCRA 122, 126-127 [1976] In the case at bar, the goods shipped on the M/V "P. Aboitiz" were
insured for P278,536.50, which may be taken as their value. To limit the liability of the carrier to
$500.00 would obviously put in its power to have taken the whole cargo. In Juan Ysmael & Co. v.
Gabino Barretto & Co., 51 Phil. 90 [1927], it was held that a stipulation limiting the carrier's liability
to P300.00 per package of silk, when the value of such package was P2,500.00, unless the true value
had been declared and the corresponding freight paid; was void as against public policy. That ruling
applies to this case.
As argued by the respondent, a limitation of liability in this case would render inefficacious the
extraordinary diligence required by law of common carriers.
13
The motion for reconsideration of said resolution filed by petitioner was denied with finality in a
resolution dated January 8, 1990. Said resolution of the case had become final and executory, entry of
judgment having been made and the records remanded for execution on March 22, 1990.
Said case is now the law of the case applicable to the present petition.
WHEREFORE, the petition is dismissed with costs against petitioner.
SO ORDERED.
98.. Aboitiz Shipping Corp. v. General Accident Fire & Life Ins. Co. 217 SCRA 359
G.R. No. 100446 January 21, 1993
ABOITIZ SHIPPING CORPORATION, petitioner, vs.GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORPORATION, LTD., respondent.
Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.
Napoleon Rama collaborating counsel for petitioner.
Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:
This refers to a petition for review which seeks to annul and set aside the decision of the Court of
Appeals dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for
certiorari filed by herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30,
1991 issued by the Regional Trial Court of the National Capital Judicial Region (Manila, Branch IV) in
its Civil Case No. 144425 granting private respondent's prayer for execution for the full amount of the
judgment award. The trial court in so doing swept aside petitioner's opposition which was grounded on
the real and hypothecary nature of petitioner's liability as ship owner. The application of this
established principle of maritime law would necessarily result in a probable reduction of the amount to
be recovered by private respondent, since it would have to share with a number of other parties
similarly situated in the insurance proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged in the business
of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a
common carrier which sank on a voyage from Hongkong to the Philippines on October 31, 1980.
Private respondent General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the
other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo
consignees whose respective cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by
the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking
was initially investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984),
which found that such sinking was due to force majeure and that subject vessel, at the time of the
sinking was seaworthy. This administrative finding notwithstanding, the trial court in said Civil Case
No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a
result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later
awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court in
G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated
vessel, encountering rough sailing. The attempted execution of the judgment award in said case in the
amount of P1,072,611.20 plus legal interest has given rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the
vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One
such ruling was likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance
Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained. Part of the task resting
upon this Court, therefore, is to reconcile the resulting apparent contrary findings in cases originating
out of a single set of facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the
doctrine of limited liability on the totality of the claims vis a vis the losses brought about by the sinking
of the vessel M/V P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an
issue which begs to be resolved considering that a number of suits alleged in the petition number about
110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more
confusion than presently attends the instant case.
In support of the instant petition, the following arguments are submitted by the petitioner:
1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment
of other creditors' shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and
3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing that:
1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587,
590, and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case
No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the
Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and
2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly
situated and the same issues litigated should be decided in conformity therewith following the maxim
stare decisis et non quieta movere. (pp. 225 to 279, Rollo.)
Before proceeding to the main bone of contention, it is important to determine first whether or not the
Resolution of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of
Appeals and Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and
precludes the instant petition as argued by respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows
that the same settles two principal matters, first of which is that the doctrine of primary administrative
jurisdiction is not applicable therein; and second is that a limitation of liability in said case would
render inefficacious the extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one
now in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is
that which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which
limited the carrier's liability to US$500.00 for the cargo whose value was therein sought to be
recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real
and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone
of contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing
with the issues on primary administrative jurisdiction and the package liability limitation provided in
the Bill of Lading are now settled and should no longer be touched, the instant case raises a completely
different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other
than factual to the instant case.
This brings us to the primary question herein which is whether or not respondent court erred in granting
execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively
denying the application of the limited liability enunciated under the appropriate articles of the Code of
Commerce. The articles may be ancient, but they are timeless and have remained to be good law.
Collaterally, determination of the question of whether execution of judgments which have become final
and executory may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very
purpose for its existence is to see to the accomplishment of the ends of justice. Consistent with this
view, a number of decisions have originated herefrom, the tenor of which is that no procedural
consideration is sacrosanct if such shall result in the subverting of substantial justice. The right to an
execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135
SCRA 355 [1985]), this Court ruled that:
. . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of
its ministerial officers, and of all other persons in any manner connected with a case before it, in every
manner appertaining thereto. It has also been said that:
. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and
to exercise equitable control over such enforcement. The court has authority to inquire whether its
judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority
extends not only to such orders and such writs as may be necessary to carry out the judgment into
effect and render it binding and operative, but also to such orders and such writs as may be necessary to
prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a
medium of consummating a wrong the court on proper application can prevent it. (at p. 359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court
found that:
The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order
its execution, admits of certain exceptions as in cases of special and exceptional nature where it
becomes the imperative in the higher interest of justice to direct the suspension of its execution (Vecine
v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan,
85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final
which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)
We now come to the determination of the principal issue as to whether the Limited Liability Rule
arising out of the real and hypothecary nature of maritime law should apply in this and related cases.
We rule in the affirmative.
In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R.
No. 89757 upholding private respondent's claims in that particular case, which the Court of Appeals
took to mean that this Court has "considered, passed upon and resolved Aboitiz's contention that all
claims for the losses should first be determined before GAFLAC's judgment may be satisfied," and that
such ruling "in effect necessarily negated the application of the limited liability principle" (p. 175,
Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the
circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein
brought to fore, the circumstances of which heretofore were not relevant. We must stress that the matter
of the Limited Liability Rule as discussed was never in issue in all prior cases, including those before
the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the trial
courts referred to the package limitation clauses in the bills of lading and not the limited liability
doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made
a matter of defense in any of the cases a quo, as properly it could not have been made so since it was
not relevant in said cases. The only time it could come into play is when any of the cases involving the
mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as
it has now been brought before the Court.
The real and hypothecary nature of maritime law simply means that the liability of the carrier in
connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for
such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest years when such trade was replete with
innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their
trade. It was designed to offset such adverse conditions and to encourage people and entities to venture
into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of
the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself,
its equipment, freight, and insurance, if any, which limitation served to induce capitalists into
effectively wagering their resources against the consideration of the large profits attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of the shipping industry and the
development of high-technology safety devices designed to reduce the risks therein, the limitation has
not only persisted, but is even practically absolute in well-developed maritime countries such as the
United States and England where it covers almost all maritime casualties. Philippine maritime law is of
Anglo-American extraction, and is governed by adherence to both international maritime conventions
and generally accepted practices relative to maritime trade and travel. This is highlighted by the
following excerpts on the limited liability of vessel owners and/or agents;
Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement,
loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put
on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the
privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of
such owner in such vessel, and her freight then pending. (Section 183 of the US Federal Limitation of
Liability Act).
and
1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention
in respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to
the claim resulted from the actual fault or privity of the owner;
(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to,
any property on board the ship.
(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or
damage to any other property or infringement of any rights caused by the act, neglect or default the
owner is responsible for, or any person not on board the ship for whose act, neglect or default the
owner is responsible: Provided, however, that in regard to the act, neglect or default of this last class of
person, the owner shall only be entitled to limit his liability when the act, neglect or default is one
which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of
its cargo or in the embarkation, carriage or disembarkation of its passengers.
(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or
in connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned
(including anything which may be on board such ship) and any obligation or liability arising out of
damage caused to harbor works, basins and navigable waterways. (Section 1, Article I of the Brussels
International Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute
from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the
Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he
may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may
have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part
of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions),
shall be understood as limited to the value of the vessel with all its appurtenances and freightage
served during the voyage. (Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art.
587), acts of the captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited liability rule, which is
a matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its
inapplicability, because as could be seen, the reasons for its being are still apparently much in existence
and highly regarded.
We now come to its applicability in the instant case. In the few instances when the matter was
considered by this Court, we have been consistent in this jurisdiction in holding that the only time the
Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the
vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v.
Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649
[1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the
owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33,
Rollo) as well as the entirety of the records in the instant case will show that there has been no actual
finding of negligence on the part of petitioner. In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo
were not lost due to fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the
decision of the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did
not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial
court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the
failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have
been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was
negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a
conclusion to the contrary.
The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case
is underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the
Court sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to
force majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on
petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases
where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so
on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent
duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation.
Such a construction would also put matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained
for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves
merit. Despite appearances, it is not totally incompatible with the findings of the trial court and the
Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural
condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the time
of the sinking, which condition was a result of the acts of the captain and the crew.
The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and
while not absolute, must be swept aside only in the established existence of the most compelling of
reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not sweep
such rights aside on mere whim or surmise, for even in the existence of cause to do so, such incursion
is definitely punitive in nature and must never be taken lightly.
More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared
to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality
of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the
actual amounts of their respective claims, this does not mean that they shall all be allowed to recover
fully thus favoring those who filed and proved their claims sooner to the prejudice of those who come
later. In such an instance, such creditors too would not also be able to gain access to the assets of the
individual shareholders, but must limit their recovery to what is left in the name of the corporation.
Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that:
In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank
was placed under receivership. To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v.
Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered
it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors,
and after its insolvency, one cannot obtain an advantage or preference over another by an attachment,
execution or otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in
their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these
are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these
are the insurance proceeds and pending freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from
the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss.
No claimant can be given precedence over the others by the simple expedience of having filed or
completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even
those already final and executory, must be stayed pending completion of all cases occasioned by the
subject sinking. Then and only then can all such claims be simultaneously settled, either completely or
pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175
to 183, Rollo), together with the corresponding claims and the pro-rated share of each. We likewise
note that some of these cases are still with the Court of Appeals, and some still with the trial courts and
which probably are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial
courts from making their own findings of fact in those cases and deciding the same by allotting shares
for these claims, some of which, after all, might not prevail, depending on the evidence presented in
each. We, therefore, rule that the pro-rated share of each claim can only be found after all the cases
shall have been decided.
In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending
freightage should now be deposited in trust. Moreover, petitioner should institute the necessary
limitation and distribution action before the proper admiralty court within 15 days from the finality of
this decision, and thereafter deposit with it the proceeds from the insurance company and pending
freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating
and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of
Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set
aside. The trial court is hereby directed to desist from proceeding with the execution of the judgment
rendered in Civil Case No. 144425 pending determination of the totality of claims recoverable from the
petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and
to deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days
from finality of this decision. The temporary restraining order issued in this case dated August 7, 1991
is hereby made permanent.
SO ORDERED.
99. Luzon Stevedoring Co. v. Court of Appeals 156 SCRA 169
G.R. No. L-58897 December 3, 1987
LUZON STEVEDORING CORPORATION, petitioner, vs.COURT OF APPEALS, HIJOS DE F.
ESCANO, INC., and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES,
respondents.

GANCAYCO, J.:
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.
After trial on the merits, a decision was rendered on January 24, 1974 finding that LSCO "Cavite" was
solely to blame for the collision, thus its dispositive portion reads as follows:
WHEREFORE, based on all the foregoing considerations, the Court renders judgment in favor of the
plaintiffs and against the defendant ordering the latter to pay to the plaintiff Domestic Insurance
Company of the Philippines the sum of P514,000.00, and to the plaintiff Hijos de F. Escano, Inc. the
sum of P68,819.00, with interest on both sums at the legal rate, from the date the complaint was filed
and the further sum of P252,346.70, with interest at the legal rate from August 7, 1972 and the sum of
P163,721.91, without interest in trust for, and with direction that it pay the same to, the claimants
concerned.
With costs against the defendant. 1
In the penultimate paragraph of the decision the trial court held:
With respect to the defense that defendant's liability is limited to the value of the LSCO "Cavite" and
freight earned, invoking Art. 837 of the Code of Commerce, the Court believes and so holds that the
defense has not been established. Moreover, the evidence is such that in principle Art. 837 does not
apply here. The counterclaim of the defendant is likewise ordered dismissed for lack of merit.
2
Not satisfied therewith the defendant interposed an appeal therefrom to the Court of Appeals wherein
in due course a decision was rendered on June 30, 1981 affirming the decision of the court a quo in
toto with costs against appellant. The motion for reconsideration filed by the defendant of the decision
was denied in a resolution of the Court of Appeals of November 7, 1981. Hence said defendant filed a
petition for certiorari in this Court based on the following grounds:
I
THE LOWER COURT ERRED IN FINDING THAT THE LSCO "CAVITE" WAS THE VESSEL AT
FAULT IN THE COLLISION.
II
THE LOWER COURT ERRED IN NOT FINDING THAT THE COLLISION BETWEEN THE M/V
"FERNANDO ESCANO" AND THE LSCO "CAVITE" WAS DUE SOLELY AND EXCLUSIVELY
TO THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE MASTER OF THE FORMER
VESSEL.
III
THE LOWER COURT ERRED IN NOT RULING THAT THE CIVIL LIABILITY OF THE
PETITIONER, IF ANY THERE BE, SHOULD BE LIMITED TO THE VALUE OF THE LSCO
"CAVITE" WITH ALL ITS APPURTENANCES AND FREIGHT- AGE WHEN THE COLLISION
TOOK PLACE.
3
In a resolution of February 26, 1982 this Court denied the petition for lack of merit.
A motion for reconsideration of said resolution was filed by petitioner limiting the issue to the legal
question of whether under Art. 837 of the Code of Commerce abandonment of vessel at fault is
necessary in order that the liability of owner of said vessel shall be limited only to the extent of the
value thereof, its appurtenances and freightage earned in the voyage. After respondents submitted their
comment to the motion as required, on September 29, 1982 this Court denied the motion for
reconsideration for lack of merit.
With leave of court petitioner filed a second motion for reconsideration of said resolution raising the
following issues:
1. Whether abandonment is required under Article 837 of the Code of Commerce. The decisions of this
Honorable Court cited by the parties in support of their respective positions only imply the answer to
the question, and the implied answers are contradictory.
2. If abandonment is required under Article 837 of the Code of Commerce, when should it be made?
The Code of Commerce is silent on the matter. The decision of this Honorable Court in Yangco v.
Laserna, 13 Phil. 330, left the question open and no other decision, as far as petitioner can ascertain,
has resolved the question.
3. Is the decision of this Honorable Court in Manila Steamship Co., Inc. v. Abdulhama,n 100 Phil. 32,
wherein it was held that "(t)he international rule to the effect that the right of abandonment of vessels,
as a legal station of a shipowner's own fault," invoked by private respondents and apparently a major
consideration in the denial of the motion for reconsideration, applicable to petitioner under the
circumstances of the case at bar?
4
The respondents were required to comment thereto and after said comment was submitted petitioners
submitted a reply thereto to which the respondents filed a rejoinder.
On November 28, 1983, the Court gave due course to the petition for review and considered the
respondents' comment thereto as the Answer. The parties were required to file their briefs. Both parties
having filed their briefs the case is now submitted for decision.
Articles 587, 590, and 837 of the Code of Commerce provide as follows:
ART. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
arise from the conduct of the captain in the vigilance over the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with all her equipment and the freight he may
have earned during the voyage.
xxx xxx xxx
ART. 590. The co-owners of the vessel shall be civilly liable in the proportion of their contribution to
the common fund for the results of the acts of the captain, referred to in Article 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of that part
of the vessel belonging to him.
xxx xxx xxx
ART. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be
understood as limited to the value of the vessel with all her appurtenances and freight earned during the
voyage.
5
In the case of Philippine Shipping Company vs. Garcia,
6
which is an action for damages instituted by
the Philippine Shipping Company for the loss of Steamship "Ntra. Sra. de Lourdes" as a result of the
collision with the Steamship "Navarra" of Garcia, it was found that the "Navarra" was responsible for
the collision. The claim of the Philippine Shipping is that the defendant should pay P18,000.00, the
value of the "Navarro" at the time of its loss, in accordance with the provision of Article 837 of the
Code of Commerce, and that it was immaterial that the "Navarro" had been entirely lost provided the
value could be ascertained since the extent of liability of the owner of the colliding vessel resulting
from the collision is to be determined by its value.
This Court speaking through the then Chief Justice Arellano held:
Article 837 of the Code of Commerce provides: "The civil liability contracted by the shipowners in the
cases prescribed in this section shall be understood as limited to the value of the vessel with all her
equipment and all the freight money earned during the voyage "
"This section is a necessary consequence of the right to abandon the vessel given to the shipowner in
article 587 of the code, and it is one of the many superfluities contained in the code." (Lorenzo Benito,
"Lecciones," 352.)
ART. 587. The agent shall also be civilly liable for the indemnities in favor of third persons which arise
from the conduct of the captain in the care of the goods which the vessel carried but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned
during the trip.
ART. 590. The part owners of a vessel shall be civilly liable, in the proportion of their contribution to
the common fund, for the results of the acts of the captain referred to in Article 587. Each part owner
may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
The "Exposicion de motivos" of the Code of Commerce contains the following: "The present code
(1829) does not determine the juridical status of the agent where such agent is not himself the owner of
the vessel. This omission is supplied by the proposed code, which provides in accordance with the
principles of maritime law that by agent it is to be understood the person intrusted with the
provisioning of the vessel, or the one who represents her in the port in which she happens to be. This
person is the only one who represents the vessel that is to say, the only one who represents the interests
of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the extent
of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the
proposed code to the value of the vessel and other things appertaining thereto."
There is no doubt that if the Navarro had not been entirely lost, the agent, having been held liable for
the negligence of the captain of the vessel could have abandoned her with all her equipment and the
freight money earned during the voyage, thus bringing himself within the provisions of article 837 in
so far as the subsidiary civil liability is concerned This abandonment which would have amounted to
an offer of the value of the vessel, of her equipment, and freight money earned could not have been
refused, and the agent could not have been personally compelled, under such circumstances, to pay the
18,000 pesos, the estimated value of the vessel at the time of the collision.
This is the difference which exists between the lawful acts and lawful obligations of the captain and the
liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful
acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the
reason that such obligations arise from the contract of agency (provided, however, that the captain does
not exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the
ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it
does not extend further. For this reason the Code of Commerce makes the agent liable to the extent of
the value of the vessel, as the codes of the principal maritime nations provide, with the vessel, and not
individually. Such is also the spirit of our code.
The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper
to quote the following as the basis of this decision:
That which distinguishes the maritime from the civil law and even from the mercantile law in general is
the real and hypothecary nature of the former, and the many securities of a real nature that maritime
customs from time immemorial the laws, the codes, and the later jurisprudence, have provided for the
protection of the various and conflicting interests which are ventured and risked in maritime
expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and
consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and
members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.
As evidence of this "real" nature of the maritime law we have (1) the limitation of the liability of the
agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and
the embargo and detention of the vessel even in cases where the ordinary civil law would not allow
more than a personal action against the debtor or person liable. It will be observed that these rights
are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning
the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business,
it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim
without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third
person.
This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost
no personal action lies against the owner or agent of the vessel. For instance, where the' vessel is lost
the sailors and members of the crew can not recover their wages; in case of collision, the liability of the
agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and
cargo lose all their rights and can not claim reimbursement under the law.
There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to
which the thing is exposed, and (2) the "real" nature of the maritime law, exclusively "real," according
to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent
is only liable with the vessel and freight money and both may be lost through the accidents of
navigation it is only just that the maritime creditor have some means of obviating this precarious nature
of his rights by detaining the ship, his only security, before it is lost.
The liens tacit or legal, which may exist upon the vessel and which a purchaser of the same would be
obliged to respect and recognize are in addition to those existing in favor of the State by virtue of
the privileges which are granted to it by all the laws pilot, tonnage, and port dues and other similar
charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of
Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case
his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner
as provided in article 608, and all other liabilities arising from collisions under Articles 837 and 838.'
(Madariaga pp. 60, 62, 63, 85.
We accordingly hold that the defendant is liable for the indemnification to which the plaintiff is entitled
by reason of the collision but he is not required to pay such indemnification for the reason that the
obligation thus incurred has been extinguished on account of the loss of the thing bound for the
payment thereof and in this respect the judgment of the court below is affirmed except in so far as it
requires the plaintiff to pay the costs of this action, which is not exactly proper. No special order is
made as to costs of this appeal. After the expiration of twenty days let judgment be entered in
accordance herewith and ten days thereafter the record be remanded to the Court of First Instance for
execution. So ordered.
7
From the foregoing the rule is that in the case of collision, abandonment of the vessel is necessary in
order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and
freightage earned in the voyage in accordance with Article 837 of the Code of Commerce. The only
instance where such abandonment is dispensed with is when the vessel was entirely lost. In such case,
the obligation is thereby extinguished.
In the case of Government of the Philippines vs. Maritime this Court citing Philippine Shipping stated
the exception thereto in that while "the total destruction of the vessel extinguishes a maritime lien, as
there is no longer any risk to which it can attach, but the total destruction of the vessel does not affect
the liability of the owner for repairs of the vessel completed before its loss,
8
interpreting the provision
of Article 591 of the Code of Commerce in relation with the other Articles of the same Code.
In Ohta Development Company vs. Steamship "Pompey"
9
it appears that at the pier sunk and the
merchandise was lost due to the fault of the steamship "Pompey" that was then docked at said pier.
This Court ruled that the liability of the owner of "Pompey" may not be limited to its value under
Article 587 of the Code of Commerce as there was no abandonment of the ship. We also held that
Article 837 cannot apply as it refers to collisions which is not the case here. 10
In the case of Guison vs. Philippine Shipping Company 11 involving the collision at the mouth of the
Pasig river between the motor launches Martha and Manila H in which the latter was found to be at
fault, this Court, applying Article 837 of the Code of Commerce limited the liability of the agent to its
value.
In the case of Yangco vs. Laserna 12 which involved the steamers SS "Negros" belonging to Yangco
which after two hours of sailing from Romblon to Manila encountered rough seas as a result of which it
capsized such that many of its passengers died in the mishap, several actions for damages were filed
against Yangco, by a verified pleading, he sought to abandon the vessel to the plaintiffs in the three
cases together with all the equipment without prejudice to the right to appeal. This Court in resolving
the issue held as follows:
Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or
agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly
held liable in damages for the consequent death of its passengers? We are of the opinion and so hold
that this question is controlled by the provision of article 587 of the Code of Commerce. Said article
reads:
The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the. care of the goods which the vessel carried; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight he may have earned during
the voyage.
The provision accords a shipowner or agent the right of abandonment; and by necessary implication,
his liability is confined to that which he is entitled as of right to -abandon "the vessel with all her
equipments and the freight it may have earned during the voyage." It is true that the article apears to
deal only with the limited liability of shipowners or agents for damages arising from the misconduct of
the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language
and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that
notwithstanding the language of the afore-quoted provision, the benefit of limited liability therein
provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the
negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco commenting on
said article, said:
La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se
atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la
custodia de los efectos que cargo en el buque.
Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de
obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para
fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:
El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo que
quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la
garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos;
(Echavarri, Codigo de Comercio, Tomo 4, 2. ed., pags. 483- 484.)
A cursory examination will disclose that the principle of limited liability of a shipowner or agent is
provided for in but three articles of the Code of Commerce Article 587 aforequoted and articles 590
and 837. Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned
by several person Article 837 applies the same principle in cases of collision and it has been observed
that said article is but 'a necessary consequence of the right to abandon the vessel given to the
shipowner in Article 587 to the Code, and it is one of the many superfluities contained in the Code.
(Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In
effect therefore, only Articles 587 and 590 are the provisions contained in our Code of Commerce on
the matter, and the framers of said code had intended those provisions to embody the universal
principle of limited liability in all cases. ... . 13
In the said case We invoked our ruling in Philippine Shipping and concluded as follows:
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be
held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in
cases of collisions or shipwrecks, his liability is merely coextensive with his interest in the vessel such
that a total loss thereof results in its extinction. In arriving at this conclusion, we have not been
unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a
common carrier (De Villata v. Stanely 32 Phil. 541), and that the relationship between the petitioner
and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner
is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime
law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the
instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance
with law or not, is immaterial The vessel having totally perished any act of abandonment would be an
Idle ceremony. 14
In the case of Abueg vs. San Diego,15 which involves a claim of compensation under the Workmen's
Compensation Act for the deceased members of the crew of the MS "San Diego II" and MS
"Bartolome" which were caught by a typhoon in the vicinity of Mindoro Island and as a consequence
of which they were sunk and totally lost, this Court held as follows:
Counsel for the appellant cite article 7837 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 (Yangco vs. Laserna, 73 Phil. 330) Article 937 of the same Code which provides that in
cases of collision, the shipowners' liability is limited to the value of the vessel with all her equipment
and freight earned during the voyage (Philippine Shipping Company vs. Garcia, 6 Phil. 281); and
Article 643 of the same Code which provides that if the vessel and freight are totally lost, the agent's
liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that
appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed
the island of Mindoro on October 1, 1941, was extinguished.
The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had 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, so that if the shipowner or
agent abandoned the ship, equipment, and freight, his liability was extinguished
But 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 a 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 of such 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.
Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil. 446), and Murillo vs. Mendoza
(66 Phil. 689), the question of the extinction of the shipowner's liability due to abandonment of the ship
by him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In
the last mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment,
freight, and insurance, if any, was the lis mota In the case of Enciso vs. Dy-Liaco, supra, the
application of the Workmen's Compensation Act to a master or patron who perished as a result of the
sinking of the motorboat of which he was the master, was the controversy submitted to the court for
decision. This Court held in that case that .It has been repeatedly stated that the Workmen's
Compensation Act was enacted to abrogate the common law and our Civil Code upon culpable acts
and omissions, and that the employer need not be guilty of neglect or fault in order that responsibility
may attach to him' (pp. 449-450); and that the shipowner was liable to pay compensation provided for
in the Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost. In
the case of Murillo vs. Mendoza, supra, this Court held that 'The rights and responsibilities defined in
said Act must be governed by its own peculiar provisions in complete disregard of other similar
provisions of the Civil as well as the mercantile law. If an accident is compensable under the
Workmen's Compensation Act, it must be compensated even when the workman's right is not
recognized by or is in conflict with other provisions of the Civil Code or of the Code of Commerce.
The reason behind this principle is that the Workmen's Compensation Act was enacted by the
Legislature in abrogation of the other existing laws.' This quoted part of the decision is in answer to the
contention that it was not the intention of the Legislature to repeal Articles 643 and 837 of the Code of
Commerce with the enactment of the Workmen's Compensation Act. 16
In said case the Court reiterated that the liability of the shipowner or agent under the provision of
Articles 587 and 837 of the Code of Commerce is limited to the value of the vessel with all her
equivalent and freight earned during the voyage if the shipowner or agent abandoned the ship with all
the equipment and freight. However, it does not apply to the liability under the Workmen's
Compensation Act where even as in said case the vessel was lost the liability thereunder is still
enforceable against the employer or shipowner.
The case of Manila Steamship Company, Inc. vs. Insa Abdulhaman and Lim Hong To 17 is a case of
collision of the ML "Consuelo V" and MS "Bowline Knot" as a result of which the ML "Consuelo V"
capsized and was lost where nine (9) passengers died or were missing and all its cargoes were lost. In
the action for damages arising from the collision, applying Article 837 of the Code of Commerce, this
Court held that in such case where the collision was imputable to both of them, each vessel shall suffer
her own damages and both shall be solidarily liable for the damages occasioned to their cargoes.18
Thus, We held:
In fact, it is a general principle, well established maritime law and custom, that shipowners and ship
agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the
indemnities due the third persons (Article 587); so that injured parties may immediately look for
reimbursement to the owner of the ship, it being universally recognized that the ship master or captain
is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260).
This direct liability, moderated and limited by the owner's right of abandonment of the vessel and
earned freight (Article 587) has been declared to exist not only in case of breached contracts, but also
in cases of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511; 515):
xxx xxx xxx
It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and
vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would
render nugatory the solidary liability established by Article 827 of the Code of Commerce for the
greater protection of injured parties. Shipowners would be able to escape liability in practically every
case, considering that the qualifications and licensing of ship masters and officers are determined by
the State, and that vigilance is practically impossible to exercise over officers and crew of vessels at
sea. To compel the parties prejudiced to look to the crew for indemnity and redress would be an
illusory remedy for almost always its members. are, from captains down, mere wage earners.
We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of
the Manila Steamship Co., that it is exempt from liability for the collision with the M L "Consuelo V "
due to the absence of negligence on its part in the selection and supervision of the officers and crew of
the M/S "Bowline Knot. 19
However, insofar as respondent Lim Hong To, owner of M L "Consuelo V" who admittedly employed
an unlicensed master and engineer and who in his application for permission to operate expressly
assumed full risk and responsibility thereby (Exh. 2) this Court held that the liability of Lim Hong To
cannot be limited to the value of his motor launch by abandonment of the vessel as invoked in Article
587 of the Code of Commerce, We said:
The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner's liability, does not apply to cases where the injury or the average is due to shipowner's own
fault. Farina (Derecho Commercial Maritima Vol. 1, pp. 122-123), on the authority of judicial
precedents from various nations, sets the rule to be as follows:
xxx xxx xxx
20
From the foregoing, it is clear that in case of collision of vessels, in order to avail of the benefits of
Article 837 of the Code of Commerce the shipowner or agent must abandon the vessel. In such case the
civil liability shall be limited to the value of the vessel with all the appurtenances and freight earned
during the voyage. However, where the injury or average is due to the ship-owner's fault as in said
case, the shipowner may not avail of his right to limited liability by abandoning the vessel.
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.
In the light of the foregoing conclusion, the issue as to when abandonment should be made need not be
resolved.
WHEREFORE, the petition is DENIED with costs against petitioner.
SO ORDERED.
100. De la Torre v. Court of Appeals 653 SCRA 714
G.R. No. 160088 July 13, 2011
AGUSTIN P. DELA TORRE, Petitioner, vs.THE HONORABLE COURT OF APPEALS,
CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE TRIGON
SHIPYARD CORPORATION, and ROLAND G. DELA TORRE, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 160565
PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE,
Petitioners, vs.CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON
"BOY" LARRAZABAL, Respondents.
D E C I S I O N
MENDOZA, J.:
These consolidated petitions
1
for review on certiorari seek to reverse and set aside the September 30,
2002 Decision
2
and September 18, 2003 Resolution
3
of the Court of Appeals (CA) in CA-G.R. CV
No. 36035, affirming in toto the July 10, 1991 Decision
4
of the Regional Trial Court, Branch 60,
Angeles City (RTC). The RTC Decision in Civil Case No. 4609, an action for Sum of Money and
Damages, ordered the defendants, jointly and severally, to pay various damages to the plaintiff.
The Facts:
Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with
the Philippine Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary
Agreement"
5
with Roland de la Torre (Roland) for the dry-docking and repairs of the said vessel as
well as for its charter afterwards.
6
Under this agreement, Concepcion agreed that after the dry-docking
and repair of LCT-Josephine, it "should" be chartered for P 10,000.00 per month with the following
conditions:
1. The CHARTERER will be the one to pay the insurance premium of the vessel
2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks
3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the
FIRST PARTY (referring to Roland) for the maximum period of two (2) years
4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel.
[Underscoring Supplied]
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation
7
(PTSC), represented
by Roland, entered into a "Contract of Agreement,"
8
wherein the latter would charter LCT-Josephine
retroactive to May 1, 1984, under the following conditions:
a. Chartered amount of the vessel P 20,000.00 per month effective May 1, 1984;
j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel
and the balance shall be paid every month in the amount of P 10,000.00, to be deducted from the rental
amount of the vessel;
k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY
(PTSC/ Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY
(PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY
(PTSC/Roland) enough time to turn over the vessel so as not to disrupt previous commitments;
l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of
the SECOND PARTY (PTSC/Roland) decide to stop operating;
m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;
n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY
(PTSC/Roland); (Underscoring Supplied]
On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a
single proprietorship owned by Rolands father, Agustin de la Torre (Agustin).
9
The following are the
terms and conditions of that "Contract of Agreement:"
10
a. Chartered amount of the vessel P 30,000.00 per month effective August, 1984;
b. Downpayment of the 50% upon signing of the contract and the balance every end of the month;
c. Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST
PARTY (PTSC/ Roland) and the cost of the equipment will be deductible from the monthly rental of
the vessel;
d. In the event the vessel is grounded or other [force majeure] that will make the vessel non-
opera[xx]ble, the rental of the vessel shall be suspended from the start until the vessel will be
considered operational;
e. The cost for the dry-docking and/or repair of vessel shall not exceed P 200,000.00, any excess shall
be borne by the SECOND PARTY (TSL/Agustin);
f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration
of the usage;
g. All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY
(TSL/Agustin);
h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event the
SECOND PARTY (TSL/Agustin) decides to stop operating;
j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessels crew and the SECOND
PARTY (TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.
k. Insurance premium of the vessel will be divided equally between the FIRST PARTY
(PTSC/Rolando) and the SECOND PARTY (TSL/ Agustin). [Underscoring supplied]
On November 22, 1984, TSL, this time represented by Roland per Agustins Special Power of
Attorney,
11
sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo
consisting of sand and gravel to Leyte. The following were agreed upon in that contract,
12
to wit:
1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND
PARTY (Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (P
5,500.00) PESOS, Philippine currency per day charter with the following terms and conditions.
2. That the CHARTERER should pay P 2,000.00 as standby pay even that will made (sic) the vessel
non-opera[xx]ble cause[d] by natur[al] circumstances.
3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.
4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and unloading
of cargo load on the vessel.
5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of contract.
6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance
and the balance should be paid weekly. [Underscoring Supplied]
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel,
Leyte. The vessel was beached near the NDC Wharf. With the vessels ramp already lowered, the
unloading of the vessels cargo began with the use of Larrazabals payloader. While the payloader was
on the deck of the LCT-Josephine scooping a load of the cargo, the vessels 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-
Josephines operations although the responsibility of loading and unloading the cargo was under
Larrazabal. Thus, the RTC declared that the "efficient cause of the sinking of the LCT-JOSEPHINE
was the improper lowering or positioning of the ramp," which was well within the charge or
responsibility of the captain and crew of the vessel.
18
The fallo of the RTC Decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:
1. The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre, and the third-party
defendant, Agustin de la Torre, shall pay the plaintiff, jointly and severally, the sum of EIGHT
HUNDRED FORTY-ONE THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY
SIX CENTAVOS (P 841,386.86) as the value of the LCT JOSEPHINE with interest thereon at the
legal rate of 6% per annum from the date of demand, that is from March 14, 1985, the date when
counsel for the defendant Philippine Trigon Shipyard Corporation answered the demand of the
plaintiff, until fully paid;
2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre, shall pay to the
plaintiff the sum of NINETY THOUSAND PESOS (P 90,000.00) as unpaid rentals for the period from
May 1, 1984, to November, 1984, and the sum of ONE HUNDRED SEVENTY THOUSAND PESOS
(P 170,000.00) as lost rentals from December, 1984, to April 30, 1986, with interest on both amounts at
the rate of 6% per annum also from demand on March 14, 1985, until fully paid;
3. The defendants and the third-party defendant shall likewise pay to the plaintiff jointly and severally
the sum of TWENTY-FIVE THOUSAND PESOS (P 25,000.00) as professional fee of plaintiffs
counsel plus FIVE HUNDRED PESOS (P 500.00) per appearance of said counsel in connection with
actual trial of this case, the number of such appearances to be determined from the records of this case;
4. The defendants counterclaim for the unpaid balance of plaintiffs obligation for the dry-docking and
repair of the vessel LCT JOSEPHINE in the amount of TWENTY-FOUR THOUSAND THREE
HUNDRED FOUR PESOS AND THIRTY-FIVE CENTAVOS (P 24,304.35), being valid, shall be
deducted from the unpaid rentals, with interest on the said unpaid balance at the rate of 6% per annum
from the date of the filing of the counter-claim on March 31, 1986;
5. The counter-claim of the defendants in all other respects, for lack of merit, is hereby DISMISSED;
6. The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal, being without
basis, is likewise DISMISSED; and
7. The defendants and third-party defendant shall pay the costs.
SO ORDERED.
19
Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreement with the
findings of the RTC, affirmed its decision in toto.
Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this
Court through these petitions for review. In G.R. No. 160088, petitioner Agustin raises the following
issues:
AGUSTINS STATEMENT OF THE ISSUES
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE
SINKING OF LCT JOSEPHINE IS THE NEGLIGENCE OF THE PETITIONER (Agustin) AND
THE RESPONDENTS TRIGON (PTSC) AND DE LA TORRE (Roland).
II
THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON LARRAZABAL
AS SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.
III
THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING
JUDICIAL NOTICE OF THE CHARACTERISTICS OF THE LCT JOSEPHINE AND
PAYLOADER WITHOUT INFORMING THE PARTIES OF THEIR INTENTION.
IV
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND SOLIDARILY
LIABLE WITH THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE THE FACT THAT
SUCH KIND OF LIABILITY IS NOT DULY ALLEGED IN THE COMPLAINT OF RESPONDENT
CONCEPCION AND NOT ONE OF THE ISSUES TRIED BY THE PARTIES.
V
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED ON
CULPA CONTRACTUAL.
VI
THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM LIABILITY
BASED ON THE LIMITED LIABILITY RULE.
VII
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE CODE OF
COMMERCE ON THE LIABILITY OF THE SHIP CAPTAIN.
20
On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:
PTSC and ROLANDS STATEMENT OF THE ISSUES
I.
DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF
THE CIVIL CODE OF THE PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE, QUASI-
DELICT AND DAMAGES INSTEAD OF THE PROVISIONS OF THE CODE OF COMMERCE ON
MARITIME COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE
RESPONDENT CONCEPCION.
II.
DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF
FACT OF THE TRIAL COURT.
III.
DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION IN APPRECIATING THE
FACTS OF THE CASE.
IV.
DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY AND
SEVERALLY LIABLE WITH RESPONDENT AGUSTIN DE LA TORRE, ERRxx WHEN IT
MADE FINDINGS OF FACT AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE
ISSUES SET FORTH AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE
PARTIES.
21
From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to
the factual milieu of the case; (2) those concerning the applicability of the Code of Commerce, more
specifically, the Limited Liability Rule; and (3) the question on the solidary liability of the petitioners.
As regards the issues requiring a review of the factual findings of the trial court, the Court finds no
compelling reason to deviate from the rule that findings of fact of a trial judge, especially when
affirmed by the appellate court, are binding before this Court.
22
The CA, in reviewing the findings of
the RTC, made these observations:
We are not persuaded that the trial Court finding should be set aside. The Court a quo sifted through the
records and arrived at the fact that clearly, there was improper lowering or positioning of the ramp,
which was not at "peak," according to de la Torre and "moving down" according to Sungayan when the
payloader entered and scooped up a load of sand and gravel. Because of this, the payloader was in
danger of being lost (submerged) and caused Larrazabal to order the operator to go back into the
vessel, according to de la Torres version, or back off to the shore, per Sungayan. Whichever it was, the
fact remains that the ramp was unsteady (moving) and compelled action to save the payloader from
submerging, especially because of the conformation of the sea and the shore. x x x.
x x x
The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed
that the services of the crew of the owner of the vessel were terminated. This allowed the charterer,
defendants-appellants, to employ their own. The sub-charter contract between defendants-appellants
Philippine Trigon Shipyard Corp. and third-party defendant-appellant Trigon Shipping Lines showed
similar provision where the crew of Philippine Trigon had to be terminated or rehired by Trigon
Shipping Lines. As to the agreement with fourth-party Larrazabal, it is silent on who would hire the
crew of the vessel. Clearly, the crew manning the vessel when it sunk belonged to third-party
defendant-appellant. Hubart Sungayan, the acting Chief Mate, testified that he was hired by Agustin de
la Torre, who in turn admitted to hiring the crew. The actions of fourth-party defendant, Larrazabal and
his payloader operator did not include the operation of docking where the problem arose.
23
[Underscoring supplied]
Similarly, the Court has examined the records at hand and completely agree with the CA that the
factual findings of the RTC are in order.
With respect to petitioners position that the Limited Liability Rule under the Code of Commerce
should be applied to them, the argument is misplaced. The said rule has been explained to be that of the
real and hypothecary doctrine in maritime law where the shipowner or ship agents liability is held as
merely co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction.
24
In this jurisdiction, this rule is provided in three articles of the Code of Commerce. These
are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he
may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may
have earned during the voyage.
---
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part
of the vessel belonging to him.
---
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances and freightage served during
the voyage.
Article 837 specifically applies to cases involving collision which is a necessary consequence of the
right to abandon the vessel given to the shipowner or ship agent under the first provision Article 587.
Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-
owned by several persons.
25
Obviously, the forerunner of the Limited Liability Rule under the Code of
Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or
restricted to the value of the vessel pursuant to the said Rule, and these are the "indemnities in favor
of third persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel." Thus, what is contemplated is the liability to third persons who may have dealt
with the shipowner, the agent or even the charterer in case of demise or bareboat charter.
The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the
Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense.
In Yangco v. Laserna,
26
this Court, through Justice Moran, wrote:
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment
in maritime commerce.
x x x.
Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the
master, x x x.
27
Later, in the case of Monarch Insurance Co., Inc. v. CA,
28
this Court, this time through Justice Sabino
R. De Leon, Jr., again explained:
No vessel, no liability, expresses in a nutshell the limited liability rule. The shipowners or agents
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
In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported
and encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability
Rule against him who, in the first place, should be the one benefitting from the said rule. In
distinguishing the rights between the charterer and the shipowner, the case of Yueng Sheng Exchange
and Trading Co. v. Urrutia & Co.
30
is most enlightening. In that case, no less than Chief Justice
Arellano wrote:
The whole ground of this assignment of errors rests on the proposition advanced by the appellant
company that the charterer of a vessel, under the conditions stipulated in the charter party in question,
is the owner pro hac vice of the ship and takes upon himself the responsibilities of the owner.
x x x
If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then
they must respond for the damages claimed, because the owner and the agent are civilly responsible for
the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not
represent the ownership of the vessel, nor could they, in their own name and in such capacity, take
judicial or extrajudicial steps in all that relates to commerce; thus if the Cebu were attached, they would
have no legal capacity to proceed to secure its release; speaking generally, not even the fines could or
ought to be paid by them, unless such fines were occasioned by their orders. x x x.
The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers
of the vessel, did not put the latter in the place of the former, nor make them agents of the owner or
owners of the vessel. With relation to those agents, they retained opposing rights derived from the
charter party of the vessel, and at no time could they be regarded by the third parties, or by the
authorities, or by the courts, as being in the place of the owners or the agents in matters relating to the
responsibilities pertaining to the ownership and possession of the vessel. x x x.
31
In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into
the shoes of the shipowner or even the ship agent because there remains conflicting rights between the
former and the real shipowner as derived from their charter agreement. The Court again quotes Chief
Justice Arellano:
Their (the charterers) possession was, therefore, the uncertain title of lease, not a possession of the
owner, such as is that of the agent, who is fully subrogated to the place of the owner in regard to the
dominion, possession, free administration, and navigation of the vessel.
32
Therefore, even if the contract is for a bareboat or demise charter where possession, free administration
and even navigation are temporarily surrendered to the charterer, dominion over the vessel remains
with the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the
former, can never set up the Limited Liability Rule against the very owner of the vessel. Borrowing the
words of Chief Justice Artemio V. Panganiban, "Indeed, where the reason for the rule ceases, the rule
itself does not apply."
33
The Court now comes to the issue of the liability of the charterer and the sub-charterer.
In the present case, the charterer and the sub-charterer through their respective contracts of
agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was
likewise manned by the charterer and later by the sub-charterers people. With the complete and
exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later
the sub-charterer became the vessels owner pro hac vice. Now, and in the absence of any showing that
the vessel or any part thereof was commercially offered for use to the public, the above
agreements/charter parties are that of a private carriage where the rights of the contracting parties are
primarily defined and governed by the stipulations in their contract.
34
Although certain statutory rights and obligations of charter parties are found in the Code of Commerce,
these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed,
none of the provisions found in the Code of Commerce deals with the specific rights and obligations
between the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the
New Civil Code to supply the deficiency.
35
Thus, the RTC and the CA were both correct in applying
the statutory provisions of the New Civil Code in order to define the respective rights and obligations
of the opposing parties.
Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion
for the dry-docking and repair of LCT-Josephine, is liable under Article 1189
36
of the New Civil Code.
There is no denying that the vessel was not returned to Concepcion after the repairs because of the
provision in the Preliminary Agreement that the same "should" be used by Roland for the first two
years. Before the vessel could be returned, it was lost due to the negligence of Agustin to whom Roland
chose to sub-charter or sublet the vessel.
PTSC is liable to Concepcion under Articles 1665
37
and 1667
38
of the New Civil Code. As the
charterer or lessee under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to
return the thing leased and it was liable for the deterioration or loss of the same.
Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under
Article 1651 of the New Civil Code.
39
Although he was never privy to the contract between PTSC and
Concepcion, he remained bound to preserve the chartered vessel for the latter. Despite his non-
inclusion in the complaint of Concepcion, it was deemed amended so as to include him because,
despite or in the absence of that formality of amending the complaint to include him, he still had his
day in court
40
as he was in fact impleaded as a third-party defendant by his own son, Roland the very
same person who represented him in the Contract of Agreement with Larrazabal.1avvphi1
(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective
mantle of due process of law has in fact been accorded a litigant, whatever the imperfection in form,
the real litigant may be held liable as a party.
41
In any case, all three petitioners are liable under Article 1170 of the New Civil Code.
42
The necessity
of insuring the LCT-Josephine, regardless of who will share in the payment of the premium, is very
clear under the Preliminary Agreement and the subsequent Contracts of Agreement dated June 20,
1984 and August 1, 1984, respectively. The August 17, 1984 letter of Concepcions representative,
Rogelio L. Martinez, addressed to Roland in his capacity as the president of PTSC inquiring about the
insurance of the LCT-Josephine as well as reiterating the importance of insuring the said vessel is quite
telling.
August 17, 1984
Mr. Roland de la TorrePresidentPhil. Trigon Shipyard Corp.Cebu City
Dear Sir:
In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish to inquire
regarding the insurance of said vessel to wit:
1. Name of Insurance Company
2. Policy No.
3. Amount of Premiums
4. Duration of coverage already paid
Please send a Xerox copy of policy to the undersigned as soon as possible.
In no case shall LCT JOSEPHINE sail without any insurance coverage.
Hoping for your (prompt) action on this regard.
Truly yours,
(sgd)ROGELIO L. MARTINEZOwners representative
43
Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the
time when it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to
do so in clear contravention of their respective agreements. Certainly, they should now all answer for
the loss of the vessel.
WHEREFORE, the petitions are DENIED.
SO ORDERED.
101.Yangco v. Laserna 73 Phil 330
G.R. No. L-47447-47449 October 29, 1941
TEODORO R. YANGCO, ETC., petitioner, vs.MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.Powell & Vega for respondents.

MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to
petitioner here, Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila. Typhoon
signal No. 2 was then up, of which fact the captain was duly advised and his attention thereto called by
the passengers themselves before the vessel set sail. The boat was overloaded as indicated by the
loadline which was 6 to 7 inches below the surface of the water. Baggage, trunks and other equipments
were heaped on the upper deck, the hold being packed to capacity. In addition, the vessel carried thirty
sacks of crushed marble and about one hundred sacks of copra and some lumber. The passengers,
numbering about 180, were overcrowded, the vessel's capacity being limited to only 123 passengers.
After two hours of sailing, the boat encountered strong winds and rough seas between the islands of
Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were lowered. As the
sea became increasingly violent, the captain ordered the vessel to turn left, evidently to return to port,
but in the manuever, the vessel was caught sidewise by a big wave which caused it to capsize and sink.
Many of the passengers died in the mishap, among them being Antolin Aldaa and his son Victorioso,
husband and son, respectively, of Emilia Bienvenida who, together with her other children and a
brother-in-law, are respondents in G.R. No. 47447; Casiana Laserna, the daughter of respondents
Manuel Laserna and P.A. de Laserna in G.R. 47448; and Genaro Basaa, son of Filomeno Basaa,
respondent in G.R. No. 47449. These respondents instituted in the Court of First Instance of Capiz
separate civil actions against petitioner here to recover damages for the death of the passengers
aforementioned. The court awarded the heirs of Antolin and Victorioso Aldana the sum of P2,000; the
heirs of Casiana Laserna, P590; and those of Genaro Basana, also P590. After the rendition of the
judgment to this effcet, petitioner, by a verified pleading, sought to abandon th evessel to the plainitffs
in the three cases, together with all its equipments, without prejudice to his right to appeal. The
abandonment having been denied, an appeal was taken to the Court of Appeals, wherein all the
judgmnets were affirmed except that which sums was increased to P4,000. Petitioner, now deceased,
appealed and is here represented by his legal representative.
Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner
or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be
properly held liable in damages for the consequent death of its passengers? We are of the opinion and
so hold that this question is controlled by the provisions of article 587 of the Code of Commerce. Said
article reads:
The agent shall also be civilly liable for the indemnities in favor of third persons which arise
from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned
during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by necessary
implication, his liability is confined to that which he is entitled as of right to abandon "the vessel
with all her equipments and the freight it may have earned during the voyage." It is true that the article
appears to deal only with the limited liability of shipowners or agents for damages arising from the
misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency
of language and in no way indicates the true extent of such liability. The consensus of authorities is to
the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability
therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting
on said article, said:
La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono,
si se atiende a lo escrito, solo se refiere a las indemnizaciones a que dierQe lugar la conducta del
Capitan en la custodia de los efectos que cargo en el buque.
Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades
nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y,
para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio
maritimo, que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del
buque, la garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen
investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a ed., pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner or
agent is provided for in but three articles of the Code of Commerce article 587 aforequoted and
article 590 and 837. Article 590 merely reiterates the principle embodied in article 587, applies the
same principle in cases of collision, and it has been observed that said article is but "a necessary
consequences of the right to abandon the vessel given to the shipowner in article 587 of the Code, and
it is one of the many superfluities contained in the Code." (Lorenzo Benito, Lecciones 352, quoted in
Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only articles 587 and 590 are
the provisions conatined in our Code of Commerce on the matter, and the framers of said code had
intended those provisions to embody the universal principle of limited liability in all cases. Thus, in the
"Exposicon de Motivos" of the Code of Commerce, we read:
The present code (1829) does not determine the juridical status of the agent where such agent is
not himself the owner of the vessel. This omission is supplied by the proposed code, which provides in
accordance with the principles of maritime law that by agent it is to be understood the person intrusted
with the provisioning of the vessel, or the one who represents her in the port in which she happens to
be. This person is the only one who represents the vessel that is to say, the only one who represents
the interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as
to the extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by
the proposed code to the value of the vessel and other things appertaining thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in
such a comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi
not only to cases of collision but also to those of shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful obligations of the captain
and the liability which he incurs on account of any unlawful act committed by him. In the first case, the
lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent
for the reason that such obligations arise from te the contract of agency (provided, however, that the
captain does not exceed his authority), while as to any liability incurred by the captain through his
unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to
the vessel and it does not extend further. For this reason the Code of Commerce makes the agent liable
to the extent of the value of the vessel, as the codes of the principal maritime nations provide with the
vessel, and not individually. Such is also the spirit of our Code.
The spirit of our code s accurately set forth in a treatise on maritime law, from which we deem
proper to quote the following as the basis of this decision:lawphil.net
"That which distinguishes the maritime from the civil law and even from the mercantile law in
general is the real and hypothecary nature of the former, and the many securities of a real nature that
maritime customs from time immemorial, the laws, the codes, and the later jurisprudence, have
provided for the protection of the various and conflicting interests which are ventured and risked in
maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the
cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the
sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the
vessel.
"As evidence of this real nature of the maritime law we have (1) the limitation of the liability of
the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo
and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow
more than a personal action against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is
also just that his maritime creditor may for any reason attach the vessel itself to secure his claim
without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third
person.
"This repeals the civil law to such an extent that, in certain cases, where the mortgaged property
is lost no personal action lies against the owner or agent of the vessel. For instance, where the vessel is
lost the sailors and members of the crew cannot recover their wages; in case of collision, the liability of
the agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel
and cargo lose all their rights and cannot claim reimbursement under the law.
"There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk
to which the thing is exposed, and (2) the real nature of the maritime law, exclusively real, according
to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent
is only liable with the vessel and freight money and both may be lost through the accidents of
navigation it is only just that the maritime creditor have some means to obviating this precarious nature
of his rights by detaining the ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same
would be obliged to respect and recognize are in addition to those existing in favor of the State by
virtue of the privileges which are granted to it by all the laws pilot, tonnate, and port dues and other
similar charges, the wages of the crew earned during the last voyage as provided in article 646 of the
Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel
in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the
owner as provided in article 608, and all other liabilities arising from collisions under articles 837 and
838."
We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y
Gella, asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like
principle of limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc.,
said:
De las responsabilities que pueden resultar como consequencia del comercio maritimo, y no solo
por hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion, responde
frente a tercero el naviero que representa el buque; pero el derecho maritimo es sobre todo tradicional y
siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se organiza de un modo
especifico y particularisimo que no encuentra similar en el derecho general de las obligaciones.
Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era
prestar un propietario su navio para que cargase en el mercancias determinada persona, y se hiciese a la
mar, yendo al frente de la expedicion un patron del buque, que llegado al puerto de destino se
encargaba de venderlas y retornaba al de salida despues de adquirir en aquel otros efectos que
igualmente revendia a su regreso, verificado lo cual los beneficios de la expedicion se repartian entre el
dueo del buque, el cargador y el capitan y tripulantes en la proporcion estipulada. El derecho maritimo
empezo a considerar la asociacion asi formada como una verdadera sociedad mercantil, de
responsabilidad limitada, y de acuerdo con los principios que gobiernan aquella en los casos de
accidentes, abordajes, naufragios, etc., se resolvia que el dueo del buque perdia la nave, el cargador
las mercancias embarcadas y el capitan y la tripulacion su trabajo, sin que en ningun caso el tercer
acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su responsabilidad quedaba
limitada a lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho comercial de
tiempos posteriores, la responsabilidad del naviero se edifico sobre aquellos principios, y derogando la
norma general civil de que del cumplimiento de sus obligaciones responde el deudor con todos sus
bienes presentes y futuros, la responsabilidad maritima se considero siempre limitada ipso jure al
patrimonio de mar. Y este es el origen de la regla trascendental de derecho maritimo segun la cual el
naviero se libera de toda responsabilidad abandonando el buque y el flete a favor de los acreedores.
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que bienes pueden
los acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho comun la
responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; es daba la actio
exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva se
introdujo en los usos maritimos. Las cargas resultantes de las expediciones maritimas se consideraron
limitadas por los propietarios de las naves a los valores comprometidos por ellos en cada expedicion; se
separo ficticiamente el patrimonio de los navieros en dos partes que todavia se designan de una manera
bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la
que respondia solo de las deudas provinientes de los actos del capitan o de la tripulacion, es decir, que
el conjunto del patrimonio del naviero escaparia a estas cargas desde el momento en que abandonara la
nave y los fletes a los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:
La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho comun
de ser responsable todo el que pone al frente de un establecimiento a una persona, de los daos o
perjuicios que ocasionare esta desempeando su cometido, y en que estando facultado el naviero para
la eleccion de capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos de este
que o casionaron daos o perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin
embargo, la responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados
durante el viaje; porque no pudiendo vigilar de un modo directo e inmediato la conducta del capitan,
hubiera sido duro hacerla extensiva a todos sus bienes que podria comprometer el capitan con sus faltas
o delitos.
The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4,
259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be
doubted on the principle. It only remains to be noted that the rule of limited liability provided for in our
Code of Commerce reflects merely, or is but a restatement, imperfect though it is, of the almost
universal principle on the subject. While previously under the civil or common law, the owner of a
vessel was liable to the full amount for damages caused by the misconduct of the master, by the general
maritime law of modern Europe, the liability of the shipowner was subsequently limited to his interest
in the vessel. (Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar
limitation was placed by the British Parliament upon the liability of Englosh shipowners through a
series of statutes beginning in 1734 with the Act of 7 George II, chapter 15. The legislatures of
Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress enacted the Limited
Liability Act of March 3, 1851, embodying most of the provisions contained in the British Statutes (see
24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U.
S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the owner of any
vessel, for any embezzlement, loss, or destruction, by any person, of any property, goods, or
merchandise, shipped or put on board of such vessel, or for any loss, damage, or injury by collision, or
for any act, matter or thing, loss, damage, or forfeiture, done, occasioned, or incurred without the
privity, or knowledge of such owner or owners, shall in no case exceed the amount or value of the
interest of such owner in such vessel, and her freight then pending.
The policy which the rule is designed to promote is the encouragement of shipbuilding and
investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v.
Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that spirit that the American courts construed the
Limited Liability Act of Congress whereby the immunities of the Act were applied to claims not only
for lost goods but also for injuries and "loss of life of passengers, whether arising under the general law
of admiralty, or under Federal or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow,
104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental
Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United States in Norwich & N. Y. Trans.
Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590, accounting for the history of the principle,
clinches our exposition of the supporting authorities:
The history of the limitation of liability of shipowners is matter of common knowledge. The
learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be desired
on the subject. He shows that it originated in the maritime law of modern Europe; that whilst the civil,
as well as the common law, made the owner responsible to the whole extent of damage caused by the
wrongful act or negligence of the matter or crew, the maritime law only made then liable (if personally
free from blame) to the amount of their interest in the ship. So that, if they surrendered the ship, they
were discharged.
Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if
they thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of
the master and, therefore, in Holland, they had never observed the Roman Law on that subject, but had
a regulation that the ship owners should be bound no farther than the value of their ship and freight. His
words are: Navis et eorum quae in navi sunt," "the ship and goods therein." But he is speaking of the
owner's interest; and this, as to the cargo, is the freight thereon, and in that sense he is understood by
the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The
maritime law, as codified in the celebrated French Ordonance de la Marine, in 1681, expressed the rule
thus: 'The proprietors of vessels shall be responsible for the acts of the master, but they shall be
discharged by abandoning the ship and freight.' Valin, in his commentary on this passage, lib. 2, tit. 8,
art. 2, after specifying certain engagements of the master which are binding on the owners, without any
limit of responsibility, such as contracts for the benefit of the vessel, made during the voyage (except
contracts of bottomry) says: "With these exceptions it is just that the owner should not be bound for the
acts of the master, except to the amount of the ship and freight. Otherwise he would run the risk of
being ruined by the bad faith or negligence of his captain, and the apprehension of this would be fatal
to the interests of navigation. It is quite sufficient that he be exposed to the loss of his ship and of the
freight, to make it his interest, independently of any goods he may have on board to select a reliable
captain." Pardessus says: 'The owner is bound civilly for all delinquencies committed by the captain
within the scope of his authority, but he may discharge himself therefrom by abandoning the ship and
freight; and, if they are lost, it suffices for his discharge, to surrender all claims in respect of the ship
and its freight," such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.
The same general doctrine is laid down by many other writers on maritime law. So that it is
evident that, by this law, the owner's liability was coextensive with his interest in the vessel and its
freight, and ceased by his abandonment and surrender of these to the parties sustaining loss.
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way
be held civilly liable at all for injury to or death of passengers arising from the negligence of the
captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, we have not
been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade,
is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in interisland
trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the relationship between the
petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that
petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of
maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if
any. In the instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case was in
accordance with law of not, is immaterial. The vessel having totally perished, any act of abandonment
would be an idle ceremony.
Judgement is reversed and petitioner is hereby absolved of all the complaints, without costs.
102 Phil. Charter Ins. v. Neptune Orient Lines/Overseas Agency Services, 554 SCRA 325
G.R. No. 145044 June 12, 2008
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs.NEPTUNE ORIENT
LINES/OVERSEAS AGENCY SERVICES, INC., respondent.
D E C I S I O N
AZCUNA, J.:
This is a petition for review on certiorari
1
of the Resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 52855 promulgated on April 13, 2000 granting respondents' motion for reconsideration dated
March 9, 2000. The Resolution held respondents liable for damages to petitioner subject to the limited-
liability provision in the bill of lading.
The facts are as follows:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong three sets
of warp yarn on returnable beams aboard respondent Neptune Orient Lines' vessel, M/V Baltimar
Orion, for transport and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of No. 7 Jasmin
Street, AUV Subdivision, Metro Manila.
The said cargoes were loaded in Container No. IEAU-4592750 in good condition under Bill of Lading
No. HKG-0396180. Fukuyama insured the shipment against all risks with petitioner Philippine Charter
Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the amount of P228,085.
During the course of the voyage, the container with the cargoes fell overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc. (Overseas Agency), the
agent of Neptune Orient Lines in Manila, and claimed for the value of the lost cargoes. However,
Overseas Agency ignored the claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the
insured value of the cargoes in the amount of P228,085, which claim was fully satisfied by PCIC.
On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to be
subrogated in its right to recover its losses from respondents.
PCIC demanded from respondents reimbursement of the entire amount it paid to Fukuyama, but
respondents refused payment.
On March 21, 1994, PCIC filed a complaint for damages against respondents with the Regional Trial
Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying liability. They alleged that
during the voyage, the vessel encountered strong winds and heavy seas making the vessel pitch and
roll, which caused the subject container with the cargoes to fall overboard. Respondents contended that
the occurrence was a fortuitous event which exempted them from any liability, and that their liability, if
any, should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower.
In a Decision dated January 12, 1996, the RTC held that respondents, as common carrier,
2
failed to
prove that they observed the required extraordinary diligence to prevent loss of the subject cargoes in
accordance with the pertinent provisions of the Civil Code.
3
The dispositive portion of the Decision
reads:
WHEREFORE, judgment is rendered ordering the defendants, jointly and severally, to pay the plaintiff
the Peso equivalent as of February 17, 1994 of HK$55,000.00 or the sum of P228,085.00, whichever is
lower, with costs against the defendants.
4
Respondents' motion for reconsideration was denied by the RTC in an Order dated February 19, 1996.
Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the RTC Decision with
modification, thus:
WHEREFORE, the assailed decision is hereby MODIFIED. Appellants Neptune and Overseas are
hereby ordered to pay jointly and severally appellee PCIC P228,085.00, representing the amount it paid
Fukuyama. Costs against the appellants.
5
Respondents moved for reconsideration of the Decision of the CA arguing, among others, that their
liability was only US$1,500 or US$500 per package under the limited liability provision of the
Carriage of Goods by Sea Act (COGSA).
In its Resolution dated April 13, 2000, the CA found the said argument of respondents to be
meritorious. The dispositive portion of the Resolution reads:
WHEREFORE, the motion is partly granted in the sense that appellants shall be liable to pay appellee
PCIC the value of the three packages lost computed at the rate of US$500 per package or a total of
US$1,500.00.
6
Hence, this petition raising this lone issue:
THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS DAMAGES SUBJECT TO
THE US$500 PER PACKAGE LIMITATION.
Petitioner contends that the CA erred in awarding damages to respondents subject to the US$500 per
package limitation since the vessel committed a "quasi deviation" which is a breach of the contract of
carriage when it intentionally threw overboard the container with the subject shipment during the
voyage to Manila for its own benefit or preservation based on a Survey Report
7
conducted by
Mariner's Adjustment Corporation, which firm was tasked by petitioner to investigate the loss of the
subject cargoes. According to petitioner, the breach of contract resulted in the abrogation of
respondents' rights under the contract and COGSA including the US$500 per package limitation.
Hence, respondents cannot invoke the benefit of the US$500 per package limitation and the CA erred
in considering the limitation and modifying its decision accordingly.
The contention lacks merit.
The facts as found by the RTC do not support the new allegation of facts by petitioner regarding the
intentional throwing overboard of the subject cargoes and quasi deviation. The Court notes that in
petitioner's Complaint before the RTC, petitioner alleged as follows:
xxx xxx xxx
2.03 In the course of the maritime voyage from Hongkong to Manila subject shipment fell overboard
while in the custody of the defendants and were never recovered; it was part of the LCL cargoes packed
by defendants in container IEAU-4592750 that fell overboard during the voyage.
8
Moreover, the same Survey Report cited by petitioner stated:
From the investigation conducted, we noted that Capt. S.L. Halloway, Master of MV "BALTIMAR
ORION" filed a Note of Protest in the City of Manila, and was notarized on 06 October 1993.
Based on Note of Protest, copy attached hereto for your reference, carrier vessel sailed from Hongkong
on 1
st
October 1993 carrying containers bound for Manila.
Apparently, at the time the vessel [was] sailing at about 2400 hours of 2
nd
October 1993, she
encountered winds and seas such as to cause occasional moderate to heavy pitching and rolling deeply
at times. At 0154 hours, same day, while in position Lat. 20 degrees, 29 minutes North, Long. 115
degrees, 49 minutes East, four (4) x 40 ft. containers were lost/fell overboard. The numbers of these
containers are NUSU-3100789, TPHU -5262138, IEAU-4592750, NUSU-4515404.
xxx xxx xxx
Furthermore, during the course of voyage, high winds and heavy seas were encountered causing the
ship to roll and pitch heavily. The course and speed was altered to ease motion of the vessel, causing
delay and loss of time on the voyage.
xxx xxx xxx
SURVEYORS REMARKS:
In view of the foregoing incident, we are of the opinion that the shipment of 3 cases of Various Warp
Yarn on Returnable Beams which were containerized onto 40 feet LCL (no. IEAU-4592750) and fell
overboard the subject vessel during heavy weather is an "Actual Total Loss".
9
The records show that the subject cargoes fell overboard the ship and petitioner should not vary the
facts of the case on appeal. This Court is not a trier of facts, and, in this case, the factual finding of the
RTC and the CA, which is supported by the evidence on record, is conclusive upon this Court.
As regards the issue on the limited liability of respondents, the Court upholds the decision of the CA.
Since the subject cargoes were lost while being transported by respondent common carrier from Hong
Kong to the Philippines, Philippine law applies pursuant to the Civil Code which provides:
Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of
the common carrier for their loss, destruction or deterioration.
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall
be governed by the Code of Commerce and by special laws.
The rights and obligations of respondent common carrier are thus governed by the provisions of the
Civil Code, and the COGSA,
10
which is a special law, applies suppletorily.
The pertinent provisions of the Civil Code applicable to this case are as follows:
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.
Art. 1750. 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.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade, provides:
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 the bill of lading. This declaration, if embodied in the
bill of lading shall be prima facie evidence, but shall be conclusive on the carrier.
In this case, Bill of Lading No. 0396180 stipulates:
Neither the Carrier nor the vessel shall in any event become liable for any loss of or damage to or in
connection with the transportation of Goods in an amount exceeding US$500 (which is the package or
shipping unit limitation under U.S. COGSA) per package or in the case of Goods not shipped in
packages per shipping unit or customary freight, unless the nature and value of such Goods have
been declared by the Shipper before shipment and inserted in this Bill of Lading and the Shipper
has paid additional charges on such declared value. . . .
The bill of lading
11
submitted in evidence by petitioner did not show that the shipper in Hong Kong
declared the actual value of the goods as insured by Fukuyama before shipment and that the said value
was inserted in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation in the
bill of lading that the carrier's liability shall not exceed US$500 per package applies.
Such stipulation in the bill of lading limiting respondents' liability for the loss of the subject cargoes is
allowed under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of the COGSA. Everett Steamship
Corporation v. Court of Appeals
12
held:
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code which provide:
'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.'
'Art. 1750. 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.'
Such limited-liability clause has also been consistently upheld by this court in a number of cases. Thus,
in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:
'It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and
reasonable is 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 justness and fairness of the law itself.... 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.'
The CA, therefore, did not err in holding respondents liable for damages to petitioner subject to the
US$500 per package limited- liability provision in the bill of lading.
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals in CA-G.R. CV No.
52855 promulgated on April 13, 2000 is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
103. ChuaYek Hong v. IAC 168 SCRA 472
G.R. No. 74811 September 30, 1988
CHUA YEK HONG, petitioner, vs.INTERMEDIATE APPELLATE COURT, MARIANO
GUNO, and DOMINADOR OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent
Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano Guno, et al.,"
promulgated on 3 April 1986, reversing the Trial Court and relieving private respondents (defendants
below) of any liability for damages for loss of cargo.
The basic facts are not disputed:
Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private
respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in coastwise
trade from the different ports of Oriental Mindoro to the Port of Manila.
In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel
"M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo,
however, did not reach Manila because somewhere between Cape Santiago and Calatagan, Batangas,
the vessel capsized and sank with all its cargo.
On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against private respondents (Civil Case
No. R-3205).
In their Answer, private respondents averred that even assuming that the alleged cargo was truly loaded
aboard their vessel, their liability had been extinguished by reason of the total loss of said vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows:
WHEREFORE, in view of the foregoing considerations, the court believes and so holds that the
preponderance of evidence militates in favor of the plaintiff and against the defendants by ordering the
latter, jointly and severally, to pay the plaintiff the sum of P101,227.40 representing the value of the
cargo belonging to the plaintiff which was lost while in the custody of the defendants; P65,550.00
representing miscellaneous expenses of plaintiff on said lost cargo; attorney's fees in the amount of
P5,000.00, and to pay the costs of suit. (p. 30, Rollo).
On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code of
Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private
respondents' liability, as ship owners, for the loss of the cargo is merely co-extensive with their interest
in the vessel such that a total loss thereof results in its extinction. The decretal portion of that Decision
1
reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby
REVERSED, and another one entered dismissing the complaint against defendants-appellants and
absolving them from any and all liabilities arising from the loss of 1,000 sacks of copra belonging to
plaintiff-appellee. Costs against appellee. (p. 19, Rollo).
Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of the
present recourse.
The basic issue for resolution is whether or not respondent Appellate Court erred in applying the
doctrine of limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs.
Laserna, supra.
Article 587 of the Code of Commerce provides:
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 the equipments and the freight it may
have earned during the voyage.
The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner
(Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both
the ship owner and ship agent are civilly and directly liable for the indemnities in favor of third
persons, which may arise from the conduct of the captain in the care of goods transported, as well as
for the safety of passengers transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc. vs.
Abdulhaman et al., 100 Phil. 32 [1956]).
However, under the same Article, this direct liability is moderated and limited by the ship agent's or
ship owner's right of abandonment of the vessel and earned freight. This expresses the universal
principle of limited liability under maritime law. The most fundamental effect of abandonment is the
cessation of the responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs.
Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has thus been held that by necessary
implication, the ship agent's or ship owner's liability is confined to that which he is entitled as of right
to abandon the vessel with all her equipment and the freight it may have earned during the voyage,"
and "to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship owner's or
agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results
in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The total
destruction of the vessel extinguishes maritime liens as there is no longer any res to which it can attach
(Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).
As this Court held:
If the ship owner or agent may in any way be held civilly liable at all for injury to or death of
passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability
is merely co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction. (Yangco vs. Laserna, et al., supra).
The rationale therefor has been explained as follows:
The real and hypothecary nature of the liability of the ship owner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had 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 ship building 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, so that if the ship owner or agent abandoned
the ship, equipment, and freight, his liability was extinguished. (Abueg vs. San Diego, 77 Phil. 730
[1946])
0
Without the principle of limited liability, a ship owner and investor in maritime commerce would run
the risk of being ruined by the bad faith or negligence of his captain, and the apprehension of this
would be fatal to the interest of navigation." Yangco vs. Lasema, supra).
0
As evidence of this real nature of the maritime law we have (1) the limitation of the liability of the
agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and
the embargo and detention of the vessel even in cases where the ordinary civil law would not allow
more than a personal action against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is
also just that his maritime creditor may for any reason attach the vessel itself to secure his claim
without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third
person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284 [1906]).
The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to a
passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship owner
and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is insured;
and (3) in workmen's compensation claims Abueg vs. San Diego, supra). In this case, there is nothing
in the records to show that the loss of the cargo was due to the fault of the private respondent as
shipowners, or to their concurrent negligence with the captain of the vessel.
What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any effect on the
principle of limited liability for ship owners or ship agents. As was expounded by this Court:
In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a vessel engaged
in interisland trade, is a common carrier, and that the relationship between the petitioner and the
passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable
for a breach of contract of carriage, the exclusively 'real and hypothecary nature of maritime law
operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the
instant case it does not appear that the vessel was insured. (Yangco vs. Laserila, et al., supra).
Moreover, Article 1766 of the Civil Code provides:
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall
be governed by the Code of Commerce and by special laws.
In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains no provisions regulating
liability of ship owners or agents in the event of total loss or destruction of the vessel, it is the
provisions of the Code of Commerce, more particularly Article 587, that govern in this case.
In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-extensive
with his interest in the vessel such that a total loss thereof results in its extinction (Yangco vs. Laserna,
supra), and none of the exceptions to the rule on limited liability being present, the liability of private
respondents for the loss of the cargo of copra must be deemed to have been extinguished. There is no
showing that the vessel was insured in this case.
WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.
SO ORDERED.